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Network: August 1992

Network questions and answers.
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A lack of donations has so far frustrated a professor's charitable work in Czechoslovakia. Read on to find out how to donate . . . and why most companies don't. Also, here are questions about marketing, compensation, and more. Remember to send us your advice -- we'll print the best reader responses.

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Charitable Czech computer chase
A professor from our small university is building a computer lab at a college in Czechoslovakia. We've unsuccessfully solicited donations of computer equipment for him. How can we persuade business owners to donate what we need?

John W. Warren

Vice-President of

University Relations

Shenandoah University

Winchester, Va.

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Maybe companies aren't responding because there's not much incentive for them to donate. "Tax laws work against charitable contributions," says Murray Alter, a partner at Coopers & Lybrand in New York City. A company with a $10,000 computer system that's depreciated $6,000 can deduct $4,000 if it throws the system away. But donating that system limits the company to a deduction of no more than 10% of taxable income in the year of the donation. If the company wants to take the full deduction in one year, it may be better off telling the IRS it threw the equipment away. But companies can carry forward the balance, after deducting 10%, and deduct it next year. Donating inventory is more complicated, so consult an accountant.

Several organizations act as clearinghouses for donated equipment. National Computer Exchange (800-622-6639) arranges for donations in which the recipient picks up equipment and provides for tax purposes a receipt quoting fair-market value. (The IRS has substantial penalties for inflated estimates.)

Roughly 50% to 70% of donations to the East West Education Development Foundation (617-542-1234) go to Central and Eastern European schools. Donors may ship newer models of IBMs, compatibles (no pre-DOS, please), and Macs to the foundation's Boston headquarters. (Shipping costs are tax deductible.)

Some companies sidestep the middleman and donate directly to charities. Donors should confirm any charity's 501C3 status. (See "Probing a Charity's Financials," Financial Strategies, [Article link], May 1992.) Jerry Caulder, CEO of Mycogen, a pesticides manufacturer in San Diego that gives equipment to schools, advises: "Don't just call someone up and give the equipment away. Pick an entity and establish an ongoing relationship. That way you can donate what it really needs."

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Selling Services
Your articles on selling seem to concern mainly goods. I sell a service -- trucking and warehousing -- and I'd like to expand my niche. Can you suggest any books?

Mike Baicher

Sales Director

West End Express

Irvington, N.J.

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Harvey Gainey, president of Gainey Transportation Services, in Grand Rapids, recommends Effective Marketing for Motor Carriers, published by the American Trucking Association, in Alexandria, Va. (703-838-1754), and a follow-up, Implementing the Marketing Plan ($35 each; $60 for both). Gainey thinks there's little difference between marketing a product and a service. He credits his success to pickiness. "We select our customers, not vice versa," he says. "If they want the best service they can find and are willing to pay a little more for it, we latch on to them." About 2% of customers are looking for that. Others want the best but are sensitive to price. Gainey works to prove he's worth it. The rest just want cheap service. "We tell them no thanks." That policy keeps margins at levels unheard of in the trucking business, Gainey says. And if it slows growth, the three-time Inc. 500 company hasn't noticed.

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In Search of Venture Capitalists
Where can I find a list of venture-capital firms?

A. Richard Nernberg

President

A.R. Building

Pittsburgh

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The industry bible, Pratt's Guide to Venture Capital Sources (SDC Publishing, 212-765-5311), indexes 800 venture firms by company name and industry, and includes articles on the state of the industry. Look for Pratt's at the library. (It costs $195.) The National Venture Capital Association, in Arlington, Va. (703-528-4370), publishes a list of its members -- 200 large venture firms -- that's free to members, $15 for nonmembers. Venture-capital databases can speed up your search. (See "Venture Directories on Diskette," Banking and Capital, [Article link], January 1992.)

But if you plan simply to do a mass mailing to big venture firms, there are smarter ways to get capital. Networks can match you with likely investors. The nonprofit Venture Capital Network (617-253-7163) at the Massachusetts Institute of Technology, in Cambridge, Mass., works with investors in 33 states. A $250 initiation fee keeps members active for 12 months. And the International Venture Capital Institute, in Stamford, Conn. (203-323-3143), lists 150 domestic and international venture-capital clubs. (Also see "Matchmaking by Computer," Banking and Capital, [Article link], October 1991.)

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I'll Gladly Pay You Tuesday . . .
I started my industrial-pump distributorship a year ago, and now I want to bring someone on board as a sales rep. The problem is, I can't afford to pay a salary. What can I offer, and how does my Subchapter S status limit me?

John J. Pesek

President

J&L Process

Villa Park, Ill.

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If you were looking for an investor, you'd have to offer the same stock you hold -- regular common stock -- but you could reduce the recipient's voting rights. Since you're looking for an employee, it shouldn't be complicated. Peter Faber, a partner at Kaye, Scholer, Fierman, Hays & Handler, a New York City law firm, suggests offering not stock but a compensation arrangement with minimal salary and a percentage tied to the business's success.

"You don't want to give the employee a percentage of net profit," Faber says, because then the wisdom of your expenditures becomes an issue. Tie compensation to the gross minus the cost of goods sold, or, since you're hiring a salesperson, to sales. "If you get a person with an entrepreneurial spirit, the most attractive package will be something without guarantees but with a great up side if the business does well."

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Turning Dreams into Prototypes
I've developed a unit that removes fine particles from the air. It's been field-tested, and the Environmental Protection Agency wants a product proposal. That's no use if I can't take it to market. Are there companies that will see a concept through design and manufacturing, down to the end-user?

Stuart A. Hoenig

President

Associates in Applied Research

Tucson

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You're wise to hold back: experts believe that of the quarter million patents sought annually, less than 5% prove commercially viable. Unfortunately, there's really no type of business that integrates design, prototype making, manufacturing, and marketing, says Tom Harlin, founder of Emergent Technologies, in Austin, Tex., who conducted a four-year study of invention marketing.

Get an industrial-design firm (IDF) to assess your blueprint and answer preliminary questions. Drew Santin, president of $4-million Santin Engineering, a product developer in Beverly, Mass. (see "Interacting with Bankers [Revisited]," Banking and Capital, [Article link], June 1992), warns that IDFs range from one-man garages cranking out low-quality, $1,000 prototypes to larger outfits (with in-house consul-tants and access to manufacturing and consumer markets) asking as much as $20,000. Ultimately, cost boils down to how well you know your product and its market, and savvy negotiating skills don't hurt. Contact the Industrial Design Society of America (703-759-0100) for more information.

When the design is complete, an IDF typically consults a product developer like Santin, who identifies component flaws, generates ideas for packaging and strategic marketing, and targets end-users. Then you're ready to introduce the product at a trade show or contact large companies that might license it. (For more on licensing, see Royalty Treatment, [Article link], July 1992 Network.)

The Inventing and Patenting Sourcebook (Gale Research, $79, 800-347-4253), available at research libraries, lists contacts at national, regional, and state agencies, on-line resources, and trade shows. It also offers specifics on 12,000 patent lawyers, 600 venture capitalists, and 100 big corporations that might be receptive to your patented technology. Reece Franklin's Inventor's Marketing Handbook (AAJA Publishing, $19.95, 170 pages, 714-393-8525) tells how to evaluate and name your product, file for a patent, size up the competition, assemble a press kit, and network at trade expos. Also, the Inventors Workshop International (IWI) offers consulting, referrals, seminars, and publications. IWI's annual InvenTech Expo brings together all interested parties. Call 805-484-9786 for information. n

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Reported by Michael P. Cronin, Karen E. Carney, Vera Gibbons, and Phaedra Hise.

Last updated: Aug 1, 1992




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