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What's keeping you up at night? Send us your most pressing start-up questions, and our start-up experts and the Inc.com editors will hunt down the answers.

Question: I've built a successful small company that is profitable and serves 19 of the top 20 food service organizations in the world, in addition to c-stores and hospitality markets. We are design pioneers and innovators of products for the risk management and safety markets. I feel we are stuck in low gear and would like to bring in an interim business builder/coach to help us reach the next level. I've looked locally and have not been impressed with anyone so far. Any thoughts on how to find "the" person to help?
-- Early, Newport Beach, Calif.

Answer: From a quick look at your website, you have indeed built a solid business with a strong -- maybe even dominant -- position in your niche. It's unusual and refreshing to find someone in your position thinking about "the next level," and you're to be commended for thinking bigger!

I'm a big fan of "working backwards" in situations like this. Put simply, what do you imagine "the next level" to look like? Not how to get there, but what it would be like once you've done it.

Some of the questions to ask yourself about yourself are:

What are you (personally) really good at today? And not so good at?
What part(s) of what you do do you enjoy, and not enjoy?
What is your personal goal for the business (e.g., bigger company, maximize asset value, pass along to family)?

There are also questions to ask yourself about the business and the opportunity environment:

What is the rest of your team really good at today? And not so good at?
How would your team need to change to accommodate the kind of growth you envision?
What does growth mean to you? Do you want to take what you've done and expand internationally? Do you want to stick within the domestic market and grow your footprint into adjacent compliance- and safety-related areas? Or is it something else that draws you?
Are you willing to take on outside capital in order to grow?

Let's kick these questions around first; then we can talk about what kind of advisor/consultant you need, and where to find them.

Question: We are starting social networking/city guide website that will allow members to perform numerous tasks. I have a business and marketing plan ready to present at anytime. I have a Web designer ready to begin on the project ASAP. There have been numerous marketing companies contacting me about this project. How would I go about getting my idea looked at by a company so I can get capital to start it?
--Antonio

Answer: You've asked an excellent, yet extremely broad question. There are entire books written about the subject of getting capital. In fact, I wrote one: OPM -- Other People's Money (2005, Warner Books). That said, I'll do my best to provide a thorough response in the space allotted.

The first decision an entrepreneur has to make is whether to self-fund or to bring in outside capital or resources - Other People's Money/Other People's Resources (OPM/OPR). From your question, it sounds as if you've decided to go the OPM/OPR route.

So how do you get your idea looked at by a company so that you can get capital to start it? There are a number of strategic issues you'll need to consider:

What type of OPM/OPR will you use?
There are three basic categories of OPM: debt; equity offerings; and "in-kind" or direct use of other people's resources. Depending on your particular circumstances, each has distinct advantages and disadvantages. Additionally, some types of OPM are more readily available than others.
When do you plan to seek OPM?
You will need to map out the key milestones for your new venture, determining how much money you will need to reach each milestone. The outcome of this exercise will be a "parsing" strategy that will enable you to time your "equity rounds" with increases in value of venture. By raising only the amount necessary to reach the next milestone, you will avoid diluting the ownership of your business by giving away too large a share of the business at the start.
How much do you need?
You will need sufficient capital at the start to cover all the expenses of setting up and operating the business until you have enough cash flow to cover expenses. You should also determine how much money you will need for costs, such as research and development, marketing, and an adequate contingency reserve. When determining the amount you will seek, make sure you look into OPR opportunities. For example, instead of looking for money to pay for building your website, you might be better off looking for people or businesses that have the skills and/or resources that they could contribute directly to your venture.

Once you've decided how much you need and when you need it, you're ready to approach potential sources of OPM/OPR. There are four key steps to bringing in capital or a co-venturer: 1) Identify the source/potential co-venturer. 2) Get an audience. 3) Get the source/co-venturer to take you seriously, listen, and consider your business proposition. 4) Convince the source to participate.

Sure, that sounds simple enough. But how do you make it happen?

First, let's look first at identifying the source. Sources of OPM include:

Friends and family
Angels (high net-worth individuals)
Co-venturers
Venture Capitalists
Financial Institutions
"Public Offerings"

Ultimately, the amount of money you seek will determine the sources from which it is available. The amount may be more than you can raise from friends and family but not large enough to interest professional investors. The amount will also dictate whether or not you can get the money from one or multiple sources.

Once you've made your list of potential investors, you will need to get a meeting scheduled to present your plans. A key consideration that will likely predict your success or failure at raising funds is the credibility of you and your team. Do you have a history of success in the relevant industry? If you do not, do you know anyone who does that would be interested in teaming with you? You will need to show potential investors that you and/or the others involved with your business have what it takes to meet your projections and goals.

Once you've identified a potential co-venturer/investor, make sure you have them sign a nondisclosure /non-use agreement before you present. I have seen far too many cases where this essential step is skipped, and a sad end comes to what could have been a hugely successful company. I advise you to consult with an IP attorney to make sure you have adequate protections for your intellectual property.

Now that the meeting day has arrived, you will need to have a business plan, including financial projections and a marketing plan. Your business plan should tell your potential investors what your business is, how it will succeed and make money, and how the investor will realize a return on his investment. The business plan will identify the market problem, proposed solution, business and revenue models, marketing strategy, technology, company profile, competition and financial data for coming years. Your business plan must tell the investor how you will meet his goals.

Your financial plan should include three to five years of pro forma financial statements [profit and loss (P/L) statement, balance sheets for each year and month of the P/L, and cash flow summary statements for each year and month of the P/L.] You'll need to include detailed assumptions that show an investor how you derived these pro forma statements. Understandably, this is a difficult exercise for a new company with no financial history. A good resource for assisting you with the development of your pro formas would be an in-house controller or CFO from the industry your business is in. This will add credibility to your projections as you approach investors.

A thorough marketing plan will show investors how you plan to meet the revenue and margin projections in your financial plan. Typically a marketing plan will cover your company's identity, marketing communications plans, sales process and personnel, and customer service. You will want to highlight any proven successes you or your marketing team have had with prior business ventures.

Once you've implemented the appropriate strategy of choosing the right kind of OPM/OPR, identifying the right source, and presenting a thorough business plan, you will be well on your way to securing the resources needed to launch your new venture.

Best of luck,
Start-Up Expert Michael A. Lechter

Question: I am starting a free weekly community newspaper in three different markets. I have no start-up capital, but have developed a thorough outline of departments, a business plan, and have generated some excitement in the communities about the papers. I'm hoping to generate enough from advertisement sales to pay for the first two issues. Since most of the business owners don't know me, most want to wait until a few issues drop to make a decision about advertising. What is the best way to fund the initial printing and production costs? I don't know anyone who has the $10,000 start up capital I would need. I am a Black woman with limited income, so-so credit, but BIG ideas. My children are married and out of my place (limited income themselves!!) and now I can finally focus on my passion. I have writen for community papers for over 20 years and understand the market. I just need a kick off, a mentor, an angel... a miracle!
--Gina

Answer: While it will take some additional effort and a willingness to share and be flexible on your part, if your business plan tells a compelling story you should be able to obtain access to all of the resources that you need for the initial printing and production of your community. Here are a few thoughts with respect to potential sources:

If you are looking for a mentor, your best bet is to contact people with similar community newspapers in other communities or specialty newspapers directed to other market segments in your communities to see if they would be interested in a joint venture. You could structure the joint venture in any number of ways depending upon your ultimate goals. For example, the other publisher could be a principal with you in a new entity that would publish your new community newspaper or, perhaps (as a licensee of the co-venturer) publish a localized version/edition of the co-venturer's newspaper for your communities. The structure of the "deal" with the existing publisher is limited only by your imagination and ability to negotiate.

Before you team up with a potential co-venturer, there is homework to be done. What is their mission? Are they altruistic and community minded, or just in it for the buck? Make sure that your goals and their goals are compatible. Look for synergies such as the ability to take advantage of economies of scale, unused capacity, and/or minimal marginal costs of expansion. Be prepared to answer the question "What's in it for them?" and to convince them of the value of your contribution to the venture. For example, your contribution to the venture might include such things as your expertise with respect to likes and interests in the particular communities, authoring content (for your community editions, and/or your co-venturer's other editions), editorial services, contacts with potential advertisers in the community, and/or paving the way to expanding their circulation with a minimum of effort on their part. The relative percentages of ownership in the new venture will depend upon the perceived value of the contributions to the venture.
Consider offering some special incentive to "charter advertisers." Examples of special incentive include a front-page "recognition listing" as a "charter advertiser" or benefactor, a deep discount on ads in subsequent issues, a right of priority on ad placement, or perhaps even a small share of future profits or an ownership position. The type of incentive that you offer is limited only by your imagination (and of course, the effects of the incentive on your cash flow).
The classical source of start-up resources for a venture such as your newspaper are your friends and family. You mentioned that your family is of "limited income." However, contributions to business do not have to be hard cash. While contributions can be in the form of a loan, or an equity investment, they can also be "in-kind," in the form of services -- sweat. The form of contribution aside, there are added responsibilities when your investors are friends or family. It is essential that you are absolutely candid about the investment and leave no room for misunderstandings. Your relationships are placed at risk. It is all too easy for the problems of the business to affect the family and the problems of the family to affect the business. It is particularly important to observe all of the formalities when dealing with friends and relatives. The best way to avoid misunderstandings is to have a comprehensive written agreement. If an investment is not properly documented -- if there is no comprehensive written agreement -- it is very easy for legitimate misunderstandings to occur. Over and above that, it is an unfortunate fact of life that memories tend to be selective -- some people tend to remember what they want to remember. The nature of the investment and the particulars of the payout to the investor need to be absolutely clear. If they are not both clear and memorialized in writing, you are asking for trouble. You should also keep in mind that, as far as the law is concerned "friends and family" are not a special category of investor. You are not relieved from complying with applicable law just because your source of OPM is a friend or relative.
Angels -- high net worth individuals looking for investments -- are another potential source of resources. The resources provided by an angel can be hard cash (either in the form of a loan or an equity investment), but can also be other things such as expertise and credibility with other potential investors and/or advertisers. The issue for most people is how to get an audience with potential angel investors. So how do you do that? The answer is through "association" and "networking." You "associate" with the right people (co-venturers, board members, advisers -- e.g. attorneys and accountants, and employees) and "network" through your individual efforts, the efforts of those with whom your business "associates." One example of association and networking is involvement in the right charitable and civic organizations. There are a number of reasons why these high net worth potential investors are called angels. One of those reasons is that they tend to get involved with charitable organizations. You too can become involved with those organizations. Charitable organizations are always looking for volunteers. If you volunteer for positions, committees and projects that get you in front of the angels, you can bring them into your circle of friends and acquaintances. Assuming that you do a good job as a volunteer, you can ultimately build sufficient credibility with them for them to consider investing in your business.
You may also want to check out the availability of grants from a governmental or philanthropic entity. For example, the Minority Business Development Agency of the Department of Commerce has a number of programs for the purpose of encouraging minority business development. (Check out www.mbda.gov/ ). Most states also have various grant programs (for California try getgrants.ca.gov ). The Chamber of Commerce of the local communities that you plan to service may also have (or be willing to create) programs to help you get started.

Best of luck,
Start-Up Expert Michael A. Lechter

Question: I have a new idea for a product, which I would like to eventually see on the market. Does a patent have to be acquired or applied for before I can do any research or development? Is there a way investigate the business potential of the idea without initially investing those kinds of funds? I have read businesses on new ideas are all about protecting the product first.
--Allan, Felton, Calif.

Allan: High-potential businesses must be able to articulate their sustainable competitive advantage. In your case, the question becomes how are you going to ensure that you sustain the advantage you are creating in your product? Since most of the value of products and companies today lie in their intellectual assets, I'll focus on protecting those asset types. There are four basic means of protecting intellectual assets:

Copyrights
Patents
Trademarks
Trade Secrets

A patent is the result of an exchange an inventor makes with the government. The inventor publicly "teaches" the invention, and government gives the inventor a limited period to exclude others from practicing that invention. This means (consult a patent attorney for specific legal council) that you need to invent something first. This typically means taking it beyond the "idea" stage. Patents are not inexpensive, as you infer. A typical U.S. patent, held for it entire life, can run $15K to $25K, or more. While the early maintenance fees on a patent are small, a significant amount of that cost is up-front in terms of attorney preparation time, application fees, etc.

One way to reduce the initial cash outlay (but not the total cost) is to apply for a provisional patent. It is essentially a 12-month placeholder for the eventual utility patent application. Think of the provisional as an option on a future patent application. It establishes your priority date (both in the U.S. and abroad) and is much less expensive to prepare and file than a full utility patent. It is not without risk, however. Consult your local patent attorney for details. One thing to keep in mind is that the utility application that follows your provisional application (if you decide it is worth filing at that point) cannot be extended beyond the scope of the provisional application. Therefore don't make your provisional scope too narrow.

Trademarks are inexpensive to obtain and "brand" your product. They need, however, a significant marketing budget to establish. Think order of magnitude (or greater) more than the cost of a patent.

Trade secrets are the cheapest, of course. But products can be re-engineered. They are only effective if you have some "secret sauce" in the production of the product or some magical process that you don't think your competitors will be able to figure out. You must keep in mind that employees may eventually leave your company, making it difficult to keep these secrets secret over the long haul, particularly if that information needs to be widely known in the company in order to produce the product.

Assuming that you want to hedge your bets now and that you believe you can make some significant progress in determining the economic value on your product/business in less than 12 months, I'd suggest looking into filing a provisional patent application after you've completed some product R&D. But consult a patent attorney before you do, so that you will understand all the trade-offs involved. Once the provisional is filed, the clocks starts.

Best of luck!
--Start-Up Expert Tim Faley

Question: I'm starting a new manufacturing company with a new market niche. I have a business plan that shows it being an extremely potentially profitable market. I have approached angel investors with the plan and they truly believe the business could be successful; however, before the invest, they want to see what the operating costs will be to support this plan. I'm having a heck of a time projecting operating costs and I'm not sure where to start. Any ideas?
--James, Chicago, Ill.

James: Your question of projecting operating costs is a good one. However, it is not the only number you or your investors need to appreciate. You need to understand the expenditures involved in getting to your operating costs. Let me explain.

When I evaluate an opportunity such as yours, I typically start with trying to understand the steady-state operating costs. If these look terrible, you can stop. If they look good, then you have to push further and try to develop a more complete cash flow curve. I've seen many projects that look good at the operating cost analysis level, but upon closer inspection, the cost and time spent getting to that point (product development, construction, ramping up of sales) creates a cash hole that future profits can never rise above.

Now specifically to your operating cost question. There are a couple of ways to hone in on this number. One is to check the financials of public companies that may look something like your proposed company. Products may be different, but if the company is small enough and their product line narrow enough, you can glean a sense of their operating margins and make some reasonable guess as to how these would be similar or different from your own. Websites like www.hoovers.com and others are good places to start.

The second method is to build up the costs from scratch. These costs should include estimates for materials, labor, utilities, waste (you're yields will not be 100%), insurance, maintenance, sales, General & Administrative, depreciation, etc. Sometimes it is easier to calculate these costs on an annual basis, and then determine it on a production unit basis by dividing it by the number of units to be produced in a year. Other times it is easier to calculate it on a per unit basis and do the opposite. Many of the items you need estimates for can oftentimes be approximated as factors of the capital investment required (maintenance, insurance, depreciation) while others may be factored from your projected sales numbers (sales costs and G&A, for example). Again, information from public companies in your industry or leveraging the knowledge of people in your network can be helpful in determining if you should use, for example, 2% or 10% of the capital costs as an estimate of annual maintenance expenses.

Lastly, a comment on depreciation. The temptation is to follow accounting rules and take this annual non-cash cost as one 20^th or one 30^th of your capital outlay. For an initial operating cost estimate, I tend to use 10% of the capital costs for the annual depreciation estimate. I've never seen a production facility go twenty or thirty years without upgrading its equipment. These upgrade expenses go above and beyond the estimated maintenance costs. A larger estimate on the depreciation costs tends to compensate for these unknown future expenses.

Best of luck!
--Start-Up Expert Tim Faley

Question: I am currently one of approximately 50 partners in an LLP. Our CEO is considering changing the business to a corporation. What are the implications for me -- both pro and con? How is it likely going to affect my compensation, investment, role in decision-making, control, and other issues? What are the tax implications for myself as well as the business?
--Dan, Bend, Oregon

Dan: The short answer is that a change really doesn't have to affect you or the company significantly. The impact of this type of change depends on a number of factors, including how much income the business makes, how payments are made to owners, how decisions are currently made, what type of agreements would be written into the new legal form of operation, and whether the new legal form would be a C-corporation or S-corporation.

To give you a more thorough answer (since there are many intricacies involved in these legal forms and I don't consider myself an expert on them), I ran your question by Tom Fafinski of BenePartum Law Group here in the Twin Cities. Tom's response was that your CEO is likely considering a switch to a C-corporation so that owners can take advantage of tax-deductible fringe benefits, like health/dental insurance and daycare, since deductibility of these types of benefits is limited in LLPs.

Depending on how much income the company makes, it is also possible that paying a corporate tax rate would be advantageous for the company as opposed to paying the personal tax rates associated with an LLP. However, a potential negative for you as an owner would be that any distributions that are made as dividends would be subject to double taxation (first at the corporate rate and then at your personal rate). In terms of authority, C-corporations are more centralized than LLPs so this could help the company with efficiencies in decision-making, but you personally could have less of a say in things if you would not be an officer in the corporation.

It is less likely that your CEO is considering a switch to an S-corporation since you have fifty partners, but you would find fewer differences if the company made this move. Here, the biggest potential benefit would come from the ability to take dividend income that is not subject to employment taxes of either 2.5% or 15% (this would benefit both you and the firm). Dividends in an S-corporation are only subject to taxes at a personal level and are not double-taxed as in a C-corporation.
--Start-Up Expert Jay Ebben, Ph.D.

Question: I am the co-owner of a brand new website business called New Gourmet 2 You, Inc. We are retailers of gourmet and specialty food and are having problems with marketing our site. We have a limited advertising budget and are looking for cheap ways to get our name out to the general public. Any ideas for us?
--Lisa, Tucson, Arizona

Lisa: This is going to depend on who your customer is, but there are some general strategies you can use. I referred your question to a friend of mine, Keith Streckenbach of Pharmacy One Source (pharmacyonesource.com if you are interested in looking him up), who has done very well with low-cost marketing campaigns.

One area in which Keith has been particularly successful is with "piggyback" marketing, and I think you would be a good candidate for this. Here's how it works:

* Find a company that sells products to people who are likely to be interested in gourmet foods.

* Set up an agreement with the company in which their customers receive one of your gourmet packages.

* Make sure that company includes your name in its advertisements and gives you the right to follow up with customers who received a free gourmet package.

Another tactic to use is publicity through free media. Come up with some sort of angle on your business that a media channel would find newsworthy. Take a look at the book "6 Steps to Free Publicity" by Marcia Yudkin for ideas (also recommended by Keith).

Question: How do I convince my portfolio clients from my former employer, who is a huge national bank, to follow me to my current community bank (1.2 billion in assets), which has most of the products and services they now enjoy?
--Ron, Rancho Cucamonga, California

Ron: As with any small business, you need to give customers a reason to buy from you. I would encourage you to find out what is important to your former clients in terms of their bank - whether it is multiple locations, types of services, a personal relationship with their lender, or something else - and determine how you can best position yourself against the larger bank.

If some of your former clients are most interested in multiple locations, spend your time trying to attract other clients. Otherwise, you will need to convince those former clients that something your community bank has outweighs the lack of multiple locations. It is likely that not all of your former clients will be interested in switching - you will have to determine which are good candidates to best utilize your sales efforts.
--Start-Up Expert Jerry Colonna

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