Tips on Rolodex funding, noncompete agreements, finding experienced people, negotiating, dealing with unethical competitors, and surviving the start-up phase
I've been getting a torrent of terrific E-mail lately--more, unfortunately, than I can handle. So I've decided to devote this month's column to answering some of it. The letters presented below were chosen for their general relevance and edited for clarity and conciseness. As for the others, I respond to as many as I can, and they often provide inspiration for my column. Rest assured that they are all read and appreciated.
Your article on finding investors [" Where the Money Is," October 1998] struck home. My question is, If I have no money to put into a business, what else might I be able to contribute as a form of personal equity to woo investors? The only idea I have is to sign a promissory note. --Dave
Dear Dave: If sweat equity isn't enough for outside investors, I doubt that a promissory note will do the trick either. You'll probably have to get some Rolodex funding first. By that, I mean you'll have to start calling people in your address book, including close friends and relatives. Any money you raise from them will be seen by outside investors as money from you. By asking for money from friends and family, you'll be taking a risk on your future relationships with them. That counts with outsiders who want to know you're investing something important besides your time.
How enforceable are noncompete agreements, and what's your opinion of them? I'm an engineer for a converting company and have thought many times about going out on my own. --An avid reader
Dear Avid: I don't believe in noncompetes, and I don't have them. They're difficult and expensive to enforce, and you shouldn't need them if you run your business properly--for example, by making sure customers are loyal to the company, not to any individuals within it.
That said, I think people should live by the contracts they sign if the contracts are legal. In the case of noncompetes, that's a fairly big "if." No court will uphold a contract that prevents a person from earning a living. A noncompete can keep someone from revealing trade secrets or from competing in a relatively small geographic area for a limited period of time, but--to be valid--the contract can't be much broader than that. Obviously, you should get an opinion about your own noncompete from a lawyer.
I'm 34 years old, and I'm struggling to get my business up and running. I feel as though I'm riding on the edge of disaster, trying to hold the business together and build it at the same time. I've made mistakes in advertising, cash management, and just about everything else. You name it, I've blown it. I think my strongest attribute at this point is my willingness to endure pain. I'm just hoping my cash flow catches up with my stupidity before it's too late. --Scott
Dear Scott: Your E-mail takes me back to the first real business I started, when I was 33 years old. I know exactly how you feel. Believe it or not, you're going through an experience that you'll look back on someday with nostalgia. It's an experience that shows what you're really made of. I hope your business doesn't fail, but if it does, you're going to learn some important lessons, and I'm sure your next business will be a success. So hang in there.
I've often heard that there's a point in every negotiation when the next person who talks loses. I'm trying to land a large account I want very badly. I've made a proposal, and my contact has passed it along to his financial people. He's supposed to come back with a counteroffer. I've called him twice, and he hasn't had the information. I know that he thinks we can provide his company with savings it can pass along to its customers. He was planning to give one of his customers the savings info at a meeting coming up shortly. Should I call him before the meeting or wait for him to make the next move? --Daniel
Dear Daniel: If I followed that rule about not talking next, there would be dead silence in many of my negotiations. I don't think you should worry about losing the negotiation as much as landing the customer--if not now, then later.
The question is, Why isn't your contact calling you back? Maybe the company doesn't want to do business with you, or maybe it just isn't ready to do business with you. Then again, maybe it's not ready to do this particular deal.
Some people are embarrassed to deliver bad news. You need to make it easy for them, or you'll never find out what the problems were. In this case your contact knows you've called twice already, and he knows about the deadline coming up. If I were you, I'd wait until the deadline passes and then leave him a voice-mail message saying, "I realize the meeting was yesterday, and I just want to let you know that we're still interested in doing business with you in the future, even if the answer on this deal is no. So please give me a call."
I'm an entertainer and a tennis professional with a sports-education business that teaches tennis through on-court musical tennis shows and specialty clinics. I want to grow the company, and I have the passion, the drive, and the long-term vision to do it, but I don't have a business background. The question is, Do I have time to become a businessman, or do I need to find people to grow the business for me? --David
Dear David: My guess is that you have many more business skills than you give yourself credit for. You have customers, don't you? You must have selling ability and marketing ability, and those are two of the most important skills a businessperson can have. OK, so you may not know accounting. That doesn't mean you can't learn the numbers, and it's the numbers you need to know, not the technicalities of accounting.
Listen, most people who want to build businesses don't do it. They make excuses. They say the time isn't right, or they don't have the right background, or whatever. My advice is to go ahead. There's only one way to acquire business experience: you have to go out there and take your lumps. The worst that can happen is that you'll get a great education for your next business.
We want to add experienced businesspeople to the staff of our small company, along the lines you suggested in " Hiring the Best" [February 1999]. We've tried local SCORE chapters, word of mouth, and some Internet searches--with no luck. What should we do now? --Donald
Dear Donald: I've received many letters like yours. I can't offer you a quick, reliable solution, but you shouldn't be discouraged. It always takes time to find good people, and they tend to come along when you least expect them.
Here's a tip: the type of people you want are probably not looking for work. They may be retired. They may be between projects. They may just be bored with what they're doing. If they're looking at all, they're networking with their friends. You should do the same. Talk to your customers, your suppliers, your bankers, other businesspeople you know. Join a networking group. Do whatever, but don't give up.
I'm only 22 years old, but I've been wanting to start a business for a long time. My passion is computers, and I've come up with a concept that has an incredible--and I do mean incredible--upside. I even have an exhaustively complete business plan. I just need about $100,000 to make it a go. My father-in-law has access to that kind of money. The problem is, I have no idea how to approach him. --Brandon
Dear Brandon: Entrepreneurs are optimistic by nature, but it's important to look at the downside risk as well as the upside potential, and let's face it: there's an inherent risk in borrowing money from in-laws. So first you need to ask yourself, What would happen if I lost all the money? If the loss would have serious personal ramifications, I'd look elsewhere. Business failure is tough enough without adding family trouble into the mix.
But if losing the money would have no effect on your in-laws' lives, if your family wouldn't be torn apart, then it should be easy to approach your father-in-law. You just lay your cards on the table. Explain the concept and the amount of money you need to get started. Tell him you think your plan will work, but if it doesn't, there's a risk he'll lose all the money he's invested. Ask him if he's interested and assure him that if he isn't, there will be no hard feelings.
It's funny. Raising start-up money from family members seems so treacherous. Yet a lot of people do it, and things often turn out fine. Just remember there are other sources of capital around if your in-laws are not an option.
What should I do about an unethical competitor? I recently opened a service business that has been very successful, but our success has drawn the attention of a large established company in town, which is taking aim at us with marketing materials that misrepresent our service and professionalism. These people have played dirty before. I'd like to think their practices would catch up with them, but that hasn't happened yet, and I'm afraid they have so much cash they can outlast the rest of us. Any advice? --Rob
Dear Rob: Yes. Don't lose your focus. Provide great service at competitive prices and develop a reputation as the class act in town. Give prospects the names of customers they can call to check you out. Above all, don't badmouth your competitor, even if it's badmouthing you. Customers will think less of you if you do.
That's an iron rule in my company. In fact, I often go out of my way to praise our best competitors. I'll say, "They're great companies. You'd be happy with them, too. Of course, I think you'll be happier with us, and here's why." If I'm asked about a competitor I consider unethical, I say only, "We don't consider them one of our competitors," or, "I don't think they can provide the type of service you want." People get the message. They're not stupid. Your competitor will have to mend its ways or it won't be around for long.
Norm Brodsky is a veteran entrepreneur whose six businesses include an Inc. 100 company and an Inc. 500 company. This column was coauthored by Bo Burlingham.