by: Geoff Ficke

Every business requires a structure that will withstand necessary legal and governmental scrutiny. The choice of how to organize a new enterprise should be made based on the needs and capacity of the owner(s) to maintain and detail the records, history and finances of the business.

Many simple service businesses are set up as a sole proprietorship. The lawn service I utilize is a sole proprietorship. I make out the check in the name of the person providing the service. If I do not spend over $600 per year with any sole proprietor I am not required to fill out tax form 1099 and provide the information to the Internal Revenue Service and the service provider.

The sole proprietorship is the method of structuring most entrepreneurs utilize when starting out in a small-scale commercial venture. This works if services provided are simple, of relatively small transaction size, small inventory required and there is no need for hiring and paying employees. As sales grow and the need to expand becomes apparent the entrepreneur will probably want to consider a more formidable structure.

Here is my advice when considering the business structure best suited for your business, based on present and future needs: consult an attorney. Taxes, investment vehicles, partnering, harvesting profits, incorporation options, and depreciation or only a few of the areas of concern a new business may need to consider and decide upon. A business attorney will have expertise in every area of concern and can construct the most appropriate structure for your business and personal needs. The ability to memorialize in precise legal documents the exact terms, conditions, and responsibilities of all officers and/or share holders in the company is invaluable when disagreements occur.

The importance of written agreements and contracts, signed by all parties to the transaction, cannot be overstated. No one ever enters into a business situation if they are 100% sure it will fail. There is always an air of confident expectation that the business has a good chance of success and will ultimately prosper. Unfortunately, there is always a significant chance that results will be disappointing and disagreements will occur. Make sure that all parties to a deal have a full awareness of the business structure they are participating in.

Oral contracts and agreements have been upheld in courts. However, they are much more difficult to enforce than properly written and executed business contracts. Do not leave important details to chance. Have proper documentation on hand for the protection of all parties.

Partnerships, limited partnerships, limited liability corporations, and corporations are popular vehicles for housing the legal structure of a business. Each has benefits and liabilities, depending on the needs and requirements of the business owner(s).

A partnership can be useful when several parties bring complimentary assets to a venture. One partner might have a patent that represents a commercial opportunity. Another might have investment resources they can bring to bear. Yet another potential partner has specific management experience to contribute.

I have entered into several partnerships in the past with mixed results. If there is a bit of advice I can offer to potential partners before they start it is this: have full agreement on how to harvest profit/loss when success/failure occurs. One partner wants to grow and mature a business, while another wishes to cash out after a few years and this is where the seeds of destruction are sown. Goals, as well as duties and responsibilities must be fully transparent.

The Limited Partnership can be an excellent opportunity for the entrepreneur wishing to put capital to work, but not physically committing to work on a project. Typically a General Partner will manage the business, and the Limited Partners provide the pool of money required in funding a business. Usually units of a Limited Partnership are sold in equal dollar amounts. Be sure and read the deal prospectus carefully and skeptically. In addition, be sure to familiarize yourself with the laws of the state where the business entity will be domiciled as the various states have different laws in this area.

A Limited Liability Corporation is a relatively new corporate structure that offers many of the advantages of the corporation and the benefits of individual tax rates. An attorney will be able to advise if the Limited Liability Corporation is appropriate for your particular needs.
A Corporation is the vehicle that requires the most care and maintenance, as well as providing maximum personal protection. A Corporation is ostensibly a legal entity that acts as if it were a person. Losses are incurred by the legal entity of the Corporation, not by the shareholders of the Corporation. Assets of an incorporated business are property of the Corporation, not the individual shareholders. The owners of stock in the Corporation enjoy benefits based on the number and class status of their shares.

An attorney can advise the best state in which to incorporate based on your anticipated needs. Nevada is the best state for secrecy. Delaware is excellent for transparency and resolution of disputes. Some states are more business friendly from a tax and regulation standpoint and all of these areas must be considered before filing for incorporation.

A Corporation will need to be assigned a Federal Identification Number in order to open a bank account at any financial institution in the United States. The Federal Government utilizes this number when tracking tax, financial and employment data on every incorporated business.

The Articles of Incorporation, annual meeting minutes, a board of directors, corporate fees and filings, state compliance and filing local, state and federal tax returns require a detailed, and potentially costly execution of corporate governance. In addition, stock certificates must be appropriately accounted for and capitalization requirements met and maintained.

Be realistic when choosing the business structure that will offer your fledgling enterprise the most useful features based on present and future needs. Many people file for incorporation, then realize they do not need the hassle of maintaining detailed books and records. Use the business structure that enables you to legally perform every obligation required, while allowing you to be a slave to your business opportunity, not a slave to your corporate structure.

Let’s consider the example of an entrepreneurial inventor attempting to market his newest creation: a portable hydrostatic body fat test appliance. Design is complete, testing is finished and results exceeded initial assumptions, several working prototypes have been built, UL Approval is in hand, patents filed and a business plan has been customized. The wellness aspects of the unit make it timely and potentially very lucrative if handled properly.

Most entrepreneurs would consider the status of the above-described project to be advanced and well positioned. Only one problem, a very big problem: the inventor is a brilliant engineer and conceptualist, but is phobic about standing up and presenting himself, his product and his profit opportunity. As a result, he will struggle to find investment capital, a license deal or a strategic alliance. To successfully commercialize this new wellness appliance, and any other new product opportunity, the inventor must be able to sell all aspects of the features, benefits and income generation to be derived from the novel device.

The example cited here is true. It is one of the saddest spectacles we see in the consulting world when poor basic sales skills stand between a great opportunity and success. The creator has identified a need. He has addressed the need. In the run up to presenting the product he has taken every correct step in the development process. Now, finally at the cusp of success, the inability to sell the idea is a major roadblock.

This is silly. The most important task confronting any new business or product opportunity is the ability to sell the project. The only affirmation to a products value occurs when the item is sold, and for how much. The inability to sell confirms in the eyes of buyers and investors that there is a lack of need, commitment, confidence, and passion for the product.

Selling is simply asking a person for a preferred outcome and obtaining their agreement to buy. The seller conveys a product (or service, technology, patent, trade secret, etc.) and receives consideration (money, goods, property, etc.) from the buyer. Each side in a sales transaction should receive a fair perceived value.

For many people the fear of finding themselves in a sales presentation or meeting format is truly enervating. They love their project and know it cold. However, they cannot overcome a dread of failure, rejection. They take failure personally. I have seen capable people break out in sweat, nervousness, become confused and flighty before a sales presentation that could dramatically change and improve their life. This real effect of the dread of selling themselves, and their opportunity, can be overcome and must be if entrepreneurial success is to be achieved.

Short the option of hiring professional sales talent, or sales consultants, an entrepreneur will always need to be the sales face of his product and business. He has so much to gain and so little to lose. Gaining a customer from a confident, successful sales presentation is crucial to a new enterprise. Losing a sale because of a stumbling performance can be crushing (and a lost sale is gone for good).

Here are a few points that an inexperienced entrepreneur, with limited sales skills can utilize to improve in this essential area.

Prepare, Prepare, Then Prepare Some More!

Before any sales presentation you must do everything possible to learn about the prospect, their industry, needs, competition, current pricing models, promotions and industry trends. The more knowledge you have, the more confident you will be that you have answers for probable questions and objections. This preparation can go a long way to assuaging fear of the selling process. Confidence results in a conveyance of strength, and strength is always admirable in selling.

Seek Out a Mentor!

Somewhere in your life’s experience, you have made contact with a person with experience in business at some level. Family, friend, a neighbor, a cousins brother-in-law, they are out there and closer than you think. Ask for help. I mentor at a university and consider it one of the most fulfilling parts of my busy schedule. I get back a lot more than I give, and I give a lot. Mentoring is rewarding. Contact small business incubators, SCORE and local university business schools for information on available mentor programs.

Practice, Practice, Practice!

Have you ever played a sport? The first time you swing at a golf ball I will bet that you did not hit a 300-yard linear rocket. You practiced. The more you practice the better you become at hitting a golf ball. Don’t read theoretical books on developing the golf swing, or watch training tapes. You learn, really learn, by doing something repetitively and critiquing performance results.

It is no different in achieving sales success. The more you put yourself and your product in the sales arena the more comfortable you will become. With comfort, comes confidence. Confidence is contagious and with more faith in your abilities sales will begin to happen and then cascade.

Give Value First-and Then Close!

Actually asking for the purchase-order, or an investment (the closing), is the greatest persistent hurdle many struggling sales people can not overcome. They either can’t ask for a preferred, needed outcome, or cannot properly time the attempt. Timing in sales is crucial. The buyer has many options for consideration. Why is your offering of better value, performance, durability and novelty? Confirming the value of your product for the buyer is the foundation of the sale.

Too many sales people attempt to close too quickly because they mistakenly believe that they have fully detailed the benefits of their product. Only the buyer can confirm that the product benefits have been fully explained. The best way to confirm that no stone has been left unturned is to ask questions, and then listen carefully to the answers.

With the value proposition of the product on offer fully described, and an understanding of how the item will be of value to the buyer, you are now in position to ask closing questions.

Learn to Use Assumptive Closing Questions and Statements!

Never ask a question you do not know the answer too! There should be only one answer, not open to variables. For instance, never ask a decision-maker (you are selling a weight loss product), “Why should any kid be fat today”? What is wrong here? Possibly the buyer has an overweight child. Possibly the child has a medical condition. You do not know with absolute certainty that you have not touched a raw nerve. Theoretically kids probably should not be fat but they are, and for many reasons.

Instead, ask assumptive closing questions sprinkled throughout the meeting.
“You can certainly recognize the labor saving feature we have engineered into in the new Type 54 Platform Loader, can’t you Tom”?

“You can see that the option to utilize the multi-purpose blending/grinder blade on the new rotor is a real labor saver and advance on the old Expedient model”.

“The new unit will save 4.2% in energy and maintenance expense over our past models, and anything else currently on the market. Won’t that look nice on your departments bottom line”?

You want to plant seeds that the choice has already been made based on the value proposition you have detailed for the decider. If you receive doubts, objections or negative comments, you have not constructed the value confirmation properly.

Tell to Sell!

For many inexperienced sales people, the following will be difficult, but it is the best sales training point I ever received: “people do not like to make decisions, so you make decisions for them”. Telling is selling, while asking is buying. The opportunity to control the presentation, ask qualifying questions, set up a successful close and then receive the positive commitment you seek (and need, and deserve) is greatly enhanced if you can subtly direct the buyer to sign the order. “Mike, we need to get this contract done today, so we can have inventory in time for the catalog mailing”!

Limit Risk for the Buyer!

Buying requires action. Let’s face it, it is far easier to be inactive, stick with what you have and know, than to bring in a new product. The new item requires a lot of logistic work: creating a new vendor file, issuing a new purchase order, assigning a new warehouse area, a new in-store shelf alignment, discontinuing the product you will replace, etc. In addition, there is a history with the old item, and there is no certainty your new product will perform better, or even as well. This represents risk.

It is crucial that you leave the prospective buyer feeling that there is minimal risk involved in purchasing from you, and there is a significant potential upside. Your features, benefits and novel improvements need to be detailed in an open, transparent and comprehensive presentation that leaves no doubt that you offer a real advance over competition. No flim-flam, just the facts ma’am.

Friendship Makes Sales!

When I make a cold call I have two goals: make a friend, and make a sale. We all have experienced meeting a stranger in a social situation, bumping into them later, chatting and commencing the process of building a relationship that results in creating a friend. When you make a call, whether the first or tenth meeting, your goal should be a sincere offer of yourself as a friend to the buyer. A buyer, as a friend that evolves from a commercial stranger, knowing that you are playing in a local tennis tournament next weekend, is always more likely to purchase from you than if they know nothing about you other than what they see in a meeting. Friends ask questions that reflect their real interest in another’s needs, desires and motivations. Friends are good listeners. Make each contact an opportunity to prove that you are interested in the buyer’s wellbeing, as well as their business.

Testimonials Are the Most Important Tool for New Entrepreneurs!

A testimonial is a quote for attribution that supports the feature and benefit claims related to a business or product. The acquisition of a file of testimonials is invaluable in cementing that current users of a product are strong voices for the utility of the item. I never take a prototype or product to a presentation until I have a handful of quotes from focus groups, customers that have seen the product demonstrated or product buyers. This is more valuable than any advertising.

I have every buyer physically touch and handle the testimonial file and encourage them to contact the people that have offered the positive comments. In 35 years of selling, I have only had one buyer actually reach out and make the contact (the call resulted in a glowing review). The mere fact that they have in their hands an inventory of happy product users is a powerful closing tool.

My Price is Fair and Firm!

Price is the Achilles Heel for 95% of all sales people, and 100% of the unsuccessful sales people. Do not sell price. Somebody will always sell cheaper.

20 years ago the Japanese were the low cost producers of our imports. The Korean’s then replaced the Japanese as the low cost producer in the Orient. Today the Malaysians, Indonesians and Central America all provide lower prices than Korea. The next wave of nano-priced labor will be from Vietnam, Laos and Cambodia. Somebody will always be ready, willing and able to produce for less.

Sell the quality and benefits of your product. “My price is firm and fair, this product lasts twice as long as my competitors, and this makes the price differential negligible”. Be proud to detail the reasons your product is priced as it is.

Negative Selling is Not Negative!

Every product has a negative in one area or another. These negatives are the sales points that competitors hang their hat on when seeking advantage. Negative selling is not an attack on the competition. Negative selling is when you are up-front about a perceived deficiency in your product and turn that feature into a positive.

Mercedes Benz automobiles are expensive (relative to Lexus, a direct competitor), costly to maintain, and fuel. Mercedes knows this. They have perfected a negative selling technique to turn these perceived flaws into strengths. Mercedes position is that safety and superior performance requires advanced engineering, strength in materials and thus, added weight (resulting in heavy fuel consumption) but this is overcome by a real safety advantage. “Would you want to put your family at risk in anything less than the best engineered car on the road”?

In one of my early ventures I had a direct competitor. His product was 100% natural. My product was synthetic. There is a real belief in many people that natural is always better. It is not. There are reasons that we live longer, better, healthier, more active lives than prior generations and yet consume copious amounts of products artificially enhanced with chemicals, preservatives and supplements. Nevertheless, his tout that his all-natural product was superior to mine had resonance with retailers and consumers.

Here is how I developed a negative sales strategy to overcome the synthetic vs. all-natural argument. “ Brand X is an excellent product. It is 100% natural. I looked at making a totally natural product for my Company. I decided, after a great deal of research and clinical testing, to make my product using a blend of herbs, vitamins and preservatives. The preservatives are absolutely essential in stabilizing the product, extending the shelf life of the product and safe usage by your customers. I would never compromise safety in order to obtain an edge.”

In this case, the negative selling proposition that I proposed also had the wonderful advantage of being true. My competitor was eventually withdrawn from the market because consumers experienced bacterial infection around the eyes. The FDA ordered the product removal. The preservatives I used (thus making my product synthetic) protected against microorganisms that caused infections.

I love to sell. All successful entrepreneurs either are, or must become, strong advocates for their opportunity. This advocacy is most fully confirmed by sales success. Nothing happens in any enterprise until somebody sells something. Every other facet of business depends on the crucial trigger mechanism of a buyer deciding to purchase a good or service from a seller.

Selling is fundamental to all commercial life. It is an elemental form of competition. The drive to try, to achieve, to overcome odds is inherent in all entrepreneurs. Sales success is the utmost confirmation of this desire to test oneself in the marketplace.

by: Geoff Ficke

My first sales manager, a grizzled old veteran with a no excuses allowed attitude used to tell me, “there are no lousy products, just lousy salesmen”.
As a rookie salesman I thought the comment surely a strange one. Of course, there are bad products I thought. I know a bad product when I see one.

I was wrong. The point is I can see bad products because someone is selling them. They are on the market. It takes a real salesman to sell an obviously deficient product. I have sold luxury goods, services, foodstuffs, mass-market lines, and internationally. Each category requires an adjustment based on the customer, their needs and the benefits the product can offer.

The biggest reason for wildly varying sales performance is the inability of salespeople to recognize and handle objections. Most under-performing sales people do not understand the difference between objections and conditions. An objection is a stated negative to a part, or all of the proposed benefits of a product. Objections can, and must be overcome. A condition is a hard barrier. Imminent death, bankruptcy, possibly a looming divorce, are a few, and there are very few, conditions that would probably stop any attempt at closing a sale.

A condition is a fact that is so overwhelming that it makes no sense to pursue a sales opportunity. Trying to sell a Rolex watch, or life insurance, to a late stage cancer patient is probably not going to produce a mutually beneficial outcome for either party. A bankrupt is not a great candidate for a $25,000 kitchen remodel. Nevertheless, there are very few absolute conditions that sales people will ever run into. They too often want to position objections as conditions, an excuse mechanism.

Not so with objections! Objections come at sales people endlessly and they really are little more than phony excuses that can, and must, be overcome. Price, style, size, portability, too many features, too few features, the purported list of reasons a buyer might offer as a reason not to buy is endless. The prepared, knowledgeable and confident sales person will have an answer for each objection and be able to re-direct the presentation back toward a successful closing.
Buyers make decisions to buy or not buy based on a variety of emotions, motivations and needs. Very often the stated objection to making a purchase, is 180 degrees opposite of the potential purchasers real situation. I have had buyer’s claim that their budget was exhausted for that particular quarter. No new purchase orders could be written by order of the boss.

A bit of probing usually reveals the real reason for the objection, often a competitor is overstocked with a slow turning inventory. This is easily handled, “Mike, my merchandise is turning nicely, you just do not carry enough inventory. Don’t penalize, my company, your customers and your company’s bottom line by penalizing all of us because Brand X is overstocked.”

Objections are often proposed as a testing mechanism. The test is for you, the sales person, to be able to handle the objection and prove the validity of the opportunity you are presenting. If you cannot, many experienced buyers will walk away from the product simply based on the perceived reality that you do not have the features and benefits that will compel them to change vendors.

Never assume that an objection is anything more than a speed bump to be handled with care and diligence, but not a threat to derail a confident, knowledgeable sales person from achieving their ultimate goal, the sale. If you believe, and have passion, that your product, service or opportunity needs and deserves to be available to the widest possible audience then you will succeed at overcoming objections.

An objection is simply an opportunity for you to prove the utility and importance of your product. Successful sales people welcome objections. They recognize handling objections as confirmation of their mastery of the product. The competent buyer will, likewise, treat the sales person’s ability to tackle the minefield of objections as proof that this opportunity must be seriously considered for purchase.

Conditions are rare and insurmountable. Objections are frequent and used by weak sales persons and buyers to justify not taking action. There is no excuse for any sales person to not handle every objection proffered. It is commercial suicide to lack the competence to turn every objection into a closing opportunity.

by: Geoff Ficke

H. F. S. Morgan launched his eponymous car manufacturing company in England in 1909. For a century, through world wars and great economic turbulence, Morgan Motor Company has produced some of the most stylish, desirable automobiles ever produced. Unless you are a classic car enthusiast, you probably have never heard of Morgan and more unfortunately probably never seen one of these magnificent machines on the road. They are exceedingly rare and that has gone a great distance in cementing the desirability of the mark.

Morgan’s initially were 3-wheeled cycle cars. The Company focused on these “trikes” because at that time the conventional automobile was heavily taxed. As the taxes were lowered, and mass manufacturing drove down the price of autos, Morgan evolved to a two seat roadster model.

Morgan’s, from their introduction, to the present day, feature a distinctively British sports car look. The cars sit exceptionally low to the road, sport lush, flowing fender lines, a long bonnet (hood) that is held in place with a leather belt and a curvy grille that has not significantly changed in 100 years. Most unusually, each hand built car is constructed on a wooden (ash) frame.

The grandson of H. F. S. Morgan runs the Company today. The principles that the founder based the brands pedigree upon are still the foundation of the enterprise. Each car is a slowly crafted work of artisan perfection. The introduction of updated models of Morgan’s has continued unabated. However, the advances in the product are always found under the hood, in the gear box or transmission. When you see a Morgan you know it is a Morgan, whether a 1948 or 1995 model.
This continuity of a classic body profile has created a cult following for Morgan’s. Despite many opportunities to expand production and sales, Morgan has remained steadfast to the founder’s vision and remains a bastion of old world craftsmanship. In 2007 the Company delivered 640 cars to purchasers around the world who had waited up to two years to have their pre-paid order filled. 163 highly specialized employees build Morgan’s in the Company’s original Malvern, England factory.

In honor of Morgan Motor Company’s 100th anniversary, the company introduced the special edition Morgan Aero 8. This coupe is one of the most stunning automobiles ever to operate on a roadway, at anytime, anyplace. This breathtaking design was built in limited production of 100 vehicles. The price was $160,000. The Aero 8 is an instant classic. Though more aerodynamic than other Morgan’s, the Aero 8 still exhibits the lines and spirit so obvious in all Morgan vintage vehicles.

We live in a world of mass market consumer products. This is good. The opportunity for more people to enjoy the basic fruits of invention and enjoy more fulfilling lifestyles has never been greater. However, the world is a much more beautiful place because products like the Morgan automobile are still produced to fill a niche need.

Product marketers can easily utilize the strategy employed so successfully, for so long, by Morgan to penetrate difficult product categories. The iconic styling cues that identify a vehicle as a classic Morgan, the customized coach work, the exclusivity of product distribution all contribute to creating more demand for these stunning cars than there is supply. This model is used in numerous other sectors of the consumer product universe to create desirability and exclusivity. I am surprised that more new businesses do not pursue a similar strategy.

by: Geoff Ficke

There is an old adage in the funding community: “Investing $1,000,000 to fail is expensive, investing $5,000,000 to succeed is cheap. Investors will respond to funding needs based on real world assumptions. They will be very cautious when assessing a venture’s real funding requirements.

Think of investment capital as fertilizer. If a farmer applies too little he harvests a poor crop or worse. Too much fertilizer and the harvest will likewise be disappointing. Experienced, successful farmers know their fields, their climate, crop planting patterns and their equipment. They will apply every pound of fertilizer needed to maximize their harvest. Investors handle their capital in exactly the same way.

I review many business plan submissions each year. It is amazing how many entrepreneurs can not identify, quantify or justify the investment requirements they describe in their business plans. This is an absolute eliminator in terms of creating investor enthusiasm for funding a project. This is one of the largest reasons so many plans never receive a thorough reading.

Often, the entrepreneur woefully understates the obvious funding level a new enterprise will require. The justification, stated or not, is usually that they are attempting to keep the needed investment number very low in order to create interest. They do not understand that there is no too high or too low investment number if the need for capital can be demonstrated, qualified and narrated. Investors want a crystal clear look at the use of funds and how they will earn an appropriate return on their invested funds.

Seeking a number in excess of the amount needed to successfully launch a startup is equally disastrous. Investors are not seeking to build a Taj Mahal before the first dollar of revenue is generated. Here are a few tips for building expense assumptions that will withstand withering investor scrutiny.

Salaries
Investors do not want entrepreneurs to starve. They also do not want to fund the lease on a BMW 745. Salaries should be based on sustenance requirements. Most investors I have worked with want their management teams to make enough salary to pay their bills and not place untoward strain on personal finance and marriages. Comfortable is fine, but they will not fund luxuries. Be very realistic.

Staffing
I often see plans with a list of proposed employees that resembles the list of animals on Noah’s Arc. Keep this area very lean. Use outside contractors, consultants, and part-timers to fill every post possible. Employees add high fixed costs to the budget. Salaries, benefits, training and equipment can be too heavy a burden for startup projects to absorb. Another no/no is a squad of vice-presidents. These are red flags that scream excess and will all but eliminate any possibility of receiving funding for a new business opportunity.

Facilities
Plan on renting needed office space on a short-term basis. If growth happens as planned it is always easy to find bigger premises. You do not want to obtain a larger space than initially needed to run the business in the most efficient manner. You will be using too much of your precious capital for an underutilized asset.

This may seem obvious, but you should read the business plans I do. Many entrepreneurs try to replicate the surroundings they enjoyed when they were corporate employees. Recently, I reviewed a cash flow projection that included an office expense for a daily delivery of flowers, and this was not a floral business. Investors are totally put off by expenditures such as this. Unless the office environment will be crucial to closing sales and making deals keep the space as Spartan as possible.

Do not load up the staff with numerous family members unless they perform an absolutely essential function. Just because cousin Myrtle has been laid off for several years, the focus of your startup is not to give her employment, unless you can defend her abilities and unique skills. Your judgement will be questioned unless you can sell Myrtle’s benefits.

The cash flows you project in your business plan will be in the red (burning cash) for a number of months. Your ability to secure investment money will be largely effected by showing how quickly the burn rate stops and the business starts throwing off cash. This is a point that you must be able to defend aggressively. Investors will be very dubious about your cash flow projections, and thus the level of investment you really need, not what you may think you need. The better job you do of vetting assumptions and supporting them with historical industry specific data, the more likely you are to win investors and their money for commitment to your project.

A business plan that does not show cash burn slowing, then stopping and then turning to cash flow positive during the first 12 months of operations will likely not be funded. Investors want to see quick sales traction. A plan that does not show growth quickly enough will increase capital risk and sour investors.

Whether you require $1,000,000 or $21,000,000 the business plan should be written to justify the needed funding level being sought. Too low, or too high, and seasoned investors will walk away. Think like a farmer fertilizing his fields during spring planting. He has so much land and needs to make every square foot produce the greatest possible crop yield. The farmer does not waste seeds, fertilizer, water, labor or fuel. He makes sure that the crop is tended with all due diligence and given everything needed to reward his efforts. Farming is hard work.

So is finding and securing investment commitments. There are thousands of projects on the street every day seeking investment capital, partners or license. The number of projects greatly exceeds the supply of available resources. Do not injure your opportunity by loading up your offering with excess, fat and dreams. Your pay out comes after you achieve success, and the investor has begun to see a return on their investment.

by: Geoff Ficke

Most inexperienced entrepreneurs are unaware of the many options and alternative strategies available to push a new idea or invention to market. The most common approach they seek to implement is a classic funding round. When this avenue fails, and with overwhelming frequency it does, the idea often is dropped.

Driven inventors attend invention trade fairs, venture capital conferences, small business incubators, and network at every possible opportunity in search of funding and working capital for their invention. It is commendable and a tribute to the pursuit of the American dream that such efforts are expended in this daunting effort. However, virtually all will come to a disappointing end with no funding and disappointment.

In 2005 over 500,000 new business incorporations were organized in the United States. This does not include the hundreds of thousands of sole proprietorships, partnerships, joint ventures and strategic alliances formed. From this sea on creative, new opportunities only about 1000 were funded by traditional venture capital sources. The odds are so long against a successful funding round: the wonder is that so many entrepreneurs, with so much creativity to offer, are chasing so few sources of funds.

There are other opportunities and strategies available for successfully getting a great idea to market. The bar for acquiring venture capital funding is so high, so difficult and so competitive, that it is unfortunate how many inventors quit the pursuit of their goal after receiving no traditional funding commitment. One of several alternatives to venture funding is a license campaign.

Licensing is the assignment of intellectual property or product rights to a licensee for consideration. The consideration may consist of a rights fee, royalty, options, personal service fees, minimum annual sales turnover and more. The licensee agrees to make good faith efforts to commercialize the product or intellectual property and the agreement is memorialized in a License Agreement.
There are many more companies interested in licensing a product or technology than there are conventional funding sources for startups. Having said this, there is really no difference in the requirements for success in either venue. You will just get more swings at the ball when seeking a license for your project.

Entrepreneurs read about Blackrock Capital, Harvard Capital Management or Kohlberb Kravis Roberts funding a new opportunity for $200 million dollars or more. This is exciting, motivating and for most, unrealistic. A fully fundable opportunity is a rare amalgam of huge upside, mitigated risk, unique, potentially disruptive product and REALLY strong, experienced management. Very few entrepreneurs can present such a comprehensive package.

In the world of licensing the product, upside, risk mitigation and disruption features are crucial. Management is irrelevant as the licensee presumably has the management in hand to drive the project to success. The same elements that excite venture capitalists also excite the licensee. They are keen on a strong Unique Selling Proposition detailing the niche the product will claim.
A powerful, well-structured sales model will quantify and support the sales universe available to the product or technology.

There are many successful approach strategies available when seeking to license an exciting new product. The following are some broad elements we have utilized in our consulting firm with success. Remember there is no linear, set in steel index to follow. Innovate, adapt and keep pushing and try everything necessary to get that appointment with the decision-maker.

Create a Working, Production Quality Prototype

Whether you have a new product, a service or a technology, you MUST be able to demonstrate the unique features and benefits of your offering. Some inventors have a facility to create, design and construct the necessary demonstration unit. The great majority of people do not. This is a simple hurdle to overcome.

In every city in America there are job shops, product design and development firms, engineers and software writers capable of providing professional guidance resulting in production of the prototype required.

A key by-product of this process will be the creation of 3-D, Computer Assisted Design art. This art is essential in the assembly of the product for production, in obtaining crucial and totally accurate cost of goods and filing patents.

Patent Filing – Intellectual Property Protection

Very few licensees are interested in investing significant monies in marketing a new product without the guarantee of some patent, copyright and/or trademark protection. See a Patent Attorney. Patent law is exceedingly specific and for this reason it is a legal specialty. A competent patent attorney will conduct a search and, using the results, advise the possibility of successfully receiving a utility patent (highly preferred), design patent (patent on art, easily overcome) or not being artful enough to receive any cover.

If an item has dicey patent prospects we like an alternative strategy. I have been a proponent for several of my clients of a strategy we call “patent pending forever”. Our goal is to keep a product in patent pending status for as long as possible by timing addendum to the application and art and filing these in order to keep having the filing reviewed again.

During patent pending a filing is essentially in limbo. The advantage for the inventor is that there is no publication of the details of the art, features and unique benefits of their product. Secrecy is an asset. Once a patent number is received two undesirable things happen: details of the patented product become public knowledge, and the clock starts ticking against the 20-year life of the patent.

For most entrepreneurs seeking a license, we do not push for international patent filing. International filing is very expensive and we let the licensee assume this expense.

Source of Production, Manufacturing

Depending on the product, service or technology offered for license, you MUST source production. The reason is simple: this will set you apart from the dreamer. It reflects your commitment to the opportunity. It reassures that the product can be built (we see a number of projects that are unrealistic from an assembly and economic standpoint).
Now, let’s discuss a touchy subject in the current economic climate. I love my country. America is the land of opportunity. However, I am a capitalist and the rules of capitalism are much bigger than any one individual: including you, the entrepreneur. If at all possible I prefer to assemble components, source, and manufacture here in the United States. However, it is becoming more and more difficult to be competitive here in America.

I have clients that are adamant they do not want their project assembled offshore. Do not be a Luddite. You really have two options: you can go with the flow, or you can be drowned by the overflow. In the past decade, we have not found a single project that could be produced in the United States as inexpensively as we could produce offshore, including the cost of freight, customs and duty. Not even close!

We search out four or five factories, or offshore resources, for submission of the 3-D CAD art and a Release Packet. The Release Packet contains all of the hard samples of components that will be parts of the finished product. After this is forwarded, we typically receive quotes in four to six weeks.

This quote should include all line item costs contained in the Bill of Materials for the product, plus outer packaging, costs of display (if any), shipping carton, inserts (directions for assembly, etc.), plus freight to United States port of arrival, customs, duty and inland freight to your warehousing/fulfillment point. This is a dead net cost of goods.

Use of Cost of Goods (COG)

Knowing the cost of goods is crucial! This number proves the viability of the products pricing model, confirms margin assumptions and the ability to construct an exciting sales model. If COG is too high, and there is no capacity to squeeze costs, the future license prospects for the product are not exciting. This number sets the parameters for the potential of your project and indicates to the potential licensee that they are dealing with a thoughtful, serious and skilled licensor.

Research

The licensee with an exciting opportunity on offer will want to know (not guess) everything possible about the market they are about to enter. This will include; customer demographics, size of market, growth of the category, competition, and potential licensors. Cite sources of research and assemble as a portion of the Opportunity to License document you will offer. This is the knowledge that will set you apart from run of the mill tire kickers hoping to make a deal.

Professional Endorsements

Nothing resonates with buyers more than professional endorsements. I am not necessarily talking about celebrity endorsement. They are great for certain products. A pediatrician endorsing a juvenile product, or a professional association giving a positive quote on a service, or an educator endorsing a toy, are simple examples of taking a product and brandishing it with the glow of an expert. This is invaluable and a technique we utilize regularly for our projects. Include these quotes in all collateral materials.

Test Market / Focus Group

If you only have one prototype it can be difficult to assemble a focus group or test market. What we recommend is to show the product to strangers sequentially in the field where the product would typically be used. Recently, with a single prototype of a baby stroller accessory, we spent an afternoon in Central Park in Manhattan, demonstrating the unit to mothers pushing strollers. We walked away with positive quotes for attribution from 26 of 29 mothers that used the prototype. These we included as an exhibit in our product folio.

Opportunity to License Document

With all of the above in hand, you have the data and resources to assemble an approach document. We all have heard stories about the inventor sidling up to a banker in a bar, uninvited, and successfully pitching his idea over a scotch and soda. Good Luck!

You get only one chance to make a great first impression. Do not shortcut on any aspect of the initial approach. With your patent, prototype, possible endorsement, research and costs well in hand, you are ready to assemble the written document that will detail the features and benefits of your project and quantify the opportunity.

As you are not seeking funding, and are not interested in self-marketing, a classic business plan is not required. However, you will need a written synopsis of your project, written along the lines of the business plan. We call this the Opportunity to License.

This document needs to be crisp, exciting and short, eight to 10 pages, plus exhibits. The exhibits should include; patent information, list of contributors to the project, CAD art, bill of materials, cost of goods, research data.

Selling the Opportunity

Successful completion of the above now places the opportunity in position to seriously, and professionally, approach licensee targets. Your research will have identified the obvious candidates. Networking, walking trade shows and scouring appropriate industry trade publications will increase familiarity with added possible homes for placement of the item.

The target list needs to be approached with care and diligence. Large, publicly traded Companies have different, but fairly stringent standards for accepting unsolicited submissions. I find this barrier crazy, as many great opportunities are never viewed for fear of litigation. Mid-size and small companies, the really fast growers, are more open to reviewing unsolicited submissions.

Prepare mailings with care. Be sure to know the exact name and title of the decision-maker at each targeted potential licensee. Personalize each letter and assemble the mailing in a folio. The cover letter should be on top in the right pocket with the Opportunity to License document directly behind. In the left pocket place any public relations, positive user endorsements, etc.

Follow up the mailing with a phone call in 7 to 10 business days. Now the ebb and flow of making a deal begins.

Negotiations

No two deals are alike. This not a cookie cutter, fill in the blanks process. Securing that face to face meeting with Mr. Decision-Maker is crucial, and the opportunity cannot be blown. We seek to maximize every potential income stream for our clients. These include:

Rights Fee

You must receive consideration in the form of a Rights Fee in exchange for turning over all aspects of your project to the licensee. This should be paid on signing the license documents and is not returnable. The licensee should perform all due diligence prior to signing. There are no make goods here. The size of the Rights Fee will be in direct proportion to the size of the opportunity you offer.

Royalty

This is the vast bulk of income any licensor receives from a successful product placement in a licensing deal. The variables in structuring percentages are never ending. Some royalties are built to sales growth and minimum sales promotion investment. Others are tied to achievement of tiered sales goals. Many contain buyout options that automatically kick in at certain trip points.

The term (length) of the license is crucial. The licensee will want a shorter term. The licensor will want as long as possible to maximize income.

The details of each license are unique and specific to that particular deal.

Production

Another reason we are aggressive about controlling the production sources, and knowing our costs is because this often becomes another income stream for the inventor. For instance, assume a dead net cost of goods of $1.92 per unit. Assuming we can maintain production control in negotiations, and this happens often enough, we will quote the licensor $2.00 per unit COG. The difference of $.08 (4%) goes right to the licensor when peeled from the Letter of Credit that is organized to pay for the offshore inventory production. $.08 might not seem like a lot of income per unit. However, apply this number to potentially hundreds of thousands of units per year, for seven, 10 or 15 years. Do the math!

Several points to make here.

Do not be a hog. Hog’s get slaughtered. A good deal is a deal where every party feels fairly treated! This is an area where we see too many deals go south. Every party should profit handsomely, according to their level of participation.

Second, do not attempt to license a product without undertaking the steps detailed above (or some variant of the process). I have mentioned this before. This is just an outline. There are endless variables that apply to different industries, styles and categories of offerings. Do your homework and do not attempt to take shortcuts. You will be wasting your time and resources.

Finally, do not, EVER; utilize the services of an invention mill. These firms typically advertise on late night infomercials and they prey on the inexperienced, naïve and desperate. These firms are little more than boiler rooms with a goal of separating the weak from their cash. Check with your Better Business Bureau and State Attorney General for history on one of these houses. Even then proceed with caution.

Licensing is a real, viable option for inventors having opportunities that offer fresh, definable features and benefits. The Unique Selling Proposition contained in these inventions may have real value to licensees, while venture capital may not be able to overcome one or more shortcomings inherent in the project. Funding sources are often seeking a different deal parameter. Licensees are simply seeking the opportunity to bring in house a product, service or invention that compliments their array of assets. This makes licensing the best choice for entrepreneurs hobbled in one area or another: they simply have a great product to offer.

by: Geoff Ficke

The ability to succeed as an entrepreneur is one of the most rewarding experiences any person can enjoy. Seeing your product on a store shelf is an amazing rush. Knowing that your service is benefiting the public is incredibly rewarding. Beyond the obvious monetary rewards, the knowledge that you have achieved a level of success most people can not even attempt is a significant gift.

So what does an inventor, or creator, do to advance their opportunity if they do not have classic entrepreneurial makeup. In my consulting business I see an inordinate number of great product placement opportunities and an inversely small number of real potentially successful entrepreneurs. It is very tough for anyone to step out of their comfort zone and wear a completely new shirt. This is one reason there are so few entrepreneurs and so many dreamers. Nevertheless, there are opportunities and strategies that can overcome personal entrepreneurial limitations.

There are numerous, sound, legitimate, capable consulting firms that can handle business opportunities for inventors. They are able to perform a basket of services that most individuals would find overwhelming. A good consultant saves the client time, money and mistakes. Make sure you interview more than one firm, ask for current and past references, request samples of products the firm has developed.

Do not use an invention submission service, ever! This is always a road to heartbreak hotel.

An effective consultant should be able to offer a strategy for execution before the inventor lays out a single dollar. The firm should be able to perform, or have access to professionals that can perform every aspect of the projects needed elements. If the inventor has certain abilities, (ability to assemble financials, engineering, production of 3D CAD art, etc.) ask to have them backed out of the fee structure, as these can be self-performed. The comprehensive consultant can act as a projects managing consultant (handles every aspect of development, sales, marketing, production, negotiations, etc.). Often, the inventor needs only needs specific tasks performed, in areas where they are inexperienced or challenged. This often includes sales and marketing.

A consultant should be able to clearly advise best strategies, opportunities and limitations the project might face. They should also be realistic in assessing potential for success. Be wary of unbounded enthusiasm and guarantees of success.

Many inventors approach me and state unequivocally that they need a specific amount of money. I have never, never seen an inventor who could justify the amount of money they THINK they need. They are guessing and have not conducted any of the required research essential for quantifying the projects real financial needs.

Many inventors believe they need to raise vast sums of money to complete development, produce and sell their product. Rarely is this so. It is far more likely that a prototype can be sold or licensed, a strategic alliance entered, or a partnership formed, seriously mitigating the need for significant investment dollars. These are a few of the strategies a competent consultant might consider.

As an inventor of a potentially exciting commercial opportunity, it is important that you remain flexible and realistic. Inflated expectations kill more deals than almost any other factor. When I meet an inventor that has been working on their project for many years, I become wary, very wary. This is always a sign that they are deal averse, can not let go, want too much control, or have unrealistic financial hopes.

While consultants are available, there are other potential sources of help for the timid inventor. Many universities now have entrepreneurial study programs and offer mentoring. The Service Corp of Retired Executives is a well-known resource for small business assistance. Also, many local/regional governments have organized small business development programs, recognizing that small business is the principal creator of job growth and tax revenues.

Just because you do not have an entrepreneurial makeup does not eliminate your creative commercial opportunity from potential market success. Investment monies will not be chasing a rookie, limited ability entrepreneur. However, money and opportunity always is interested in exciting new technologies, products and services. Get the necessary experienced help to drive the project and enjoy the significant potential income stream that can be generated when a product is successfully sold, licensed or partnered.

by: Geoff Ficke

I recently met a bank executive who had been laid off in a corporate downsizing. The man was understandably concerned about his and his family’s future. He lived in an area that was experiencing exceptionally stark economic circumstances. This gentleman had received a modest severance package, and this slim lifeline was of crucial importance to his immediate future.

My marketing consulting firm had been asked by the former bank executive to review a business opportunity he was considering investing in. He was not sure whether he should plunge into an entrepreneurial venture or hoard the severance and use it for basic family needs for as long as it would last. This is a tough call and one we see people forced to make all too often in these tough times.

Of course, we diligently attempt to advise clients to take the most realistic, prudent path when considering such a lifestyle change. In this case, this family man had never been self-employed. Could he absorb the constant buffeting that entrepreneurs experience as they attempt to start a new business life in a completely new industry? After a good deal of consultation, probing and presenting a mountain of “devil’s advocate” questions, the client was able to impress us with his determination.

The business he was considering purchasing was a small manufacturer of a Home and Garden yard accessory line of products. The products were mundane. There was plenty of competition. He enjoyed no particular Unique Selling Proposition (USP) or pricing advantage.

We could only identify one USP that was not being addressed by any of his Home and Garden category competitors. This was Affinity Licensing.

We called several local major universities and discussed obtaining the rights to use their school colors, mascot icons and logo’s on the yard product. After viewing the products and negotiating use of their trademarks, each university agreed to allow us the license for specific product adornment. We paid a small usage fee, agreed on a percentage royalty and obtained rights for using their art on specific products that we would manufacture, market and sell.

The new business owner, the former bank executive, now had a chance to differentiate his product from his competitors. He made a small inventory utilizing each University license to dress and enhance his Home and Garden accessories. Initially, he sold product to local landscapers, florists and garden shops. The products flew off shelves.

Licensed product, also known as Affinity product, always enjoys superior loyalty from proud alumni, sport team fans and supporters. Affinity products also enjoy premium retail pricing over unmarked competitive products.

Our client, the newly minted entrepreneur, is already expanding production. He is negotiating with the NCAA and major sports leagues for more licenses. His licensed Home and Garden products have been accepted to participate in a national trade show heavily attended by big box retail buyers.

This client simply did not lose his head in the face of great turbulence in his life. He made all of the right moves and was prudent in seeking guidance, support and performing due diligence before he jumped into the fire. The future looks bright at present. Income opportunities abound and by creating a USP for his product he separated his new business from more entrenched, larger competitors.

by: Geoff Ficke

One of the bigger mistakes we see new entrepreneurs and startup businesses make is to try to hit a home run right out of the box. My experience in the days when I played baseball, and in building a solid business foundation, is that when purposely trying to hit home runs, you usually strike out. The homer usually comes when you just try to make contact with the ball and put it in play.

My consumer product marketing consulting firm counsels dozens of entrepreneurs every year. Very often, these admirable, ambitious go-getters are driven to be as big as they can be, as fast as they can be. Our advice to lay a strong foundation, test market, re-test market, change marketing strategies to insure feasibility and secure a rock solid “proof of product life’ often goes for naught. These hard chargers want to see product in big box retailers as quickly as possible. There are many other, more sensible ways, to reach lofty goals.

One of the most mundane sales channels that can be taken to achieve success is the basic shopping mall kiosk. The kiosk provides a wonderful platform to introduce consumers to new products and services. These open air stores are inexpensive to rent, easily merchandised and located right in the main traffic aisles of the mall. Customers do not have to walk into stores to shop, they simply must pass kiosk’s to move through the venue. The opportunity to have product demonstrated for a constant flow of shoppers makes the kiosk a wonderfully logical tool to test new concepts.

They are not considered sexy. But kiosks are efficient and can be exceedingly profitable. They also are among the best possible routes to take to leverage a product from local, to regional, to national, and possibly international sales distribution. The 1971 experience of a Miami optometrist provides an enlightening example of the potential that kiosk sales can provide to new businesses.

Samuel Ziff was a practicing optometrist in 1971. He felt that the sunglass product category, which was very strong in his South Florida based practice, was not sufficiently well merchandised in the available retailers at that time. Dr. Ziff decided to highlight the category, add a wider selection, styling and services and specialize in sunglass sales only. He chose a Miami mall and rented one of the first mall kiosks to offer his wares. The kiosk was branded “the Sunglass Hut”.

Sales immediately exploded and exceeded expectations. Dr. Ziff and his family decided to expand and began to open additional kiosks around the state of Florida. Gradually, as sales and profits grew, Sunglass Hut began moving from kiosk locations to fixed store spaces.

In 1986, after opening the 100th location, the Ziff family sold 75% of the Sunglass Hut business to a private investment group. The investment partner enabled the Sunglass Hut to aggressively expand across the United States, Europe and ultimately into the Indian and duty free store marketplace.

In 2001, Sunglass Hut was sold to the Italian luxury eye frame design house Luxottica. The new owners had recently purchased Cincinnati based Lens Crafters, the largest chain of eyeglass retailers in the world. The combination of Luxottica, Sunglass Hut and Lens Crafters created a fashion and retail powerhouse that dominates the world of fashion frames.

Today the retail colossus that includes Sunglass Hut sells frames from Chanel, Ralph Lauren, Burberry, Oakley, Ray Ban, Gucci, Bulgari and many other haute couture houses. Sunglass Hut is one of the most recognizable brands in the retail universe. This classic American success story emanated from a single mall shopping cart. Samuel Ziff started small, proved his sales model, reinvested in expansion and built the first fashion retailer devoted solely to the sale of sunglasses. This is a very viable marketing strategy that many other entrepreneurs should consider.

by: Geoff Ficke

The first commercially successful mouthwash product is still one of the most famous: Listerine. First marketed in the late 19th century as a surgical antiseptic, the product enjoyed modest success. Listerine was created by Dr. Joseph Lawrence and Jordan Lambert and named in honor of Dr. Joseph Lister, the pioneer of antiseptic surgery.

In distilled form, Listerine was sold in the early years of the 20th century as a floor cleaner and gonorrhea treatment. However, it was only in the 1920’s that the product started to sell in great volume, and only because of a clever marketing strategy. The Listerine advertising group invented a faux medical term to describe bad breath. At that time, bad breath was considered the norm, not a malodorous condition to be treated with over the counter medicinal-like products.

The term, “chronic halitosis”, while sounding clinical, was an early example of verbally engineering a malady that could be cured only by using an existing product, in this case Listerine. The Listerine marketing team created halitosis as a way to apply a cure through gargling Listerine. The Company’s early advertising campaign depicted forlorn young lovers put off by the “bad breath” of their partners. Sales soared.

This is a classic case of creating a novel, fresh Unique Selling Proposition for an existing consumer product. Listerine had enjoyed modest success when sold as a surgical antiseptic, floor polish and venereal disease treatment. However, by creating and driving a negative connotation for bad breath, and labeling the new hygiene “chronic halitosis”, a new superstar product was born.

Use of mouthwash in oral hygiene is simply reflexive in modern industrial societies. We do not think twice about finishing our daily personal care ritual by gargling with a rinse. And yet, less than 100 years ago, no one gave oral halitosis a second thought. Like many advances, until the product was marketed to meet the need, the consumer did not know that Listerine was essential.