WSJ.com: Small Business

Small Business

Cash Only, Please

Thu, 19 Aug 2010 16:07:07 EDT

By Emily Maltby Regulars at Peter Luger Inc., the iconic steakhouse in Brooklyn, N.Y., know the drill. If they're not toting cash or the restaurant's own credit card, they'll have to run to the nearest cash machine when it's time to pay the bill.The steakhouse, like a number of small businesses, has long refused to take credit because of high interchange or "swipe" fees paid to card companies and banks. That practice isn't going to change anytime soon, the restaurant says, despite some relief offered by last month's financial reform package.Until fees disappear completely, "we are standing by it," says Amy Rubenstein, one of the operators of the restaurant her father purchased in 1950. "We have high food costs, so we could give the customer the benefits on the plate rather than in credit cards."A number of cash-only businesses say financial reform doesn't go far enough to encourage them to accept plastic, and business owners who do take credit and debit cards complain that transaction fees—which are usually around 1% to 3% of a purchase, but vary widely—will likely remain too high for the reform to make a significant impact on their bottom line. Under the new law, merchants can now legally set $10 minimums on credit-card purchases, and offer discounts and promotions for cash purchases—a shift from strict rules preventing those practices in the past. In the next eight months, the Federal Reserve also says it will issue new standards for swipe fees for debit cards to make sure they are "reasonable and proportional" to the costs of the transaction. Credit-card fees, however, would remain unregulated. Trade groups such as the National Association of Convenience Stores, which had prominently lobbied for fee relief, are disappointed that the legislation won't impact credit-card fees. The group estimates that the convenience store industry paid $7.4 billion in credit-card fees in 2009 while making $4.8 billion in profits. "The battle is far from over," says Jeff Lenard, a spokesman for the group. Alysa Rose, president and chief executive of Rejuvenation Inc., a lighting and housewares business in Portland, Ore., discovered late last year that she was paying more than $500,000—roughly 2.5% of her net sales—in swipe fees. "We realized we were paying as much in these fees as we are for health-care benefits," she says.Ms. Rose isn't convinced the legislative changes will affect her business. She doesn't accept debit cards and 89% of her sales are from credit cards, she says. Setting a minimum won't ease the burden because the average order is already much higher than $10, Ms. Rose adds. Instead, she's trying other options to get customers to pay in cash, such as displaying signs at registers saying 2% of all cash sales will be donated to Haiti earthquake relief. Ms. Rose is also considering implementing electronic-check systems, which would processes payments linked to the customer's bank account, for the online business. Some businesses that operate on a cash-only basis say the legislation does make plastic a bit more tempting. Jim Kokotas, owner of another Brooklyn-based eatery, Tom's Restaurant Inc., says the $10 minimum is a step in the right direction, especially since many of his food and beverage items fall below that threshhold. Still, he's unlikely to make the switch because of the paperwork involved and because customers, who often wait in queues that wrap around the block, might have to wait too long for cards to process."We're busy, and if we have people waiting for transactions, it would create a logjam," says Mr. Kokotas, who offers an ATM on the premises for cash-less customers. Write to Emily Maltby at emily.maltby@wsj.com

SBA's 7(a) Program in Limbo

Thu, 05 Aug 2010 11:55:50 EDT

By Ruth Simon Pinnacle Bank made just two loans through the Small Business Administration in 2007 and 2008. So far this year, the Orange City, Fla., bank's total is nine, to borrowers from an auto dealer to a computer-equipment wholesaler to a bakery."The SBA program is the only way we can continue to lend right now," says David Bridgeman, president of Pinnacle, which has two branches and assets of $213 million, including about 600 loans. For many of the $3.4 million in loans Pinnacle made through the SBA in 2010, the bank has to set aside capital against only the 10% slice that isn't guaranteed by the U.S. government.Across the nation, many banks have turned to the SBA's so-called 7(a) program to help unfreeze credit. Nearly 3,000 lenders have made 7(a) loans in the current fiscal year, up 21% from 2008. The 7(a) program, the SBA's largest loan program, is hardly a cure for the credit shortage affecting many borrowers. The agency is involved in less than 10% of all small-business loans, and some banks won't participate because of red tape. Lenders must follow the SBA's rules when making 7(a) loans, which can be used for working capital, fixed assets and other business expenses. The term of the loan can be as long as 25 years. Last year, Congress temporarily sweetened the 7(a) program by increasing the SBA guarantee to 90% of any given loan from as little as 75% previously. Lawmakers waived fees costing borrowers as much as 3.5% of the loan amount, as well as costs charged in a separate SBA program providing structured financing for fixed assets. But the sweetened program is now in limbo, drawing complaints from borrowers and lenders, as lawmakers haggle over broader small-business legislation. Since the SBA program was sweetened, more than 1,300 lenders that hadn't made an SBA loan since at least 2007 have barreled in, while existing participants like Pinnacle have been pushing more borrowers through the agency's pipeline to take advantage of better terms.About $16.2 billion in 7(a) loans have been made under the more-attractive terms. By May, the program's loan volume had returned to before-the-credit-crunch levels. "The extra 15% of guarantee helped us stretch a little more," says Vito Pantilione, president of Parke Bank, a unit of Parke Bancorp Inc. The five-branch Sewell, N.J., bank recently used the program to make loans to two printing companies looking to adapt to electronic publishing.Since hiring a local banker with expertise in SBA loans in August 2009, Bank of Holland, a Holland, Mich., unit of Lake Michigan Financial Corp., has made more than two dozen loans through the federal agency."We do not have capital issues, but it's very difficult to find businesses that … have not lost money and suffered some weakening of their balance sheet," says Garth Deur, Bank of Holland's president.Sweetened government backing makes it easier for banks to stomach the risks of lending to local businesses that hit bumps when the economy slowed or to finance entrepreneurs with a solid business plan but little track record, Mr. Deur says.The SBA has repurchased 0.2% of the loans made with the higher guarantees. That rate, which reflects defaults, is in line with the program's historical levels. Congress extended the higher guarantees three times, but the latest round of funding was exhausted in May, causing a decline in SBA loan volume. A provision included in the small-business job-creation bill now before the Senate would resuscitate the 90% guarantee through Dec. 31 and allow the SBA to increase the maximum loan amount to $5 million from $2 million. The bill already has passed the House, but the Senate is bogged down by disputes over the broader bill."On the financing side we're stuck" until Congress acts, says Mark DeHaan, who is hoping to get a 7(a) loan for $1.6 million from the Bank of Holland to pay construction and start-up costs for an educational child-care center in Grand Rapids, Mich.Pinnacle largely avoided the worst sins committed by banks throughout in Florida, such as lending on raw land being purchased for housing developments. Still, Pinnacle had a net loss of $1.8 million in 2009 as falling real-estate values and rising unemployment forced the bank to boost loan-loss reserves. Pinnacle has shed about a third of its troubled loans but is looking for additional capital.Mr. Bridgeman, who started his banking career 28 years ago as a teller in Kentucky and took over as Pinnacle's president in 2003, says the bank decided to rev up its SBA lending after a tough regulatory exam forced it to halt most traditional lending in order to conserve capital.Pinnacle made 11 SBA loans for $3 million in 2009. The bank has generated fee income by selling some of its SBA loans on the secondary market.Car dealer J. Brendan Hurley was rejected by four other banks before Pinnacle won approval in March for a $560,000 loan through the SBA to help him add Dodge cars to his Chrysler franchise in DeLand, Fla. Since getting the loan, Mr. Hurley has hired six new employees, and service volume has doubled, he says."The fact that I had a commitment from Pinnacle sealed the deal to get the Dodge franchise," he adds. Mr. Hurley is seeking a second SBA loan from Pinnacle that would allow him to build a new facility designed to meet Chrysler Group LLC's requirements. Write to Ruth Simon at ruth.simon@wsj.com

Leave the Business to the Kids? Maybe Not

Thu, 10 Jun 2010 10:42:32 EDT

By John Warrillow When Brian France took over as the CEO of Nascar, he completed a feat that may be even more difficult than winning the Daytona 500: he successfully stewarded his granddaddy's business into the third generation of family ownership.According to McKinsey & Co., less than one in three family businesses survive to their third generation of family ownership. Why do so many family business transitions fail? Successful business owners often give their kids everything they didn't have growing up. They sacrifice so that kids can attend better schools, with tutoring and extracurricular activities. Then they pay for a postgraduate degree in law or business. All of that coddling may do wonders for the kids' polish but often seems to do nothing to sharpen their kids' entrepreneurial instincts. The drive to succeed comes from wanting something you don't have. Many business owners have done a great job giving their kids everything—except the hunger they need to scratch and claw their way to building a successful business. Gordon Parker, an accountant with Parker Simone in Mississauga, Ontario, has seen the ugly side of family businesses. Often, "the kids come into the business with a sense of entitlement," which alienates and discourages staff, he says. Even worse, the children of owners can lack leadership skills. "In many ways, they are insecure because they have never achieved anything on their own," he says.Brain surgeons spend four years in an undergraduate program and another four years at medical school. You'd think that after eight years of postsecondary education, they'd be ready to treat patients, but even after all of that schooling, they still spend five more years as a resident and a few years as a fellow before they perform their first lobotomy. No matter how smart, experience trumps education.Most family business patriarchs or matriarchs have spent years becoming the technical expert in their field. Their kids are 20 or 30 years behind them on the learning curve. Despite having the right genes and attending the best colleges, they have still experienced only a fraction of what the business owner has in a 30-year career. I asked Gordon what his advice was for parents considering passing their business on to their kids. His answer was emphatic: Don't do it. "Sell your business, and if you still want to give your kids something, give them money in your estate to start a business. Not only will your kids be better adjusted; you won't sabotage your business."Ironically, I think the best way to pass your business to your children— and to make sure they appreciate it—is to run your business as though you're planning to sell it to a third party. That way you will have the full catalog of options available to you: pass a valuable business to your kids, sell to management, sell to a third party or install a CEO.To turn your company into one you can sell, focus on the products and services you can teach your employees to deliver. And make sure you document your own unique procedures. For example, there is a small hamburger shop two hours north of Toronto called Webers. Paul Weber Sr. started his business in 1963 to be a respite for tired and hungry city dwellers escaping to summer retreats. On a typical Saturday this summer, Webers will serve 800 hamburgers an hour—yet Mr. Weber himself will be nowhere in sight. In 1989, he passed the business to his son Paul Junior, who's been able to successfully continue the eatery in part because of systems his father created. The Weber family has documented every part of the business, right down to the way they entertain customers when lines stretch clear across the parking lot. And they've got the ordering process down to a science, sending fresh-faced runners to the back of the line to ring up customers' burger orders and make change, instead of waiting for people to get inside. This simple ordering procedure is not ground-breaking on its own. But when you combine it with hundreds of other small systems delivered consistently, you build a valuable business that can run without Paul Weber Sr. himself flipping the patties anymore.

Tight Budgets Limit States' Small-Business Programs

Thu, 01 Jul 2010 13:00:35 EDT

By Emily Maltby A number of states have stepped in to help cash-strapped entrepreneurs get access to credit, primarily by providing incentives to banks to lend more. But there's a problem: The programs have been so popular that many states—already operating under tight or depleted budgets—may have trouble meeting the demand. In Colorado, interest from banks and their small business customers is "growing exponentially," says Cris White, executive director and chief executive of the Colorado Housing and Finance Authority, which administers the state's $2.5 million Credit Reserve program. "There is a likelihood that a year from now we could be out of money."Through the program, Colorado banks can tap the state funds to bolster their reserves, making it less risky to extend credit to business owners. Nine lenders have jumped on board and have collectively drawn $300,000 from the program, allowing them to lend more than $3.6 million. Mr. White says about 250 small businesses will benefit by the time funds are exhausted.Other states have programs with similar goals. Delaware allows business owners to use state funds to defer existing lines of credit for two years. In New York, business owners can get business counseling and then resubmit their previously rejected loan application to the "Credit for Success: Second Look" program. If it fits the underwriting standards, a group of local banks will pitch in to finance the loan.In Maryland and New Jersey, the states partially guarantee eligible small-business loans so that the bank won't take the full loss if the borrower defaults.The plight of the states' small-business programs was cited in a May report by the Congressional Oversight Panel, a watchdog for government bailout funds, which said states are severely constrained by tight budgets. Declines in state spending for the fiscal 2009 and fiscal 2010 calendars were "unprecedented," according to a June report of state budgets from the National Governor's Association and the National Association of State Budget Officers. Forty states decreased expenditures for the 2010 year, which the report attributes to declining tax revenues—about 12% since 2008—from fewer sales and lower personal and corporate incomes. Although the economy grew in late 2009, state finances can take months and sometimes years to recover, which may be particularly true in this recession given the high unemployment levels. For the fiscal 2011 year, state budgets may increase slightly, according to the report, totaling $635.3 billion. But that figure is still 7.6% below the $687.3 billion spent in fiscal 2008. Christian Johansson, secretary of the Maryland Department of Business and Economic Development, which oversees the state's loan-guarantee program, has urged Congress to allocate federal dollars toward the states' efforts. One bill under consideration—which has passed in the House but not yet the Senate—would send $2 billion in federal funds to states that want to launch credit access programs like the one Maryland runs."If Maryland had a share of the $2 billion—if we could have $40 million—that money would have a tremendous impact on small businesses," says Mr. Johansson. Meanwhile, Mr. White is trying to demonstrate the success of Colorado's program so that the state will place a high priority on renewing its funds."The more capital that's flowing out, the more jobs are created—and that means more taxes," he says. Write to Emily Maltby at emily.maltby@wsj.com

Obama Urges Passage of Small-Business Bill

Tue, 17 Aug 2010 17:34:37 EDT

By Jared A. Favole President Barack Obama Tuesday urged Senate Republicans to stop what he said is the obstruction of legislation that would allow small businesses to tap capital and boost jobs growth.Speaking in Seattle as part of a cross-continental tour to raise money for the Democratic party, Mr. Obama said he wants the legislation to be the first matter of business for the Senate to consider when it returns from a summer recess in September.He criticized Republicans for not allowing a vote on the measure. Republicans, however, have criticized Senate Democrats for not allowing a vote on individual amendments to the legislation."Unfortunately a partisan minority in the Senate has been standing in the away of giving our small-business people a simple up or down vote on this bill," Mr. Obama said. He added, "Everyday this obstruction goes on, is another day small businesses somewhere in the country can't get a loan or can't get the tax cuts it needs to grow and hire."The legislation includes a series of measures that would provide small businesses with access to capital.Senate Republican Leader Mitch McConnell of Kentucky said Democrats have set the bill aside six times to work on other legislation. "So from the beginning this bill clearly wasn't a priority to them--until they realized that they didn't have anything to talk about when they go home in August," Mr. McConnell said in a statement.He also said the Senate would take the bill up again in September. Write to Jared A. Favole at jared.favole@dowjones.com

Baidu's CEO Pursues Growth

Sun, 08 Aug 2010 20:10:24 EDT

By Owen Fletcher Google Inc.'s pullback in China earlier this year left homegrown giant Baidu Inc. more dominant than ever as China's biggest search engine. Now, Robin Li, Baidu's chief executive, must figure out new ways to grow amid immense investor expectations. Mr. Li, a soft-spoken 41-year-old engineer who co-founded Baidu in 2000 after a stint in Silicon Valley, dismisses concerns that growth in Baidu's core China search business will dry up anytime soon. With more than two-thirds of China's population not yet Internet users, Mr. Li says search advertising will remain Baidu's main growth driver for five to 15 years. But he is looking to develop other revenue streams, including overseas and from ads on content pages created by Baidu or partners. He would also consider buying foreign Internet companies. Baidu has played down its benefit from Google's moving its China search service to Hong Kong, but Baidu's share of revenue in China's search-advertising market grew six percentage points in the second quarter to 70%, according to Beijing-based research firm Analysys International. Google's share fell by about the same amount—to 24%. Mr. Li shared his strategy at Baidu's Beijing headquarters.Excerpts: WSJ: How would you describe China's search market right now? Mr. Li: The search [advertising] market in China is still relatively small—smaller than the U.S., smaller than Japan, smaller than the U.K., but it is growing very fast. WSJ: How did Google moving its China search service to Hong Kong in March open up new opportunities in China's search market? Mr. Li: [By drawing attention to the search business] it helped educate the advertisers that search is one of the best ways for them to reach their targeted consumers. So in this sense I think it did benefit us a little bit, but because we already have such a large share, it's not obvious how much traffic we gained over this. WSJ: Beyond search, what will be your middle- and long-term revenue drivers? Mr. Li: The search market is in its early stage. We would be able to enjoy many years of high growth for our core search business. And secondly, I think there are two types of growth drivers in the mid to long term. The first one is what we call the landing-page opportunity. We started to build our own content and integrate those kinds of content on our search result pages. Those kinds of content pages, we call it a landing page. We can also place sponsored links on the landing page.One example is the Qiyi venture, [an online video-streaming site]. When people search this type of content on Baidu, we can direct users to Qiyi. And Qiyi itself can show advertising there, and make money. There are many examples in other sectors that we would like to do going forward. So I think five years down the road, we should have a meaningful portion of our revenue from the landing-page strategy. And the third [future revenue driver] is, of course, international. WSJ: What are your plans for international expansion? Mr. Li: We already started our international expansion. We launched our Japanese search [site] a couple years ago. But we realize that international expansion is a long-term investment. I think that five to 10 years down the road we'll have a very meaningful part of our revenue come from international expansion. Right now, we only have one other language, which is Japanese, but moving forward we would launch a lot more other languages. WSJ: Any plans to expand to the U.S.? Mr. Li: In the U.S. you already have very strong search-engine players—Google, Microsoft, etc. I think we would be cautious entering that market. So for our international expansion we will probably avoid the U.S. for the time being. WSJ: How do China's censorship regulations affect Baidu operations? Mr. Li: We are used to it. We are based in China. We obviously need to abide by the Chinese law. What we found out is that our users are not very interested in those [censored terms]. They look for entertainment-oriented information, they look for business-oriented information, lifestyle, all kinds of things. WSJ: Does it raise costs for Baidu? Mr. Li: It does. It's a fairly comprehensive system that we need to ensure that we take necessary steps against some illegal content. WSJ: Are you looking at M&A or investment opportunities overseas? Mr. Li: We'll be open-minded. I think there are quite a few interesting companies outside of China. They provide good, innovative services. They're doing well, they're making money, but they're not in China. By partnering with those kinds of companies we can help promote and expand their businesses in China. WSJ: So you're looking for partnerships rather than acquisitions? Mr. Li: Not necessarily. Anything's possible. We'll deal with this on a case-by-case basis. WSJ: Are you concerned that growth might not keep up with investor expectations? Mr. Li: I'm not concerned. I don't run the company based on investor expectations. I run the company based on our own vision of the future of Internet computing and the future of the Chinese market. I'm the founder of the company. I will stay here for a very long time. I don't need to please those short-term investors for next quarter. I need to make sure the company is healthy and strong and will continue to grow for many, many years. Write to Owen Fletcher at Owen.Fletcher@wsj.com

Partners Can Help, or Hinder

Thu, 02 Sep 2010 10:40:25 EDT

By Sarah E. Needleman For start-ups lacking sufficient cash to survive, a partner with deep pockets may be a more attainable lifeline than traditional sources of funding. Venture-capital investments in seed and early-stage companies totaled just $6.31 billion in 2009, compared with $6.96 billion in 2008, according to PricewaterhouseCoopers LLP and the National Venture Capital Association. Meanwhile, only half of small businesses that tried to borrow money last year got all or most of what they needed, concludes a study from the National Federation of Independent Business, a Washington trade group. And with the unemployment rate at nearly 10%, family and friends may be just as unlikely a resource. But small-business experts warn that a partner's offering of quick cash can create new headaches for entrepreneurs."The much bigger issue is control," says Nancy F. Koehn, a professor of entrepreneurship at Harvard Business School. Potential partners are sometimes entrepreneurs themselves, looking for the next opportunity; other times, they're professionals who have always wanted to start a business, but lack strong ideas. Most partners "want not just a claim on future earnings. They also want a whole lot of say," Ms. Koehn says, adding that it's common for partners to try to tinker with a company's products, fire employees and make other changes upon joining a start-up. Cynthia Typaldos found herself in this situation in late 2008 after failing to secure investors for her technology start-up, Kachingle. Desperate for enough money to file a patent application on time for the company's micropayment technology, she took on a business partner she hardly knew because he was willing to immediately invest $40,000. But the arrangement quickly proved problematic. "There was a lot of dissention," says Ms. Typaldos, who parted ways with the partner after just a few months, though he maintains equity in her business.On the bright side, the partner's brief contribution made it possible for her to afford the patent she needed. Kachingle's first product launched in February and the company now has more than 1,000 clients. Another potential downside to recruiting a business partner for financial support is if he or she lacks relevant expertise. Carl Restivo and Mildred Restivo, co-founders of Innovative Toys Inc., enlisted three partners in 2009 to join their Westford, Mass., business, which makes plush dolls called ScareMeNots.The husband-and-wife team had accumulated roughly $30,000 in revenues from selling their merchandise to 30 retailers and wanted to broaden their market reach, but they were broke."We had maxed out our home-equity line," says Mr. Restivo, adding that none of the couple's friends and relatives were able to lend them money, and they were advised against seeking a bank loan, angel or venture capital.The Restivos' three partners invested a combined $135,000 in their company. They say one partner lacked technology skills essential to running their operation, though it wasn't a major stumbling block. "He needed some hand-holding to get up to speed," says Mr. Restivo.Today, ScareMeNots are for sale in roughly 100 stores nationwide and the company's earnings have tripled since a year ago.Without the partners involvement, "we wouldn't have a company," says Mr. Restivo. Write to Sarah E. Needleman at sarah.needleman@wsj.com

House Readies Capital-Gains Bill

Wed, 09 Jun 2010 16:31:17 EDT

By Martin Vaughan WASHINGTON—A bill to eliminate capital-gains taxes on many investments in small businesses could come to the House floor as early as Thursday. The bill builds off of proposals from President Barack Obama aimed at giving small businesses more access to capital so they can hire workers and invest. It also would establish a $30 billion lending facility managed by the Treasury Department. House lawmakers are readying the bill for a vote as early as Thursday, House Majority Leader Steny Hoyer (D., Md.) said. A companion Senate bill is also on a fast-track and could be considered this month. Under current law, investors may exclude 75% of their gains from capital-gains taxes for small business stock purchased before Jan. 1, 2011, and held for five years. The House bill would increase that exclusion to 100% and extend it for an additional year, through the end of 2011. It also would ease IRS penalties on small businesses for failing to disclose their use of certain employee-benefit plans the IRS has branded tax shelters. Those provisions are being combined with the small-business lending bill for a total cost of around $7 billion, House Ways and Means Committee Chairman Sander Levin (D., Mich.) said Wednesday. That cost will be offset so the bill will not worsen the deficit. The bill will raise money through an Obama proposal to curb the use of grantor-retained annuity trusts by the wealthy to avoid estate taxes. It would also shut down the use of a cellulosic biofuels tax credit by the paper industry. Write to Martin Vaughan at martin.vaughan@dowjones.com

Enterprise Dispatch

Wed, 25 Aug 2010 23:32:11 EDT

A small-business lending initiative launched as part of last year's stimulus bill is set to expire next month. America's Recovery Capital program, or the ARC loan program, aimed to help 10,000 small firms survive short-term financial hardship by granting them interest-free loans of up to $35,000 to help pay down existing debt. But as of Aug. 20, the Small Business Administration had approved 8,281 ARC loans totaling about $268 million. At its current rate, the agency looks to fall short of its goal by more than 1,000 businesses.The SBA says the 10,000 figure was "approximate" and that the program has been effective."Almost 8,300 businesses got breathing room in the recession to keep their doors open and employees working," said Jonathan Swain, a spokesman for the SBA.One reason for the shortfall may be that some banks, which issue and administer the SBA-guaranteed loans, don't find them to be very profitable, given their small amounts and heavy paperwork burden. Also, businesses must fit strict criteria to be eligible, showing past profitability and a plan for future success. Google Inc. Chief Executive Eric Schmidt, BlackBerry maker Research in Motion Ltd. and a venture firm have joined forces to mount a challenge to Apple Inc.'s business model of selling applications to iPhone users. Jud Bowman, chief executive of venture-backed app-store operator PocketGear Inc., said TomorrowVentures (an early-stage investment firm in which Mr. Schmidt is involved), the BlackBerry Partners Fund and Trident Capital have provided PocketGear with $15 million in funding.An attempt to reach TomorrowVentures wasn't immediately successful.PocketGear, a 40-employee company that works out of a former Lucky Strike cigarette factory in Durham, N.C., operates an app storefront that detects a user's phone model, and presents them with the free and paid apps available for that phone, Mr. Bowman said. PocketGear has about 140,000 apps on offer. "With Apple, it's a closed system," Mr. Bowman said. "It's all for one device. But open is powerful."Mr. Bowman added that "Android is important to us," referring to Google's own mobile-phone operating system.PocketGear also builds and operates app stores for top phone makers and wireless carriers, including Verizon Wireless, Samsung Electronics Co., AT&T Inc., Microsoft Corp., Research in Motion and T-Mobile International AG, company materials said.

Entrepreneurs Cater to Campaigns

Thu, 02 Sep 2010 11:34:44 EDT

By Sarah E. Needleman As campaign season ramps up, entrepreneurs that make products designed to help office-seekers and incumbents win votes are bracing for business.Small companies such as Broadnet LLC and VictoryStore.com Inc. have introduced new marketing tools for political candidates in recent years, with users ranging from U.S. senators to small-town sheriffs. More politicians are expected to tap them in coming months as November elections approach for Senate, House and gubernatorial seats.VictoryStore.com began selling life-size cardboard cut-outs in 2009 in the shape of politicians and people representative of various voter demographics—aiming for its campaign memorabilia to differ from the rectangular signs that have long blanketed public roads and suburban lawns. "If you want to talk to blue-collar voters, you buy the construction-guy cut-out," says Steve Grubbs, chief executive and co-founder.The 90-employee, Davenport, Iowa, company also offers signs in the shape of symbols commonly associated with certain political offices, such as stars for county sheriffs, as well as the traditional boxy signs.Prices range from $89 for a single 72-inch-tall cut-out sign to $11,000 for 1,000 45-inch tall cut-outs. Mr. Grubbs, a former Iowa Republican party chairman, says he expects the signs to boost his 11-year-old business's annual revenue to $20 million this year, up from about $11 million in 2009."We're seeing a lot of growth," he says. Still, Mr. Grubbs notes that sales normally slow down during years when major elections aren't held, as was the case last year. A few weeks before winning a primary race last month for Iowa State Senate, Republican Roby Smith, who co-owns a small business in Bettendorf, Iowa, placed life-size VictoryStore.com signs in his image along highly trafficked roads with low speed limits."Everybody's seen a yard sign but this was totally unique," he says. "It was an integral piece of the campaign." Bruce I. Newman, professor of marketing at DePaul University in Chicago, says candidates and elected officials are adopting creative marketing strategies to "cut through the clutter" and "stand out from the competition." But modern marketing tools alone aren't enough for politicians to win votes, says Christopher Malone, associate professor of political science at Pace University in New York."New, savvy innovations have not replaced the old-fashioned ways," he says, such as door-to-door campaigning.Rather than door-to-door, Broadnet's technology lets politicians go phone-to-phone, hosting live town-hall teleconferences in which participants can ask questions, complete surveys and leave voicemail messages that the company transcribes afterward."They control their message when they're using this," says Steve Patterson, Broadnet's chief executive. "It's their voice so it's hard for things to be taken out of context."Mr. Patterson says he expects Broadnet, which has 40 employees, to generate more than $15 million in revenue this year, more than double its revenue in 2008.Over the past 12 months, the Highlands Ranch, Colo., company, has run about 10,000 live telephone town-hall events for politicians nationwide, compared with just 100 in 2006, he says.It charges between $2,000 for calls to 10,000 voters and $175,000 for up to two million calls.About 16% of recipients stay on the line for an average of 12 to 15 minutes, though the calls typically last for an hour, says Mr. Patterson.Democrat Michael Bennet of Colorado used Broadnet's platform about five times prior to winning a primary election last month for a seat in the U.S. Senate, says Kevin Ingham, deputy director of research for RBI Strategies & Research Inc., a Denver consulting firm that counts the politician as a client.President Barack Obama spoke live for about 10 minutes during one of those calls in support of Mr. Bennet, who had never before entered a political race, says Mr. Ingham. Mr. Bennet, former Superintendent of Denver Public Schools, is one of about five RBI clients out of 20 who have so far used Broadnet's technology, he adds. The telephone town-hall events "played a significant role" in Mr. Bennet's win, says Mr. Ingham. "It gave him the ability to introduce himself to hundreds of thousands of voters and gave his campaign a boost in terms of being able to get volunteers and donors."Office-seekers and elected officials can also prerecord names to address voters personally in a recording just before the town-hall telephone events go live. "Most politicians will say they can get through 70% of the most common first and last names in 30 minutes," says Mr. Patterson, who co-founded Broadnet with two partners in 2004 after getting laid off from a large telecommunications company. "We're talking about 400 or 500 combinations of names." Write to Sarah E. Needleman at sarah.needleman@wsj.com

Steering Grads to Start-Ups

Tue, 08 Jun 2010 23:07:29 EDT

By Shira Ovide Like many other college students, 19-year-old Ian Jennings Jablonowski treks to rock concerts and plays videogames. But the East Brunswick, N.J., native also designed his first website when he was 13. Now, he's part of a new project trying to reshape New York's job market. He's among a dozen local students working this summer through HackNY, a new organization that hopes to steer more graduates in computer science, math and related fields to New York City technology start-ups instead of the well-worn path to Wall Street.Many of the best New York college graduates in quantitative fields are often scooped up by big companies such as IBM and Google, and increasingly by Wall Street firms relying on computerized trading and statistics. "In New York, there's such a large pipe that's been constructed for 100 years to take people and bring them into finance," said Chris Wiggins, a HackNY organizer and a professor in Columbia University's department of applied physics and applied mathematics. Mr. Wiggins said some of his students who take finance jobs haven't been happy with their decision.According to a 2009 survey of students at Columbia's Fu Foundation School of Engineering and Applied Science, for example, the largest group of students—36.8%—went to work in financial services. An estimated 17% went to work in software-related jobs. Mr. Jennings Jablonowski is spending his summer crunching data and prepping new potential features for bit.ly, a nine-person company in Manhattan's Meatpacking District that allows people to easily swap and track Web links on Twitter and other social-networking sites. Another HackNY fellow, Princeton University student Christopher Triolo, 20, said he is re-evaluating his chosen career in finance just a week into his internship with database firm 10gen. "This really opened my eyes," he said about the HackNY program. (The word "hack" traditionally refers to a reconfigured computer program, and it now serves as a catch-all tech term for clever problem-solving using limited resources.)The program started this winter after a meeting among Mr. Wiggins, New York University professor Evan Korth and Hilary Mason, a former academic and chief scientist at bit.ly. The three had separately been trying to encourage more links between academia and New York technology companies, and came up with the idea of a 24-hour student "hacking" competition, paired with a summer fellowship.The 12 HackNY fellows were chosen—naturally, with the help of a computer program Ms. Mason wrote—from more than 100 applicants. The companies pay the students $400 a week, and they are offered free housing in an NYU dorm thanks to the New York chapter of the Internet Society, a nonprofit, and a $37,500 grant from the Kauffman Foundation, a nonprofit that encourages entrepreneurship.The fellows will also spend at least one evening a week participating in workshops to learn technical skills, and practical skills such as how to land investors for their own tech companies. "I don't want to just feed my kids to the wolves," said Mr. Korth, referring to the HackNY students.This is the first real-world work experience for many of the HackNY fellows, and at small start-ups they can jump in and do meaningful work right away. Interns also have a chance to try out the famously loose culture of technology companies. Plasma TVs, Xbox videogame consoles and wardrobes of T-shirts and jeans are work staples. "Compared to a traditional job, start-up life is different," said Tal Safran, 26, a HackNY fellow who just finished his junior year as an NYU computer-science major. Start-ups say the HackNY program gives them a better shot at hiring top students when they graduate. Financial firms pay newly minted graduates compensation deep into the six figures, compared with pay of $80,000 and up, excluding ownership stakes, for start-up jobs, according to professors and technology executives. These people say Wall Street careers have lost some of their luster after the recent financial downturn, but for many students the financial sector is more stable and more socially acceptable than telling their parents they're going to couch surf for six months and write computer code.The participating companies also say they want to contribute to the long-term vitality of the New York tech community, which has always played second fiddle to California's Silicon Valley as a tech hub."New York is really a hotbed for start-ups, but students don't necessarily know that just yet," said Michael Galpert, a co-founder of Aviary, a 17-person Web company where Mr. Safran is interning. The HackNY program, Mr. Galpert said, shows students "that they don't have to go on the West Coast to spend their summer working with cool start-ups. They can do that in New York." Write to Shira Ovide at shira.ovide@wsj.com

Back to School for Boss? Tax Breaks Can Help

Thu, 05 Aug 2010 08:21:07 EDT

By Barbara Weltman If you're a small-business owner seeking more training for yourself or for your staff, now is the time to enroll for the fall term. Fortunately, Uncle Sam helps defray the costs of education by providing important tax breaks.Successful business owners often pursue higher education or take courses in sales, software or other specialized learning programs. What's the best way to write-off the cost of education that the owner pays for personally? It depends on several factors, including the type of education, the entity used by the business (such as a sole proprietorship or C corporation) and the owner's personal tax picture. Here's a short list. Tax credits for higher education. Tax credits are better than deductions because they reduce taxes dollar for dollar. There are two personal tax credits that may be used for higher education:—American Opportunity credit of up to $2,500 per year for the first four years of higher education. This credit is set to run only through 2010 and thereafter revert to the Hope credit of up to $1,800.—Lifetime Learning credit of up to $2,000 per year for any higher education, including graduate courses.The credits are subject to income limitations that may bar an owner from claiming them. If so, then costs may be deductible, without regard to income. Deductions for education. Work-related education, such as continuing education required to maintain professional licenses, is a deductible expense. This includes not only tuition and fees, but also books and travel. For example, if an owner attends a business seminar at a resort location, it may be possible to deduct not only attendance fees but also travel, room and board. The key to claiming a deduction for all of these costs is showing the course is work-related and the purpose of the travel is to take the course and not for some personal reason; substantiation of attendance at the course is required.Self-employed individuals can deduct these costs from business income even though they pay for them personally because the costs are viewed as business expenses (sole proprietors take the write-off directly on Schedule C of Form 1040; partners can subtract the expense on Schedule E of Form 1040). Owners with C or S corporations, however, are employees who can only deduct these costs as unreimbursed employee business expenses on Schedule A of their Form 1040; only amounts in excess of 2% of adjusted gross income actually become deductible.Not every type of course or learning is tax deductible. The courses must maintain or improve job skills and not qualify the owner for a new trade or business. For example, costs of a law degree are not deductible because they qualify the student for a new trade or business, even if the student never intends to practice. Whether the cost of obtaining an MBA is deductible depends on the situation.Businesses that pay for education for their staff can usually deduct all of their costs as ordinary and necessary business expenses. From the employee's perspective, some or all of this fringe benefit may be tax free.—Up to $5,250 is tax free if the education is provided under the company's written education assistance plan, whether or not the courses are job-related. Because of certain rules, owners and their families generally can't take advantage of this tax break for themselves.—All of the assistance is treated as a tax-free working condition fringe benefit if the courses are job-related. This break can be used by corporate owner-employees to obtain tax-free education paid by their corporations (although S corporation shareholders should work with their tax advisors to avoid problems that could threaten S status).Businesses can set certain standards that employees must attain in order to receive this education assistance. For example, an employee may be required to pay upfront for a course and will receive reimbursement only if he or she receives a grade of B or better.Owners who want to learn more about how to run a business need not spend a fortune on formal education. There are many free resources, and training can be done online at the owner's convenience, including:—IRS offers virtual small business tax workshops at www.tax.gov/virtualworkshop and other online educational and learning products at www.irs.gov/businesses/small/content/0,,id=146331,00.html. —SCORE offers online workshops at www.score.org/online_workshops.html. —Small Business Administration (SBA)'s Training Network at www.sba.gov/training/index.html provides self-paced courses that run about 30 minutes each.—Also find low-cost programs for business owners through Small Business Development Centers (www.sba.gov/aboutsba/sbaprograms/sbdc/sbdclocator/SBDC_LOCATOR.html) and local community colleges. —-Find more about deducting the costs of education in IRS Publication 970, Tax Benefits for Education, at www.irs.gov/pub/irs-pdf/p970.pdf.

Mass. Race Highlights Health Care

Mon, 14 Jun 2010 10:17:57 EDT

By Naftali Bendavid BOSTON—High health-care costs are so sensitive in Massachusetts that when two health-care company executives suggested consumers could help by watching their weight, the Boston Herald ran a sarcastic page-one headline: "It's Your Fault, Fatso."That sensitivity has been at the forefront in a three-way race for governor, with incumbent Deval Patrick struggling to save his seat, and may offer a glimpse of how the health-care overhaul will play out on the national stage in elections to come.Four years after Massachusetts passed a health-care overhaul similar to the recently enacted national plan, small businesses are seeing their premiums rise 22% this year. People in the state have some of the highest premiums in the nation.Mr. Patrick, a Democrat, is being challenged by Charlie Baker, a Republican and former health-insurance executive, and Tim Cahill, an independent sharply critical of the state and federal health-care overhauls.But the political lessons of Massachusetts's experience aren't clear-cut. Polls show a majority in the state still support the 2006 overhaul, which has brought health coverage to more than 97% of the population, suggesting that once a system of near-universal health coverage takes root, it is hard to dislodge. Mr. Patrick reinvigorated his campaign by calling for even tighter government control of the health-care system. Earlier this year, he capped rate increases by insurance companies, to the cheers of many small businesses. He paints himself as making hard choices. "Everybody just points to somebody else: It's not us, it's the hospitals; it's not us, it's the specialists, or the doctors' practices, or the consumers," Mr. Patrick said in an interview. "Nobody's taking responsibility for it."The strains in Massachusetts suggest costs could also dog the national overhaul. "I think the Massachusetts plan covered a bunch of people and completely whiffed on the cost question," said Mr. Baker, who supported the state's overhaul but said Mr. Patrick has managed it poorly. Mr. Cahill, the state treasurer and a former Democrat, has roiled the gubernatorial race by blasting both the state and federal health-care overhauls. While he doesn't support a full repeal of the state plan, Mr. Cahill says the state can't afford to support the health coverage many people are getting.Mr. Patrick, in an energetic speech to the recent state Democratic convention, warned that his rivals would gut the state's health plan.A Suffolk University/7 News poll in late May found that Mr. Patrick had the support of 42% of voters, Mr. Baker 29% and Mr. Cahill 14%. Mr. Patrick's lead can't be attributed solely to the health issue. The governor has hit his stride with a stretch of vigorous campaigning recently, while Mr. Cahill came under withering attack in ads aired by the Republican Governors Association. But the health issue is clearly playing a prominent role in the campaign.Like the national overhaul, Massachusetts's plan features an exchange where consumers and small businesses can comparison-shop for coverage. Consumers who can't pay the whole tab themselves are eligible for subsidies. If a company has more than 10 employees, it must offer coverage or face a $295-a-year tax for each worker.In Massachusetts, a few prestigious hospitals enjoy considerable bargaining power. State and federal authorities are looking into allegations that Partners HealthCare System Inc., which operates Massachusetts General Hospital and Brigham and Women's Hospital, engaged in anti-competitive behavior. Insurers generally swallow the high prices and pass them on to people buying coverage.Partners has said it must compete for business in the state's highly competitive health care marketplace, and that it is working to help bring down costs in the state—for example, by contributing $40 million to help offset small business premiums. There is fairly broad agreement on how to fix the system. A state commission —including representatives of government, insurers, doctors and hospitals—recommended in July that Massachusetts adopt a "global payment" system. Health professionals would be paid for caring for patients over a certain period of time, rather than compensated for each test or treatment. Implementing the fixes, though, will take years. There is an election for governor in November. Mr. Patrick's answer is to cap insurance-company rate increases at 7.7% this year. Insurers say that is draconian, and have sued to reverse Mr. Patrick's action. The state recently reached a settlement with one of the insurers in the suit, Neighborhood Health Plan, allowing it to raise premiums by 7.7% for individuals and small businesses. Many prognosticators saw victory for Mr. Baker, the Republican, after a rough first term for Mr. Patrick. After his election in 2006—which made him the second African-American to be elected governor of any state, after former Virginia Gov. L. Douglas Wilder—Mr. Patrick spent about $10,000 on curtains for his office suite, garnering weeks of bad press, then was plunged into a recession and had to make tough budget cuts. Now the race is tighter. Mr. Patrick's insurance-company bashing does double duty as bashing of the Republican candidate. Mr. Baker is a former chief executive of Harvard Pilgrim Health Care, one of the state's largest insurers.Instead of caps on insurance-rate increases, Mr. Baker says the answer to rising premiums is transparency on cost and medical results—so people can see, for example, whether the high-priced Boston hospitals really outperform their lower-priced brethren.That has proved a hard sell. Mr. Baker may be getting some of the blame for the problem of costs but, unlike the governor, no credit for trying to fix it. "Obviously, anybody who is part of the health-care community and the health-insurance industry owns some piece of all the things that people don't like about how the system works," Mr. Baker said in an interview. "But I would argue that the governor owns that, too."The candidates also disagree about the state's finances. Like other states, Massachusetts is struggling with budget shortfalls. Supporters of the state health-care overhaul say its effect on the budget is almost a wash, because new subsidies are canceled out by lower costs to support hospitals' charity care. It is hard to tell, because Medicaid costs in the state are going up sharply but might have done so even without an overhaul.Mr. Cahill says the overhaul "has created a huge hole in our budget." He added, "If the federal plan is the Massachusetts plan writ large, then we should stop it, because we're going to be in the same place four or five years down the road."Mr. Patrick called such claims "a bit of a slander," adding, "Our cost issues here are not because of health-care reform. Health-care reform has added about 1% to the state budget." Write to Naftali Bendavid at naftali.bendavid@wsj.com

This Tweet Requires Pen and Ink

Tue, 03 Aug 2010 20:36:16 EDT

By Katherine Rosman Chandra Greer, the owner of a Chicago stationery store called Greer, recently had an idea, "The easiest ways to keep in touch are on Facebook and Twitter. I was thinking, 'Why don't I have a card with that information?'" So she designed small cards that in punctilious script instruct people to write in their Twitter, LinkedIn and Facebook contacts. "I love that ironic merger of the formal and the nouveau," she says. A pack of 10 cards costs $7.Stationery makers have had a consumer insight: People who email a lot, tweet a lot, and update Facebook a lot, like to write a lot. The paper-peddlers are trying to woo these big stationery buyers, fans of the cute impulse purchase. "Paper Tweet" pads (note pads with room for messages of 140 characters) are the latest offering from Knock Knock, a Los Angeles-based company that sells specialty paper products. This June, Moleskine, the upscale notebook brand, successfully launched a jacket for Amazon's Kindle, which makes it appear as if e-readers are perusing their handwritten notes and doodles. "We live in a continuum between the analog and digital worlds," says Moleskine America Inc. president Marco Beghin.After Cara Stevens, 34 years old, started a new job this year and had to cut back her time spent chatting with friends on social-media networks, her "BiF" (best Internet friend) mailed to her a "Paper Tweet" pad designed to let users correspond the old-fashioned way. Sort of.Last week, Ms. Stevens, an accountant in Memphis wrote on the pad, "Paper tweets combine my 2 favorite things: office supplies & wasting time. Win-win!" (82 characters). She then photographed the "tweet" on her iPhone and uploaded it to Twitter. "Here at work, we're not supposed to spend all our time online," she says. Alicia Peck recently designed stationery for her company BellaMuse that connect the realms of pads and iPads. One card reads, "I'm all a'twitter." Another says, "You make me LOL." A third: "I want to have text with you." "Social media has added a whole new dimension, and a whole new language, to written communication," Ms. Peck says. It also adds some attitude to greeting cards. "You have this new technology, and you're completely taking it back to an old way of connecting," says Eddie Misicka, a Web artist who created cards that say, "I saw it on Facebook, it must be true." He makes similar ones that invoke Twitter and YouTube. "It's a cool way to bridge the gap."Anything that encourages people to mail letters may make the U.S. Postal Service :-) . It says 177 billion pieces of mail were sent last year, down 17% from 213 billion in 2006. Write to Katherine Rosman at katherine.rosman@wsj.com

Apple Looks to Small Businesses

Thu, 22 Jul 2010 11:47:18 EDT

By Ian Sherr Apple Inc. is boosting efforts to appeal to a new type of customer: small businesses. The consumer electronics giant responsible for the iPhone is seeking to hire engineers in as many as a dozen U.S. retail stores to put together Apple-based computer systems for small businesses, according to recent job postings on Apple's website. The employees would implement computer systems for clients and are expected to be proficient in networking hardware and server platforms."Thousands of businesses run on Apple products," the posting reads. "Many more would like to, and that's where you come in." The new positions mark the latest development in Apple's evolving strategy, which has historically focused on the consumer market and niche businesses, like design and media firms. Now, Apple wants to leverage its popular iPhone and iPad devices, using their appeal as a selling point for more expensive products, including its line of Macintosh computers and servers. (See related article on C10.)Apple is targeting smaller, local businesses that it can reach through its chain of nearly 300 retail stores, according to two Apple employees familiar with the company's strategy. The new jobs could pay up to $80,000 a year, one of them said.Each of Apple's stores already has at least one salesman dedicated to managing accounts with local businesses, the employees said. Recently, Apple also began recruiting from within the sales staff to create a specialized team that negotiates leasing and pricing terms for business customers, one of the people said. Some stores have seen revenue more than double after implementing the program, the person added. An Apple spokeswoman declined to comment. The focus on smaller businesses is unlikely to push Apple into further competition with big computer makers like Hewlett-Packard Co. and Dell Inc., though it could upset its network of authorized consultants, who often serve local businesses. Targeting smaller businesses could prove lucrative. North American businesses with fewer than 1,000 employees are expected to spend $310.8 billion on information technology this year, according to industry tracker Gartner. The figure is seen rising roughly 6% to $328.3 billion next year. Capturing part of those sales could boost Apple's annual revenue, which is expected to grow 46% to $62.6 billion this year, according to consensus estimates from Thomson Reuters. "They're well aware of the opportunities in business," said Gleacher & Co. analyst Brian Marshall. "This is something they're focusing on even if they're not talking about it publicly."Apple has had mixed results trying to crack the business market in the past. Its computers are generally more expensive than comparable PCs, prompting cost-conscious companies to look for cheaper alternatives.Apple's retail staff historically hasn't provided the hand-holding and on-site support that many businesses expect. Instead, it has cultivated a network of authorized consultants, many of whose customers are referrals from Apple's retail employees. "Almost half of our new customers come from the Apple Store," said Allen Cleaton, owner of Virginia-based MacPro Solutions. He said local businesses often come to him because Apple's staff generally don't have the level of technical expertise needed to set up and maintain a businesses computer network.However, Mr. Cleaton said that if Apple starts providing a higher level of service, it could threaten local companies like his own. The Apple employees familiar with the new position said it was a natural progression of recent initiatives. Apple maintains a team at its headquarters to handle big companies and government agencies, but it has increasingly handed responsibility for small and mid-sized business accounts to its retail stores, the people said. Apple has put an incentive program in place to manage the growth of these new business initiatives, they said, assigning new business sales staff based on revenue targets for each store. Apple also has designed specialized conference rooms in its newer retail stores, like those in Minneapolis and Shanghai, which are specifically meant for meetings between sales staff and high-level business executives. Write to Ian Sherr at ian.sherr@dowjones.com

Restitching a Firm That Nearly Unraveled

Tue, 03 Aug 2010 09:46:09 EDT

By Julie Jargon J.W. Hulme Co., a Minnesota luggage maker that almost came unraveled during the credit crisis, is on the mend.A private-equity firm provided the 105-year-old company with a cash infusion of $550,000. The upscale leather and canvas bags made in its St. Paul, Minn., factory caught the eye of New York fashion designer Steven Alan. And Hulme bags will be carried in more than 30 Barneys New York stores around the country by mid-August. Like many American businesses, J.W. Hulme borrowed heavily when times were good. But when the recession hit, the company and its owners ran into problems, detailed last year in a page one Wall Street Journal article. J.W. Hulme's troubles escalated when co-owners Chuck Bidwell and Jennifer Guarino ramped up production before they could secure additional loans to pay for it. When their bank funding dried up and they couldn't print their catalogs on time, they lost sales. The missed revenue then led them to fall behind in paying their suppliers and investors. Mr. Bidwell sold his house and a collection of vintage Buicks. Ms. Guarino struggled to pay her mortgage and fielded weekly phone calls from a frustrated relative who had loaned the company money.Things started looking up for J.W. Hulme after Dean Vanech, chief executive of Olympus Capital Investments LLC, read about the company's travails and bought a 49% stake. The money from Olympus, together with $794,000 from the sale of six of Mr. Bidwell's Buicks, helped J.W. Hulme cut its debt in half, to about $1 million, and refinance other bank loans. The pair hired back employees and brought on four additional workers. Mr. Bidwell and Ms. Guarino, who together retain a 35% stake in the company, satisfied some of their investors by giving them shares in the company. Olympus, of Morristown, N.J., also pushed J.W. Hulme to modernize its operations, from automating its ordering system and updating its website to creating more au courant products (a leather iPad case is currently in development). "I'm always interested in companies that actually make things in the U.S., and the Americana theme is really strong right now in retail, so I think the timing is good for Hulme," said Mr. Vanech. Hulme's purses and travel bags, constructed of leather from Midwestern tanneries and hardware from local suppliers, caught the attention of blogger Michael Williams, who adds homegrown brands he likes to the "American List" on his blog, "A Continuous Lean." Designer Steven Alan, who owns eponymous boutiques in New York, California and South Korea, read about Hulme on that blog and elsewhere and decided to carry Hulme products in some of his stores and on his website, where a men's leather duffle bag goes for $570. "I'm interested in heritage American brands and there are not so many to choose from anymore," Mr. Alan said. "I like things that will last a long time and are timeless. Their products have that quality."Mr. Alan also stocked his New York showroom, where buyers from other high-end retailers shop, with Hulme bags. It was there that Barneys New York discovered the brand. The Hulme handbags will have their debut at an event at the Barneys Madison Avenue store on Aug. 12. Barneys will also devote a full page of its fall catalog to Hulme products. "There's a return to things that exude heritage and quality," said Julie Gilhart, fashion director at Barneys. "It's kind of cool that J.W. Hulme was making canvas tents during the First World War and then hunting accessories. The brand has a blend of that toughness but also a preppy feel."Mr. Bidwell estimates that the orders from Barneys, Steven Alan and other retailers will help Hulme achieve sales of $2.6 million this year—about three times 2009 revenue. And he expects the company to be profitable this year. Ms. Guarino, who was finally able to repay the relative who had loaned Hulme money, says she and Mr. Bidwell learned an important lesson from the credit crisis: "I don't think we'll ever count our chickens before they hatch again." Write to Julie Jargon at julie.jargon@wsj.com

Will Your Business Idea Fly?

Mon, 14 Jun 2010 11:33:25 EDT

By Sarah E. Needleman Before committing to a solo public-relations practice last year, Saverio Mancina emailed more than two dozen executives in his network to find out if their companies would consider hiring him on a project basis. Then, he consulted with industry colleagues through social-networking sites like LinkedIn for feedback on his proposed business model."The question I needed to answer for myself was 'Would clients pay a certain rate to work directly with me or would clients want to know there was a team behind me?'" says Mr. Mancina, who at the time was anticipating a pink slip from his employer of five years.When he was indeed laid off about four months later, Mr. Mancina, who is based in New York, says he felt confident moving forward with his solo plan. Today, he has 10 steady clients and earns about 85% of his previous income.If you're financially motivated to launch a business, you may be tempted to simply jump in. But experts strongly recommend first taking the time to do some research to determine if your venture has legs to stand on. Otherwise, you could end up in worse economic shape."Once you've started a business, you've already invested a lot of money and time," says Andrew Zacharakis, professor of entrepreneurship at Babson College in Wellesley, Mass. "If you find out afterward that consumers don't want what you're selling, it can be very hard to make a midstream adjustment."One way to explore a business idea's feasibility is to solicit the opinions and advice of experienced professionals in your target industry, even prospective competitors. Mr. Zacharakis recommends starting at trade shows, seminars and other business events if you don't have specific contacts in mind. Ask people what they like and don't like about your planned venture, if they foresee any obstacles to building it, and what suggestions they might have.Also go directly to your target market and ask about their interest in your product or service and how much they'd consider paying for it, Mr. Zacharakis says. If you plan to sell a product or service to pet owners, for example, you could canvass dog parks, groomers and veterinarians' offices.Low-cost services like SurveyMonkey.com and Zoomerang.com let you compile a survey online. In general, you pose a question and select answer options, such as multiple choice or fill-in-the-blank. Then you receive a Web link that you can post to your Facebook page, Twitter feed, personal blog or other website.Richard Daniels and Seth Burgett implemented this strategy before co-founding Yurbuds, a St. Louis-based maker of custom-fit earbuds, in early 2009. More than 300 survey takers provided insights into the features that matter most to them in portable listening devices and how much they'd pay for the ideal pair.The duo—who met soon after Mr. Daniels was laid off from an executive job and while Mr. Burgett was in business school—now sell the earbuds in about 200 retail outlets. The firm is on target to be profitable by next year."You have to roll up your sleeves and talk to real people to find out if your business idea has value," says Mr. Daniels. "Hope is not a strategy." Write to Sarah E. Needleman at sarah.needleman@wsj.com

Stores That Can't Stay

Wed, 04 Aug 2010 21:43:45 EDT

By Sarah E. Needleman Next month, flu-shot provider WellCheck LLC will open its first retail stores—150 units in shopping malls in 35 states. Six weeks later, they'll be gone.The pop-up experiment "gives us the ability to test people's appetite for receiving health-care services in a new venue," says Jack Tawil, chief executive of the 12-employee New York concern. The one-year-old start-up plans to expand its head count to 450 for the duration of the trial and, depending on the outcome, turn the 20 most successful units into permanent locations with additional offerings.Large fashion retailers and high-end designers have long demonstrated the success of the pop-up model for generating buzz about new brands and designers. But now, small businesses in a wide range of industries are testing new retail concepts and markets by leasing commercial space on a short-term basis, in some cases for just a few weeks. They say property owners are more receptive to the arrangements than in the past because the downturn has increased vacancy rates. "It was all about big-box retailers and now it's about niche players," says Faith Hope Consolo, chairman of the retail leasing, marketing and sales division at Prudential Douglas Elliman Real Estate in New York. So far this year, the firm has negotiated short-term commercial leases for 30% of its roughly 150 small-business clients, up from 18% during the same period in 2009, she says. Retail property prices in the first quarter were down 11.4% and 27.8%, respectively, from one and two years ago, according to Moody's Investor Services Inc. David A. Jacobs, director at Llenrock Group LLC, a commercial real-estate investment bank in Philadelphia, says commercial leases typically average five years. "There are more opportunities for small mom-and-pops to make short-term deals," he says. "Landlords are desperate for any source of income so they can pay their mortgage." Madison Marquette Property Investments LLC, a national real-estate investor and developer, has embraced the broadening of the pop-up trend to small businesses in a variety of industries, says Angela Sweeney, vice president of marketing. "Ideally if they are successful, some will choose to stay and then you've created a permanent tenant," she says. "It's beautiful staging," says Baron Hanson, founder of OpenPop-UpShops.com, one of two recently launched websites that list commercial properties available for rent on a short-term basis. (The other is PopUpInsider.com.) "Even if they're getting 50% of the rent, they're still getting paid to have someone in there making it look nice."Six months ago, Keetsa Mattresses Inc. signed a year-long lease for a vacant commercial space in New York in an effort to penetrate the East Coast bedding market, says Joe Alexander, general manager. The small retailer, which launched in 2007, specializes in eco-friendly bedding and has five West Coast locations with three-year leases. "If we're going to make a national impact, we would have to tackle the New York market, and we thought there's no time like the present with the economic situation being the way it is," he says. But while Keetsa has already earned back its initial investment in the experimental property, Mr. Alexander says the strategy was risky given the costs and time commitment involved—though not as dicey as if the company had locked itself into a traditional lease. "We could've opened more stores on the West Coast where we have a brand name and steady clientele," he says. Another potential downside is if a business falls in love with a temporary property it can't keep. That's what happened last year when book publisher Phaidon Press Inc. sought to expand its market reach beyond its website and third-party retailers to include its own storefronts in New York and London. Unsure if the strategy would pay off, the small, 87-year-old business negotiated month-to-month leases on commercial properties in each city to gauge consumer interest, says owner Richard Schlagman.But after seeing positive results in just five months in the New York location, Phaidon's landlord asked the company to move out to make way for a tenant willing to sign a long-term lease for higher rent. "If you are doing well, you don't have any security," says Mr. Schlagman. The 135-employee concern was fortunate, however, in that it was able to secure another property on the same Manhattan street, this time committing to two years. Moving to the new storefront wasn't a big hassle either, he adds, since the company intentionally didn't do any major construction work on the initial property. "We designed units that we could easily move in and out and assemble," says Mr. Schlagman. Write to Sarah E. Needleman at sarah.needleman@wsj.com

Entrepreneurs Flock to Pet-Chicken Market

Mon, 12 Jul 2010 09:04:58 EDT

By Sarah E. Needleman Hobbies often hatch small-business ideas. Chickens are no exception. Ruth Haldeman began adopting pet chickens in 2002. "I wanted fresh eggs, but I found that chickens are like peanuts, you can't have just one," she says. Before long, Ms. Haldeman had founded ChickenDiapers.com in Hot Springs, Ark. "Everyone was talking about how there was a need for diapers," she says, given that chickens typically can't be potty trained. "Oh, lord, what a mess they make."Ms. Haldeman, who is also a full-time chemist, designed a chicken diaper with a replaceable liner. She says it takes her about an hour to stitch one together, and her diapers are available in a variety of colors and patterns, such as rainbow and camouflage. She usually charges between $9 to $14 depending on a bird's size. Buyers hail from cities such as New York and Tacoma, Wash., and as far away as New Zealand."People like to have their chicks inside the house roaming free," says Ms. Haldeman, who declined to share how many diapers she sells a week because she's seeing more competition lately.More urban and suburban dwellers are keeping chickens, a trend that stems from both the recession and the local-food movement. Entrepreneurs, meanwhile—many chicken keepers themselves—have begun flocking to the aid of pet-chicken enthusiasts, dispensing starter kits, accessories and advice to go with the birds. Derek Sasaki and Traci Torres of Norwalk, Conn., launched My Pet Chicken LLC in 2005 while juggling full-time jobs they've since quit. They now sell roughly 2,500 baby chicks a week through a partnership with a hatchery in Ohio. The company, whose catalog includes layers of chocolate, white, brown and green eggs, says it sells birds weeks in advance. "We are literally counting our chickens before they hatch," Mr. Sasaki says.Beyond birds, the company also sells accessories such as $25 chicken diapers and $8 saddles, which are protective aprons for the hen, to keep her feathers from getting pulled out by a frisky rooster. They sell coops, heat lamps and decor for chicken lovers, such as a $10 black hen tape dispenser. The couple, who invested around $10,000 in savings to launch the small enterprise, expect revenues to top $1 million this year."Originally, we thought it would be a side business, but it started taking up more and more of our time," says Mr. Sasaki, previously an information-technology executive for an online health-media company.In January, Kevin Tschida bought diapers from Ms. Haldeman for the four chickens he and his wife, Paula, live with in their rented single-floor home in Bakersfield, Calif. "They have made a huge difference," he says. "There is less smell in the house, less bending over." Mr. Tschida says the birds, plus two ducks who wear diapers he bought from a different vendor, spend most of their time frolicking and sleeping indoors. "It is like the diaper removes them from the farmyard and gives them the status of pets," says Mr. Tschida, who also owns a dog, two cats, two parrots, a rabbit and some fish.There are no firm statistics on the number of pet-chicken owners in the U.S. BackYardChickens.com's growing membership is one indicator it's more than a flash in the pan. The information and networking site says it has more than 60,000 members today, up from 35,000 a year ago and 12,000 in June 2008. Rob Ludlow, the site's founder, attributes the rising ranks of chicken enthusiasts in part to the birds' ability to produce fresh eggs and fertilizer, as well as act as natural pesticides by eating bugs and worms. "They are the only backyard pet that can make you breakfast," he says. Plus, they're entertaining: "They're always interacting with one another and their environment. You can feed them from your hand, hold them and pet them.""Keeping chickens is addicting," says Melina Brown, who lately has been buying $5 "treat balls" made especially for the birds, which she fills with snacks such as greens and nuts for her 40 or so pet chickens. She hangs the toys in a children's playhouse that she converted into an outdoor coop a few years ago. "They like to peck at hanging things," she says. Ms. Brown, who also has pet parrots, ducks, a turkey and four dogs, lives on a 4.5-acre property in North Stamford, Conn. A writer in her 40s, she began adopting chickens about four years ago and has names for roughly half her flock, including Woostie, Casper and Lacey. "They are the most fantastic pets. They make me laugh," she says, although she notes, "I am a little sick of eggs."First-time chicken owners tend to have lots of questions, so customer-service comes with the business. Among the most common: "Do you need a rooster to get eggs?" says Judy Morris, owner of Coop D'État LLC, a pet-chicken consulting and retail company that she runs out of two farmers' markets in her hometown of Weston, Conn. (The answer is no.)Ms. Morris, who is also a part-time producer for Martha Stewart Living Omnimedia Inc., sells package deals of four baby chicks, coops she assembles by hand with the help of her three sons, and a starter kit for $1,200. Since launching her business in May, she's sold four sets. Andy G. Schneider of Alpharetta, Ga., who calls himself the Chicken Whisperer, hosts a daily hour-long Internet radio show on raising backyard chickens that attracts around 15,000 listeners nationwide a month, according to BlogTalkRadio. He sells Chicken Whisperer gear off his website, including T-shirts, watches, mugs, mouse pads and bumper stickers. "This all started out of a hobby," says Mr. Schneider, a former paramedic whose current line of work has been a full-time job since April 2009. Some chicken fans see more opportunities. Linda Celez, a nonprofit worker in Michigan, has made holiday-themed costumes for her pet hen Suzie and pet rooster Phillip. For July 4th, she put them in patriotic garb and for Halloween, has dressed them as Prince Charming and Cinderella. She's given away some of her poultry apparel to friends who have pet chickens, and is now thinking about it as a money-making prospect. "It's an area of business that's untouched," says Ms. Celez. Write to Sarah E. Needleman at sarah.needleman@wsj.com

Services Let Start-Ups Pitch to Angels, for Free

Thu, 17 Jun 2010 10:14:56 EDT

By Scott Austin Start-ups hungry for cash are often expected to pay a fee to pitch to angel investors. But some free services are cropping up to counter the so-called pay-to-pitch model. Earlier this year, Internet entrepreneur and blogger Jason Calacanis started Open Angel Forum, which holds free pitch events in various cities where entrepreneurs selected from a pool of applicants can pitch to about 20 to 30 angel investors. At Open Angel's first event in Boulder, Co., in February, three of six companies found new investors.Another free service, AngelList, started in February by angels Naval Ravikant and Babak Nivi, vets dozens of deals before highlighting the best ones in emails each week sent free to a group of 200 investors.Messrs. Ravikant and Nivi—who also run Venture Hacks, a for-profit site that provides advice to start-ups—say they have received pitches from more than 1,000 start-ups, mostly consumer Internet companies. Of the 48 companies featured so far on AngelList, about half have received funding, they say. Marco Zappacosta, founder of Thumbtack Inc., a site that lets people book services like tutors and dog walkers, won three commitments from angels after pitching his company in March at an Open Angel Forum event in San Francisco. He then turned to AngelList and received three more commitments to close a funding round at $1.2 million in June. The service, he says, "is good at getting worthy start-ups into the inbox of investors."The free services come in the wake of recent criticism of the pay-to-pitch model, which some angel investors have argued is justified because they offer advice and should be paid for their time. Mr. Calacanis, an outspoken figure in the tech industry, last fall publicly admonished angel investment groups for charging bootstrapped entrepreneurs hundreds, if not thousands, of dollars to pitch to them.Last month, Chris Hurley shut down his Revolutionary Angels service that proposed to charge entrepreneurs $4,995 for advisory services and entry into a business-plan competition that would award $250,000 to the winner. After soliciting submissions in October, Revolutionary Angels received only 20 entries, far short of its goal of 60 participants.In retrospect, "$5,000 is a lot of money for early-stage entrepreneurs," said Mr. Hurley.But the new free services aren't entirely altruistic. Both AngelList and Open Angel give their founders inside access to companies in which they might be interested in investing, and Messrs. Ravikant and Nivi can use AngelList to indirectly market Venture Hacks' start-up guides."We're just trying to open up the way entrepreneurs and angels connect," said Mr. Ravikant, a serial entrepreneur who has founded companies such as Epinions Inc. Not all entrepreneurs have won investments. Jen Lilienstein, one of six entrepreneurs selected to pitch last month at an Open Angel forum in Los Angeles, hasn't raised any cash for her start-up, Kidzmet.com, which helps parents enroll their kids in extracurricular activities.But Ms. Lilienstein says the event was helpful because angels stuck around for hours to proffer advice. Ms. Lilienstein says she is now in "a dating phase" with investors and continuing conversations.Some pay-to-pitch services have changed their business models amid the criticism. In September, FundingUniverse LLC stopped charging a $125 fee for entrepreneurs to pitch at its events, attended by angels and loan providers like banks. The winners of its events receive a few thousand dollars in in-kind services, and sometimes, investments.FundingUniverse does, however, sell products through its website, such as a $99 online "diagnostic tool" that analyzes a business's funding prospects. "We think the services we do charge for are perfectly acceptable," says Alexander Lawrence, a partner at the company. Write to Scott Austin at scott.austin@dowjones.com

Microloans Helps Some Small Businesses Survive

Wed, 11 Aug 2010 13:41:05 EDT

By April H. Lee Like many small businesses caught in the worst economic crisis since the Great Depression, Tri-State Biodiesel was struggling to find capital last year in the middle of a credit crunch.The Bronx, N.Y., company, which converts cooking-oil refuse from restaurants around New York City into fuel that it then sells, was in dire need of an equipment upgrade."Banks weren't lending at all," said Brent Baker, founder and chief executive. Baker said he went to three major commercial banks that had financed the company in the past. "Once the crisis hit, applications were suddenly more complicated and lengthy, and they all came back giving us all these euphemisms for 'no.'"In the end, Mr. Baker got a $50,000, three-year loan at a reasonable rate from Boc Capital, a lender that received $750,000 from the federal government thanks to the 2009 stimulus bill last year, to help small businesses just like Tri-State Biodiesel."The loan increased our profitability and put us in a position where we could expand," Mr. Baker said, adding that his company hired 10 more workers. "It shows how a relatively small amount of credit can be such a huge advantage, and we really did create jobs."When President Barack Obama signed the American Recovery and Reinvestment Act into law in February 2009 to create jobs and promote spending, the law included $56.1 million for microloans for small businesses, to be doled out through the Small Business Administration through September.While some critics complain about the government's economic stimulus efforts, some lenders and borrowers say the stimulus spending that focused on helping small businesses is working.Targeted toward start-up, newly-established, or growing small businesses, the microloans are short-term loans up to $35,000 each for working capital or inventory and equipment purchases. The intermediary lenders who distribute the loans can choose to lend more than that limit.The idea of microlending is more typically associated with loans in amounts as little as $25, disbursed to impoverished people in developing countries, ideally helping them to generate their own income to climb out of poverty.But more recently, microcredit has become a mainstream practice in the U.S., and even though the average SBA microloan size is $13,000, the SBA's program shares a similar mission as traditional microloan programs."While the microloan program is open to all entrepreneurs, the program especially supports underserved markets," said Pravina Raghavan, director of the SBA's New York District Office. This includes borrowers with little or no credit history, low-income borrowers, and women and minority entrepreneurs who generally don't qualify for conventional loans or larger SBA guaranteed loans, Ms. Raghavan said.SBA microloans are disbursed through specially-designated non-profit intermediary lenders across the country—a list of which can be found on the SBA website—that pay the SBA interest of about 1%.The intermediaries themselves can pool funds together to lend as much as $50,000, and interest rates for the small-business borrowers, which are usually no more than 10%, are individually negotiated with the intermediary lenders."We were ready to expand our lending and the stimulus enabled the next round of lending to come in, and at much a lower interest rate that's near zero," said Nancy Carin, executive director of Boc Capital, one of 20 intermediaries servicing the New York area.For Boc Capital, the stimulus doubled the microlender's capital base while interest rates for the loans are as much as five percentage points lower. At the same time, demand rose, Ms. Carin said."We've been seeing some borrowers that in the past would've gotten financing though traditional banks," she said. "Even successful businesses would see their sales fall by 30% and so they'd come to us."Banks were also in trouble after the crisis, adding to small-business owners' woes. In 2008, FDIC-insured banks endured losses of $12.4 billion, compared to a profit of $101.6 billion a year earlier, as 26 banks failed. Another 152 banks failed in 2009.Faced with the deterioration of their balance sheets, banks become more wary of risk. They tightened credit lines and started refusing to make smaller, riskier loans.Such was the post-crisis fallout that Accion USA, a national microlender that also distributes SBA funding, has seen a 20% increase in applicants nationwide this year compared to 2009, said Gina Harman, chief executive of Accion.Nationwide, since the Recovery Act was signed, the average total dollar amount of microloans made each month has grown to $3.1 million, up from $2.5 million in 2008, said the SBA's Ms. Raghavan. SBA intermediaries made 2,717 loans in 2009. In the New York City area alone, the SBA's lending volume increased by 70% in a year.Even with the dramatic rise in loans, microlenders such as Accion and Boc said they have kept repayment rates above 90%. Similarly, delinquency rates for the SBA microloan program have steadily fallen from 5.37% in 2007 to 4.73% this year.Ms. Raghavan said small-business owners looking to borrow money should research the 20 intermediaries as each has different policies.The lending process is "a very personal and intensive process that varies by the business and the nature of the request," Accion's Ms. Harman said.Microlenders such as Accion even provide technical assistance—for which the stimulus allocated an additional $24 million—to help small-business owners prepare to obtain a loan.Smaller SBA microlenders such as the Business Center for New Americans, which focuses on refugees and immigrants, frequently work with those who have no credit at all to help them get loans.Up to 70% of BCNA's borrowers are repeat borrowers, said Yanki Tshering, the center's director, adding that the microlender is on track to make 200 loans this year compared to 112 in 2008 before the stimulus program.Working first with a small-business service center to put documents in order speeds up the process considerably, said Accion's Ms. Harman. The process of clearing up credit reports can delay loans for as much as six months to a year. But once loan officers are able to build a profile and complete site visits, a loan decision can be made within a week and the loan can be disbursed immediately, she said."It was an easy process. The application was only a page or two long," said Ted Cooper, who owns Fresh Look Remodeling, a New York-based energy-audit business.Struggling with working capital needs and faced with laying off his six workers, Mr. Cooper applied to a few big banks, one of which asked for $15,000 worth of collateral."If I had that, I wouldn't have needed to borrow it," Mr. Cooper said. At Accion, he said, "I didn't have to put up my firstborn."Mr. Cooper received a $10,000, two-year loan from Accion's Green Loan program, which offers unsecured loans to green businesses with SBA funding at a reduced 9% interest rate. "With the credit score I was working with, the rate was fantastic," Cooper said.Accion has a few guidelines, which includes a credit score above 575, but Ms. Harman said that such requirements aren't set in stone."They are guidelines, but the key determinant is if the business is able to handle additional payments without crippling their business," Ms. Harman said.Still, according to a Congressional Research Service in 2010, only about 1% of small businesses are helped by these loans, and a separate survey showed small-business owners consistently place financing issues near the bottom of their most pressing concerns.Just 5% of small-business owners said obtaining loans was a critical problem, according to a National Federation of Independent Business survey in early 2008 of 3,530 small-business owners.But small businesses were simply more wary of taking on liabilities in turbulent times, said SBA's Ms. Raghavan. According to an SBA study, more than half of the 736,000 jobs lost in the first two quarters of 2008 were lost in small firms."Small businesses that actually need credit have to rely on SBA support," Ms. Raghavan said. "And when small businesses need credit, they really need it.""The important message is that we're here," Accion's Ms. Harman said. "We're making loans, and we encourage businesses not to give up hope if they have gone looking for capital."

Banker Builds a Candy Business in Bits and Pieces

Mon, 16 Aug 2010 10:13:01 EDT

By Christina S.N. Lewis "Something's burning," said Anita Zeldin. Alarmed, the 53-year-old former banking executive rushed from the tempering machine to the stove where her assistant was stirring a small pot of butter, vanilla and sugar.Glancing down, Ms. Zeldin saw the mixture was still a foamy dark yellow, with none of the telltale dark brown streaks that would mean tossing the whole batch. False alarm."It's OK," she said, relieved.Kitchen mishaps are a chief hazard in Ms. Zeldin's new line of work: candy maker.Her nascent brand, East Hampton Edibles, sells "butter brickle," a confection of crunchy caramel, chocolate and macadamia nuts available at local stores like Round Swamp Farm in East Hampton and the Elegant Setting in Southampton.Sweating over the prospect of burned butter is a long way from worrying about stock market swings. Ms. Zeldin spent nearly 25 years in banking and business development for Merrill Lynch, Citigroup and others.In 2009, a combination of calamities, a serious illness, the financial crisis, her mother's death and a divorce left Ms. Zeldin unemployed and at sea. She moved back to her hometown and turned a butter brickle recipe she created while taking a community college pastry class into a gourmet-food business.As unusual as starting a butter-brickle business is for a financial executive, there is a precedent for growing boutique food businesses in the Hamptons. The East End of Long Island contains rich farming soil and a summer resident population with sophisticated palates and high disposable incomes, making it a natural choice for food entrepreneurs seeking to make a name for themselves. Some businesses, such as Ina Garten's Barefoot Contessa, broke out as national brands. Plus, several New York City-based food personalities have established beachheads in the Hamptons including Martha Stewart and B. Smith.Ms. Zeldin's key inspiration is the Southampton baker Kathleen King, who parlayed selling chocolate-chip cookies from her father's farm stand at age 11 into Tate's Bakery, a national brand that sells 30 million cookies nationwide a year.Ms. Zeldin's corporate background helped her create her own business plan. But unlike on Wall Street, Ms. Zeldin now has no support. She is her company's only full-time employee, which means she is the delivery person, the order taker, the janitor, even the ribbon tier. "I'm in front of the TV cutting ribbon," she said over coffee at The Golden Pear. "I'm putting on stickers."A short time later, Ms. Zeldin was pushing an old plastic bucket to prop open the door of the commercial kitchen behind Dreesen's, where she rents space two afternoons a week. Making the caramel is a half-hour-long process. Once brickle-ified, it must be trimmed and allowed to cool before Ms. Zeldin can flip it and coat it on both sides with a layer of chocolate and chopped macadamia nuts. These are then broke into bite-sized chunks and packaged in 8-ounce and 1-pound bags for $12.95 and roughly $25, respectively.Ms. Zeldin looks forward to a future where she can afford to pay herself a salary, eventually expand into other products and go national, "like Hershey's," she said half jokingly.The brickle business needs to sell about 150 bags a week to break even, a goal she has hit only once so far. She has set aside $65,000 to invest in the business.She faces several challenges. She needs to smooth out her "production issues," which is a way of saying she makes the candy almost entirely by herself. Only she and her kitchen assistant know the recipe, which isn't written down. If the company does grow, she will need to find a larger kitchen space, not easy in East Hampton."This is my future. I don't have another job waiting for me. And there is no rich husband who thinks this is cute," she said. "This is not a lark. I am not wealthy enough to retire. This is my job." Write to Christina S.N. Lewis at christina.lewis@wsj.com Michelle Goldberg, a mother of four, used to sell insurance and, at home at night, relish in the creation of all kinds of desserts. But in 2008, after discovering her own wheat allergy and deciding on a career change, Ms. Goldberg started making chocolate-dipped macaroons full time. Now she sells them under the label "Mich's Maccs" in packs of six for $10 at 20 East End stores including the Seafood Shop in Wainscott, Claws on Wheels in East Hampton and Schmidt's in Southampton. (Manhattan will see them in the fall.) "I made them on Jewish holidays and people always loved them," Ms. Goldberg said. "They'd always say, 'Why aren't you turning this into a business?' " She said her initial investment was around $20,000 to get the company going and develop a website and packaging. She goes through about 200 pounds of shredded coconut during busy times like Passover, when she can make up to 80,000 cookies. She hand dips each one in white, dark or milk chocolate and hand packages. Goldberg's Bagels, which is no relation, lets Ms. Goldberg use its East Hampton kitchen. But she is hoping for her own storefront and facility, which "the little man can come and bless it so the macaroons can be completely kosher. As soon as he does," Ms. Goldberg said, "Bada Bing."Before starting her line of Fat Ass Fudge, Donna McCue worked as a comedian, an entertainer and an intuitive, a person who gets feelings about things through intuition. So she must have had a sense the company, which also makes brownies, truffles and cookies, would be a success."Do you know the difference between an intuitive and a psychic?" the jovial Ms. McCue asked at the East Hampton restaurant Della Femina, where she was once a receptionist and now uses the kitchen for baking. The answer: "$200."(Ms. McCue, who has been in business for two years, is looking for her own facility.) Ms. McCue's fudge costs $15 for about four pieces; brownies, made of Belgian chocolate are $4 a pop. She sells the products locally at farmers markets, at c/o the Maidstone, an inn in East Hampton, and at Gurney's Inn in Montauk. The fudge, at least, is made with goat's milk so it's gluten and lactose free. Ms. McCue has no end to the jokes she can make about her company's name, which, she said, helps when hand selling the product. She drives a pink Scion she calls "The Fudgemobile," with the Fat Ass donkey logo. She also said she's at work on a cookbook entitled "I Was a Medium and Now I'm a Large."In mid-July, Cynthia Formica and Ruth Balletta quietly opened their 1,100-square-foot Water Mill Cupcake Co. in a space next to the gourmet market Citarella in the Water Mill Shoppes. After job losses, the pair, who had previous lives in Westchester, moved to Southampton (Ms. Formica) and Sag Harbor (Ms. Balletta.)"We've been baking for our families for years," said Ms. Formica. "We knew about the cupcake craze and we wondered, 'Why is nobody doing it out here?' We worked very hard this past winter to be the first cupcake company in the Hamptons."Ms. Balletta and Ms. Formica financed the business themselves and plan to keep it open year-round, hoping to cater weddings and other parties along the way. Typical permutations of chocolate and vanilla cupcakes ($2.50 each) are on the menu, in addition to such specialty favorites ($3) as "Rosso Velluto," what they call their "fabulous 'red velvet,' " and banana with vanilla maple frosting. Fruit flavors will come with the seasons, including apple and pumpkin for fall, and mini cupcakes run at $1.50 each. "Everything is made from scratch with as natural ingredients as possible," said Ms. Formica. "And they're better than what your mom would make."

When You're Most Vulnerable to Fraud

Sun, 15 Aug 2010 16:21:04 EDT

By Rob Johnson Five years ago, Ed Couvrette was on top of the world.The manufacturing company he founded, E.F. Couvrette Co., was ringing up sales of $10 million a year and was negotiating contracts for triple that amount. On employees' birthdays, he routinely gave out bonus checks—a week's pay for every year they'd been at the company."Now I can hardly afford birthday cards," he laments.His revenue is down more than half, customers have abandoned him in droves, and he has been forced to severely slash jobs. He can't line up credit, and some weeks there's not enough money in the bank to cover payroll at his Salem, Va., operation, which does business as Couvrette Building Systems.Mr. Couvrette didn't get trapped by the collapsing economy or a shrinking industry. Instead, he says he was the victim of massive fraud by his chief operating officer—who, among other things, pocketed over $300,000 he was supposed to send to the Internal Revenue Service to cover payroll taxes. The former officer is now in prison; his attorney, Tony Anderson of Roanoke, Va., declined to comment on the case.Mr. Couvrette's case offers a hard lesson for small businesses: When times are great—watch out. Because that's when you're most vulnerable to fraud. Sales are soaring, and the biggest problem seems to be where to fit all the new equipment and employees. But those heady days can be perilous, since success can distract the founder from such mundane financial duties as collecting payroll taxes and verifying the accuracy of bills."It's often when things are going well in a small business that betrayal strikes," says Walter Jones, a fraud examiner and retired IRS agent who's now a consultant to Mr. Couvrette. "In an atmosphere where sales and profits are increasing, the diversion of funds is masked by success."For some entrepreneurs, another factor makes them prime targets for fraud: Overseeing finances doesn't come naturally. That was the case with Mr. Couvrette, who has an engineering background. He was most comfortable on the factory floor at his company, which makes kiosks to house drive-up automated teller machines at banks; he enjoyed supervising everything from the welding of the steel housings to painting them with banks' logos."I was big on production, small on administration," says Mr. Couvrette, now 58.Mr. Couvrette had also long taken his books for granted, thanks in large part to a series of dependable company controllers, including his father, a certified public accountant. Further, Mr. Couvrette says he couldn't imagine his company getting victimized—given that its mission involved preventing crime. "We got into the drive-up ATMs at a time when banks were becoming more security conscious about customers being robbed while walking up to the machines," Mr. Couvrette says. "More banks were interested in ATM facilities where the customers could stay in their cars and leave quickly if they felt threatened."He admits his guard was down in 2001 when he hired Roy Dickinson, an accountant with a sound track record, as the growing company's chief operating officer. After hiring Mr. Dickinson, Mr. Couvrette says he made a mistake in judgment that is common in small-business embezzlement cases: He put the same employee—Mr. Dickinson—in charge of both receipts and disbursements. While entrusting both ends of the money-moving chores to one employee may seem to streamline paperwork, it's just too risky, says Mr. Jones, the fraud expert. "I believe in what Reagan said about nuclear-missile treaties: Trust but verify."In February 2005, Mr. Couvrette says he noticed that a high-profile new area of his business being run by Mr. Dickinson—making software and hardware adjustments on dozens of ATMs around the country—wasn't producing a profit. "I kept waiting for our cash flow and margins to get where they should be with expenses, and they didn't," says Mr. Couvrette.In March 2005, Mr. Couvrette scheduled a meeting with his chief operating officer, calling him back to Salem from a New York business trip. "He didn't show, so I fired him," says Mr. Couvrette.That confrontation led to the hiring of an outside auditor, Mr. Jones. The examination revealed myriad financial problems, including payroll taxes that had been collected but not forwarded to the IRS, according to Mr. Jones. Mr. Couvrette was ultimately responsible for paying the IRS; the agency agreed to a settlement of about $320,000, according to Mr. Jones, who was Mr. Couvrette's intermediary with the government. "Stealing payroll taxes is a form of misappropriation that small-business owners don't catch because the money isn't going for company expenses anyway," says Mr. Jones.In February of last year, meanwhile, Mr. Dickinson pleaded guilty in the U.S. District Court in Roanoke to conspiracy to commit mail and wire fraud, and attempting to interfere with IRS laws. He was sentenced to three years in prison—a term he's currently serving—and ordered to pay restitution of more than $300,000.Beyond pocketing the money intended for the IRS, Mr. Dickinson pleaded guilty to several acts of fraud. He used company money to cover remodeling costs for his home, for instance, and covered his tracks by altering company records, according to his plea. And he used his company American Express card to purchase items such as a $6,850 Rolex watch and altered the bills to show those transactions as business expenses, according to his plea.In 2005, word that the IRS had issued tax liens against Couvrette Building Systems spread to the company's creditors and customers, according to Mr. Jones. Both categories consisted largely of banks, and "tax problems are the kiss of death when you're dealing with banks," says Mr. Jones. "So, Ed's credit quickly dried up and he lost millions of dollars in contracts."Now Mr. Couvrette's annual revenue has been slashed by 60% and so has his production line—to about 30 workers, down from 150 five years ago. The hulking gray manufacturing plant on his company's 10-acre site contains pockets of workers, but most of the production line is quiet. Many of his former bank customers have found other suppliers. And Mr. Couvrette's credit is shot. "I have zero elasticity of funds right now," he says. "I need loans to rebuild my delivery trucks and pay vendors," and of course meet payroll.Sometimes it isn't just success that distracts entrepreneurs. Personal issues can also take owners' focus off the business and leave them vulnerable to fraud. Consider Interactive Solutions Inc. in Memphis, Tenn. In 2002, the videoconferencing company achieved its then-highest annual sales, about $6 million, and was recording double-digit profit margins. "Things were going so well I bought a brand-new BMW 525 for my company car, and paid cash for it," says Jay Myers, the 53-year-old founder and chief executive.Amid the success, Mr. Myers suffered a personal loss: His brother, John, died at age 50. The two had been close, and Mr. Myers started taking occasional days off while in mourning. His attention wandered from the company's finances, and he began relying more heavily on Linda Merritt, a bookkeeper who had come on board a month before John's death, to keep things straight."I wasn't paying the attention I should have to the business," says Mr. Myers, adding that his trust in Ms. Merritt was based on her solid job references, which he says included "a lawyer and someone who sang with her in the church choir.""It was dumb luck," he says, that finally caused him to become suspicious in May 2003, after he read a magazine article detailing a case of internal fraud at a small machinery supplier in Illinois. "Something clicked as I read the story: That could happen to me."Although he vowed to have his books checked by an outside auditor, Mr. Myers feared what might be found—a common reaction that fraud investigators say sometimes delays the uncovering of embezzlement. After all, says Mr. Myers, "this was humiliating—a potential disaster if my employees found out. It might sink the company. What about my clients and vendors?"The thefts—in the form of bogus bonuses and commissions by the dozens, according to evidence later presented in court—weren't difficult to verify. When the outside auditor showed Mr. Myers some of the checks for such payments, he says, "Some of them were to a receptionist. I thought, 'A receptionist doesn't get commissions, she answers the phone.' I felt like such a fool for not knowing this was going on."In November 2005, Ms. Merritt pleaded guilty to misappropriating funds in federal district court in Memphis, and is now serving an eight-year term in a Texas federal prison. According to the sentencing document in the case, she was ordered to repay more than $260,000, to Mr. Myers and an insurance company and bank involved in Interactive Solutions' finances. Ms. Merritt's attorney, Stephen Shankman, a federal public defender in Memphis, declined to comment on the case.Mr. Myers was able to recover $80,000 via a "dishonest employee liability" rider on his insurance policy. Such clauses can be written to cover everything from credit-card fraud to embezzlement. Today, Mr. Myers says, he's insured for about $240,000 in losses due to employee dishonesty. He also made an arrangement for partial restitution from an accounting firm that had failed to uncover the embezzlement in a routine examination of Interactive Solutions' books a few months before it was discovered.Since the fraud episode, Interactive Solutions is riding high. Sales have more than doubled to about $14 million annually. In part, that's thanks to timing; the videoconferencing business is surging as companies look to cut travel costs during the recession. The company has also branched into new areas that are proving popular, such as telemedicine, in which doctors and patients can huddle over long distances.Mr. Myers is being careful not to get taken unawares again. In fact, he credits part of his recent success to better hiring and employee-retention practices. He takes more time to get to know prospective workers and to check out their backgrounds. These days, Mr. Myers has separate employees who are responsible for handling accounts receivable and paying the company's bills. What's more, he says, he's much more vigilant personally. "When those monthly bank statements come in, nobody opens them now before me."Mr. Myers now makes it a point to let employees know that if they betray his trust, they could risk jail time. In a recent meeting he warned his 40 workers: "I said if you steal a dollar or a thousand dollars, and I catch you, I will prosecute."Meanwhile, at Couvrette Building Systems, the employees soldier on. Matt Musselman, a Couvrette design engineer, works at his computer screen on a recent afternoon with an eye to the future. Hoping innovation can win more orders, Mr. Musselman, a member of Couvrette's research-and-development team, diagrams a solar-powered ATM for one of the company's longtime bank customers that has remained loyal, Wells Fargo & Co. "We're going into green technology," Mr. Musselman says. Ross Campbell, a painter, sticks around even though he occasionally isn't paid for weeks at a time. He says, "Ed Couvrette is a good guy. I have a lot of faith in him." Mr. Johnson is a writer in Roanoke County, Va. He can be reached at reports@wsj.com.

Control Freak No More: Picking No. 2

Thu, 10 Jun 2010 18:50:44 EDT

By Sarah E. Needleman After years of growing their ventures, many small-business owners end up like Eric Poses – calling all the shots and rarely getting a moment's rest. "I do everything," says Mr. Poses, president of All Things Equal Inc., a Miami board-game company he founded in 1996 that today earns about $2 million in annual sales. "I'm still making all the decisions, which takes up a lot of my time."For owners who've built their businesses from the ground up, letting go some control to a second-in-command can be nerve-racking. But experts warn that there are potentially worse consequences to maintaining a tight grip on an enterprise, including burnout and problems stemming from unexpected emergencies, such as if an owner suddenly falls ill. Sandy Hansen, owner of AgVenture Feed & Seed Inc. in Watkins, Minn., understands those dangers all too well. She was thrust into entrepreneurship in 2003 when her husband, the feed-supply company's original owner, died of leukemia. He had never appointed a top deputy in the nearly 20 years he ran the business, nor did he create a succession plan. "He didn't get around to it," says Ms. Hansen. "We were in near bankruptcy for three years trying to learn information only he knew." The business has since rebounded, she adds.Some owners avoid recruiting a No. 2 because they have difficulty trusting someone to become close to their business, says Daniel M. Murphy, co-founder of The Growth Coach, a business-coaching franchise system based in Cincinnati. But oftentimes owners reach a point where they realize they just can't keep at it alone."Invariably an owner will hit a wall where they feel overworked and like a prisoner to their business," says Mr. Murphy. "They need to let go."In general, a No. 2 is responsible for overseeing day-to-day operations, such as employee schedules, customer or client issues and other basics, he says. With these responsibilities out of the way, business owners can focus on the big picture: growing their enterprises, says Mr. Murphy. "The chief executive is the person with the vision who makes sure there is a plan in place to get there," he says. "Their job is to create jobs for other people. They're leaders, not doers."A business owner's sidekick should ideally have skills and a working style that are complementary to what the business owner possesses, says Robert M. Donnelly, professor of entrepreneurship at St. Peter's College in Jersey City, N.J. "Don't expect the person to be as good as you at what you do," he says. "You're really hiring a No. 2 to be good at the things you're not." Joanna Horobin, chief executive of Syndax Pharmaceuticals Inc. in Waltham, Mass., says she has a second-in-command who works at a calculated, detailed pace, whereas she tends to keep up a steady, swift momentum. "Without somebody like Bob, I run the risk of my big ideas missing people and not getting translated," she says of her No. 2. "I have more of a relentless leadership style."Now is an ideal time to hire a top lieutenant due to the high number of professionals who are unemployed, says Mr. Murphy. "There's such great talent out there that's affordable," he says.Just make sure to do your due diligence in choosing this person by checking references and preferably investing in a background investigation of him or her, adds Mr. Murphy. "This is a critical hire," he says, given the high level of responsibility and trust required of a top lieutenant.Business owners may also want to consider grooming an insider for the right-hand position. For Kate Koziol, owner of Chicago-based K Squared Communications Inc., the right candidate became apparent a few years ago when a new client flew into a panic while she was vacationing and couldn't be reached. A midlevel staffer at the public-relations firm stepped in and quickly resolved the matter. "It was a true test because it just happened and she made the best of it," says Ms. Koziol, adding that she's been prepping the employee for the No. 2 job ever since.Another sign that an employee might make a good deputy is if he or she is always acting in the company's best interest without any prompting, says Jamie Damato Migdal, owner of AnimalSense Canine Training and Behavior Inc. in Chicago. She says she recently appointed a staffer who regularly demonstrates this kind of behavior as her second-in-command. "She really shows great initiative and an understanding of what happens around here," says Ms. Damato Migdal of her chief aide. "She's looking out for me, the staff and the bottom line." Write to Sarah E. Needleman at sarah.needleman@wsj.com

The Credit Crunch That Won't Go Away

Fri, 13 Aug 2010 13:16:49 EDT

By Emily Maltby Where's the money?The economy is on the mend. The government has launched a boatload of programs to get small businesses financing. President Barack Obama has urged banks to give the companies a "third and fourth look" before rejecting them for loans.Yet entrepreneurs are still struggling to land credit. Only half of small businesses that tried to borrow last year got all or most of what they needed, according to a survey by the National Federation of Independent Business. In the mid-2000s, 90% of businesses said they got the loans they needed.What's going on here? Why is the credit crunch alive and well when it comes to small businesses?Part of the problem is that most of the government programs created to address the problem have focused on Small Business Administration loans, which total less than 10% of overall lending to small companies. But there's a wider issue at work. Banks and the government are trying to avoid repeating the mistakes that led to the subprime meltdown. It's a perfectly understandable goal—but it's freezing up financing.Federal regulators, for instance, say they want banks to make prudent loans, even as the pressure to give out credit grows. Some banks, meanwhile, think many more businesses are bad risks these days, and they don't want to damage their balance sheets by making questionable loans.There's also lots of finger-pointing. Some bankers say loan volume is down because demand is down; small businesses, they argue, are wary of taking on debt in uncertain times. Other bankers accuse regulators of pressuring them to curb lending, while regulators say banks are just making them the fall guy.Stuck in the middle are entrepreneurs. During the downturn, many of them lost their credit lines and couldn't get access to other sources of financing, such as home-equity loans. Now that things are looking up, they're frustrated that they can't get the financing they desperately need. So, many of them are curbing expansion and hiring plans—and that, in turn, may be slowing the nation's recovery and keeping unemployment high. Julio Valencia is one of those frustrated owners. In the past eight months, he has tried working with four large banks to land a $500,000 credit line for his young business. He has been turned down each time, he says, because JTI Landing Systems, which fixes landing gear for commercial aircraft, doesn't yet have three years of financial history to show the banks.Mr. Valencia, along with his business partner, have exhausted personal cash and retirement savings for start-up purchases and payroll. If his Las Vegas company can't land funding, it can't expand—and may even have to close, he says. "If we don't have the cash flow to support our employees, well, no one works for free," Mr. Valencia says.The lending freeze stretches back to 2007, when the nation plunged into recession. In the first quarter of that year, more banks were tightening standards for small-business loans than loosening them, according to the Federal Reserve's quarterly Senior Loan Officer Opinion survey of large lenders. By October 2008, the percentage was up to 84%—roughly where it is today.Along the way, of course, the housing bubble burst. Banks suffering from heavily weighted real-estate portfolios compensated by reducing—and in some cases eliminating—credit lines, while raising interest penalties. What's more, the secondary markets, where many lenders bundled their SBA loans and sold them to investors, clamped shut, so banks couldn't get enough capital to make new loans.Every potential borrower suffered, but small businesses were particularly hard hit. In 2009, small-business loan portfolios at big banks dropped by 9% from the previous year—more than double the 4.1% drop for their entire lending portfolios, according to a recent Congressional Oversight Panel report. At the smallest banks, small-business lending portfolios fell 2.7%, while overall portfolios fell 0.2%.Heeding Mr. Obama's call to increase lending, a few big banks have made ambitious pledges. Bank of America Corp., for one, announced a goal of lending $5 billion more to small companies this year than last. Some small banks are making efforts, too. Lani Hayward, executive vice president of communications at Umpqua Holdings Corp.'s Umpqua Bank, in Portland, Ore., says the bank has gone "a touch further in extending credit" through its MainStreet Lending program, which gives applicants who would otherwise be rejected another review.Ms. Hayward says about 30% of the loans that move through that program get approved. Still, she says, "it's not like we are opening the coffers. For the regulators' sake and our own sake, there needs to be a gatekeeper."Some banks, particularly smaller lenders, say they want to lend more. But they say they're being pressured to be more selective by too-strict regulators, who have stepped up oversight to ensure banks are well capitalized and have balanced loan portfolios. For instance, the Independent Community Bankers of America, a Washington-based advocacy group, announced as part of its 2010 policy priorities that it would urge a "more measured approach from overzealous bank examiners so that they do not further exacerbate the current economic downturn and community banks' ability to aid recovery efforts."Regulators, though, say they haven't been urging banks to adopt overly rigorous standards—they simply want the banks to be prudent. "Sometimes the regulators are a convenient excuse for banks who really don't want to tell borrowers they can't make the loan," says Timothy W. Long, senior deputy comptroller and chief national bank examiner at the Office of the Comptroller of the Currency in Washington. "Deciding which borrowers the banks should lend to is not part of our examination process. We tell them to lend in a safe and sound manner."He says the effort has worked. Banks are underwriting more carefully, he says, and marginal borrowers aren't getting the overly favorable terms they often did before the recession.Some bankers, mostly at large institutions, argue that their standards—and federal oversight—haven't gotten stricter. "What has changed is the financial condition of most small businesses," says Kathie Sowa, a commercial-banking executive at Bank of America. "Few small businesses have not been impacted" by the downturn.The bankers say few creditworthy candidates are walking through their doors despite signs of economic recovery. The requests banks are getting these days are "disproportionately from businesses that we would have a difficult time lending to with confidence we'd get the money back," says Marc Bernstein, who heads small-business lending at Wells Fargo & Co.Some bankers also argue that loan volume is down because many businesses are choosing to go without funding. They say many owners don't want to take on additional debt during uncertain economic times and are opting to rein in spending and shave overhead. "Demand has been down," says Maria Coyne, executive vice president of business banking at KeyBank, a national lender operated by Cleveland-based KeyCorp.Ms. Coyne believes that lending won't bounce back to the levels of years past because borrowers realized the dangers of assuming too much debt. "We saw America deleverage by hundreds of millions of dollars, and businesses did the same thing," she says. "They hunkered down. They got refocused."Are small companies actually seeking fewer loans? It depends on whom you ask. Through the recession, the National Federation of Independent Business consistently reported in monthly surveys that the credit crunch was not the biggest issue for its constituency, because so many owners weren't seeking loans. Other small-business advocacy groups such as the National Small Business Association offer a different view. Although lower demand "may be a small part of the equation, the decrease in loans is more likely related to the terms and availability of such loans," said the association's 2009 end-of-year report.As for the quality of borrowers these days, many businesses have undeniably become less creditworthy because of reduced sales, tighter cash flow, and lower credit scores from debts and slashed credit lines. But most business owners, like Mr. Valencia, don't view themselves as risky investments.His company pulled in $2 million in sales last year, he says, and has received interest from some large international airlines. With credit access, he adds, JTI could hire 100 employees in the next four years. Without it, the company has had to shave its staff of 12 down to four."We spent quite a bit of money to procure machines and equipment," says Mr. Valencia. "I have the experience. I know what we're capable of doing."Mr. Valencia says he is having trouble with cash flow, often a red flag for bankers. But he adds that the problems are stemming not from his financial mismanagement but instead from his customers who have been slower to pay—a point he thinks banks fail to take into consideration.So far, efforts from the administration to spur small-business lending have fallen flat.As part of last year's stimulus package, for instance, the SBA enhanced its loan-guarantee program, which gives banks more confidence to lend by reimbursing them in the case of default. The program eliminated loan fees for borrowers while increasing the maximum guarantee amount to 90% from 75%.But such programs haven't proved as popular as hoped, in part because many banks are disenchanted with SBA lending programs. Particularly for community lenders, programs are too paperwork intensive and require personnel that banks can't afford. Streamlining the programs was one of the banks' top requests at a roundtable meeting with Mr. Obama in December.Last week, the House passed a $30 billion initiative for community banks to borrow from the government at low rates. President Obama, who announced the idea last October, is encouraging the Senate to quickly pass the program into law. The president has also asked legislators to pass a regulatory overhaul and raise the limits on SBA loans.There are other proposals on the table. Among other Democrats, New York Congresswoman Nydia Velázquez, who heads the House Small Business Committee, has proposed expanding the SBA's disaster-loan program, which issues loans directly to businesses in areas that have been hit by catastrophes. The agency, she says, could underwrite loans to small businesses that have not been able to get funding from banks. The SBA has vehemently opposed this idea, arguing that it lacks the infrastructure to take on such a task and would not want to compete with the lenders that use their loan products.Other proposals center on nontraditional lenders that don't work like banks and have more flexibility in lending guidelines.Some politicians, such as Yvette Clarke, another House Democrat from New York, want to expand a Treasury Department fund that supports Community Development Financial Institutions. These groups, usually nonprofit microlenders, often have a mission to target people who don't qualify for traditional loans, provided the borrowers can ameliorate the risk. For instance, some CDFIs will lend to less-creditworthy people if they enroll in financial-education courses.Similarly, the Small Business Intermediary Lending Pilot Program Act of 2009, sponsored last year by Sen. Carl Levin, a Michigan Democrat, would authorize the SBA to make direct, low-interest loans to 20 nonprofit intermediary lenders, which would then use the money to make loans of up to $200,000 to eligible small businesses.Another proposal targets credit unions, which have boosted their lending through the recession. Legislation in both the House and Senate would let these nonprofits lend 25% of their assets, up from 12.25% under current law.Meanwhile, Mr. Valencia and other hopeful borrowers continue to pound the pavement in search of financing. Until they can procure it, the promise of full recovery may continue to be out of reach. "There are millions of us that are trying to get this economy back to where we were," says Mr. Valencia. "The government is not creating programs to support start-up businesses. It's irritating." Ms. Maltby is a staff reporter in The Wall Street Journal's New York bureau. She can be reached at emily.maltby@wsj.com.

Senate Democrats Propose Scaling Back IRS Reporting Law

Fri, 06 Aug 2010 14:15:57 EDT

By Martin Vaughan U.S. Senate Democrats proposed scaling back new Internal Revenue Service reporting rules that were part of the new health-care law, continuing a retreat that began last week when their House of Representatives counterparts backed repeal of the requirements.As a result, it appears likely that the new rules will be at least watered down if not repealed completely. The rules, which were to take effect in 2012, required businesses to file 1099 information returns to the IRS showing payments to suppliers and service providers.The Senate is set to take a procedural vote Sept. 14 on a proposal from Sen. Mike Johanns (R., Neb.) to repeal the reporting rules, after Senate Majority Leader Harry Reid (D., Nev.), moved to limit debate on the measure.Mr. Johanns offered the repeal proposal as an amendment to small-business lending legislation now pending in the Senate.But most Democrats will likely oppose the Mr. Johanns proposal because it also repeals a fund that helps uninsured people get preventive medical care—raising $15 billion to help replace the additional tax revenues that were estimated to come in as a result of the IRS compliance initiative.A Democratic alternative, authored by Sen. Bill Nelson (D., Fla.) is also likely to come up for a Senate vote in mid-September.The Nelson proposal would exempt from the reporting rules firms with fewer than 25 employees. For larger businesses, it would require information returns only in cases where payments to a single vendor exceeded $5,000 in a given year—down from $600 in the health-care law.The Treasury Department would also have the ability to exempt from reporting rules certain types of payments where non-compliance risk is minimal, such as airline tickets and office supplies, according to a description of the proposal.Those changes would significantly reduce the amount of tax revenue the original reporting regime was projected to raise, to roughly $7 billion down from $17 billion over 10 years.Senate Democrats are proposing to make up the difference by repealing tax breaks to the five largest integrated-oil companies. The Nelson proposal would repeal a manufacturing deduction that equates to a 2% reduction in the effective U.S. tax rate for BP PLC, Exxon Mobil Corp., Royal Dutch Shell PLC, Chevron Corp. and ConocoPhillips. Write to Martin Vaughan at martin.vaughan@dowjones.com

Chamber Launches 'Virtual March' on Finance Bill

Mon, 21 Jun 2010 17:48:47 EDT

By Victoria McGrane It's the 11th hour for sweeping financial-overhaul legislation in the U.S Congress, and the U.S. Chamber of Commerce hasn't given up the fight.The Chamber on Monday launched the latest chapter of its on-going lobbying campaign, aiming to highlight the concerns its small-business members have with the legislation. But rather than flying small-business owners into town or taking out more full-page newspaper ads, this week the business lobby is breaking out the avatars.Starting last Thursday, the Chamber emailed its grassroots network asking members to create their own personalized avatars, or virtual versions of themselves. Once created, the avatar can participate in a "virtual march" on the Capitol.The push comes as House and Senate negotiators begin what's likely to be the last week of a conference committee tasked with reconciling competing versions of the financial overhaul bill. The Chamber opposes a number of provisions in the current bill, but the avatar push appears focused largely on the scope of the consumer financial-protection bureau that the bill would create.For instance, part of the message encouraging Chamber members to take part argues that the new watchdog "would be able to impose regulations on thousands of nonfinancial companies that aren't in the business of consumer finance and had nothing to do with the financial crisis." Consumer groups and Democratic supporters of that provision in the bill contend that it wouldn't capture truly nonfinancial businesses.Already, more than 24,000 avatars have gathered on a Google Maps image of the National Mall. Each is labeled with the name and location of its creator, such as "Alicia" from Sparks, Texas. Lawmakers will be able organize the avatars by state so they can see how many of their own constituents turned out for the march."Conferences are always a member-to-member play, more than a lobbyist-to-member play," said David Hirschmann, the Chamber's senior vice president. "But what they're all thinking about is what does back home think about this?" The virtual march is the Chamber's way of reminding key lawmakers what its members think, he said.Since last September, the Chamber has spent more than $3 million fighting against key aspects of the bill. Its members also have sent more than 250,000 letters to lawmakers.

BP's Independent Dealers Face Threat

Wed, 16 Jun 2010 00:17:29 EDT

By Naureen S. Malik Protests and boycotts of the BP brand generated by the Gulf spill aren't likely to have a big immediate impact on BP PLC, but could threaten the thousands of entrepreneurs who have staked their livelihoods on the company's name.Nearly all the 10,000 service stations around the U.S. flying the BP flag are owned by independent dealers that are obligated under long-term contracts to sell BP-branded fuel. Some worry that mounting anger over the spill's environmental and economic toll could turn the once-highly coveted brand into a liability.But the actual gasoline the stations sell is a mixture of fuel from multiple refiners or importers, so the direct impact of any slowdown at BP-branded stations is minimal for the oil giant, which can sell excess supplies as private-label fuels to other retailers. Maintaining a brand presence is important to BP, but the marketing segment only represents a sliver of profit for the company.BP stations in Florida immediately saw consumers turning away after the leak began in late April. Total sales at BP stations there declined 8%-10% in May compared with last year, while competitors benefited from additional traffic, said Jim Smith, president of the Florida Petroleum Marketers and Convenience Stores Association. The magnitude of the sales declines "means that we are going to have a lot of small business owners going out of business," he said.Hundreds of Facebook pages and Twitter accounts have sprung up dedicated to the spill coverage, and some have organized protests. Some BP station owners are hearing complaints from customers about the spill or motorists yelling as they drive by. But station owners and independent distributors, who bring fuel to the stations, say it is more difficult to quantify the silent protesters who simply drive to other stations to fill up."People are kind of melting away," said Jay Ricker, chairman of Ricker Oil, noting that same-store sales across the company's 35 BP stations in Indiana fell 5.4% last week, the first decline seen this year.Independent fuel distributors, known in the industry as jobbers, are worried about the reduced demand for BP-branded fuel. Station owners are concerned that a drop in motorists filling up their tanks will clip purchases for items such as chips and sodas at attached convenience stores, which account for less than a third of sales but two-thirds of profits."The distributor and retailer communities have really become the lightning rod of the consumer backlash, easy targets," said John Phelps, president of Carroll Independent Fuel Co., which supplies 110 BP stores in the Baltimore area. Carroll acquired most of them in the past five years in an effort to bank on BP's strong brand name and its push toward an environmentally friendly image, he said.Some BP-branded fuel retailers say there has been a noticeable change in consumers' attitudes since the start of June, when images of oil-blackened wildlife and tar balls on beaches heightened the public's anger about the spill."It really coincided with the oil coming ashore," said Jeff Miller, president of Miller Oil Co., a family-owned distributor based in Virginia Beach, Va., that supplies about 50 million gallons of BP gasoline annually and owns 16 stations. He has seen gasoline sales fall 2%-3% this month at four BP stations in tourist areas.BP employees are working with local fuel retailers to launch grass-roots marketing campaigns and are visiting sites to talk to concerned consumers, said John Kleine, executive director of the BP Amoco Marketers Association, an independent organization representing independent distributors. The company's support includes full reimbursement for advertising costs normally split with jobbers. The money frequently goes to on-site promotions at service stations. "BP looks at what they are doing now as a long-term investment for the brand and knowing that investment will play out over time if you are doing the right thing," Mr. Kleine said.So far, jobbers and retail stations are largely sticking with BP rather than switching to other brand names, which could require buying out expensive contracts, said Dan Gilligan, president of the Petroleum Marketers Association of America, an industry group. Write to Naureen S. Malik at naureen.malik@wsj.com

Disasters' Silver Lining: Green

Wed, 23 Jun 2010 16:44:49 EDT

By Sarah E. Needleman When a large number of people die, such as after a massive fire, shooting or natural disaster, Michael Richardson's 15-person business provides a way to keep the bodies cool while local authorities search for enough refrigerated facilities to house them."We benefit from other people's miseries more or less," says Mr. Richardson, president of Mortuary Response Solutions, a Belton, S.C., manufacturer of cadaver storage and transport equipment used when fatalities exceed the number of available units in an area. "It sounds kind of morbid or arrogant, but someone's got to do it."In recent years, many small companies have begun offering services and products for dealing with disasters. They say more businesses, government agencies and individuals are looking to safeguard themselves from potential catastrophes in light of the terrorist attacks of Sept. 11, 2001, Hurricane Katrina and more recently, the oil spill along the Gulf coast.DKI Services Corp., a national franchise system that specializes in cleaning up homes and businesses that have been inflicted by major trauma, hosts an annual trade show for the disaster-relief industry and has seen attendance increase in recent years. In January, the convention welcomed 500 participants, up from 430 in 2009 and 390 in 2008. Dale Sailer, president of the Woodale, Ill.-based franchise, which has 400 outlets nationwide, estimates that the number of disaster-preparedness and recovery businesses has increased by 20% to 30% over the past five years, adding that most are small.Last month, two disaster-relief companies were honored by the Small Business Administration. Engineering & Computer Simulations Inc., based in Orlando, Fla., was named National Small Business of the Year, while J.C. Restoration Inc., in Rolling Meadows, Ill., was second runner-up among 53 finalists, which were made up of winners from each of the 50 U.S. states as well as the District of Columbia, Puerto Rico and Guam.Engineering & Computer Simulations provides customized software programs aimed at helping emergency-response professionals design and practice strategies for reacting to various disaster scenarios. Its customers include the federal government, local police and fire departments and hospitals.The 55-employee company has seen its revenue grow by more than six times over the past five years, largely due to military spending, and last year earned $11.5 million, says owner Waymon Armstrong. J.C. Restoration provides 24-hour emergency services to homes and business throughout the U.S. that have been damaged by natural and other disasters. "When bad weather's coming, I got a smile on my face," says owner Warner Cruz.Mr. Cruz took over the business in 2002 from his father, a Guatemalan immigrant who built it 20 years earlier. He added marketing staff to promote it, something his father didn't focus on, and says sales have increased about 38% each year ever since. The company is on track to post about $16 million in revenue this year, according to Mr. Cruz. "Mother Nature has been active," he says.J.C. Restoration did see sales decline among one demographic last year—homeowners. Mr. Cruz says this group, which represents about 45% of his business's customers, in many cases may not have used money gained from insurance claims on damages to their homes for repairs, most likely due to the recession's impact on their finances.Businesses, on the other hand, continued to reach out to the company for as much support as usual, adds Mr. Cruz. "All they care about is getting back up and running," he says.Demand for disaster-relief services and products does tend to waver, though history shows that natural catastrophes and accidents occur regularly. So far this year, there have been 47 disasters declared in the U.S., 59 for all of last year, and 75 in 2008, according to the Federal Emergency Management Agency. "There's always going to be disasters," says Mr. Cruz. With hurricane season afoot, Agility Recovery Solutions Inc. has been fielding more inquiries than usual, according Bob Boyd, president of the Charlotte, N.C., provider of emergency-response services such as back-up computer support and mobile offices. The National Oceanic and Atmospheric Administration predicts this year will exceed the average of 11 named storms, six hurricanes and two major hurricanes along the Atlantic. "Anytime there's a big disaster, we have more customers calling us, and when we call prospects, they're more receptive to hearing about potential solutions," says Mr. Boyd.Agility, which has about 75 employees, originally catered to large companies when it launched in 1989, but after adding affordable options for small and medium-size concerns in 2005, the company's customer base grew seven-fold to its current roster of around 7,000 clients. "There was never a service like this for small businesses historically," says Mr. Boyd. Write to Sarah E. Needleman at sarah.needleman@wsj.com

House Approves Small-Business Tax Incentives

Tue, 15 Jun 2010 18:58:51 EDT

By Martin Vaughan The U.S. House of Representatives approved legislation to eliminate capital-gains taxes on some small-business investments.The House adopted the $3.5 billion in tax breaks on a 247-170 vote. The bill will be fused with a separate measure, which the House will vote on Wednesday, aimed at boosting lending to small firms, and then shipped to the Senate for consideration.The House bill builds off proposals from President Barack Obama aimed at spurring investments in small business, and fits in with his recent theme of a helping hand for Main Street."This bill represents a continuation of our work to spur job creation and improve the quality of life in our communities," said Ways and Means Committee Chairman Sander M. Levin (D., Mich.).But Rep. Dave Camp (R., Mich.), said that "while the tax relief in here is welcome, it is not enough and won't actually help small businesses create the jobs we need to reduce our stubbornly high unemployment rate."The bill would provide a 100% exclusion from capital-gains taxes for certain small-business stock purchased between March 15, 2010, and Jan. 1, 2012. Current law allows investors to exclude 75% of income from such investments from capital-gains taxes.The stock must be held for at least five years to qualify for the exclusion.Before passing the small-business bill, the House defeated an amendment from Mr. Camp to repeal the requirement in the health-care law that Americans purchase health insurance. It failed on a 187-230 vote but drew support from 20 House Democrats.The bill also includes a provision limiting the use of grantor-retained annuity trusts, a vehicle used by wealthy families to minimize estate taxes. Those limits would raise $5.3 billion for the Treasury over 10 years. The bill raises another $1.9 billion by barring paper producers from claiming a tax credit intended for producers of cellulosic biofuel.The capital gains exclusion has been criticized because most small businesses won't benefit from it.Only small firms organized as C corporations will benefit. Investments in service corporations like law, engineering or consulting firms, farms, hotels, restaurants or natural resource extraction businesses are not eligible. Alan Viard, resident scholar at the American Enterprise Institute, said the multiple restrictions on the capital gains tax break made it "distortionary" and "inefficient.""In order to benefit from this, you've got to search out a corporation, to buy the stock at original issue, and hold on to it for five years," Mr. Viard said. "This is a pretty unambiguous thing to condemn." Write to Martin Vaughan at martin.vaughan@dowjones.com

House Aims to Boost Small-Business Loans

Thu, 17 Jun 2010 19:40:37 EDT

By Martin Vaughan WASHINGTON—The U.S. House approved legislation Thursday to create a $30 billion fund to boost lending to small businesses through community banks.The vote was 241-182. The bill will now be combined with a $3.5 billion package of tax cuts directed at small businesses, which the House passed earlier this week and sent to the Senate for approval. "This bill will increase credit to small businesses and get them back on their feet, and help them continue to add jobs," Rep. Ed Perlmutter (D., Colo.) said during House floor debate. House Republicans derided the bill as more government bailout spending, labeling the $30 billion fund "TARP junior," after the Troubled Asset Relief Program. The House defeated a Republican motion which would have subjected the program to the oversight of the special inspector general of the TARP. Democrats contend that the fund is already under oversight of Treasury's permanent inspector general, and that it is unrelated to TARP. Industry groups representing regional and large national banks backed the legislation, as did some small business and real-estate groups. Banks with total assets of less than $10 billion would be eligible to receive capital investments from the fund, under the bill from House Financial Services Committee Chairman Barney Frank (D., Mass.). Banks with higher rates of lending to small businesses and farms would qualify to have interest rates lowered on those capital infusions. The bill would also provide $1 billion, to be matched by private capital, for a new equity financing program for start-ups. That fund will be overseen by the Small Business Administration. "Twenty years ago, entrepreneurs were likely to rely on loans and credit cards to launch or expand their businesses. This met the needs of most entrepreneurs, but today's start-up costs have grown dramatically," said House Small Business Committee Chairwoman Nydia Velasquez (D., N.Y.), explaining the intent behind the start-up fund. The bill also includes another $2 billion for state programs intended to leverage private bank lending to small businesses. The lending bill will be paired with tax incentives passed earlier this week by the House. That includes a proposal from President Barack Obama to eliminate capital-gains taxes on sales of certain small business stock. The combined cost of both measures is roughly $7 billion over 10 years, all of which is offset by revenue provisions. For instance, the bill would put curbs on the use of grantor-retained annuity trust to avoid estate taxes. The cost of the $30 billion fund is estimated at $3.3 billion over 10 years. This is because to the extent the capital lent out to banks is paid back, it is not counted against the federal budget. Write to Martin Vaughan at martin.vaughan@dowjones.com

Is Start-Up Savvy in Your DNA?

Wed, 16 Jun 2010 11:51:21 EDT

By Dyan Machan Ross Staszak and Aksel Güngör have just graduated from Drexel University. Both want to start companies, and both are wondering whether to study entrepreneurship in grad school. But perhaps the question they should be asking is this: Do they have the right DNA?We've always had a hunch that entrepreneurs are a different breed, but some academics are taking that idea quite literally. Turns out, part of being an entrepreneur may be innate, and researchers are getting close to identifying genes associated with start-up savvy. According to Case Western Reserve University economics professor Scott Shane, author of Born Entrepreneurs, Born Leaders, 40 percent of the variation in the tendency to be an entrepreneur is inherited. His work puts a new spin on an age-old question: Can classroom learning really teach you how to succeed?It's an issue that's likely to cause heartburn for educators. Entrepreneurial education is a fast-growing business: In 1999, there were fewer than 100 undergraduate and graduate entrepreneurial programs, but today there are at least 700, according to the Princeton Review. And the tuition of a grad-level entrepreneur program averages nearly $40,000 a year—quite a bit to pay if Mom and Dad have already given you what it takes.There's no such thing as a start-up gene, alas, but researchers think they've found a group of personality traits that successful entrepreneurs share, including higher-than-average extroversion, openness to experience and even the capacity to be disagreeable—a useful predisposition for someone who drives hard bargains. And other research suggests that many of these qualities may be related to people's genetic makeup.To Mr. Shane's thinking, it's not a big leap from this notion to the idea of DNA-based education. People who are genetically inclined to be risk takers, for example, might be trained to evaluate opportunities differently from people predisposed to be conservative. And instructors could customize entrepreneurship education for the people who can best benefit from it. "Instead of assuming everyone is equal and will respond to education the same way," Mr. Shane says, "we will be able to look at genetic predispositions and figure out what fits."To many, the heredity-is-destiny idea is disturbingly undemocratic. Others find it intriguing. "Most people, over a beer, would admit there's probably some truth in the nature-over-nurture argument," says Josh Lerner, a professor at Harvard Business School. But, he adds, educators shouldn't restrict education to only the people deemed to have personality traits that offer the most potential. Fair enough, says Mr. Shane. But if you're a basketball coach, and one of your players is under 6 feet while another is over 7 feet, should you train them to play the positions that suit their bodies best, or should you "just ignore the genetic differences"?For students like Messrs. Staszak and Güngör, a lot of money and time ride on this debate. Mr. Staszak, an engineering major, wants to study general business first. Mr. Güngör, a business major, thinks you learn entrepreneurship "from just doing it." And the two have done it: Two years ago they launched a beverage-delivery service called Drexel Drinks. They didn't make much money, but both learned a lot about network building and hard work. So does this mean they have the right genes, if such exist? They pause, then decide to sidestep the question. "I like wearing jeans!" quips Mr. Staszak. Write to Dyan Machan at dmachan@hearst.com

Start-Ups on a Shoestring

Mon, 16 Aug 2010 12:47:55 EDT

By Colleen DeBaise, Sarah E. Needleman and Emily Maltby You don't have to break the bank to start a business.For many would-be entrepreneurs, money is the insurmountable hurdle. They hunger to strike out on their own, but don't have a big pile of cash to invest in a start-up that might not churn a profit for years to come. And they're reluctant to stake what cash they do have while the economy is still shaky.We decided to see if you could launch a venture for less than people think. A lot less. We set out to find bootstrapping business owners who started companies in recent years—without shelling out more than a couple of hundred dollars.The ground rules: The entrepreneurs had to be either paying themselves a salary or reinvesting substantial profits in the business, as well as planning to continue down the entrepreneurial path for some time to come. We also nixed people who opened consulting firms in fields where they had already built careers. While that's certainly entrepreneurial, we wanted people who were truly starting from scratch.What did we discover? With creativity, commitment and resilience, an entrepreneur can turn even a small investment into an impressive business.The stories we found contain several common threads. Hard work is one. If you don't have a lot to spend, expect to put in a lot of time and energy. As Jeff Swedarsky of Alexandria, Va., put it, he started his food-tour business for "$100 and 100,000 hours."But the bootstrapping entrepreneur can also get help from lots of technological tools. For instance, professional-looking websites and automated phone-answering systems can speed sales and make a start-up look more impressive to potential customers.Technology, in fact, is a big reason it's possible to launch a business so cheaply. Thanks to the proliferation of the Internet and the accessibility of once-costly technology, start-up costs "have plummeted in the last 10 years," says Bo Fishback, vice president of entrepreneurship at the Ewing Marion Kauffman Foundation, a Kansas City, Mo., nonprofit devoted to entrepreneurship. "It's gotten so much easier to reach mass markets and test out ideas. This is something that's becoming accessible to anyone with an idea."Of course, there are limits to what hard work and tech savvy can do. Babson College has estimated that on average it takes about $65,000 to start a business, a figure that can include everything from buying equipment and inventory to paying employees. Some industries come with even higher price tags, according to the Kauffman Foundation—$82,000 for construction, $98,000 for retail and $175,000 for manufacturing, to name just a few.And even if you get your business off the ground for pennies, there's no guarantee that you'll keep rising. About half of all start-ups close within five years, and most research indicates that's usually due to lack of capital.Those are the risks. For a look at how three entrepreneurs are navigating them—and finding rewards along the way—read on. Kael Robinson Live Worldly LLC Started with: $40In 2007, Kael Robinson received an unusual gift—a flimsy cotton bracelet with Portuguese lettering on it and instructions to make three wishes while tying it on. She didn't wish that the wristband would lead her to a successful business venture, but that's exactly what happened.The good fortune didn't arrive immediately. Six months after she received the gift, Ms. Robinson got laid off from her public-relations job and was putting in a few hours a week as a lacrosse coach at a Denver high school. During this stretch, she took a family vacation in Argentina, where she made an interesting discovery: Her bracelet was a hot item there. "I saw everybody wearing them," the 27-year-old recalls.Ms. Robinson, who had gotten a taste of entrepreneurship in college selling handmade jewelry, had a hunch about the accessories. After she returned home she bought 100 of the bracelets for $40 from a wholesaler in South America. Wearing five of them herself, she offered them to her student athletes for $2.50 apiece and quickly sold out, prompting her to invest in another 100 units. "I thought about what would be my target market and how high school is where trends start," she says. "The girls immediately hopped onto it."Ms. Robinson soon had more orders than she could fill—at a new retail price of $5 per bracelet—giving her enough confidence to purchase another 1,000. She then began cold-calling local businesses and several agreed to resell her product on a consignment basis.Gradually, retailers throughout the state and beyond began calling and emailing her to place orders. But she also took on some big expenses that cut into her profits. She donated 20,000 bracelets to charities, retailers and others to get the word out, for instance, and committed 20% of her sales to the nature nonprofit Plantabillion.org—a pledge she says helps drive business.By the summer of 2008, Ms. Robinson had earned enough to pay for a professional website and logo for the company, now known as Live Worldly LLC. She also hired a publicist friend who helped her write and distribute press releases. CosmoGirl became the first of several magazines to publish a blurb on her company.Ms. Robinson says the press attention inspired her to contact high-end boutiques: Barneys New York, Fred Segal and Kitson. She sent each of them a copy of the short article and 50 bracelets in a "really cool glass bowl so they could take it out of the box and display it," she says.The stores sold out of the free samples within a week and began ordering more. The following winter, Ms. Robinson says, she started asking foreign buyers—individual consumers and retail shops—if they'd be interested in distributing her product in their respective countries, and many agreed. She also began expanding her catalog to include jewelry and apparel from around the globe, all with special meanings or cultural value, she says. For instance, she now offers necklaces, bracelets and earrings from Tibet that have been blessed by monks.These days, her products are for sale in more than 500 stores world-wide. The company has a more sophisticated website and two full-time employees who handle order fulfillment, new-business development and bookkeeping. Last year, Live Worldly racked up $60,000 in profits on revenue of $160,000, compared with $10,000 in earnings on revenue of $50,000 the year before.Ms. Robinson says she made some mistakes along the way that ate into her totals. For example, she says she wasn't asking enough for shipping; at first, she charged $8.99 to ship 20 or more bracelets to stores in the U.S., and now she charges $12.99. She was also paying printing costs of 35 cents per bracelet tag; about six months ago, she switched to a cheaper printer and now pays 20 cents per tag.Ms. Robinson says she hasn't yet begun paying herself a salary and is continuing to put her earnings back into her enterprise. She says she lives frugally and relies on savings and income from coaching to make ends meet. She advises others looking to follow in her footsteps to create a list of objectives with deadlines when starting out. "That helped me a lot," she says. "It made me work hard to get those goals." Jeff Swedarsky Food Tour Corp. Started with: $110By day, Jeff Swedarsky is a self-described paper pusher at the Department of Homeland Security, where he works in ship acquisition for the U.S. Coast Guard. But by night and weekend—pretty much the rest of his waking hours—he's the director of Food Tour Corp., the company he created that offers culinary excursions of Washington, D.C., neighborhoods."I'm huge into food," says the 29-year-old Mr. Swedarsky, who runs Food Tour out of his Alexandria, Va., home. "I've traveled to 41 countries now—and every time I go someplace, it's all about food and doing it the local way. Food is one of those things that brings people together, no matter where you go."Mr. Swedarsky got his first taste of entrepreneurship during a post-college stint in Slovenia, when he helped to develop a now-defunct smoothie company. After finishing his M.B.A. in 2006, he was ready to start a business, inspired by a newspaper article about culinary tourism, but he lacked the dollars he needed. The solution, he soon realized, would be to take a 9-to-5 job to pay his bills and build Food Tour organically.In 2007, Mr. Swedarsky outlined the Food Tour concept in a brief written presentation, and used that to hook local restaurant owners' interest. The plan: He would bring in small groups for special tastings, during the slow period between lunch and dinner, and restaurants would make them smaller, customized dishes that weren't on their usual menu and that reflected local history, such as Virginia ham."Once [restaurants] understood that we were going to pay them and bring in folks, they were on board," he says.Mr. Swedarsky then paid $100 in filing fees to register his business with the Commonwealth of Virginia and $10 to buy his online domain name through GoDaddy.com; he created a website himself. "I had free Web-design software and Photoshop that had been given to me years ago," Mr. Swedarsky says.Mr. Swedarsky gave his first official tour in May 2008 with just two people along for the ride, "cute ladies who must have been in their 50s, from New York," he says. "They did a Google search and found us."After that, "it started to pick up speed," he says. Food Tour garnered a mention in the Express, a free newspaper that's given to commuters jumping on the Metro. After about six months, Mr. Swedarsky hired his first part-time employees to lend a hand. "I knew I was getting burnt out," Mr. Swedarsky says.These days, Mr. Swedarsky employs 23 part-time staffers, primarily tour guides, and he rarely gives tours himself. Instead, he focuses on expanding the company, which now offers several tours, lunches and pub crawls in Washington and Baltimore, and is preparing to acquire a competitor in Annapolis, Md. Generally, tours are limited to about 12 to 14 people, and tickets cost about $50 to $60.Mr. Swedarsky hopes the company will clear $300,000 in sales this year, though he's not yet paying himself a salary or quitting government work anytime soon. "Keeping the day job has ensured I don't have a life," he says, but the steady paycheck allows him to reinvest profits into the company.He advises other wannabe entrepreneurs to pursue their ideas but "make sure it's something you absolutely love." Count on needing to finish projects at "11:45 on a Sunday night—you are going to have to push yourself," he says. "If you can do that, the money will eventually come." Marc Ringel Floor Works New York Started with: $145 Marc Ringel says that he was "really scared" when he first started his flooring company in July 2007. "The thing that freaked me out was that I had no margin of error," he says. "I had no money."Before he struck out on his own, Mr. Ringel, who is now 32, had never been able to build up savings. For several years, he was a math teacher in New York City, a job he landed after struggling to find openings suited to his computer-science degree. He enjoyed helping the students and "doing something good," but he was barely making ends meet.So, he jumped at the opportunity to work for a colleague who ran a flooring company on the side. The job, which entailed finding new clients and marketing for the company, wasn't terribly lucrative. Mr. Ringel made only $2,000 in commissions his first year.Still, he was so discouraged at his teaching job that he moved to the flooring company full-time in 2005—and took the chance to learn everything he could about the business. He observed how a small enterprise operated and watched the contractors to better understand the trade, even helping them occasionally.At the time, sales were booming, and Mr. Ringel thought the company had the potential to soar even higher, if it implemented systems and processes that would better organize and dispatch the contractors. But the owner didn't have the same vision. "I could see fundamental differences in our philosophies," Mr. Ringel recalls. "And I wasn't moving forward."Against the advice of friends and family, he decided to start his own flooring business in the summer of 2007. It was a risky time; many contractors were feeling the impact of the housing-market bust. Mr. Ringel had to act fast to get his own firm up and running while it was still a busy season for repairs and renovations.The problem: He didn't have the licenses or insurance that contracting companies require—nor could he afford them—and he had only a cursory knowledge of how to lay a floor. He did, however, have a solid network of contractors and he knew how to attract new clients. So, Mr. RIngel says, he approached a licensed and insured freelance contractor and asked to solicit work for him, in exchange for a cut of the profits. The contractor agreed. Mr. Ringel set up a phone line, with a voicemail system that left callers thinking that they had dialed a fully staffed company, he says. It cost about $20 a month. He also bought new business cards for $25. Finally, he spent $100 for the hosting and domain name of a new website, which he designed himself.Within days, Mr. Ringel had signed three jobs for the independent contractor, most of them referred from Mr. Ringel's clients at the other flooring company. And he was careful with the cash that came in. "I constantly reinvested" earnings, Mr. Ringel says. "I would take money out of the company only if I really needed it."By August 2007, the Astoria, N.Y., start-up had $7,000 in reserves. Mr. Ringel spent the money on formally incorporating the business, as City Works New York Inc., which does business as Floor Works New York, and filing for his own proper licenses and insurance. He also partnered with a number of other flooring contractors.With all that in place, he was able to land a large job with an 8,000-square-foot art gallery in September 2007. "The pitfall was that a big influx of money can make you think, 'Oh, I'm rich now,' but that's when you need to be careful," Mr. Ringel says. "Winter got very slow."To push him through the season, Mr. Ringel decided to try for free advertising, encouraging the public to rate Floor Works, on sites like StreetEasy.com, UrbanDigs.com and AngiesList.com. The good reviews attracted new clients, and Mr. Ringel made a point to be present at the jobs, to increase his understanding of the business, he says.By the middle of last year, Mr. Ringel had started paying himself a regular salary. And when winter rolled around, he was ready for the slump, adding painting to his services to supplement the flooring work. He declines to disclose his revenue.Mr. Ringel's career jump wasn't easy, but for others who strive to do the same, he suggests having the safety net of a secure job, the way he did when he was making the transition."Making a mistake—or a string of mistakes—doesn't mean you're a failure; it's part of the learning process," he says. "There's no magic formula for building a business, you just need a willingness to do lots of hard work and a high tolerance for agita." Ms. DeBaise is The Wall Street Journal's small- business editor, and Ms. Needleman and Ms. Maltby are staff reporters in the Journal's New York bureau. They can be reached at colleen.debaise@wsj.com, sarah.needleman@wsj.com and emily.maltby@wsj.com.

Putting Cleveland on Entrepreneurs' Map

Wed, 25 Aug 2010 13:22:16 EDT

By Russell Garland Nearly a decade ago, a group of community leaders decided to focus on Cleveland's economic future instead of its past.They wanted to make Northeast Ohio, once a center of industrial innovation, a good place to start companies again and were vexed by the fact that while Great Lakes pension funds, foundations and endowments were a major source of venture capital nationally, little of that money flowed back to the region.Tapping state and private funds, the group set out to create an environment to encourage innovation and entrepreneurship. JumpStart Inc. is a centerpiece of that effort. It's a nonprofit business accelerator providing entrepreneurs with financing and advice as well as promoting economic development initiatives and running outreach programs to encourage entrepreneurship.Its venture capital unit, JumpStart Ventures, looks to finance technology, health-care and clean-technology companies at the earliest stages to get them to the point where they can attract money from angel investors and venture firms. JumpStart Ventures gets half its money from Ohio's Third Frontier economic development initiative and half in matching grants, primarily from foundations in Ohio. It doesn't invest for financial returns. "Follow-on funding is our key metric that we look at," said JumpStart Ventures President Rebecca Braun.As a measure of JumpStart's success, she said that her venture group has invested $16.5 million in almost 50 companies since its launch in 2004, and those companies so far have raised about $120 million in follow-on rounds.One of the companies JumpStart backed in 2006, CardioInsight Technologies Inc., raised a $6 million Series B financing earlier this year from prior investors Case Technology Ventures and Draper Triangle Ventures. The Cleveland-based company, which was started in 2005 by two doctoral students at Case Western Reserve University, is developing cardiac-mapping technology.Another company, Cleveland-based OnShift, a developer of employee-scheduling software for businesses such as nursing homes that work in shifts, received a staged financing from JumpStart, North Coast Angel Fund and Early Stage Ventures. JumpStart put in an entrepreneur in residence, "a take-charge, no-nonsense manager" who helped the company sign up 60 customers in less than a year, said Jonathan Murray, the managing director who led the deal for Cleveland-based Early Stage last September.Mr. Murray said JumpStart has a rigorous process for evaluating business plans and can "take the early stuff and filter it," allowing other investors to concentrate on the most promising ideas. But Mr. Murray said JumpStart is only part of the effort to boost innovation in Cleveland. Early Stage itself, which was launched in 2001 with a grant from Ohio and now manages two funds totaling $100 million, is a piece of the puzzle as is the North Coast Angel Fund.Since he moved to Ohio in 1998, Mr. Murray said start-ups in the state have been raising substantially more venture capital. In 2004, when JumpStart Ventures made its first investment, there were 13 equity investments in venture-backed companies in Ohio; in 2008 there were 54, according to VentureSource, a unit of Wall Street Journal owner News Corp. Ms. Braun said the biggest challenge facing JumpStart Ventures is the contraction of the venture industry nationally, making it harder to raise later rounds.But Ms. Braun, who is from the Boston area, said Cleveland will establish itself as a leading center of innovation. "I really have achieved the conviction of the converted," she said. "To recognize that, we always have to work harder than [Boston's] Route 128 or Silicon Valley." This story originally appeared in Private Equity Analyst, a monthly magazine published by Dow Jones & Co. that covers the venture capital and private equity industries. Write to Russell Garland at russell.garland@dowjones.com

Big Banks Loosen Lending Standards

Tue, 17 Aug 2010 02:47:38 EDT

By Sudeep Reddy And Robin Sidel Big banks in recent months eased standards on small-business lending for the first time since late 2006, a Federal Reserve survey found, but customers of all sizes showed little appetite for loans with the economy slowing.Banks eased lending standards and terms modestly from April to July in many categories of borrowing, particularly those where they faced competitive pressure from other banks and nonbank lenders, according to the Fed's survey of banks' senior loan officers. The results, however, reflected only a gradual return toward conditions before the financial crisis, when banks tightened standards sharply.Despite a loosening by large financial institutions, smaller banks remained more cautious about lending. "While the survey results suggest that lending conditions are beginning to ease, the improvement to date has been concentrated at large domestic banks," the Fed said. The Fed's findings, based on responses from 57 domestic banks and 23 U.S. branches of foreign banks, are a positive sign for an economy still struggling from financial stresses that began three years ago. Loan officers at big banks said conditions also eased for consumer loans, such as prime mortgages, and most commercial loans, though commercial-mortgage standards tightened further.But a lack of improvement in demand for loans among consumers and businesses indicates that even modestly looser standards—alongside historically low interest rates—aren't enough to spur stronger economic activity."When you're getting looser from the most severe credit crunch since the 1930s, it's all relative," says economist Paul Ashworth of Capital Economics. "The bigger problem at the moment is the lack of demand for credit."The divide between lenders and borrowers is a big stumbling block to a recovery in the battered banking industry and the overall economy. In part, that is because the definition of a creditworthy borrower has changed. Small businesses that were deemed creditworthy just a few years ago may not be considered a good risk today, because banks are scrutinizing the finances of such borrowers more closely than before.Indeed, bankers insist that they are booking all the good loans they can find."We and our competitors are beating each other up trying to get all the good business loans we can, but it's been a case of lack of demand or credit issues," says J. Williar Dunlaevy, chief executive of Legacy Bancorp Inc., a Pittsfield, Mass., based holding company that owns a community bank with about 20 branches in Massachusetts and New York.Large corporations have found looser terms throughout the year as banks compete for their business. But smaller companies, firms with annual sales of less than $50 million, continue to cite the difficulty in obtaining loans as an obstacle to expanding activity and creating jobs. And despite the most recent easing of terms, lending conditions remain far tighter than they were before the downturn, blocking out many small-business owners.Surveys of small-business owners offer mixed signals about the effects of tight credit conditions. The National Small Business Association found in a survey released last month that four out of five small-business owners reported that their company "has been impacted by the credit crunch." That matched the high reached in July 2009, up from 55% in February 2008.The latest survey by the National Federation of Independent Business, a separate trade group, last month found 91% of small-business owners reporting that their credit needs were met or they did not want to borrow, while only 4% cited financing as their top business problem. Uncertainty about the economy held back far more firms from investing: The percentage of business owners planning to make capital expenditures in the next few months fell one point to 18%, two percentage points above the 35-year record low. Only 5% said right now is a good time to expand facilities.One small business that has seen looser credit terms in recent months is Butech Bliss, a designer and maker of metal-processing equipment in Salem, Ohio, with annual sales of about $50 million.Jock Buta, the company's executive vice president, says that his bank clamped down hard on him after the crisis hit. "It got real uncomfortable for a period," he says. "Then a few months ago, they came and you could tell something had happened. They were our friends again." Mr. Buta says his bank has given him a "significant" reduction in fees and the interest rate he pays on his outstanding debt. He remains cautious about spending, however, and notes that one reason he thinks his bank loosened terms for him is that Butech Bliss has remained profitable throughout the crisis.The Fed report released Monday is based on survey data, collected from July 13 to July 27, and was reviewed by policymakers ahead of their meeting last week. Central-bank officials, facing a slowing economy, decided to reinvest the proceeds of maturing mortgage-backed securities the Fed held in order to keep its balance sheet stable and avoid any tightening of financial conditions.For small businesses, the improvement shown in the Fed survey was modest. About 14.5% of banks said they eased standards for small-business loans, while 5.5% tightened them. The other 80% remained unchanged.Loan books shrank during the second quarter at many big U.S. banks, contributing to revenue declines at institutions such as Bank of America Corp. and Citigroup Inc. Bank of America executive Kathie Sowa said the Charlotte, N.C., lender hadn't changed its underwriting standards for businesses with less than $50 million in revenues and that "demand continues to be weak and flat." "What is driving some of the easing is that there are fewer creditworthy companies and more competition for those creditworthy borrowers," said Ms. Sowa, a commercial-products executive in global commercial banking. Where some big banks say they are seeing signs of more demand is among their smallest customers. Large corporations, on the other hand, are "reluctant to pull the trigger on hiring and investing," said J.P. Morgan Chase & Co. spokesman Thomas Kelly. J.P. Morgan Chase said its lending to businesses with less than $20 million in sales was up 37% in the first half of 2010 to $4.5 billion, up from $3.2 billion in the first half of 2009. Of the $4.5 billion in new small-business loans, $160 million was to firms that were turned down once and received a "second look," Mr. Kelly said. The bank in those cases will experiment with the lending amounts or collateral to see if another solution is possible.Wells Fargo & Co. and Bank of America also have such "second look" policies in place. "I don't know if it's easing standards as much as it is looking at different ways" to make the loan, Mr. Kelly said. Write to Sudeep Reddy at sudeep.reddy@wsj.com and Robin Sidel at robin.sidel@wsj.com

The Art (and Journey) of Raising Funds

Tue, 13 Jul 2010 09:49:46 EDT

By Rosalind Resnick For an entrepreneurial start-up, landing that first check from an investor is a milestone.What many start-ups don't realize is that the seed capital they raise – often from friends and family – is just the first step in a fundraising journey that can drag on for months or even years. My client, John White, is more than two years into the process of securing $14 million in funding for his company, Joy Berry Enterprises Inc., which plans to republish the works of popular children's author Joy Berry across multiple media platforms. In June 2008, he and partner John Bellaud won their first $600,000 from angels to jumpstart the company—and expected smooth sailing from that point on. Then the financial markets collapsed in the fall of 2008, and John's company found itself smack in the middle of the worst fundraising environment in decades. Piecing together funding from angel investors and family offices (which typically manage money for high-net-worth families), the company managed to scrape together $3 million – enough to license Berry's titles and bring them to market but not enough to acquire the intellectual property and fully execute the business plan. Today, with the economy beginning to recover, John and the company's chairman, Kay Koplovitz, founder of USA Network, are back on the road raising $800,000 in working capital to fund operations through December 2010 and a larger round of $10 million to acquire Berry's catalog of titles, develop animated properties and pursue licensing opportunities. Here are some of the lessons that John and his partners learned along the way: • Don't expect to raise all the money at once. While the purpose of a business plan is to show investors your company's true potential, don't fold your cards if you can't raise the money you need to execute your entire plan right away. Over the last two years, Joy Berry Enterprises has raised money in five separate tranches, some as small as $200,000. • Be prepared to give investors more. Even in good times, investors in early-stage companies expect to be compensated for the risk that your company might fail and they'll walk away with nothing but a write-off. With early-stage capital in short supply, start-ups need to be ready to give away a larger chunk of their company than they might have when times were flush and to pay higher interest on the money that they borrow. In John's case, his company raised $800,000 in convertible debt at 12% interest in 2008. After the market crashed, JBE raised another $600,000 at 15% interest in April 2009. The new note will convert to equity upon a $5 million capital raise. "The terms were tough, but we needed the capital," he says.• Adapt your business plan to the funds available. If you wait to fund your entire plan before starting operations, you may never get your company off the ground. At the same time, you may need to scale back your plans if you decide to start your company with less. "We raised our first round of $600,000 from angels and founders to jumpstart the company and anticipated closing the rest by the end of the year," John says. "When the market crashed and we were unable to raise the full funding, we had to re-think our launch plans and shape the business plan in a way that we could execute," delaying product releases and concentrating on key items, promotions and holiday sales cycles.• Be ready to survive on a shoe-string. Many entrepreneurs think that, once they raise capital from investors, the pressure is off and they can get back to running their company. The truth is that you've got to keep a laser focus on expenses – especially if your company is burning cash and you don't know where the next check is going to come from. "When you raise money in pieces rather than all at once, you have to stretch the money as far as possible," John says. Particularly tricky is paying manufacturers upfront when the company is waiting for payments from retailers. "Watching every penny go out is a hardship," he says.• Be honest with your investors. Whether your investors are friends, family, angels or VCs, nobody wants to be kept in the dark. It's better to break the bad news about money concerns, such as missed revenue projections or cash-flow gaps, before there's nothing left in your company's bank account. "Our investors have been very supportive and patient," White saysWith the market for small-business capital still tight and the recovery lackluster at best, start-ups looking for capital would be wise to take a page from Joy Berry Enterprises' playbook. Raise money when you can, be prepared to pay a premium for your capital and scale back your plans if necessary, but do whatever it takes to get your business up and running and your product out the door.

You, Too, May Be a Winner!

Mon, 21 Jun 2010 23:56:21 EDT

By Dale Buss (Please see Corrections and Amplifications below.) A growing number of corporations, nonprofits and universities are giving small companies a chance at a big break—by holding contests.Covering a broad range of categories, from the most promising women entrepreneurs to the strongest tech ideas, these competitions offer a number of powerful lures. Some offer cash prizes that can range into the six figures. Then there are longer-term rewards, such as increased exposure and grist for future marketing campaigns. Even if they don't win, entrepreneurs often come away with valuable critiques from expert panels of judges.But there's an art to deciding which contests to enter and making the best case for your company. Here are some keys to finding, entering and winning these competitions.The best place to start looking for contests is AwardSync.com, a site that helps groups publicize their awards. Once you've focused in on some competitions, the groups' own sites can be valuable. For instance, you could scour their sites for more information about what they do—which might give you ideas about what to highlight in your presentation.At the outset, start small with awards from, say, local chapters of national organizations. This has a number of benefits. You can refine your case and practice your presentation without as much at stake. You also stand a better chance of winning a smaller contest—and judges of larger events like to see that you have some victories under your belt.Once you've homed in on some contests, network like crazy. Call previous winners to see what worked for them; more than anyone else, they'll understand why you're in the hunt—and typically they have nothing to lose because they're ineligible to win again. If you can get into the audience for an award's oral presentations, go do it one year, see what makes the finalists stand out, and then apply the next year.And don't be discouraged if you find a good contest but don't meet all the criteria. Sometimes sponsors will bend the rules. "There's often more flexibility than people appreciate, especially in the early stages," says Nell Merlino, founder of Count Me In for Women's Economic Independence Inc., a nonprofit that co-sponsors the Make Mine a Million $ Business Award with American Express Co.In her competition, for instance, she says that the judges like would-be contestants who believe in themselves and their companies. The judges might let a contestant enter who didn't meet one of the criteria, such as the minimum annual revenue, but had the initiative to ask if the rule were important, and if it could be bent."You're trying to encourage people to really go for it and grow their business," Ms. Merlino says. "If there are 10 criteria and they're missing or short on two, and they know those probably aren't the deciding factors, I would say try it."A typical competition starts with a written application, sometimes along with a business plan. It's important to make this as detailed and compelling as possible. Clearly present your product, service or idea. Underscore facts that set you apart from others in your field. Highlight the capabilities of your management team. Demonstrate a thorough understanding of your customers. Be specific. Experts say it's surprising how many entrants don't simply and thoroughly answer the questions."Show measurable, quantitative achievements such as percent growth, number of employees, new-client wins, new-product launches, growth in the customer base," says Kirsten Osolind, founder of Re:Invention Marketing, in Coronado, Calif. "Even mention endorsements that you've gotten from folks such as customers or bloggers."One caveat. In your written application, you're turning over sensitive company information, so entrust it only to highly reliable parties. Research the organizations or companies offering the prizes; if they aren't well known, make sure they can be trusted. Talk to previous applicants if possible."Don't give out a whole lot of precious information to someone who might be able to scam you or use information other than how you intended it," says Jade Boneff-Walsh, global vice president of the Entrepreneurs' Organization, an Alexandria, Va., advocacy and networking group that sponsors contests for its members.In many contests, the finalists must make at least one oral presentation. This provides the chance to make a different sort of impression on judges. Instead of winning them over with data and reasoned arguments, you can go for the gut—such as letting them know how passionate you are about your ideas or how much you care about customers. "There's a certain amount of theater involved," says Jonathan Rosen, executive director of the entrepreneurship program at Boston University, which stages contests for student-run companies and others. "How well can you get people excited about whether this is an idea worth pursuing?"But even in showmanship, humility is a good vibe. "You need some confidence and swagger and to believe in your ideas, but most judges will know if you're blowing smoke," says Tim Haynes, vice president of TechColumbus, an Ohio outfit that sponsors an award for tech entrepreneurs.After you have a victory under your belt, think about the next contest you enter and how it can serve your broader goals.For instance, Carrie Bell's award-application strategy followed her company's diversification into new markets. In 2006, she launched Madcapz LLC to retail headwear as gifts for cancer patients who'd lost their hair. When Ms. Bell targeted golf accessories as an expansion market, she sought out contests that would give her some credibility with retailers. She found, applied for and won a contest for sports and health products, the Gear Award for Excellence from ShapeYou.com, a health and fitness Web site."There was no monetary award, but it has given me lots of visibility in the golf market," says the entrepreneur in Larchmont, N.Y. "Now I'm researching awards in the tennis market and the children's market, because I'm moving into those segments also."And even if you take home a big prize, don't be afraid to enter smaller contests if you think you have a good shot at winning them and garnering greater visibility. Consider Amanda Puppo. Ms. Puppo, owner of MarketReach LLC in Hightstown, N.J., was named the area's Young Entrepreneur of the Year in 2004 by the U.S. Small Business Administration and has been a finalist for two other high-profile prizes. Now, Ms. Puppo is pivoting to smaller contests where her odds improve. "I'm not going to join another general business competition where there are 5,000 other entrepreneurs," says the 35-year-old entrepreneur. "Next year I'll probably enter the local '40 under 40' competition, where I'm more likely to win because there's a smaller pool." Mr. Buss is a writer in Rochester Hills, Mich. He can be reached at reports@wsj.com. Corrections & Amplifications Max Robinson, founder director of Kromek, a U.K.-based digital color-imaging technology company, says that having one author for a business-contest submission last year made for a more "coherent and lucid story" in the document. A previous version of this article attributed the quote to Gideon Miller, chief executive of Adaptive Imaging Technologies Ltd.

'Custom' Is Customary

Thu, 26 Aug 2010 00:18:04 EDT

By Sarah E. Needleman When David Galloway goes to bed at night, he rests on a mattress he designed himself, including its inner springs, a layer of latex, memory foam and label that unabashedly reads: "Where the Magic Happens." The 27-year-old New Yorker paid around $1,250 for his custom cushion from Create-a-mattress.com, a Needham, Mass., start-up founded by former Dial-A-Mattress executive Evan Saks. Mr. Galloway is evidence of what some business-trend experts say is increasing consumer and entrepreneurial interest in customized goods, ranging from specially made toilet paper to one-of-a-kind pet food.The economy may be a factor. While such items may cost more than their mass-produced counterparts, they're still generally less expensive than luxury goods, according to Jeremy Gutsche, founder of TrendHunter.com, an online magazine that covers a range of emerging trends. Cash-strapped consumers may be seeking feel-good alternatives to items they can no longer afford, he says.More entrepreneurs may also be entering the space because of the minimal start-up costs, says Rob Adler, an adjunct professor at Babson College. In most cases, custom businesses can operate exclusively online, he says, eschewing costs associated with leasing or buying a brick-and-mortar store. Another advantage to starting a custom business: "We don't have to make anything in advance," says Nick LaCava, co-founder of Chocomize.com, one of at least two recently launched design-your-own-chocolate-bar businesses. (Chocri, a two-year-old Berlin-based start-up, added a U.S. branch in January.) Michael Charley, 23, ordered a blend of dark chocolate, edamame, beef jerky, cayenne pepper, oregano and Junior Mints from Chocomize last month. "I wanted something I can't find in a store," says the Philadelphia resident, who paid $8.65 for a 3.5-ounce bar. "It's surprisingly good, like a taste-bud safari." Dace Ventures, an early-stage venture capital firm in Waltham, Mass., has seen an increase in entrepreneurs seeking financing for custom businesses, according to Jon Chait, a partner. "We used to get a proposal from one new venture focused on customization out of thousands a year," he says of Dace, which is currently investing in Panraven Inc., a three-year-old custom photo-scrapbooking business in Cambridge, Mass. "Now we see several per month. That's a major shift."CustomMade.com, an online directory of custom home-furnishings businesses, currently has more than 1,000 listings, up from just 300 in 2009, says Seth Rosen, co-owner of the site. He projects that the businesses listed on CustomMade will earn a combined $20 million in revenues this year from consumers who find them on it, up from the $8 million they reported to have earned this way in 2009.Customized goods appeal in particular to younger customers who have grown up with personalized ring tones, avatars and the like, businesses say. "It's almost a base expectation that a product should be tailored to one's personality," says Avery Pack, founder of RepublicBike.com, a custom bicycle manufacturer in Dania Beach, Fla. The two-year-old company's bikes, which cost between $400 and $500, come in three styles and up to 10 colors for parts such as tires, grips and saddles. "Nothing needs to match," says Mr. Pack. "Your front rim can be baby blue and your rear rim a crazy green."Designing a product online from scratch is a highly interactive experience, something young consumers are used to, says Joshua Kace, co-founder of SlantShackJerky.com, a custom beef jerky business in Jersey City, N.J., that launched last month. Customers can choose from two types of beef, two marinades, four rubs and two glazes to create up to 60 combinations costing a minimum of $12.50 for a quarter pound. "We wanted to take something pretty simple and boring and add a level of excitement to it," says Mr. Kace, who has seven business partners.Other companies have added custom products to their existing catalogs of mass-produced goods. HeroBuilders.com in Oxford, Conn., initially sold its hand-made action figures only in the form of celebrities and politicians when it launched nine years ago. But customers later began requesting dolls made to look like themselves, family and friends, says Emil Vicale, founder of the nine-person business. "It was consumer-driven," he says, adding that single orders of custom dolls, which cost around $375, now average 500 a year. Of course, consumers aren't always happy with the end result, and returns, though rare, generally go to waste. "We've had customers misspell their own child's name," says Mark Sarpa, co-founder of Frecklebox, a two-year-old maker of custom kids' products in Santa Clara, Calif. Its storybooks, for example, can feature a child's name on the cover and throughout the story line.Custom goods also tend to be more time-consuming and expensive to put together than ready-made items. "You're working on each individual order separately," says Adrian Salamunovic, co-founder of DNA11.com, a five-year-old business that creates artistic portraits of consumers' DNA, fingerprints and lips, starting at $200 each. Pets' DNA portraits are also for sale. "You can't just click a button and create 10,000 orders."But Mr. Salamunovic says the extra effort is worthwhile; his 16-employee business generates more than $2 million in annual revenue. "People want to stand out in a world that's increasingly cookie cutter," he says. "And there's nothing more personal than your DNA." Write to Sarah E. Needleman at sarah.needleman@wsj.com

The Old College Try

Sun, 15 Aug 2010 16:20:59 EDT

By Laura Lorber Jordan Holt needed a business plan. So he went back to school.A technician for a military contractor in Yuma, Ariz., Mr. Holt launched a side business last year, servicing and repairing generators—and quickly realized he would need to write up a formal plan if he ever wanted to borrow money for equipment. But after doing some online research, putting together a plan "looked complicated and overwhelming," he says.He decided to get the help he needed from a business-plan development course at Arizona Western College in Yuma. "I was able to take everything in my head and put it down on paper," says Mr. Holt, a 29-year-old ex-Marine. "I truly think it could work."As more newcomers like Mr. Holt take up entrepreneurship, community colleges are helping them along by offering more courses that teach the ins and outs of running a company. Along with classes on preparing plans and judging the feasibility of a business, schools offer training in everything from management to marketing. Many colleges also offer business incubators and networking events, where students can rub shoulders with local owners.Even simply having a place to talk about ideas can be a big help. "Family will tell you that [your business concept is] a good idea, but they may be just saying that," says Mr. Holt. "When you talk to strangers, you get more of a real idea of what's going on."Students have been flocking to these courses as the downturn drives people into business for themselves. Enrollment in for-credit classes in entrepreneurship jumped 40% in 2009 from 2008, according to a survey of members of the National Association for Community College Entrepreneurship, an organization in Springfield, Mass. Noncredit enrollment grew by 20% during the same period. What's more, the NACCE, which was founded in 2002, has seen membership rise to include 924 of the roughly 1,200 community colleges in the U.S.The people pursuing entrepreneurship training cover the gamut: veterans like Mr. Holt, baby boomers not ready to retire, younger entrants to the work force—and, of course, workers displaced in the downturn.For Colleen Spears, of Saco, Maine, photography was just a sideline until July 2009, when the Allstate Corp. claims center where she was a clerk closed. She had taken an entrepreneurship class earlier in the year at Southern Maine Community College in South Portland; when her job disappeared, she signed up for a second class, determined to get her bachelor's degree and start a full-time children's photography business."I just went with it. I didn't want to go back into the corporate world," she says. "At 57, there weren't going to be a lot of opportunities for me in corporate America. I really wanted to be my own boss and do what made me happy."Now she meets for an hour once a week with the director of the business incubator at the college, and they agree on tasks aligned with her goals, such as marketing. The instructor will hold her accountable and review how the project went. For example, Ms. Spears recently drew up a list of day-care centers and sent them cards through the mail, using an automated Web-based program, and then called each to ask whether they might be interested in her offer. (The effort wasn't successful, but Ms. Spears repeated it with high schools and other businesses and is getting some nibbles.)The structure and deadlines of the program keep her on track, Ms. Spears says, and talking to the program director gives her confidence. "She's like my shot in the arm or my big cup of coffee in the morning. I've got to have it to keep me going," Ms. Spears says. "If I didn't have that, I would be wringing my hands and worrying."Classes can also be helpful for entrepreneurs who already are running a business full time. Charles Kinuthia, a 27-year-old business owner, picked up several practical tips in a small-business management class at the Lone Star College Cy-Fair campus in Cypress, Texas. One lesson that resonated with him was the need to budget in customer-service time. "That changed my perspective when I came to an understanding that the customer is the most important person," says Mr. Kinuthia, who owns a year-old tax-preparation and mortgage-brokerage firm, CNE Mortgage & Financial Services. As a result, he made sure to send hand-addressed Christmas cards to customers in December and followed up with a mailing in early January with a 25%-off coupon for tax-filing fees and a $20 incentive for new-customer referrals. "The phone just starting buzzing," he says.Mr. Kinuthia also put his lessons in record keeping and compliance to work immediately. He rewrote every contract for his business to close loopholes that left him vulnerable to lawsuits, got his books in order, began using new accounting software, hired an auditor and began backing up customer documents securely online. "That makes me a little bit more careful," he says. In his courses, "when they actually tell you about these people who got into big trouble, companies being shut down, because of people's information, then you're like, 'Oh, wow.' "Of course, not all classes get rave reviews. As with any schooling, students say the usefulness of the courses can vary widely depending on the quality of the instructors—those with actual entrepreneurial experience, for instance, can be much more compelling than those who simply talk about the subject in the abstract. Other students warn that many of the lessons can get very technical, so it's important to stay focused. Roger Simmons, a 64-year-old retired teacher in Peshtigo, Wis., says he once zoned out in a session on accounts receivables. "I never did an Excel spreadsheet in my life, and I'd just as soon never do it," he says. "I try to steel myself—it might not fit with me specifically, but it might help me in one way, shape or form."The time investment can also be substantial. People who need to work may find it hard to take the time away for classes when they could be earning money. "It's a long process," Mr. Simmons says. "You have to be committed to some time so that things can fall into place."Mr. Simmons, for instance, started out with a business-feasibility class, which ran a few months, then a business-plan class, which took another few months, and then he took an independent study at Northeast Wisconsin Technical College's Marinette, Wis., campus.That kind of extended course of study can also raise some difficult choices for people close to traditional retirement age. You need to be committed to the work, Mr. Simmons says, because "at this point in your life, you're investing a fair portion of the amount of years you have left."To get the most out of an entrepreneurship class, he advises, it's helpful to have a business idea in mind and speak to some people in the field beforehand. "Pick their brains before the class," says Mr. Simmons. "Otherwise, a lot of the stuff that you learn may not have as much meaning."Even more basic, Mr. Simmons says, talking to people in the field will also give you a sense of whether running a company is for you—which is good to know before signing up for a class. "You don't want to just throw away 400 bucks to find out that you don't like business," Mr. Simmons says. Ms. Lorber is a writer for DJ Ventures in New York. She can be reached at laura.lorber@dowjones.com.

Recession Brings Tough Love to Family Firms

Mon, 07 Jun 2010 13:23:34 EDT

By Ruth Mantell Expecting Mom and Dad to set you up with a cushy job in the family business? Not so fast. In this economy, some family firms are finding themselves forced to turn down job requests from relatives, and business owners are laying off family members and long-time trusted employees because of the length of the downturn, said Wayne Rivers, president of the Family Business Institute, a consultancy in Raleigh, N.C. "Most of the people I talk to are thinking right now in terms of pure survival: How do I survive 12 more months?" Mr. Rivers said. "If a business is already struggling and you are staying awake at night trying to figure out lay offs then the last thing you need to do is increase headcount."William Dunkelberg, chief economist with the National Federation of Independent Business, said businesses should not hire family members who don't earn their own way, especially during a recession. "If you hire a ne'er-do-well nephew you are basically giving them your income," Mr. Dunkelberg said. "The bottom line is if you hire somebody and they don't earn their salary that comes out of your pocket." Plus, family members shouldn't receive additional compensation because of their connection. "You should be able to pay people whatever you think they are worth," Mr. Dunkelberg said. Certainly, the economy is forcing some family-owned firms to consider tweaking their pay structure, among other changes, according to some initial survey results about the adaptability of closely held and family businesses. "What we are seeing is that the recession really started challenging the way they did business before, causing them to question what they thought to be the 'tried and true,'" said Barry Cain, managing director at Blackman Kallick, a Chicago accounting firm which conducted the survey in conjunction with the Family Firm Institute, a Boston-based trade group. The results should be published in September. "The depth of the recession and the shock that came from it was a reality check for many family businesses and owners," Mr. Cain said. Going forward, family businesses may be more transparent about compensation. The survey showed some evidence that the move toward transparency might lead to family workers taking pay cuts to bring their compensation more in line with non-family employees. "There is a move toward more recognition that people should get paid for what they are doing and how well they are doing it. Family business owners are trying to get their compensation structures in line," Mr. Cain said. The weak labor market is prompting people to ask for jobs at their family's business, said Barbara Spector, editor-in-chief of Family Business magazine. "That has caused some strain in families," she said. When family members ask for jobs, managers may wonder whether they should create a position—but owners should assess whether doing that is best for the business. "There are certainly other ways to help a family member out," Ms. Spector said. "Hiring a family member to work in a business is not the only way to provide financial assistance." Family businesses can face special challenges, such as a conflict between the family's goals versus the business's goals. "Families are built on love and equality—parents love all their children equally," Ms. Spector said. "But businesses are a meritocracy; they are based on rationality, competitiveness." If a family member is an underperforming worker the best thing for the business is to get rid of them, she said. In the office, family ties should be put aside. "The family in the long run will benefit by having a healthy business," Ms. Spector said. "Sometimes in a recession people need to be laid off." Write to Ruth Mantell at ruth.mantell@marketwatch.com

How to Win Venture Capital

Sun, 06 Jun 2010 22:10:03 EDT

By Colleen debaise Adapted from THE WALL STREET JOURNAL COMPLETE SMALL BUSINESS GUIDEBOOK (Three Rivers Press). The process of selecting, pitching and ultimately negotiating with a VC can be intimidating, especially to those not accustomed to the world of high finance. I asked Lori Hoberman, head of Chadbourne & Parke LLP's emerging-companies/venture-capital practice in New York, to explain the various steps. Here's what she said: Pinpoint the ideal VC. First, an entrepreneur must target the right venture capital investment fund to pitch. That requires some research. It's a good idea to attend venture capital and private equity conferences. Ask an attorney or accountant for a referral. Online databases such as VentureSource (owned by Dow Jones) provide information on the latest venture deals. And most VCs host websites that describe their "sweet spot" and existing portfolio investments, Ms. Hoberman says. Don't waste time pitching your biodiesel fuel business to a VC that only invests in software. Prepare a "teaser" document. This one-or two-page document that you send to VCs is your way of introducing yourself—and it's got to be memorable. Tell the VC who you are, what need you fill in the market and how that market translates into dollars. Because most VCs are barraged with investment requests and can give each one only limited consideration, every sentence of your teaser needs to "answer the question about why an investor would ever dream of putting money into you," Ms. Hoberman advises. "It forces you, as the entrepreneur, to think in sound bites." She recommends incorporating text and graphics (pictures, pie charts or graphs) into the document. "The whole idea is to tease the investor into wanting to hear more," she says. Send financials. If your teaser has done its job, a VC often will ask you to provide financial statements, including projections. If you're building out your business model and are attracting paying customers, "it's a much easier sell," says Ms. Hoberman. Show how you've gotten to your current stage, whether that's through bootstrapping, help from family and friends, or funding from angels. Prepare your pitch. If a VC wants a meeting after reviewing your financials, the initial face-to-face encounter will probably last less than a half hour, so use the time wisely. Don't forget the thirty-second rule, Ms. Hoberman advises. "You have to tell the investor in the first thirty seconds who you are and how you are going to make them money," she says. If you plan to show visuals, such as a slide show or online demonstration, keep it short so that there's time for questions. Demonstrate your belief in the company and your knowledge of the market or industry. "The VC wants to get a sense that you know what you are talking about," she says. When a company has more than one founder, it's also important for partners to demonstrate that they are a strong management team. "Look at each other when you talk, and show respect," she says. Review the terms. If your pitch was successful, you'll receive a term sheet for a first or "series A" round of financing (later rounds are called series B, series C and so on). The document outlines the deal that the VC is proposing before investing in your company. At that point, you and your advisors (specifically, an attorney who specializes in venture financing) should begin negotiations. The term sheet outlines voting rights, liquidation preferences and, more important, how much equity the VC will receive. Figure out what you're worth. In order to negotiate, you need to place a value on your company, which can be tough or imprecise at such a young stage. One approach is a so-called back-of-the-envelope valuation, which can be determined by deciding how much venture capital the company needs and how much equity you're willing to sell. "You try not to give away more than one-third of the company in the series A round," Ms. Hoberman says. For example, if you need $3 million in financing for your consumer product company but don't want to sell more than a one-third stake, you'd value your company (prior to receiving the capital) at $6 million. Do your due diligence. Before signing on the dotted line, take some time to consider the ramifications of your decision. Talk to other companies in the VC's portfolio about their experiences. Keep in mind that the VC will take board seats and expect progress reports at monthly meetings. Good VCs "understand the hills and valleys and can wait it out," Ms. Hoberman says. "The really bad ones ream the entrepreneur every time the slightest thing goes wrong." Write to Colleen DeBaise at colleen.debaise@wsj.com

Small Firms Lagging, With Bulk of Job Losses

Thu, 19 Aug 2010 11:48:36 EDT

By Sara Murray Most of the job losses at the end of last year took place at the smallest firms, underscoring how small businesses are lagging in the recovery.Businesses with fewer than 50 employees accounted for 61.8% of all job cuts in the private sector in the fourth quarter, the Labor Department reported Wednesday, while they created 54.1% of new jobs. Small companies employ roughly 29% of all workers.The numbers represent a reversal of the situation a year earlier, when small businesses made up a larger share of jobs added than of jobs lost. Small companies made up half of all jobs lost at the end of 2008 but also accounted for 53.9% of job gains."Although small businesses account for a large share of gross hiring activity, they also account for a large share of gross firing activity. There is a huge amount of churn in the small-business labor market," said Zach Pandl, an analyst for Nomura Securities.Many economists believe the recession had ended by the fourth quarter of 2009, and the job market has slowly begun to improve. But small businesses have lagged, in part because access to credit is still tight.Taken together, firms of all sizes cut a net 200,000 jobs in the fourth quarter, adding 6.6 million jobs and shedding 6.8 million.That represents progress from a year earlier, when firms shed a net 1.8 million jobs.Companies with 50 to 249 workers made 17.8% of all job cuts in the fourth quarter, and nearly the same percentage of job gains. Midsize companies, with 250 to 999 employees, added 9.9% of new jobs and accounted for 10% of job losses.The largest companies, those with 1,000 or more employees, hired a larger share of workers than they let go. These firms, which employ about 38% of all workers, accounted for 18.3% of all job gains versus 17.7% of job losses. Employment declined in most industries surveyed. The exceptions were service-providing industries, professional and business services and education and health services, all of which added jobs. Employment in the transportation and warehousing industry was flat.Some states performed better than others at the end of 2009. Employment turned positive in eight states and the District of Columbia in the fourth quarter after net job losses in the third quarter of 2009. The largest net gains in employment occurred in California and New York.The results come from the Labor Department's quarterly Business Employment Dynamics report. The report measures employment trends by characteristics such as firm size, industries and state, and covers only private-sector firms and employment.

Firm Toots Horn Via Search Ads

Thu, 01 Jul 2010 11:25:56 EDT

By Sarah E. Needleman A common gripe among U.S. soccer fans is that vuvuzelas, the South African horns heard buzzing throughout the World Cup tournament, are obnoxious noisemakers. But for 365 Inc., the plastic trumpets represent the sweet sound of success.Late last year, the 10-employee online retailer ordered several thousand vuvuzelas on a hunch that they'd become popular among U.S. soccer fans. The Birmingham, Ala., company then promoted the instruments mainly using paid-search advertising on Google Inc. and Yahoo Inc. amid minimal competition for relevant search terms such as "soccer horn" and "stadium horn." Since then, the small firm has sold nearly 30,000 vuvuzelas for about $8 each, pulling in roughly $240,000 in revenue."It was a massive opportunity for us," says Jeff Stephens, director of marketing for 365 Inc., which also sells team jerseys and other sports supplies. The company declined to disclose how much it cost to purchase the vuvuzelas or what they've spent so far on the ads.Many small businesses rely on paid-search advertising to draw consumers to their websites. In 2009, U.S. concerns with 500 or fewer employees spent $5.4 billion on pay-per-click ads, about the same as in 2008, reports research firm IDC. The Framingham, Mass., company anticipates spending for this group on pay-per-click ads will increase to $7 billion this year. But capitalizing on the strategy—even with professional help—can be tough. It requires identifying the search terms that consumers would most likely enter to find a company's products or services while competing against other businesses looking to benefit from the same phrases.In general, the higher the bid for a search term, the greater the odds of a business's ad landing at the top of a user's paid-search results. The paid ads can typically be found above or to the side of organic search results. And while advertisers pay search engines only when a user clicks on their ad, there's no guarantee a click will convert to a sale.It's easy to set up a paid-search campaign, "but it's not easy to do it efficiently and effectively," says Greg Sterling, a senior Web analyst for Opus Research in San Francisco.When launching online retail company Modern Brands Inc. in 2004, founder David Lalumendre says he invested in search ads for the phrase "branding iron" in an effort to sell monogrammed steak irons for barbecue enthusiasts. While the words generated a significant number of clicks, sales remained flat, he says, adding that he suspects many came from ranchers seeking branding irons for livestock. He now bids on more specific search terms such as "steak branding iron" and "BBQ branding iron." Popularity can also be detrimental. Naveed Usman, a principal at Usman Group Inc., a search-marketing and Web design firm in Lincolnshire, Ill., says he may need to put a bid for a search term on hold if it suddenly becomes trendy, which could happen if it pertains to something in the news. The term will likely see more competition from bidders, pushing its price up while inadvertently generating clicks from consumers seeking results unrelated to what his clients sell, he says.For example, Mr. Usman says he regularly bids on search terms such as "AWOL" and "Don't Ask, Don't Tell" on behalf of one of his clients, a law firm that represents members of the military. But should either term abruptly gain attention in the media, Mr. Usman might refrain from bidding until the issue dies down.In the U.S. alone, searches on the term "vuvuzela" increased by about 70 times between June 5 and June 19, according to market-research firm Experian Hitwise.Mr. Stephens says 365 Inc.—which became a subsidiary of midsize sports-retailer Sports Endeavors Inc. in 2005—faced little competition for search terms relevant to vuvuzelas, allowing it to spend just 15 to 30 cents per click on ads leading to its flagship website, worldsoccershop.com. "I don't think people realized it would be as big a phenomena as it was," he says.About 20% of consumers who clicked on the company's search-engine ads for vuvuzelas purchased at least one, according to Mr. Stephens. "We may never have an opportunity like this again," he says. Write to Sarah E. Needleman at sarah.needleman@wsj.com

In Gulf, Usual Loans Not an Option

Thu, 08 Jul 2010 10:14:11 EDT

By Emily Maltby Kim and David Chauvin's shrimp-trawling company has had its share of knocks, but the couple has always managed to find the necessary financing to keep their family business chugging—until now. It's been widely reported that the BP PLC deep-water oil spill has made many small businesses along the Gulf of Mexico strapped for cash. But business owners say this hardship is worse than past disasters because the usual go-to financing resources—including emergency loans—are less attractive given the uncertainty of the situation."This is really different," says Ms. Chauvin, who runs Mariah Jade Shrimp Co. with her husband. "We've been trying to figure out what plan B is, and then that gets knocked out of the water so we try plan C, and now we're down the alphabet."The shrimp company, based in Chauvin, La. (no known relation), weathered four major hurricanes in the last five years. It had sufficient savings to survive the ruinous floods that impaired the region in 2005 after Katrina and Rita. But cash reserves weren't sufficient for the 2008 devastation of Gustav and Ike, prompting the family to seek a $170,000 disaster loan from the Small Business Administration. Since the spill, the SBA has issued 142 disaster loans totaling $11 million to affected businesses in the region—a 33% approval rate, which is in line with approval rates from past disasters. The SBA is also trying to help businesses with existing SBA loans by deferring their payments, says an SBA spokesman.But this time, the Chauvins are passing on the emergency loans, since they still have the 2008 loan to repay. They say it's too risky to take on more debt when there's no indication when business will be restored. "No one knows anything," says Ms. Chauvin.For the time being, they are waiting for BP to pay the company's claim of a $6,250 loss a day, which doesn't include expenses the company is struggling to pay such as dock fees and insurance. BP has already indicated it won't compensate them for profit they anticipated making through a new processing plant they planned to open this year, Ms. Chauvin says.BP declines to comment on specific cases, says a spokesman for the oil company.Many small businesses have complained that BP has been slow to pay or has paid only a fraction of the losses. Last month, BP and the Obama administration assigned Kenneth Feinberg, who has helped resolve bureaucratic claims processes in the past, to help streamline the process.BP says it's trying to get the claims out as quickly as possible. The average wait from the time of claiming to receiving a check is around five days for individuals and eight for commercial entities, according to the spokesman. BP has paid a total of $153.5 million in claims to date.The Chauvins are also seeking money the entrepreneurial way: through new business. They've won a contract with BP for about $7,000 a day to help clean up the spill, so the company's three boats have stayed busy. "We were hoping this [spill] would go away quick," says Ms. Chauvin. "This was going to be the best year ever." Write to Emily Maltby at emily.maltby@wsj.com

Launching Gilt Groupe, A Fashionable Enterprise

Sat, 24 Jul 2010 21:18:57 EDT

By Colleen DeBaise (See Corrections & Amplifications below.) Lunchtime wouldn't be nearly so fabulous for budget-conscious fashionistas if it weren't for Alexis Maybank and Alexandra Wilkis Wilson. The duo, classmates from Harvard Business School, joined forces in 2007 to launch Gilt Groupe Inc. and bring designer sample sales— famous in New York for inducing tug-of-war frenzies—to an online audience. A few minutes before noon Eastern time each day, the Manhattan company sends an email alert to its nearly three million members, announcing the day's online private sales in women's and men's luxury brands—think Christian Louboutin, Dolce & Gabbana and Valentino—at up to 70% off retail prices. With 2009 revenue of $170 million and a current valuation of some $400 million, Gilt Groupe appears to have more staying power than most fashion trends. The venture-funded, 450-employee concern in the past year has expanded its offerings to include deals on travel destinations and services such as spa treatments, restaurant reservations and exercise classes. Edited interview excerpts with Ms. Maybank follow. Q. How did you get the idea for Gilt Groupe? A. We took all our inspiration from attending sample sales here in New York City. This was something we already knew, and had spent hours sneaking out of offices to participate in. The sales create excitement, sometimes hysteria. So it seemed the perfect idea to bring to a national audience. Q. How did you start the company? A. In the summer of 2007, we spent two months building out a beta site and pipeline of eight brands. In this day and age, you can roll out an online business so quickly. It used to be six months to a year —now, literally you can spend two months. I had worked at eBay [as an early employee and founder of eBay Motors] and Alexandra had worked at Bulgari and Louis Vuitton. An industry like fashion is relationship-driven, so she brought on the majority of our brands. Q. How did you sign up your initial designers? A. We launched with Zac Posen, who we knew through work we had done at Harvard Business School (in 2004). Back then, he was an emerging brand that was starting to gain a lot of visibility, but didn't have a business plan in place [that focused on] a way to finance the brand's growth; we helped him take a look at that. Q. How did you get the word out about Gilt Groupe so quickly? A. This is a business that has grown predominantly through word-of-mouth marketing. Seventy-five percent of our membership has come from the suggestion of a friend, using our onsite 'Invite Friends' feature [in exchange for a $25 credit.] That's how we launched. We sent invites to a list of about 15,000 people—friends, former colleagues and classmates, dating back to grade school! I'm surprised you didn't get one. Q. What's been the biggest challenge so far? A. Convincing fashion labels to work with Gilt Groupe. Many of them were not familiar with us—and they were dubious about the Internet as a sales channel. So we had to educate them as to what e-commerce could do for their brand, while also convincing them that Gilt was the way to go. Also, getting the best talent in the door quickly. We've brought on about 450 people—many are buyers who visit ateliers and studios and hand-select items from recent collections—and doing it in a way where the culture stays consistent is a challenge. Q. Tell me about working with Kevin Ryan, the former CEO of DoubleClick and Gilt's chairman, who provided seed capital. A. We met him through a referral. He was very well-connected in a lot of ways—he had a big success under his belt taking DoubleClick public, and he had experience raising money in the venture-capital industry. He had deep knowledge. We are driven, but a lot younger. Q. You've raised money [$35 million in May and $43 million last summer] from venture-capital firm Matrix Partners and private-equity firm General Atlantic. Did you have trouble raising VC as a woman? A. It's an old boy's network, and that's intimidating for a lot of woman. I had worked [in venture capital] so I understood how it worked. At investor meetings where we pitched the idea, not a single firm had a female partner. So when explaining fashion to a bunch of men in khaki pants and blue button-down shirts, their response was always 'Oh, let me see if my wife thinks if this is a good idea.' But it worked. One thing that really helped us is that a similar company in France, Vente-Privee.com, had just received funding at an unbelievable valuation. It's better to be lucky than good sometimes.(See Ms. Maybank's advice for pitching investors in this video.) Q. Why the name Gilt Groupe? A. It means covered in gold leaf—timeless and beautiful, like a lot of the items we sell on our site. But it's also a fun word play with 'guilty pleasure.' We wanted it to be short, easy to spell and appealing to men while also attracting women. We added the French spelling for a little 'je ne sais quoi.' Q. Do you plan an IPO or a sale? A. We have no formal plans. We'd be incredibly lucky to go public or have a sale—but we're having a lot of fun right now in what we're doing. We're rolling out new categories and local services. And we plan more international expansion. [Gilt is currently in Japan.] Q. What's your best tip for other entrepreneurs? A. I can never underestimate how important that initial team is. Ideas are cheap and available—it's all about the execution. A team that's well-rounded, complementary and has personalities that gel is critical in building a strong and sustainable business. Write to Colleen DeBaise at colleen.debaise@wsj.com Corrections & Amplifications Alexis Maybank and Alexandra Wilkis Wilson worked with Zac Posen on a business plan that focused on the next stage of the brand's growth. An earlier version of the story incorrectly implied that Mr. Posen's company didn't have a business plan.

Before You Moonlight...

Mon, 21 Jun 2010 13:55:38 EDT

By Shara Tibken The terrible economy is pushing lots of full-time workers to moonlight—as entrepreneurs. With money tight and layoffs a looming threat, more people are setting up side businesses to bring in extra money, often with plans to turn them into full-time jobs down the road."Over this period of time, people understand positions and jobs are not forever," says Barbara Frankel, a business and career coach and president-elect of the Career Counselors Consortium in New York. People "are more oriented toward having financial freedom."But starting a small business can be particularly challenging for people who also work full time. If you're thinking about making the leap, there are a bunch of crucial issues to consider—everything from your motives for starting the business to how you'll budget your time and how you'll square things with your current boss.Here's a look at some of those big questions.First of all, consider a very fundamental issue: Do you love what you're about to do? Since you're probably not going to see a profit for a while—and you'll likely be putting in long hours to get the operation going—you'll need to have an emotional investment in the business to keep you motivated. It should be "something that really makes you feel good and really fulfills a satisfaction and personal need you have," says Beverly Daniel, owner of CareerGrowth Group, a New York-based career-coaching business.What's more, before you commit yourself to anything, do some research and make sure there's actually a market for your idea. "Just because I like to glue toothpicks together doesn't mean anyone's willing to buy them," says Timothy Wyman, a partner at the Center for Financial Planning, based in Southfield, Mich.There are a number of ways to gauge the prospects. You might start by checking online to see if there are a healthy number of buyers and sellers. You could even get in touch with other entrepreneurs in the field to get their take.Something else for you to consider: the costs of starting and running the business. If you're doing this to make extra money, you don't want to get yourself deeper in debt. Can you start your venture with little or no up-front capital? Are there ways to keep your overhead to a minimum?"Don't go out and buy space. Lease it," says Holly Schick, deputy associate administrator in the Office of Entrepreneurial Development at the Small Business Administration. "Don't borrow money if you don't have to. Keep fixed costs low to keep yourself nimble to adjust to changes in customer base or whatever comes along. If you do need to exit the business, it's a lot easier, and you don't lose as much."You might have the drive and the resources to launch. But don't forget to weigh another important factor: Do you have time to run a small business? If you already have significant commitments to family or organizations, some part of your life will end up suffering. That's particularly true if you're starting the business during a big life change, such as a divorce or moving to another city. "That can be overwhelming and difficult, and you might not do either one well," says Ms. Daniel of CareerGrowth Group.So, work out a schedule for the hours you'll spend on the business, and see if you'll be able to manage it. And don't think you can fill all your waking hours with work. The schedule must include free time for relaxation, so you don't feel frazzled and stressed. "The key to balance is you can't work 24 hours a day, seven days a week," says Diane M. Pfadenhauer, a consultant at Employment Practices Advisors Inc., a consultancy in Northport, N.Y.What's more, you should try to head off conflicts by sharing the schedule with your family and any groups you belong to. Make sure they're on board, and if they have any objections, they can weigh in before you launch the business.Next, do what anyone starting a small business does: Write a business plan, do research on the market and figure out what licenses and other paperwork you'll need. Just because it's a side business doesn't mean you can skimp on this stuff. But don't try to figure it all out alone. There are scores of small-business organizations and colleges that can help you for little to nothing. For example, the SBA offers free online tutorials at SBA.gov/training for developing home-based businesses.Finally, don't forget that your full-time career has to come first. "If it's a side business, you need to make sure your full-time job is your priority, not to have one foot out the door," says Ms. Frankel of the Career Counselors Consortium.Before you start setting up your side job, read your employee handbook. Some specifically detail what you can and can't do in your free time and cover personal use of work resources such as company cars or BlackBerrys.Even if your company has a fairly lenient policy, set boundaries between your two jobs. Don't use your work email for your business, for instance, and don't take client calls while at the office. On the other hand, give your sideline as much attention as you can while making it clear your main focus is your full-time job. Take a lunch break, for instance, or try to leave the office on time as much as you're able. You might also see if you can change to a more flexible schedule while still putting in the same hours, such as coming in and leaving earlier.Another important preliminary consideration to bear in mind: Make sure your side business isn't too similar to your full-time gig, and there's no legal conflict with what you're already doing."If you have a job and you have some public presence in one domain, you can't think you're going to do the same thing and it's not a problem," says Judith Gerberg, president of the Career Counselors Consortium.Then there's the question of whether or not you should tell your boss about what you're doing. While some advisers recommend that you tell your employer early on and others counsel to never say anything, most agree it comes down to what sort of relationship you have with your boss."It's an individual decision, and only you know your boss and the environment—if it's entrepreneurial and would support something like that, or if it is an environment where they want employees to work 10-hour days and would view it as a distraction," says Ms. Schick of the SBA. Ms. Tibken is a reporter for Dow Jones Newswires in New York. She can be reached at shara.tibken@dowjones.com.

'Super Angels' Fly In to Aid Start-Ups

Mon, 16 Aug 2010 09:50:25 EDT

By Pui-Wing Tam And Spencer E. Ante Much of the venture-capital industry is undergoing a shakeout. But a growing breed of start-up investors dubbed "super angels" is rapidly raising new money—and ratcheting up competition with established venture capitalists in the process. Aydin Senkut, a former Google Inc. executive, plans to announce that he just closed a $40 million super-angel fund from institutional investors and wealthy individuals including hedge-fund manager Peter Thiel. His fund follows a $20 million super-angel fund by start-up investor Ron Conway in May and an $8.5 million fund from by former Google executive Chris Sacca in June.Meanwhile, former PayPal Inc. executive Dave McClure is raising a $30 million super-angel fund, according to a regulatory filing. And super-angel investor Mike Maples, who raised a $33 million fund in 2008, is raising a new $73.5 million fund, according to a regulatory filing. Many super angels started out just as mere angels, wealthy current and former Silicon Valley entrepreneurs and executives who invest their own money in technology start-ups.What elevates super angels into an unofficial upper class generally is the magnetic effect their participation in a deal has on other investors—a main reason entrepreneurs like to do business with them. And for super angels, investing has evolved into something more than a hobby. These players are now raising funds with outside money, investing full time and competing with VCs. While their funds tend to be small, super angels have had an outsize impact on Silicon Valley. As many traditional venture capitalists retreated after the tech bust last decade, super angels filled the gap, investing small amounts of $25,000 to $1 million in dozens of new start-ups such as Facebook Inc., Mint.com and Zynga Game Network Inc. Super angels also work with established venture capitalists to bring them new deals.As these micro-cap venture capitalists now raise their own funds—giving them more ammunition to participate in later financing rounds of a start-up—they are siphoning off more investment deals and fund-raising dollars from larger venture firms. Judith Elsea, a managing director at Weathergage Capital, a $250 million fund-of-funds firm that invests in venture funds, says she recently invested in Mr. Senkut's new super-angel fund and has also put money into Mr. Maples's super-angel fund—at the expense of traditional venture funds."It's been pretty spotty" performance from regular venture funds, says Ms. Elsea. So "we have material exposure to several of these [super angel] managers."Investing in super-angel funds can pose risks in that they typically invest in far-less-proven start-ups than venture capitalists do. And unlike venture capitalists, who have hundreds of millions to invest, super angels generally don't have enough money to fully fund a company to fruition. Still, super angels are increasingly jockeying with established venture capitalists for stakes in start-ups. Geoff Yang, a venture capitalist at Redpoint Ventures, which closed a $400 million fund earlier this year, says his firm has been "squeezed" into a smaller ownership share in some investments because super angels wanted a bigger slice of the deal. While angels have brought many new start-ups to Redpoint's attention, "every [venture capitalist] is trying to figure out what their strategy is" with them, he says. "Are these guys friend or foe?"Some start-up entrepreneurs say super angels have thrown them lifelines they couldn't secure from venture capitalists. Ryan Howard, chief executive of San Francisco online health-care start-up Practice Fusion Inc., says venture firms turned him down in 2008. They "want no risk," he says.Super angels wrote Mr. Howard checks for $25,000 to $100,000, so that he was able to raise $1 million by early 2009. "Their network is mind-blowing," says Mr. Howard, whose firm raised a venture round from Morgenthaler Ventures late last year.The super-angel activity contrasts with the rest of the venture industry, which is winnowing out after a decade of poor returns amid a lackluster initial-public-offering market for start-ups. The number of active venture firms is nearly one-third less than the 1,326 in 2000, according to research firm VentureSource. Super-angel Mr. McClure says he tends to make dozens of small start-up bets and can comfortably make money if just a few of the start-ups are bought by larger acquirers for less than $100 million. In contrast, big venture funds—often sized at several hundred million dollars and up—need bigger paydays to turn a profit on their huge funds."We have a whole different set of exit criteria," says Mr. McClure, whose biggest exit to date is Mint.com, the financial website that Intuit Inc. bought late last year for $170 million. Mr. Senkut, who has invested in more than 60 start-ups as an angel investor since 2005, says he raised a super-angel fund because he wants to shift from being a minority investor in start-ups to taking majority stakes more often. With the new fund, the 40-year-old is growing from a one-man shop to a larger operation by hiring two staffers.Having seen 10 acquisitions of start-ups in his portfolio over the past year—including Mint.com to Intuit and social search service Aardvark to Google Inc. for $50 million in February—Mr. Senkut says he is exiting from his start-ups three months to three years after the initial investment. By contrast, most venture-backed companies now either go public or get sold after a median time of 9.4 years, according to VentureSource. Write to Pui-Wing Tam at pui-wing.tam@wsj.com

Tax-Saving Moves for Small Businesses

Tue, 22 Jun 2010 10:59:40 EDT

By Bill Bischoff If you're a shareholder in a successful closely held C corporation, you know this year's federal income tax rate structure is favorable to your cause.But things are about to change. Here are the specifics about what's in store, along with some tax-smart strategies to consider right now. Higher Taxes on Dividends The maximum federal rate on dividends will automatically leap to 39.6% from the current 15% on Jan. 1 as the Bush tax cuts expire. Although the president has promised more than once to limit the maximum rate on dividends to 20%, the little-known fact is Congress must take action for that to happen. It's no sure thing. Even if it does happen, the maximum rate on dividends will jump again to 23.8% in 2013, thanks to the additional 3.8% Medicare tax that takes effect that year. So you're facing a 59% increase in the maximum federal tax on dividends (at least). Higher Taxes on Long-Term Gains Starting Jan. 1, the maximum federal rate on long-term capital gains will automatically increase to 20% from the current 15%. Starting in 2013, it will jump again to 23.8% due to the additional 3.8% Medicare tax. So you're facing a 59% increase in the maximum federal tax on long-term capital gains too.Thankfully, you still have some time to take advantage of this year's historically low tax rates on dividends and long-term gains. Here are three strategies to consider right now. Don't ponder too long, because these ideas will take some time to execute, and Jan. 1 will arrive before you know it. Strategy No. 1: Take Low-Taxed Dividends This Year Say your profitable C corporation has a healthy amount of earnings and profits, or E&P. The concept of E&P is somewhat similar to the more-familiar financial accounting concept of retained earnings. While lots of E&P indicates a successful company, it also creates a tax side effect. To the extent of your corporation's E&P balance, corporate distributions to shareholders (like you) count as taxable dividends. Since the 2010 federal rate on dividends can't exceed 15%, dividends received this year will be taxed lightly. That probably won't be true for dividends received in 2011 and beyond. Therefore, shareholders (like you) should weigh the option of triggering a manageable current tax hit by taking dividends in 2010 against the option of absorbing a potentially bigger (but deferred) tax hit on dividends taken in future years. Strategy No. 2: Do Low-Taxed Stock Redemption Deal This Year Another way to convert some of your C corporation wealth into cold, hard cash is with a stock redemption deal—where you sell back some or all of your shares to the company. When there are several shareholders, this is a common technique to get extra cash to one or more selected shareholders (maybe you) while other shareholders stay put.To the extent of your corporation's E&P balance, any stock redemption payment is generally treated as a taxable dividend, which is OK if it happens this year since the maximum federal rate is only 15%. However, our Internal Revenue Code provides several exceptions to this general rule. If one of these exceptions applies (consult your tax adviser if you don't know), redemption payments are treated as proceeds from selling the redeemed shares. In that case, you can offset the resulting capital gain with capital losses from other transactions earlier this year and with capital losses carried into this year. (Lots of folks still have big capital loss carryovers left over from the 2008 stock market meltdown.) The gain left after subtracting your capital losses (if any) will probably be a long-term gain taxed at only 15%, as long as the redemption happens this year.Since both dividends and long-term gains will almost certainly be taxed at higher rates in 2011 and beyond, getting a stock redemption deal done this year could result in a much smaller tax hit than if you wait until later. Strategy No. 3: Sell Stock This Year This last strategy is obvious. Speaking strictly from a federal income tax perspective, selling shares this year and paying no more than 15% on the resulting gains (assuming you've held the shares for over a year) sure beats paying 20%, or 23.8%, or maybe even more than that on gains from sales in later years. Bill Bischoff, a certified public accountant with more than 25 years of experience, has authored books and training courses for tax professionals, and frequently writes about consumer and small-business tax matters.

Big Firms Win in Small-Business Bill

Thu, 29 Jul 2010 10:13:54 EDT

By Martin Vaughan A Senate bill promoted as a boon to small businesses includes significant tax benefits for large companies, too.The costliest provision in the bill is a tax break for companies that make large capital purchases, including airlines and telecommunications firms.The "bonus depreciation" tax break expired at the beginning of this year, and the bill would extend it for equipment purchased in 2010, permitting firms to write off 50% of the cost of equipment this tax year, rather than over a longer period.The provision would reduce federal revenue by $5.5 billion over the next 10 years.Small businesses are less likely to benefit from bonus depreciation, because they can already write off 100% of equipment costs up to $250,000. The Senate bill proposes to increase that limit to $500,000."A really large firm, or medium-sized firm will be more interested in bonus depreciation," said Alan Viard, an economist at the American Enterprise Institute, a conservative think tank.Still, small businesses could benefit. Purchases of heavy equipment such as might be used by a farm or a tool-and-die shop could exceed the expensing limits for small businesses.Senate Democratic leaders are trying to bring the $15.5 billion bill to a final vote this week. So far they have been unable to resolve differences with Republicans on what amendments should be allowed, preventing the bill from going forward.Mr. Obama and congressional Democrats have put small-business proposals at the center of their efforts to revive a still-sluggish economy. The package is one of a handful of initiatives that still have a chance of being completed before November's elections."We need to keep investing in our small businesses," Mr. Obama said Wednesday during a stop at Tastee Sub Shop in Edison, N.J. "America has always been a place where if you've had a good idea…you can see it through and you can succeed."At the same time, trade associations for large U.S. companies successfully lobbied for several proposals to be included in the bill. One provision would help large life insurers.It would allow individuals to split tax-deferred annuities in two. That would allow them to begin receiving annuity payments on part of their savings while not losing the benefits of tax deferral on the rest.The feature would make annuities marketed by life insurers more attractive to consumers. "It will make it easier for a lot of annuity owners to access lifetime income while continuing to build their nest eggs," said Frank Keating, president and chief executive of the American Council of Life Insurers, in a written statement.The provision itself is attractive to lawmakers because it raises revenue in the short term, providing nearly $1 billion to help offset the cost of other items.The bill would also provide cellphone-service providers, including Verizon Communications Inc., a change they have sought, simplifying the tax treatment of employer-provided cellphones. The provision would clarify that cellphones aren't a taxable fringe benefit. That would also help small businesses by eliminating the need to keep detailed call logs of employee's phone use."Congress is doing the right thing by doing away with this anachronism," said David Fish, a Verizon spokesman. "Employer-issued wireless devices are no longer luxury fringe benefits, they're important business tools."In addition, the bill includes more than a dozen tax breaks tailored specifically to small firms."There is a lot in the bill that will be helpful," said Bill Rys, tax counsel for the National Federation of Independent Business. He mentioned specifically the higher limits for small business expensing, and a proposal to give self-employed people the same tax breaks for health insurance that employees now receive.As proposed by Mr. Obama, the bill would eliminate capital-gains taxes on the sale of certain small business stock. The bill would also increase Small Business Administration loan limits and provide $30 billion in loans to community banks for small-business lending. Write to Martin Vaughan at martin.vaughan@dowjones.com

Affordable 3-D Arrives

Fri, 30 Jul 2010 15:26:39 EDT

By Emily Maltby (See Corrections & Amplifications item below.) Jeff David used to create his sports helmets the traditional way—sketch an idea on paper, hand-mold a clay model, and ship it to factories in Asia for it to become a plastic prototype. After two years and countless revisions, one might become suitable for mass production.But often the helmet's distinctiv e details "would get watered down or lost," says Mr. David, product manager of Troy Lee Designs in Corona, Calif. "And by the time we got to market, some of the design aspects were old news."Last October, Mr. David decided to invest $20,000 in computer software that could create the helmets in 3-D. He found the technology could better define the shapes. And the factories in Asia, after receiving the design by email, could produce an exact replica. Production is now about six months faster and about 35% cheaper, he estimates. Historically, small businesses that used 3-D technology were predominantly in the engineering, industrial design and architecture fields. But now, as software costs have dropped, more consumer-product companies like Mr. David's are finding it cost-effective to purchase sophisticated modeling tools, rather than outsource product development or use rudimentary in-house methods. Autodesk Inc., which develops 3-D technology, repackaged its software systems two years ago to appeal to small businesses, lowering the price range to $4,000 to $20,000, though the highest-end products still sell for $65,000. Since then, the company has seen more customers in a variety of industries outside the design world, says Thomas Heermann, Autodesk's director of conceptual design products.SolidWorks Corp., a subsidiary of Dassault Systèmes, says it has seen an influx in small businesses interested in its computer-automated design software in recent years, as the price for most small-business packages is about $4,000. "It's hard to compete without it once one company in an industry has it," says SolidWorks founder Jon Hirschtick.Some products today cost less than $50 retail or, in the case of software such as Google Inc.'s SketchUp, are free to download. But those products typically lack the more-sophisticated features and are primarily used by designers to conceptualize an idea rather than prepare it for market.Despite the growing small-business customer base, however, 3-D technologies still have drawbacks. Design systems are often memory-intensive and require powerful hardware to operate effectively—an upgrade that could be pricey for firms on a shoestring budget.And parts of the process still have to be outsourced. For example, after the product is designed on the computer, it needs to still become a physical object through a 3-D printer or molding machine. Such devices have become more affordable—Objet Geometries Ltd. recently lowered the price of its desktop printer to $25,000, and Z Corp. just introduced a printer for about $15,000—but the highest-end printers can top $250,000. Also, many programs, especially those that have evolved from highly technical design systems, still have a steep learning curve. Mr. David at Troy Lee knows that first hand. Before making the investment in an Autodesk product, he hired a recent art school graduate who was familiar with Autodesk's Alias Surface software. Today, that employee remains the only proficient person on staff, but Mr. David is considering in-house training for the other designers.Some companies have attempted to make their products more user-friendly. SensAble Technologies Inc. has an application called FreeForm that doesn't use mathematical commands or lines drawn with a mouse, but rather, a haptic device—like a joystick sculpting tool—that gives the user the same sensation as molding clay or other materials. FreeForm used to be primarily purchased by large companies with prototyping departments but it now can be licensed for about $17,500.Beme International LLC, a San Diego firm that sells curtain rods, hooks and other decorative drapery hardware to retailers such as Bed Bath & Beyond Inc. and Lowe's Cos., purchased FreeForm in September. The firm's 30 employees, which included artists and sculptors, had been used to working with waxes, clays, resins and urethane modeling materials. One of the technology's biggest benefits is its resizing capability, says Brian Graves, executive vice president of sales and marketing. Previously, when retailers would want to see versions in multiple sizes, the staff would have to make separate pieces. Now, the software automates that, leaving more time to create new designs.The software performs the work of two employees, Mr. Graves says, and sales are up 15% from last year, which the he attributes to the new production development process.But, Mr. Graves says, while it's great that he can show retailers prototypes the week they request them—rather than three weeks later—he sometimes worries that the expedited process "discounts the value and the artistry," he says. "You don't want it to be like anyone in the world can do it." Write to Emily Maltby at emily.maltby@wsj.com Corrections & Amplifications: Jeff David is the product manager of Troy Lee Designs. An earlier version of this article incorrectly identified Mr. David as the owner of the firm.

Résumé Overload? A Shortcut to Spot Best Hires

Thu, 22 Jul 2010 09:31:44 EDT

By Mike Michalowicz If there's one thing we small-business owners need it's more time in our days. If you're like me, you're constantly on the hunt for the secrets to doing something faster, better or cheaper.Hiring employees is no exception. Finding the right people is never easy, but in today's turbulent economy, job seekers are responding to every job opening they hear about, inundating us with résumés. Many business owners think using the online job boards is a shortcut to finding the right potential employees. But the job boards usually elicit an overwhelming response from unqualified applicants, leaving us with hundreds of résumés and no clue as to how to cull through them all to select the best people.For years I've used a special filtering technique to avoid this problem. My secret? In the ad (about three-quarters of the way down) I tell the applicants, "To prove that you're a meticulous reader, you have to include the following sentence when you send your résumé: 'It is with my utmost respect I hereto surrender my curriculum vitae for your consideration.'"Then we use what I've dubbed the "Quick Qualifier" which sounds fancy, but is nothing more than an email filter which searches for the requested sentence. I only consider applications that contain the sentence, which cuts the number of résumés I have to look at by upwards of 80%.Why does this seemingly silly technique work? 1. Including the sentence shows the applicant has read the entire ad and knows what the job entails and if they're qualified to fill it. 2. Many people today are blasting résumés (batch responding) to everyone and their mother. They don't care what the job is; they're just looking for a paycheck. 3. Using the sentence shows they pay attention to detail. 4. Most important, business owners want employees who will do as they're told. If they've used the sentence, it shows they're more inclined to explicitly follow directions and do what you expect of them.I've used the "Quick Qualifier" dozens of times and it has rarely failed to select the best qualified people for the job. In fact, the best employee I ever hired not only included the sentence in her email response, but wrote, "Yes, I'm so detail-oriented I am including the sentence you requested. However, I also noticed you spelled the word 'meticulous' incorrectly, and here's the correct way to spell it." We hired her immediately and she ultimately became a partner in one of my companies.This method may seem like a gimmick to some of you, but it's been a timesaver for me. And it shows that the fastest path to hiring may indeed be the best.

Becoming the Boss Can Cost Plenty

Mon, 02 Aug 2010 10:32:05 EDT

By Sarah E. Needleman In late 2007, Taylor Senatore and Jennifer Frank withdrew most of their personal savings—a combined $250,000—to launch California Wine Merchants in New York. The duo, who teamed up after discovering by chance that they shared the same entrepreneurial goal, figured that amount would cover all of their start-up costs and even leave change to spare.But Mr. Senatore and Ms. Frank didn't realize that the property they rented came with special restrictions for turning the raw space into a retail store. As a result, they ended up spending 80% of their budget on construction costs alone."We had not even thought about the monumental bureaucracy that was to come when we signed our lease," says Mr. Senatore, a former attorney who decided to pursue entrepreneurship after moving for his wife's career.When starting a business on a tight budget, a single spending gaffe can spell disaster. For this reason, experts in entrepreneurship recommend taking precautions, such as doing research to identify potential hidden fees, focusing only on necessities and setting aside emergency funds."You don't want to overextend yourself or run through your reserves before you're even up and running," says Dennis Ceru, adjunct professor of entrepreneurship at Babson College. "It really comes down to keeping a close eye on every aspect of your cash flow and asking yourself, 'Do I really have to spend this money today?'"Kimberley Debus says she regrets spending $2,000 on annual memberships to several trade groups upon starting her writing, editing and publishing business, Word Alchemy, in 2008 out of her home in Round Lake, N.Y. She didn't need many of the benefits she gained, such as access to discounted health insurance. "I wasn't seeing the return," she says.In hindsight, Ms. Debus, who opted to work for herself after experiencing a back injury, says she should have paid to attend a few of the groups' events as a nonmember instead. "The networking is the same," she says.Similarly, Susan Miller of Anderson, Ind., admits she wasted $2,700 on a website for Ewing Miller Communications, a solo public-relations practice she launched in April 2009 after her former employer closed down. "I bought into the belief that I needed to have a website to be a legitimate business," she says. "In reality, I'm in a fairly small market and my business comes through referrals more than anything else. I could've done just as well without it."Other first-time business owners say they wish they'd gone about making some of their early investments differently. For example, Blane Fitzgerald Stoddart and Fred Werner say they probably could have held the grand opening for their Philadelphia construction-management firm, BFW Group, inside a friend's office building for free rather than spend $5,000 to hold it at a restaurant this past spring.They also say they could've avoided spending $18,000 on business cards and various marketing materials if they'd shopped around for less expensive options. "I love the quality, but that's a lot of money in this economy," says Mr. Stoddart.The pair expected to have their first few clients within three months of launching, but now predict it will take until the fall because of the poor economy. "We went in overly optimistic," says Mr. Stoddart, who was laid off in December from a job in the same industry.In other cases, rookie business owners say they made spending snafus because they underestimated how much critical items would cost. For example, before opening Calisto's Sweet Treats Bakery in Southington, Conn., in June, business partners Michael Cirrito and Giancarlo Garcia-Zimmitti figured they'd need to set aside at most $1,800 a month for food expenses. But now, halfway into the summer, it has become clear that their approximation was off by a whopping 100%."We're struggling," says Mr. Cirrito, a former chef for a casino who turned to entrepreneurship after his work hours were cut in half last year. Had he and his partner examined what they truly needed to spend to get their business started, Mr. Cirrito says they would've held off opening their doors until they'd gathered more start-up capital.Tom Kruczek, executive director of the Falcone Center for Entrepreneurship at Syracuse University, says a common reason why first-time entrepreneurs mismanage their start-up budget is that they let their emotions get in the way of rational thinking. "They want to be successful so badly that in their haste they end up spending money in the wrong places," he says.For Mr. Senatore and Ms. Frank, the wine retailers in New York, failing to read the fine print of their storefront's lease meant they needed to take out second mortgages on each of their homes to be able to keep their dream alive."As a new business owner, you're excited," says Mr. Senatore. "But the mistake we made threw off everything for us." Write to Sarah E. Needleman at sarah.needleman@wsj.com

U.S. Falls Short in Awarding Small-Business Contracts

Thu, 02 Sep 2010 08:40:44 EDT

By Emily Maltby A record number of federal dollars went to small businesses in 2009, although the federal government once again fell short of reaching its annual goal, according to a report from the Small Business Administration. Nearly $97 billion or 21.9% of prime federal contracts went to small firms between Oct. 1, 2008 and Sept. 30, 2009. That's up from the $93 billion that small businesses landed a year earlier, but still about $5 billion short of the 23% target established in a 1997 law. "I think the goal is feasible for next year," said Joe Jordan, the SBA's associate administrator for government contracting and business development. The government has missed its target in recent years in part because some contracts, such as those for weapons systems or massive construction projects, are more suited to larger firms, he said.The SBA's fourth annual scorecard, issued Friday, evaluated 24 federal agencies on contracts awarded to small companies. For the first time, the agency used a letter-grade system in an effort to bring more transparency to the data. (See a complete list of agencies and their grades.) Sixteen agencies received letter grades of A or B, meaning that they almost met or exceeded their goals for the year. For example, the Department of Education got an A for surpassing its target of 12.8%, hitting 16.4%, or $244 million. The Social Security Administration received a B for nearly reaching its goal of 32.53%, with 32.47%, or $403 million. The goals were negotiated by each agency and the SBA, and were based on both past performance and the number of feasible procurement opportunities available to small businesses. Four of the agencies received a grade of D or F, including the Department of Justice, which awarded $1.9 billion or 24.5% of its prime contracts to small businesses, far from its 36.8% goal. The Office of Personnel Management awarded $224 million, or 14%, which was less than half of its goal, and received an F. The SBA has previously been criticized by watchdog groups and the U.S. Government Accountability Office for failing to accurately track procured contracts, and for allowing large firms and fake companies to receive small-business contracts. The SBA says it has boosted efforts in the last year to remove fraud and errors in the procurement system, Mr. Jordan said.Still, organizations such as the American Small Business League, which issued its own report on fiscal 2009 contract recipients, maintain that many government-hired firms claiming to be small are actually large businesses."Generally speaking, we are finding fraud and abuse at the same rate," said Christopher Gunn, ASBL's communications director. The SBA says it plans to do more to make federal dollars available to small businesses, including "unbundling" or separating big-business contracts into separate contracts. A number of agencies that received low grades say many of their prime contracts are better handled by larger companies, and that the SBA's grading system should take subcontracts – which often go to small companies – into greater account. One boost for small businesses has been the stimulus contracts that began rolling out in early 2009 as part of the $787 billion Recovery Act. Although stimulus jobs amount to only a small portion of overall government work, they are often modest in size and well-suited for small firms. Through early last month, small businesses have landed 32% of stimulus contracts, according to preliminary data.The SBA's scorecard indicates that the government, while showing improvement over 2008, is still not meetings its targets for women-owned or service-disabled veteran-owned companies, or for small businesses located in historically underutilized business zones or HUBZones. Federal agencies did meet their goals in awarding contracts to small "disadvantaged" businesses, a category that is based on the owner's socioeconomic background. For stimulus contracts, however, the government is meeting or exceeding its goals in all subcategories, Mr. Jordan said. Write to Emily Maltby at emily.maltby@wsj.com

CIT Prepays $1.25 Billion In Debt

Fri, 25 Jun 2010 10:51:09 EDT

By Matt Jarzemsky CIT Group Inc. prepaid $1.25 billion of debt after securitizing receivables and selling assets, relieving part of the debt burden that has weighed on the company since its exit from bankruptcy. The prepayment made Wednesday and disclosed Thursday in a filing with the Securities and Exchange Commission consisted of a $950 million mandatory portion, required under its credit agreement after the securitization of receivables and the sale of assets, and $300 million paid voluntarily by the lender to small businesses.The company had said in April that it intended to make $1.5 billion in prepayments after seeing liquidity and cash flow improve, and that total cash available to repay debt increased to $5.5 billion as of the end of the first quarter. The company has said the loan payments are eating into its profitability.The company emerged from bankruptcy protection in December and was profitable in the first quarter, beating analysts' expectations for a loss. But it exited bankruptcy protection with a $7.5 billion credit facility, the repayment of which is one of its main challenges. CIT posted a first-quarter profit of $97.3 million.The 102-year-old institution, a crucial conduit of funds to small and midsized lenders, fell victim to the credit crisis and eventually cut a deal with lenders that pushed it into bankruptcy protection. It traditionally has relied on bonds and commercial paper to raise funds, which it then lent out at a higher interest rate. That model proved weak amid the credit crisis when CIT had difficulty raising capital cheaply. In 4 p.m. New York Stock Exchange composite trading, CIT's shares fell 88 cents, or 2.4%, to $35.72. Write to Matt Jarzemsky at matthew.jarzemsky@dowjones.com

Small Businesses Fear Hit From Rise in Tax Rates

Mon, 23 Aug 2010 11:15:47 EDT

By Martin Vaughan and Corey Boles Karen Port of St. Louis fears that President Barack Obama's plan to let tax rates rise for top earners will be a double whammy for her hot-tub dealership.Not only would the company—which takes in between $1 million and $3 million annually in gross sales—pay taxes at a higher rate, but the tax increases could leave less money for customers to spend on her high-end products, said Ms. Port, co-owner of Mirage Spa & Recreation, Inc."It has a deep impact on us," said Ms. Port. "People are going to be stepping back and not wanting to purchase luxury items."Port is among a dozen small-business owners around the country interviewed by Dow Jones Newswires who said the increase in personal tax rates could hurt their ability to make new investments or hire workers.Tax cuts enacted under President George W. Bush are slated to expire at the end of this year. Obama has proposed extending the tax cuts for married couples with income of less than $250,000, or single taxpayers with income of less than $200,000. But rates on income higher than that would rise to 36% and 39.6%, respectively, from current levels of 33% and 35%.The stage is set for a September Senate debate over whether to extend all the Bush-era tax cuts temporarily, or let rates rise for the wealthiest.Because most small firms are structured so that they pay individual rather than corporate income taxes, some would be caught by an increase in personal tax rates.But Democrats and Republicans are miles apart when it comes to estimating how large that impact would be.Treasury Secretary Tim Geithner in a Washington speech this month said the notion that Obama's proposals would hurt small business was a "myth" spread by the GOP. House Minority Leader John Boehner (R., Ohio) says letting top rates rise would amount to a "job-killing tax hike" on small firms.Both sides have data to back up their claims. Congress's Joint Committee on Taxation said in a July analysis that only 3% of taxpayers with business income in 2011 would see their tax rates increased under Obama's plan.But Republicans point to data from the same JCT study showing that half of the $1 trillion in income projected to be earned by pass-through entities such as partnerships and S corporations in 2011 would be taxed at the higher rates.That suggests that even though the majority of small businesses wouldn't see higher tax rates, the most successful of these businesses would. Democrats dismiss that statistic, saying it is mostly accounted for by hedge funds and law firms, not mom-and-pop storefronts.Democrats say the tax cuts for the wealthiest must be allowed to expire in order to begin to reduce the federal budget deficit, expected to top $1 trillion next year.But some business owners—and even some Democratic politicians like Sen. Kent Conrad of North Dakota—are questioning the wisdom of doing so when unemployment remains at a discouraging 9.5%."I am the guy who is supposed to be responsible for creating the jobs," said Ryan Robinson, co-owner of Irving, Texas-based Signal Metal Industries Inc., a maker of heavy machinery for the steel and mining industries."When the economy is teetering, and you're worried about having a double dip [recession], is it really smart to not renew those tax cuts?" said Mr. Robinson. Mike Ferletic, owner of Irvine, Calif.-based Enterey Life Sciences Consulting, estimated his taxes could rise by as much as $15,000 as a result of the higher rates.But like St. Louis hot-tub dealer Port, Mr. Ferletic said he worries as much about the impact of the tax increases on his customers."There's kind of a domino effect," said Mr. Ferletic. Enterey's eight-person staff provides business consulting services to biotech and pharmaceutical firms.Some firm owners just want Congress to make up its mind. "It's August, and we still have so much uncertainty. How can I plan on what I want to invest next year?" said Ron Bullock, owner of St. Charles, Ill.-based Bison Gear & Engineering Corp.The firm makes gears for machinery used by fast food restaurants and manufacturers of exercise and medical equipment. Write to Martin Vaughan at martin.vaughan@dowjones.com and Corey Boles at corey.boles@dowjones.com

The Gift of Gab -- If You Can Stand It

Tue, 17 Aug 2010 13:25:52 EDT

By Barbara Haislip Give a speech. Win a client.As simple—or even scary—as that formula sounds, a host of entrepreneurs have found that conquering public speaking can be the route to more contacts and customers. Impressing people with your expertise at a conference, in a classroom or over the radio can sometimes win more business than making sales calls or manning a booth at a trade show. Not to mention that the most successful speakers can take home thousands of dollars in fees for an appearance.Of course, it's not always easy to get started. Many entrepreneurs—like many people in general—suffer from stage fright, or simply don't think they have anything to say to an audience. In many cases, they have to get up to speed with the help of speakers' groups such as Dale Carnegie & Associates Inc. or Toastmasters International, or even coaches and therapists. But those who have done it often say it's worth the effort, for both their business and their self-esteem.Here are some of the crucial lessons these entrepreneurs have learned about finding their voice—and using it to land clients.For all the training they go through, entrepreneurs say it was vital to practice delivering their message in public. "You don't get better by reading and studying the craft," says Scott Miller of Cincinnati. "The only way to improve is to put yourself out there."Mr. Miller, founder of B2Bee LLC, a developer of invoicing and bookkeeping software for very small businesses, says giving speeches didn't come easily. "When I graduated from college, I was a terrible public speaker and deathly afraid of the experience," he says.He started off his speaking career with a Dale Carnegie course on professional selling, and then bolstered his training with lots of practice before technology groups. He also taught college classes, which kept him nimble by forcing him to answer tough questions on the fly. "College students force you to be prepared and bring your A game," he says.That practice didn't just help his speaking, he says. "Being prepared for a 45-minute talk followed by 30 minutes of Q&A helps develop the skills of preparedness and organization that all entrepreneurs need to succeed," says Mr. Miller.Now he often speaks before technology-industry groups and teaches a class in entrepreneurship at Miami University in Oxford, Ohio. He also makes presentations to raise capital for his business from angel investors and to obtain state grant money. His efforts have landed him plenty of business. After a speaking engagement last November, for instance, Mr. Miller picked up a handful of beta testers, who agreed to run their business on his new invoicing software. They are now customers. Tony Coretto also benefited from lots of practice. Mr. Coretto, co-founder and co-chief executive of PNT Marketing Services Inc., a Long Island City, N.Y., database-marketing company, trained in speaking and negotiating a couple of years ago through a Harvard Law School program, then "followed that up with a few quick sessions with a behavioral therapist, to attack the problem of stage fright and fear of public speaking."After that, he began seeking out opportunities to speak: day-chairing an event, doing a radio interview and being a panelist at a conference. He even had some videos of himself professionally recorded and posted them on his website and on YouTube. "More people are calling, referencing an event at which they saw me, or one of my videos, and we're definitely building more of a buzz around our company," Mr. Coretto says. "We can't yet quantify the effect in terms of sales, but it's early days and we're confident it will eventually pay off."Lots of people are intimidated by the prospect of speaking in front of a huge crowd at a conference or similar event. They're more comfortable with the intimacy of a sales call or a convention booth. But remember that when you get onstage you have one simple, but huge, advantage: People want to listen to you."Often with a cold sales call you can play telephone tag and talk to seven different people until you reach the individual in the right department—who may or may not be interested in your service," says Marty Metro, a Los Angeles entrepreneur. "Compare that to a captive audience at a conference in which the people in the audience are interested enough in the topic to leave the office, pay for the event and sit and listen to your message."Mr. Metro, founder and CEO of UsedCardboardBoxes.com, which promotes conservation by buying and selling used boxes nationwide, says public speaking is such a great source of clients that he doesn't make outside sales calls anymore. He appears at about one event a month, talking about how companies can go green. His recent engagements include keynote speaker at the Mid-Atlantic B2B Green Forum in Baltimore in March and emcee for the Good Housekeeping/Wal-Mart Green Expo Speaker Series in Bentonville, Ark., in April."I meet potential clients at almost every event…and I'm in the position of thought leader and not salesperson, because I'm offering valuable information and the audience appreciates that," Mr. Metro says.Many people aren't sure what to talk about on stage. One good rule: Stick to real life. Effective speakers say they use actual examples whenever they can, to liven up their talks and give the audience something to relate to.In 1998, Maribeth Kuzmeski, president and founder of Red Zone Marketing, a consulting firm in Libertyville, Ill., was asked to speak about a marketing plan her firm set in place for a financial adviser. The venue: a national sales conference, with 350 advisers in the audience. "I was so nervous I thought I wouldn't make it," she says.But after the talk, Ms. Kuzmeski had a line of advisers who wanted to work with her firm. She took away an important lesson: Audiences respond strongly to stories. "Today, I speak more than 80 times per year and speaking has built my marketing consulting firm entirely," says Ms. Kuzmeski. "I have not done any marketing besides my Web site and writing books and articles."Whenever she gives a speech, she makes sure to use real-life examples. For instance, she relates a story about a client who complained of poor results after spending $100,000 a year on dinner seminars. He described the invitees as "plate lickers" who didn't even listen to his pitch.Ms. Kuzmeski suggested an event in which existing clients are invited to a special event if they give a referral. The event—a dinner cruise on the Detroit River—drew 40 client referrals. The strategy was so successful, and so much less expensive than the seminars, the client does three of the events a year, and no other marketing."Audiences don't want theory, they want to know how someone is actually putting the theory to work," Ms. Kuzmeski says. "I use success stories from our consulting clients, and I use only recent ones because what worked years ago may not work today." Ms. Haislip is a writer in Chatham, N.J. She can be reached at reports@wsj.com.

Technology Basics for Business

Tue, 10 Aug 2010 09:59:21 EDT

By Colleen DeBaise Adapted from THE WALL STREET JOURNAL COMPLETE SMALL BUSINESS GUIDEBOOK (Three Rivers Press). Technological advances have greatly increased the ease with which you can run and grow a small business. If only technology weren't so complicated. These days, it's tough for any entrepreneur to make it—let alone succeed—without a heavy dose of tech. You need a well-designed and easy-to-use website (that's a no-brainer), plus you might benefit greatly from software, Web applications and equipment that allow you to manage inventory, track customers' purchases, process invoices, manage payroll and communicate with staff. Most entrepreneurs want the freedom to leave the office yet still stay connected, meaning they (and key staff) need to be outfitted with cell phones, laptops and wireless devices. Not long ago, the latest technology was only available to the biggest companies with the deepest pockets. Now, prices have dropped as big players such as Microsoft, Oracle, IBM and SAP try to tap the small business market. Increasingly, software is becoming available via the Web as "software as a service" or SaaS, replacing more expensive boxed software that needs to be purchased outright and installed. Open-source software, that is, software whose source code is freely available on the Internet for anyone to use or modify, has made it possible for small business owners (usually with the help of developers or consultants) to customize software for their unique needs. If you're just starting out, it's quite possible that you're feeling overwhelmed by the amount of technology you'll need to run your business efficiently and professionally. I asked Ramon Ray, editor of SmallBizTechnology.com, to offer some pointers. He says every small business needs the basics: • Hardware, such as desktop computers, laptops, phones and wireless devices • Software, from a simple word processing program to industry-specific applications • A server, which is a central computer that shares data, files and applications and allows you and your employees to access the Internet or use the same printer • Networking devices, such as routers, hubs and switches, that tie workstations together and provide security features, such as firewalls Unless you've got a solid background in technology, a computer consultant can be your best friend, Mr. Ramon says. To find one, ask other business owners for references, or check with your industry group or trade association for a recommendation. Some consultants, many of whom are small business owners themselves, charge by the hour or the day; others charge a flat rate. When you hire a consultant to install software or build a network, keep in mind you'll probably want help down the road, when the system inevitably crashes or simply needs maintenance. See if you can negotiate a long-term support arrangement as part of your consultant agreement. Aside from the basics outlined above, you'll also want specific technology products to help your business run more smoothly. What you need may vary by industry. For instance, if your business is paper-intensive—say, it's a law firm or an accounting practice—you may want to invest in a documentimaging system, which allows you to convert paper into electronic files. If you're a retailer, you'll probably need a point-of-sale system, which is essentially an electronic cash register that allows you to track sales. Almost all businesses will benefit from a database program, which allows you to collect, store and organize data, such as contact information for your customers, suppliers and vendors. Before making an investment in a specific product, consider feedback from current users by checking reviews on places like www.cnet.com, www .zdnet.com, and www.pcmag.com. Still overwhelmed? Mr. Ray says it's helpful to break your business down into distinct functions and then decide what software or hardware (or combination of both) can help in each area. Here are four common functions: A host of programs can help you cultivate relationships with clients. More companies are trying customer relationship management or CRM software, which organizes contact information for current and prospective customers, and allows multiple users (such as an entire sales team) to track customers' buying habits. Popular programs include Saleforce.com's SaaS CRM, Microsoft's Dynamics CRM, Maximizer, ACT and Gold-Mine contact manager systems. If you want to promote your business via electronic newsletters, special email marketing software made by Lyris, Oracle, Unica and other providers can help you develop targeted, spam-free emails to send to your distribution lists. If you stock merchandise, then bar codes, radiofrequency ID tags, scanners and related software can help you keep track of inventory and fill customers' orders in a more timely fashion. Some businesses use an enterprise resource planning (ERP) system, which pulls from both hardware and software programs to integrate various functions, such as distribution, shipping and invoicing. An ERP system can help a business owner figure out the amount of inventory needed to prevent overstocking, which can reduce overhead. Major players in the ERP space include Microsoft, NetSuite and Aplicor. Especially if you're not a number cruncher by nature, an accounting software program can help you organize your business finances, track outstanding invoices and figure out how much cash your company has available. Online bookkeeping that keeps track of business expenses will also make life easier (for you and your accountant) during tax season. Many business owners use QuickBooks, MYOB, Peachtree or Microsoft Office. A business owner might invest in sophisticated technology called business intelligence software, which culls data from various areas—such as accounting, inventory management and sales—and delivers reports and analysis. BI technology can help an entrepreneur figure out what's driving profits and pinpoint areas in the company that aren't running smoothly. IBM Cognos, Sage, SAP, MicroStrategy and SAS Institute offer BI tools. Write to Colleen DeBaise at colleen.debaise@wsj.com

Facebook Currency Rankles Some

Mon, 14 Jun 2010 22:36:03 EDT

By Sarah E. Needleman Facebook Inc. has been rolling out its own currency, to be used by members to buy virtual goods in games and other applications. But the move has rankled some game developers, who say the new monetary system comes with high fees and creates competition for developers who have their own virtual payment methods.Facebook's currency, called Credits, is being sold for 10 cents apiece and can be applied toward the purchase of virtual items, such as a "karaoke machine" for a game in which players run a virtual nightclub.For every credit a merchant redeems, Facebook is taking a 30% cut. "Thirty cents off of every dollar adds up," says Robert van Gool, founder of 10-employee San Francisco firm Gonzo Games, who says he had considered selling virtual toilets on Facebook for a racing game until he heard about the new credits. He plans to put the game on a different platform where he also expects it to receive greater exposure. "For a small company, the piggybank isn't that big," he says. Deborah Liu, a Facebook manager overseeing the Credits initiative, says the 30% fee "is line with industry standards." Apple Inc., for instance, collects a 30% fee from merchants who sell games and other applications through its "apps" store, as well as virtual goods sold within those applications, according to an Apple spokeswoman.Facebook says it hasn't yet determined whether its new currency—being tested by about 100 partners—will replace credit cards and other services to become the only payment option on the site. Facebook doesn't take a cut out of any of these other payment methods, the most popular of which, credit cards, charge fees as low as 3%.Facebook rival MySpace doesn't offer its own currency for virtual goods but is exploring such a service, according to a spokeswoman. People close to the company, which is owned by News Corp., publisher of The Wall Street Journal, say game developers would be charged a fee below 30%.The move by Facebook to install its own currency comes as demand for virtual goods, while still small, is rapidly increasing. The U.S. market for virtual goods is currently estimated at $1.6 billion, with social-networking sites accounting for around half—or double as much as a year ago, reports research firm Inside Network Inc.Some developers say Facebook's new currency conflicts with their own virtual money systems. "If someone spends $5 to buy our currency, they can only spend it on our games," says Russell Ovans, founder of Backstage Technologies Inc., a 16-employee developer in Victoria, Canada, that has seven games on Facebook, including a version of the TV game show, "Family Feud." But a user who spends $5 on Facebook Credits can use it on any of the site's more than 550,000 games and other applications.Zynga Game Network Inc., maker of the most popular game on Facebook's platform, "FarmVille," is one of the outfits testing Facebook Credits. The San Francisco company, which recently announced a new five-year "strategic relationship" with Facebook, declined to comment on the CreditsA number of the game developers that have so far been invited to experiment with Facebook's currency system say they like it and are seeing positive results, ranging from larger concerns such as Playfish and PopCap Games Inc. to smaller ones like Crowdstar International Inc. and Arkadium.Facebook's Ms. Liu says the new currency system benefits sellers because it creates a simple system for users to buy virtual goods, without having to fill out different payment forms for every merchant. Facebook Credits—which users can purchase using credit cards, mobile phones and PayPal—also relieve merchants from such issues as fraud and returns, adds Ms. Liu.Two-year-old CrowdStar began accepting Facebook Credits in December for virtual goods sold through its five games, which are exclusively on Facebook. Sales of the Dublin, Ireland-based company's virtual items—which range in price from 50 cents for a rainbow-colored cat to $129 for a mystery box containing a dragon—have since doubled, says Peter Relan, chairman and co-founder. Kenny Rosenblatt and Jessica Rovello, co-founders of New York-based Arkadium, say roughly 10% of users who play the company's three games on Facebook are buying its virtual goods with the platform's signature currency, about three times as many buyers who use other payment methods. "With Facebook Credits, when someone wants to buy on an impulse, they can do it immediately," Mr. Rosenblatt says. "They don't have to leave Facebook to go fill out a form on another site." Write to Sarah E. Needleman at sarah.needleman@wsj.com

Copycat Furniture Makers Thrive

Wed, 25 Aug 2010 17:23:37 EDT

By Amir Efrati When Steve and Grace Hassid need a new kitchen table or bookshelf, they browse online catalogs of chains such as Room & Board and Crate & Barrel—and then get the pieces custom-made for half the price.Their secret weapon is Sphere Designs, a start-up in San Francisco's Dogpatch neighborhood that began manufacturing furniture in-house two years ago for huge discounts to retail prices."You get what you want, and the price is better than most of the stuff that's ready-made," says Mr. Hassid, a 51-year-old cardiologist.Sphere Designs and Furniture Envy, another San Francisco start-up, are shaking up the local furniture industry by copying designs from popular chain stores such as Pottery Barn for a big discount. Furniture Envy is on pace to generate $1.2 million in revenue this year, up from about $500,000 in 2008. While Sphere Designs' revenue is down from 2008 when it sold imported furniture, its sales of custom-made furniture are projected to reach $600,000 this year versus $500,000 last year.Larger furniture retailers have struggled in the weak economy. Williams-Sonoma Inc., with 610 retail furniture and home-goods stores including Pottery Barn, West Elm and Williams Sonoma Home, says retail revenue declined 17.5% over the two years ended Jan. 31, to $1.8 billion. Sales at Ethan Allen Interiors Inc.'s design centers fell 40% in the two years ended June 30 to $439 million annually.The more-established rivals say the lower-price knockoffs can be inferior. When prices are "undercut by that much, it brings some questions about the true quality," says Michael Gargiulo, manager of the Room & Board store in San Francisco, which has grown quickly since opening five years ago. Crate & Barrel declined to comment. Williams Sonoma didn't respond to requests for comment.Furniture Envy and Sphere say they can sell furniture more cheaply without sacrificing quality because as small operations their overhead costs are lower. Copyright experts say the vast majority of furniture designs wouldn't be protected by copyright, especially those with few distinguishing features or ornaments. "For three-dimensional designs, copyright will not protect anything that…performs a utilitarian function," says Lawrence Robins, a copyright lawyer outside of Boston. "Most everything about an item of furniture is functional."The use of certain images and names of furniture in marketing materials can be protected by copyright, however.Furniture Envy was started in the Marina district in 2007 by Brian Norris, then a 27-year-old financial analyst. At the time, he and his wife, Shirley, went into $100,000 of debt to launch the business. Sales grew steadily at first and the couple paid off their debt within a year.But the Norrises say they also lost business because they couldn't accommodate many custom orders. They began doing more custom work in 2008 and in early 2009 found a wholesale manufacturer in Los Angeles that could customize popular designs.Meanwhile, Nick Zegarra, 39, a former software database developer, launched Sphere Designs in 2005 as a retailer that sold imported furniture. When sales fell as the financial crisis hit in 2008, Mr. Zegarra decided to go into custom furniture building. With no woodworking experience, he watched YouTube videos on furniture building and bought about $20,000 in equipment.Now Sphere sells about 15 pieces of furniture a week, starting at $500 for a maple TV stand and $600 for a birch king-size bed frame. That is down from 30 pieces a week in January, due to what Mr. Zegarra describes as a "double-dip recession."Helping to fuel the growth of Furniture Envy was Twitter Inc., the technology company. In 2008, Sara Morishige Williams, wife of Twitter co-founder Evan Williams, began ordering from the store. Twitter now has about 20 chairs and 26 sofa pieces, based on designs from upscale retailers B&B Italia and Design Within Reach, among others. The total cost was about $40,000."Furniture Envy has allowed us to have modern design on a budget," says Ms. Williams.Not everyone is pleased with the mom-and-pop stores, though. In business-review site Yelp.com, customers have decried the eight- to 10-week wait times before Sphere's furniture is finished, among other things. Mr. Zegarra says he hopes to cut that down to four to six weeks.Still, many customers remain loyal. Sherri Howe, a 39-year-old real-estate agent in Pacific Heights, in December asked Furniture Envy for a microfiber fabric sectional that was a knockoff of Room & Board's "Chelsea" design. She paid about $1,800, a third off Room & Board's retail price at the time. Ms. Howe is thrilled. Stains come off easily, she notes. "It's even better than Room & Board." Write to Amir Efrati at amir.efrati@wsj.com

Cash for Chocolate? Creative Ways to Raise Funds

Fri, 25 Jun 2010 12:05:34 EDT

By Barbara Weltman The NFIB Small Business Economic Trends Report for June 2010 continues to show that owners complain about lack of access to capital. Despite the challenge, there are still plenty of options for finding the capital you need to start or expand a business. Instead of going to a bank or tapping your family and friends, consider some alternative financing options. Ask happy customers for help Small businesses can be successful in raising funds if they turn to those who know them best: their customers. Customers who want to see a business continue and grow because they enjoy the business' products or services may be willing to make small loans or investments. Here are some examples:•One chocolatier in the U.K. that was too small for a public offering arranged to borrow needed funds ("chocolate bonds") from its clients—and repay them in chocolate. In return for the cash, the chocolatier promised a regular "tasting box" of chocolates delivered to investors' (gourmands'?) homes. •A specialty food market gave its customer-investors a discount each week based on the size of their investment. For a $10,000 investment, the customer-investor was entitled to $125 worth of groceries each week for two years, which amounts to a 30% return over two years.Note: In the case of public companies, there are now rules governing loans from customers. While privately-owned small businesses don't have to follow these rules, it doesn't hurt to do so. This means, among other things, putting the loan and any modifications in writing. Try vendor financing If you're buying expensive equipment or stocking up on inventory, look to vendors or suppliers for help. A vendor or supplier may be willing to finance your purchase. The benefits:•The loan is easy to arrange. You don't need to present a business plan or complete a lengthy application. •The interest rates are usually more favorable than on other financing options, such as a credit card.If your vendor can't loan money to you to swing a purchase, the vendor may have contacts with financing companies who can. There are lenders that specialize in financing for medical equipment, heavy machinery and other items. For more, read SCORE's tips on vendor financing here. Enter a contest Small businesses can find capital if they can be winners at national and local business-plan competitions. Many competitions are held at universities, such as MIT's 100K Entrepreneurship Competition, a yearlong series of events with three contests that focus on different skill sets, and Rice University's Business Plan Competition, which offers a top prize of $20,000 cash, plus an investment offer and $80,000 in services. These contests usually culminate with a winner announced in the spring; some require a student, faculty or alumni contestant. Find information about business-plan competitions and their application deadlines at BizPlanCompetitions.com. (See related article about the work involved, "Competitions Might Not Be Worth Effort.") Business-plan competitions aren't the only types of contests around. A variety of large companies offer contests from time to time that typically pay off in cash and/or prizes, including items or services from the sponsor. For example, Intuit Inc.'s Love a Local Business Contest gave $5,000 to winners around the country and a grand prize of $30,000 is to be awarded soon. Some contests are limited to technology businesses, women-owned companies, businesses in a certain city or other unique entrants.Note: Contest winnings are fully taxable. Score a grant Grants are the best possible source of financing. Unlike contest winnings, they aren't taxable and, unlike a loan, you don't have to pay them back. Keep in mind: Grants typically don't cover all of your capital needs, and you usually have to pony up an equal amount for the project you're trying to finance.Grants aren't easy to come by, despite what some spam emails may say. Often, grants are made only if they benefit the community. For instance, there may be state or local grants for child-care centers, for certain "green" projects or for a business promising to create jobs in an economically distressed area. To secure a grant, you must go through a rigorous application process and follow submission deadlines.To find out about grant opportunities at the state level, check with your state's economy development agencies. Also look for federal grant opportunities on the government's site. Build a reserve Looking ahead, your best banker is yourself. Create your own rainy day account by setting aside small sums on a regular basis. A corporation that doesn't distribute all of its profits in dividends has "retained earnings." But even if you aren't a corporation, you can set up a special savings account to build a reserve that can be tapped when and to the extent you need the funds.

Commercial Deals Abound but Loans Are Scarce

Fri, 04 Jun 2010 10:25:43 EDT

By Emily Maltby Real-estate prices are enticingly low in many areas of the country, prompting business owners to pursue sweet deals on storefronts, manufacturing facilities and other commercial properties. But because banks remain wary of commercial real-estate loans, landing financing to make such a purchase can be time consuming and tedious. Compared to peak prices in October 2007, commercial property values are down 42%, according to Moody's Investors Service Inc. Price index reports compiled by Moody's and Real Capital Analytics Inc. show that as of March 2010, the cost of industrial and office space fell 32% in the last two years. Retail space also plummeted 28%."There is excess space, which opens an opportunity for small firms," says Bill Dunkelberg, chief economist at National Federation of Independent Business, a Washington advocacy group. "You won't see prices like these for a long time."Some owners are heeding the call. Randy Scheidt, who heads the legislative subcommittee of the National Association of Realtor's commercial division, says that he is noticing business owners "feeling more comfortable with the future" and weighing whether "such an acquisition would be fiscally prudent."But the tight credit environment is making it difficult for entrepreneurs to secure those loans. "What is so different today versus 2006 is the underwriting scrutiny," says Mr. Scheidt. "It's not unusual for [the loan process] to take an additional 30 to 60 days." Eliot Boyle, owner of U.S. Metals LLC in Denver, decided last year to move his sheet-metal roofing and siding business to a new facility. Lease rates in the area were steady, but commercial spaces for sale on the market were falling. "We thought this was a good time to take advantage of how well we were doing and how poorly the real-estate environment was doing," he says.After preparing his business plan, he visited five banks and was turned down by four. The remaining lender, Bank of the West, which had previously worked with Mr. Boyle, issued him a Small Business Administration loan to buy a $680,000 building. The price for the space —a 50%-larger facility—had dropped 40%.The process took longer than anticipated and closed one day before the scheduled move. The delays, says Mr. Boyle, stemmed from the bank's requirement of additional environmental reports and other due diligence."All those appraisals showed that…if the bank needs to move fast and has to liquidate the building quickly, it can do that," says Mr. Boyle. "The approval timelines are really not that different than they were in the past," says Jim Cole, spokesperson for the San Francisco-based Bank of the West. "Appraisals take the same amount of time and, as always, environmental reports can take longer than expected."Many banks taking extra precaution before issuing commercial mortgages are reeling from those kinds of losses and are wary of putting more of those loans on their books. According to a Real Capital Analytics' study of Federal Deposit Insurance Corp. and bank data, the default rate for commercial real-estate mortgages rose to 4.2%, amounting to $45.5 billion, for the first quarter of 2010. That's the highest default rate since 1992. Commercial real estate loans have really hurt community and regional banks, which are key lenders to small businesses. They hold just more than half of bank-issued commercial mortgages and their portfolios are likely to hurt for some time. The default trend is expected to continue through 2011, when it may hit 5.4%, before abating, according to Real Capital Analytics. Although the commercial real estate market has shown some tentative signs of life in the early months of 2010, there is little transparency about the value of many properties, says Sam Chandan, chief economist at Real Capital Analytics. Appraisals help determine price, he explains, but commercial property values are supported by other transactions in the area. To overcome the credit challenge, experts say entrepreneurs can make themselves more attractive by submitting sound financial plans that back up their income projections and intent to repay the loan. Borrowers with solid credit histories and established bank relationships are more likely to get a loan. Mr. Chandan says newer businesses can still land financing if they can bring equity to the table, especially if the borrower wants to purchase a vacant property that the bank is holding. But, he cautions, "lending standards have tightened considerably, so it will be challenging." Write to Emily Maltby at emily.maltby@wsj.com

Three Best Ways to Become Eco-Friendly

Fri, 11 Jun 2010 19:01:00 EDT

By Sarah E. Needleman As images of the Gulf oil spill disaster continue to flash on TV monitors, small-business owners may be thinking about how their ventures can help safeguard the environment.Going green can be just as beneficial for small companies as large concerns. Not only is it good for the Earth, but customers and employees might request "eco-friendly" products and practices. And, adopting environmentally sound practices may even produce cost savings.For any entrepreneur with a new commitment to green, there are several simple business practices to adopt, says Greg Unruh, author of "Earth, Inc.: Using Nature's Rules to Build Sustainable Profits." One the easiest is to make a conscious effort to buy sustainable business supplies, such as energy-efficient light bulbs, recycled binders and pens with nontoxic ink. Most manufacturers "now identify products they sell that are environmentally friendly," explains Mr. Unruh, also a professor of global business at Thunderbird School of Global Management in Glendale, Ariz. "You don't have to do the research on your own." Finding green advice is also easy these days. Many sites, including Planet Green, Sierra Club and Mother Nature Network provide tips on everything from maximizing computer efficiency to ramping up office recycling efforts. Here are three more ways for small businesses to become eco-friendly: 1. Recycle and resell electronics. Parts from no-longer-functioning computers, fax machines and copiers can be given a new lease on life, even if they no longer function properly, says Ken Beyer, chief executive officer of CloudBlue Technologies Inc. in Alpharetta, Ga., which help businesses resell unwanted electronic goods. "Oftentimes the value we get is more than the fee that we charge, so it ends up being a net positive for the customer," he says. Electronics recyclers like CloudBlue also typically remove any data lingering on the parts they handle before reselling them, which can protect businesses from inadvertently exposing sensitive information, Mr. Beyer adds. Other businesses that buy old electronics include Gazelle, YouRenew and NextWorth. For a list of resources to sell or just donate unwanted electronics, check out digitaltips.org, a site from the Consumer Electronics Association. 2. Invest in renewable energy. While equipment like wind turbines and solar panels are typically pricey, federal and state government agencies are offering business owners tax breaks for installing them. For example, the Treasury Department's 1603 program awards businesses with cash payments of up to 30% off the total cost of such projects, including companies that install renewable energy equipment on behalf of clients. Business owners who've taken advantage of such incentives say they expect to make up the balance – and possibly come out ahead – by spending less on utility bills and selling renewable energy credits or any excess energy they produce to power-supply companies. For more, including downsides to renewable energy investments, see "Businesses Wait for Green Energy Payback." 3. Solicit ideas from your staff. In April, Park Howell, owner of Park & Co., a Phoenix, Ariz., advertising agency, began gathering suggestions from his 16 employees on how to make the company greener to cut costs. He did this by installing a software program from GreenNurture LLC, a start-up company in Tempe, Ariz., that allows workers to electronically submit sustainability ideas and vote on them for points. Employees can then apply those points toward the purchase of goods from more than 2,400 merchants affiliated with RecycleBank, an organization that's partners with GreenNurture. The program is available for a monthly fee of $2 per employee through January, after which that rate increases to $4 for small businesses. Mr. Howell says he plans on implementing one idea he's gotten so far right away -- to limit employees to one package of paper a year unless they can offer a compelling reason why they need more. "They'll have to petition the entire agency for another ream," he says. Write to Sarah E. Needleman at sarah.needleman@wsj.com

For Disabled, a Job Hunt Alternative

Thu, 15 Jul 2010 10:43:58 EDT

By Sarah E. Needleman David Shunkey is autistic and doesn't speak. Around the start of the recession, he got laid off from two jobs. Now he's trying to run his own business.More mentally and physically challenged adults are looking to entrepreneurship as they get closed out of an exceptionally competitive job market, according to several organizations that help the disabled, including Community Options Inc., a nonprofit based in Princeton, N.J. of which Mr. Shunkey is a member. But in an economic climate that's been tough on entrepreneurs, the disabled are no exception, and many face extra challenges."It's more difficult for someone like David to obtain a normal job," says Heather Gooch, one of several Community Options workers helping Mr. Shunkey build a dog-treat business with an $850 state grant from New Mexico, where his enterprise is based. "He needs close supervision."The unemployment rate for disabled workers was 14.3% in June, up from 9.3% two years earlier, when the Labor Department first began tracking such data for this demographic. In June, the unemployment rate for the rest of the U.S. was 9.4%.Employment opportunities have historically been scarce for the disabled. Twenty years ago this month, Congress enacted the Americans with Disabilities Act, barring employers from discriminating against qualified job applicants with disabilities. Last year alone, more than 21,000 claims were filed with the Equal Employment Opportunity Commission against employers accused of violating the law.With the poor economy further restricting employment options for the disabled, some organizations are seeing increased interest in programs designed to assist this group in starting businesses.Applications for an entrepreneur boot camp for disabled veterans that's offered through a network of six U.S. business schools have risen every year since the program's inception in 2007, says Mike Haynie, its national director. This year he expects to receive more than 500 applications for the program's 150 seats. Founded by the Whitman School of Management at Syracuse University, the boot camp starts with a 40-day distance-learning course, followed by 10 days of on-campus classes. Participants are also paired with mentors and have access to free resources such as legal and accounting services from corporate partners and the schools' alumni.After graduating from the program in 2008, former Marine Brian Iglesias co-launched New York film-production company Veterans Inc. with a fellow veteran. Mr. Iglesias's neck and shoulder were injured during combat, causing permanent nerve damage to his right arm and requiring a metal plate in his neck. He says he previously spent five months searching unsuccessfully for a job in the entertainment industry—even failing to land unpaid internships. "I was begging people to work for free," he says.The 33-year-old Mr. Iglesias, who has a bachelor's degree in film production from Temple University, suspects that some employers were uncomfortable hiring him because of his war experience. "Out of all the people who are candidates, they think, a year ago this guy was being shot at," he says.Every year since the recession hit, about 3,000 disabled adults have contacted Disabled Businesspersons Association for referrals to resources and volunteer mentors—three times as many as before, according to Urban Miyares, the San Diego nonprofit's president.But success seems limited. "We have yet to show any significant increase in profit or individual incomes by these new business owners," he says. Mr. Miyares speculates that because more disabled adults are pursuing entrepreneurship, competition for grants and other funding set aside by government agencies for this group has increased. As a result, disabled entrepreneurs may have less access to the start-up capital or cash flow they need to build and maintain a business, he says.Meanwhile, it's been tough for business owners of all kinds to obtain credit. Only about half of small businesses that sought loans last year got all or most of what they needed, according to a survey from the National Federation of Independent Business, an association in Washington. And for business owners with severe disabilities, there are many other hurdles. Mr. Shunkey, the autistic entrepreneur, relies on a team of supporters to ensure he doesn't get hurt while running his home-based start-up, David's Peanut Butter Puppy Bites LLC. Because the 54-year-old Mr. Shunkey is diabetic and has a tendency to eat or drink anything within reach, his helpers need to keep a close eye on him at all times. "If there's hot coffee left out, he'll just pour it into his mouth," says Ms. Gooch. With the help of his support team, Mr. Shunkey sought his first customers by asking local pet groomers and supply shops to sell his product on consignment. While five businesses initially signed on, three have since backed out, says Ms. Gooch, adding that sales of Mr. Shunkey's dog treats, which are priced at $5 for a dozen, have totaled just $120 over the past three months. When asked in a phone interview if he enjoys running a business, Mr. Shunkey nodded, according to Ms. Gooch. He didn't respond to subsequent questions. Write to Sarah E. Needleman at sarah.needleman@wsj.com

Small Business Casts Hopeful Eye on Lending Bill

Thu, 19 Aug 2010 14:45:31 EDT

By Martin Vaughan and Corey Boles Small-business legislation pending in the Senate would aid some profitable firms with tax breaks, but opinions are mixed on the extent to which it would help get credit flowing again. Peter Fiske, chief executive and founder of Pax Water Technologies, based in San Rafael, Calif., said unclogging the credit markets is the single most important thing Congress could do to benefit small businesses."We have been shunned by banks that in 2007 would have gladly extended us credit," Mr. Fiske said.He said the company, which sells clean drinking water technologies to municipalities, has put on hold the hiring of two new employees because of a lack of access to credit.The Senate bill would inject up to $30 billion into community banks through purchases of preferred stock. Banks, which would have to volunteer to participate in the scheme, could get a lower repayment rate if they increased lending to small businesses.Senate Majority Leader Harry Reid (D., Nev.) hopes to pass the bill in September, but the bill has languished for months in the Senate as Democrats and Republicans bickered over issues that are only tangentially related, such as what to do about the estate tax.President Barack Obama Thursday called on Congress to pass the bill, charging that GOP opposition "stands in the way of small-business owners getting the loans and the tax cuts that they need to prosper."Some owners of small firms are skeptical the lending provisions will bear fruit, saying that most businesses are just too leveraged to take on more debt."If there aren't creditworthy borrowers out there, it doesn't mean anything," said Ray Pinard, president and chief executive officer of Boston-based 48-hourprint.com, a web-based commercial printer.Most Senate Republicans have opposed the lending fund, charging that it amounts to another federal bailout.Credit issues aside, some small firms strongly back tax breaks in the Senate bill.In particular, some tax advisers to small firms say they are eager for a proposal that would allow them to use research and development tax credits to reduce their alternative minimum tax liability. Under current law, R&D and other so-called general business credits can only be used to reduce regular income tax liability, not the AMT."We had a cosmetics company that was inventing new processes to sell their product on the Internet, and they spent tens of thousands to do so. We had to tell them, 'Guess what? You're in the AMT, so you get no credit,'" said Jeff Resnick, managing partner at the New York-based Resnick Druckman Group. Joshua Hayes, tax partner in charge at the Eide Bailly accounting firm, said several firms he has worked with, including a chicken farm in the Midwest and a Phoenix manufacturer of industrial equipment, were prevented from claiming R&D credits because of the AMT."Congress wants to (encourage) people to spend on R&D, and they don't want this backdoor AMT to stop them," said Mr. Hayes.The provision would only be in place for the 2010 tax year. The non-partisan Joint Committee on Taxation estimated it would reduce tax revenues by $1 billion, but the real effect could be several times that because that estimate assumes that the R&D credit is not in place for 2010. The credit expired at the end of 2009, but Congress is likely to renew it retroactively.Another tax break in the bill that could help small businesses is a temporary increase to $500,000 from the current cap of $250,000, in the amount of new equipment purchases that can be deducted as expenses.The next milestone for the small business bill is a Sept. 14 vote, the day the Senate returns from its summer break, on an amendment from Sen. Mike Johanns (R., Neb.) to repeal a tax-reporting requirement for small firms.Following that vote, Mr. Reid will try to get Republicans to agree to vote on a few more amendments and have a final vote on the bill. A test procedural vote at the end of July failed to attract a single GOP vote in favor of advancing the bill. Write to Martin Vaughan at martin.vaughan@dowjones.com and Corey Boles at corey.boles@dowjones.com

Need a Loan? Ask the Boss

Fri, 04 Jun 2010 15:48:26 EDT

By Sarah E. Needleman Every year, business owner Jim Fab lends his 25 employees as much as $4,000 interest-free for personal expenses they can't afford up front, ranging from down payments on homes and cars to funeral and legal fees. Most pay him back – eventually."I had a guy send me $300 a month for three years after he quit," says Mr. Fab, whose electrical-contracting company, Fab Electric Inc., has been in operation in Gaithersburg, Md., since 1978.At small, closely knit companies, business owners like Mr. Fab sometimes take on an extra role: that of the parent who opens up the wallet when the kids need cash. After all, they typically can't steer their penny-pinched workers toward the kind of resources that many big companies have, such as credit unions and debt-counseling programs. Instead, the only option they usually have is to dig into their own pockets – and many say they do with little hesitation."It's normal," says Laura J. Wellington, co-owner of Giddy Gander Company LLC, a Ridgewood, N.J., provider of educational media content for children. Entrepreneurs often develop close ties with their staff members given they have so few, she explains, adding that's why she's felt comfortable loaning her 12 employees around $10,000 over the past two years. "I know my employees exceedingly well," she says, down to their spending habits. "If the person is credible and there's good reason to give out the loan, then I will do it."These days, more workers may be prone to asking for financial support, as they're more likely to be the only members of their households earning an income. A report released earlier this week from the Labor Department shows that the share of families with an unemployed member rose to 12% last year from 7.8% in 2008 – the highest level since the government agency began collecting such data in 1994.There's no firm statistics on how many small-business owners lend money to staff. But those who frequently engage in the practice say it makes good business sense. One reason, they say, is that it can help prevent a slowdown in productivity because workers who are stressed out about money may have difficulty focusing on their jobs.Another rationale for helping employees overcome financial hardships is that it can boost loyalty, morale and unity within a work force, says Elie D. Ashery, co-founder of Gold Lasso Inc., a software company also in Gaithersburg that's given out loans to its 10 employees of up to $3,000 each. "Sometimes they're living paycheck to paycheck so we regularly go out of our way to help our employees keep their family obligations," he says. "It really helps to create better cohesiveness." Offering financial aid to employees also can enhance a company's reputation, adds Shaun Burwell, chief financial officer of 2HB Software Designs Inc. in Columbia, Md. The systems-engineering firm has loaned its 17 employees more than $50,000 over the past five years, he says, and many recipients have shared that fact with family and friends. "It has been a positive discussion point," he says.Certainly, there are potential downsides to lending workers money, such as the possibility of never getting paid back. For this reason, some owners say they only give out amounts they could live with losing for good. Others require workers to provide some form of collateral, such as the title to a car they own, or arrange to withdraw payments directly from their paychecks. But John A. Snyder, a partner with law firm Jackson Lewis LLP in New York, says arranging for employees to pay back loans through salary deductions can have legal consequences. "You have to be careful about violating wage laws, especially if any deductions could potentially bring the employee below minimum wage," he says.Mr. Snyder also warns that owners could be sued should they opt to give out loans to some workers but not others. "Whatever policy they have should be implemented in a uniform and nondiscriminatory way," he says, adding that it should also be put in writing and signed off on by an attorney. Employee loans don't need to reported as income to the Internal Revenue Service since they're designed to be paid back, unlike monetary gifts, which are considered compensation, says John McQuaig, founder of McQuaig & Welk PLLC, a public-accounting firm in Wenatchee, Wash. But for safe measure, he urges business owners to record every loan they give out to employees on paper, including details on how it should be paid back and by when, and have them sign it, he advises. Meanwhile, owners should consider the possibly that lending money to employees will create an awkward work environment, warns Christopher Carey, a small-business adviser in Brooklyn, N.Y. He says some might find it uncomfortable to inquire about late payments as well as embarrassing for the recipient, particularly in a small firm where other staffers might be within earshot. "It can cause undue stress," he says.It's also possible that some workers will make a habit of asking for handouts, adds Mike Faith, founder of Headsets.com Inc., a retailer in San Francisco with 55 employees. "It could become a norm or expectation," he says. "It's got to be for a one-off event rather than just giving them money to feed bad spending habits."But the bottom line, says Mr. Fab, the electrical-contracting company owner, is that there needs to be a high level of trust and respect between everyone involved to ensure a positive outcome. "It's not a good practice to get into unless you have a personal relationship with your employees," he says. As long as that's the case, Mr. Fab doesn't see much of a need to worry. "You're the guy who signs their paycheck," he says. "They're going to pay you back before anybody else." Write to Sarah E. Needleman at sarah.needleman@wsj.com

Sam's Club to Offer Loans Up to $25,000

Tue, 06 Jul 2010 17:01:13 EDT

By Karen Talley Wal-Mart Inc.'s Sam's Club will begin offering loans of up to $25,000 to members in an effort to set itself apart from other warehouse chains and build goodwill to bring in more business.The loan program, which Sam's Club calls the first of its type, is aimed at boosting business for a Wal-Mart unit that is trying to raise its profile among the small businesses that make up a good deal of its clientele."Access to capital is a major pain point for our members and the small business Main Street community," said Catherine Corley, vice president of membership at Sam's Club. "We believe this pilot program is a step in the right direction to help fuel small business growth."The move comes as Wal-Mart aims to reinvigorate sales gains at its Sam's Club warehouse stores. The retailer closed 10 of the stores in January and let go of 10,000 demo staff as it switched to an outside vendor. Most of the staff was hired back by the vendor, spokeswoman Kristy Reed said. The operation is in the midst of remodeling stores, planning to complete 60 to 80 by the end of January.The loan program will focus on minority-, women- and veteran-owned businesses, as well as very small enterprises. "It works well with us because that is who many of our members are," Ms. Reed said. The program is structured so that Sam's Club isn't directly involved with banking – something its parent has made a run at – but rather, an outside lender is handling the logistics, Reed said. Sam's Club makes $50 per funded loan."It seems like a traditional program done in a unique way," said Carl Tobias, Williams Professor at the University of Richmond School of Law. "It benefits Sam's by potentially adding members and can aid existing members."Still, "you have to question if customers will turn to Sam's Club if something goes awry" in the customers' relationships with the lender, Mr. Tobias said.Sam's Club is testing the online program with Superior Financial Group LLC, a Small Business Administration lender. Club members who qualify would receive loans between $5,000 and $25,000. In a November survey, Sam's Club said nearly 15% of its business members reported being denied a loan to run their operations, up from 12% in April 2009.Sam's Club members who apply for a small business loan online during the pilot will receive $100 off the application fee and a 7.5% annualized interest rate, which Sam's Club said is a 25-basis-point discount. The loans carry 10-year terms and no penalty for early repayment.Sam's Club said that while the majority of its small business loan pilot program will be delivered online, the company will test some in-club communication and other marketing efforts to reach business members and small business owners. Sam's Club is not currently looking at expanding the services, Ms. Reed said.Representatives at other major warehouse clubs, Costco Wholesale Corp. and BJ's Wholesale Club Inc., were not immediately available for comment.Wal-Mart shares are up 2.5% to $49.16. Write to Karen Talley at karen.talley@dowjones.com

A Sample Can Be Simple and Cheap

Sat, 03 Jul 2010 19:11:19 EDT

By Sarah E. Needleman Kimberly Isaac used to dream of an easy way to transport the heavy tanks she relies on to indulge in her favorite pastime, scuba diving.But after getting laid off from an accounting job last summer, she set out to create the solution she envisioned -- a compact scuba-tank dolly -- and a new career as an entrepreneur.There was just one problem: "We're not engineers," says Ms. Isaac, referring to herself and Thomas Spiegle, a fellow diving enthusiast she recruited to be her business partner.Nevertheless, the duo set out to make a prototype using spare pieces of metal, foam, a glue gun and a hammer. "It was like a high-school science project," recalls Ms. Isaac. Now the two sell professionally manufactured versions of that crude model for around $300 apiece through a Thousand Oaks, Calif., venture they named Shark Bite Scuba. Thirty of the dollies have been purchased so far and another 30 are currently in production.Have a vision for an original product or an enhanced version of an existing one?Experts in entrepreneurship say only a rudimentary sample may be necessary to articulate to manufacturers how it should look and function. Or, you may be able to piece something together on your own by combining premade parts or ingredients."People think you have to spend a lot of money and make something elaborate," says Jen Groover, a serial entrepreneur and creator of the Butler Bag, a line of compartmentalized handbags sold by major retailers. But even ordinary household items can suffice."In my case, I took a dishwasher utensil tray and stuck it in an existing bag," says Ms. Groover, who wrote "What If? & Why Not?: How to Transform Your Fears Into Action and Start the Business of Your Dreams."Of course, it's typically a good idea to do some testing of your prototype and research into its marketability before investing in large quantities of a final version to sell. One way to do this is to make several low-cost prototypes and give them to people in your target market for free in exchange for their feedback, says Howard Hawkins, a counselor for the Orange County, Calif., chapter of SCORE, a small-business mentoring group. "Have them use it for a while and report back to you," he says.Even if your due diligence shows that there is indeed a demand for your product and it works smoothly (or tastes good if it's food), don't go overboard on your first production run, warns Mr. Hawkins. "Start small" and wait to ramp up after you see sales take off, he says.Last year, Terri Denno, a stay-at-home mom in New York, began creating a product from scratch after her husband got laid off from a copywriting job. She combined various plastic and silicone containers she bought from wholesalers she found online to assemble a lunchbox that could store items separately."Kids don't like their foods to touch," says Ms. Denno, who came up with the idea for the device from observing her two children's eating habits.After comparing different arrangements and prices, Ms. Denno settled on seven items totaling just $6 that together would make up her product. She ordered enough parts to make 50 units, plus wrapping paper and boxes to ship them in. Meanwhile, her husband created a website for her business, which she named Little Lunchbox, and a friend designed a logo.Today, Ms. Denno's website sells about 10 to 20 lunchboxes per month for $15 each. She regularly promotes the lunchboxes at no cost on a free online newsletter for parents. She also once got a mention in a New York kids magazine after sending its editors a sample product, which temporarily quadrupled sales.Heather Kenzie and Jennifer Love took it slow when developing their product. Using common ingredients, they initially produced just 100 of the chocolate health bars they cooked up last year in a commercial kitchen they rented in New York. The business partners then asked about a half-dozen local food stores to consider carrying the bars, called NibMor."We were just out there pounding the pavement and getting the product into people's hands," says Ms. Kenzie, an amateur chef and Broadway performer who turned to entrepreneurship after acting gigs started drying up.She says buyers soon emptied out their inventory, prompting them to whip up a second batch, with a slightly altered recipe, and approach more retailers, including some outside New York. These days, they're churning out 4,000 NibMors a month and expect to triple that number by the end of the year.One thing entrepreneurs should consider: filing for a patent with the federal government if they are looking to create and market an original product that could be easily copied. While this process can cost upward of $20,000 and take as long as five years to complete, "a patent may be your best barrier to competition," says Greg Bernabeo, an intellectual-property attorney at Saul Ewing, a Philadelphia law firm. Write to Sarah E. Needleman at sarah.needleman@wsj.com

U.S. Business Faces Burden From New IRS Rules---Report

Wed, 07 Jul 2010 17:07:09 EDT

By Martin Vaughan An Internal Revenue Service watchdog warned Wednesday the paperwork burdens on small businesses may outweigh the benefit of tax collections generated as part of the new health-care law. Starting in 2012, about 40 million businesses, charities and other entities will be required to report to the IRS payments they make to suppliers and service providers, the IRS Taxpayer Advocate Service said in its midyear report to Congress. The reporting regime is aimed at giving the IRS more information to help it collect taxes from the vendors. But the report said it could disrupt commerce and that IRS systems might not be equipped to make much use of the information anyway. Businesses are already required to report payments to noncorporate service providers that exceed $600 in a given year. The health-care law expanded that to cover incorporated service providers, and also vendors of goods. That means that a self-employed person who pays the same vendor more than $600 for office supplies, equipment or consulting services in the same year must now generate a 1099 form for that vendor and send it to the IRS. "The Office of the Taxpayer Advocate is concerned that the new reporting burden, particularly as it falls on small businesses, may turn out to be disproportionate as compared with any resulting improvement in tax compliance," wrote National Taxpayer Advocate Nina E. Olson. The Taxpayer Advocate is an office within the IRS charged with assisting taxpayers and identifying unfair policies and practices. The IRS has announced that businesses wouldn't have to report payments made by credit card, as those payments will be picked up by a separate reporting regime. That isn't much comfort, said Small Business Legislative Council President John Satagaj, as many transactions within a single industry -- like the payments between manufacturers and distributor -- are handled by check. Mr. Satagaj's group, which represents a variety of industries from electricians to toy makers, has fought the new requirements. The rules could well push more small businesses toward making payments by credit card in order to avoid the extra paperwork, said Mr. Satagaj. "The credit-card companies get a major windfall out of this," he said. Ms. Olson highlighted other problems with the new law. For instance, the law requires that the vendor provide its business customers with a taxpayer identification number, which the customer must then include on the 1099 form. If the vendor doesn't provide an ID number, the business is required to back-up withhold, on behalf of the IRS, 28% of the purchase price. "A vendor may simply refuse to sell goods to any purchaser that refuses to pay the full purchase price. Such an outcome could significantly impair the normal course of commerce," Ms. Olson wrote. In addition, she said large company vendors will have an advantage over small firms because they may offer to keep track of payments for their customers to help meet the IRS requirement. The new reporting requirements were included in the health-care bill to help offset the cost of new health-insurance subsidies. They were estimated to raise $17 billion for government coffers over the next 10 years. The information-reporting requirement is one of two main areas of concern on which the Taxpayer Advocate said it will focus during the coming year. The other is what Ms. Olson called declining levels of IRS taxpayer services. Write to Martin Vaughan at martin.vaughan@dowjones.com

Curves Loses Stamina, Closes Clubs

Wed, 07 Jul 2010 09:58:28 EDT

By Richard Gibson Curves International Inc., whose 30-minute workout for women once made it among the world's fastest-growing franchises, seems to be running out of steam.Over the past three years its U.S. franchisees have been closing outlets at a rapid rate, shrinking the chain by about a third: to 5,208 U.S. sites at the end of last year from 7,748 at the beginning of 2007, according to a recent franchise disclosure document the company filed with state regulators. More than 1,000 Curves vanished across the country in 2009, while just 35 new locations opened.Franchisees and industry experts point to a failure to keep up with changing trends—including more flexible hours for busy working women—cheaper competition and the tough economy as major reasons for Curves' decline.The company disagrees with its critics, contending that much of the club closings were intended as part of a plan to "prune the system," according to Curves President Mike Raymond. Some owners had bought into Curves for the wrong reasons, he says, "they were motivated primarily as investors rather than owners."Curves was one of the world's most popular franchised fitness centers as of the end of 2008, boasting nearly four million members world-wide, compared with 3.5 million for runner-up Gold's Gym International Inc., according to the International Health, Racquet and Sportsclub Association, an industry trade group. Figures for 2009 aren't yet available, the group says.Financial statements filed by the closely held company show it to be profitable. For the year ended Dec. 31, Curves earned $16.4 million on revenue of $84.1 million, compared with earnings of $17.2 million on revenue of $128.7 million the prior year. The revenue falloff reflects lower franchising royalties and equipment sales. Franchisees pay the company 5% of their monthly gross plus another 3% for advertising.The Curves formula is fairly simple: Each club features a circuit of strengthening and cardiovascular exercise equipment. Accompanied by upbeat music, members move from machine to machine, prompted by an audio tape. Monthly dues vary by market, but can range from about $29 to $49.Some say the women-only concept helps combat the "intimidation factor" that may discourage trips to a local gym where one might encounter buffed bodies in Spandex—and men. Also, from the start Curves has encouraged women to operate the facilities, and the chain soon became a magnet for would-be female entrepreneurs.The company's most recent disclosure document, dated March 25, says the total investment to open a Curves in the U.S. is between $31,825 and $39,100, excluding real-estate costs. But many Curves on the market are being sold for much less than that, brokers say.Founded in 1992 by Gary Heavin, now its chief executive, Curves initially focused on small towns that couldn't support a full-sized gym. The business model allowed a franchisee to make a profit with as few as 100 members, Mr. Heavin once said. At its zenith Curves was opening one club every three hours.But as Curves moved into urban markets some competitors exploited its vulnerabilities. Many Curves aren't open over the lunch hour, so working women began looking elsewhere for a quick workout. Soon round-the-clock rivals opened, such as Snap Fitness Inc. and Anytime Fitness, as did those with a larger array of workout equipment and exercise routines, including yoga and aerobic dance. Showers and dressing rooms were among their amenities, challenging Curves' bare-bones facility.Curves franchisees say they began asking headquarters to modify its format so they could retain members, but were largely ignored—a contention the company denies. Mr. Raymond says Curves wants to be flexible and responsive to the needs of women, and that franchisees can seek permission to make adjustments in their offerings.But Curves gained a reputation in the fitness industry for inflexibility. Diana Tavary of Helena, Mont., says she walked away from her clubs after 10 years because the company's exercise format didn't keep up with the times. "They didn't allow you to offer anything different than just the" 30-minute circuit, she says. "They're so constrained in their present model they don't appear to be open to enough feedback from their franchisees," says Tom Garmon, a broker with Fitness Industry Business Brokers, a Hattiesburg, Miss., firm that buys and sells health clubs, including Curves facilities.Curves' Mr. Raymond says "the notion that we have not innovated is absurd." He points to a new generation of exercise equipment that gives immediate feedback and adjusts the intensity of a workout accordingly. As for extended hours, Mr. Raymond says the company has "safety issues" with the idea of keeping its clubs open around the clock.The recession also has taken its toll on membership. Katherine Randall, who closed her lone Curves in Truckee, Calif., last month, says that when she bought the club in 2007 its membership was about 300; this year it was down to 70, which she says partly reflects a tough job market and other pressures on discretionary income.Some franchisees think much of Curves' woes stem from marketing miscues. "There is also a perception that the Curves workout is a 'sissy workout,' which is a complete misunderstanding," says Jim Gasson, a multi-unit franchisee in northern Virginia. Write to Richard Gibson at dick.gibson@dowjones.com

In Sports, Managing the Team Is Often a Family Affair

Fri, 16 Jul 2010 11:53:17 EDT

By Sarah E. Needleman For the New York Yankees, it's a new era of family control as the late George Steinbrenner's sons Hal and Hank are left to manage the iconic baseball team. Many other sports entities are also family-controlled businesses, including football's Pittsburgh Steelers, basketball's Los Angeles Lakers and auto-racing's Nascar. Wealthy families often invest in sports teams to diversify their holdings, leave their personal stamps on the communities they live in, or bankroll something they enjoy. In less common cases, such as Nascar, the enterprise itself was started by the family's patriarch. But behind the trophies, championship rings and glitzy photo opportunities, family-run sports enterprises have much the same concerns of any family business—namely, how to turn operations over to young heirs with success. Only about one-third of family businesses survive the transition to first- or second-generation ownership, according to the Family Firm Institute of Boston. When it comes to succession planning, most family businesses "do a poor job," says Wayne Rivers, president of Family Business Institute, a consulting firm in Raleigh, N.C. "They're so busy running their closely held companies that they don't see this as a separate project and don't devote the time to it." Of course, families that own lucrative sports enterprises typically have access to the best advisors and business strategists. But the process of prepping sons, daughters or other relatives to run the show often still requires a deft personal touch that only a family member can provide. Greg Miller, who now leads basketball's Utah Jazz, remembers the day in January 2007 when his father summoned several family members for what would become routine weekly meetings. "I remember my dad handed us a four-subject collegiate-ruled spiral-bound notebook and he said, 'You guys are going to want to take notes,' " he recalls. "And the succession process formally began."Mr. Miller took the helm when his father died last year, and now serves as chief executive of Larry H. Miller Group of Companies, which owns the team and other assets. The weekly meetings continue to this day, and make it easier to map out businesses strategies and address inevitable family disagreements. "My brothers are not afraid to call me to the carpet, so to speak, if they see something they don't like," says Mr. Miller. Recently, the Millers began inviting third-generation family members to join the meetings once a month. "It's important that they get exposed to the thought process behind the decisions that are made," says Mr. Miller, a father of six and grandfather of a newborn. "We talk in these meetings often about our philosophy as a family, that there is no entitlement allowed and everyone has to work for everything they get."Similarly, Clark Hunt of the Kansas City Chiefs says he began learning the ropes long before his father, Lamar, died in 2006 and left him in charge. In 1989, he got his first job within the family enterprise, a financial-analysis position at Unity Hunt Inc., which oversees the Chiefs and other family assets. "That was the first time [my father] really gave me responsibility to work side by side with him," says Mr. Hunt, adding that he had previously earned a bachelor's degree in business from Southern Methodist University.Mr. Hunt says his father transferred ownership of the Chiefs to him and his three siblings in the 1990s as a gift to avoid higher taxes down the road. In a related matter, many family businesses are closely watching the federal estate tax, which is set to be reinstated in 2011 at 55% for individuals with assets valued at $1 million or more after being temporarily eliminated this year. In the case of the Yankees, Mr. Steinbrenner potentially saved his heirs a tax bill of about $600 million."You need to be as prepared as you possibly can for a transition to the next generation," says Mr. Hunt. "It's not something that should be put off. It should be planned and communicated to all family members."To be sure, some younger generations of family-controlled sports businesses lack the desire to take over the helm, as was the case for the Washington Wizards, which were sold last month to Monumental Sports & Entertainment. The basketball team was previously owned by Irene and Abe Pollin, whose two children opted against ownership several years ago, according to a spokesman. Mr. Pollin died in 2009 at 85 years old.There are also some sports enterprises controlled by families with few or no children. The Sacramento Kings, a basketball team owned by the Maloof family, is run by two brothers who lack offspring. Two more brothers don't have children, although a sister (not involved with team) has three sons. Joe Maloof, one of the siblings who manages the Kings, says he hopes they'll inherit it one day but that they're too young to discuss the prospect just yet."We will never sell that team," he says, adding that the family had relinquished control of another sports franchise, the Houston Rockets, in 1982. "We regretted it the day we sold it." Mr. Steinbrenner, who died Tuesday morning at the age of 80, began planning for the transition of control of the team he bought from CBS in 1973 to his sons about four years ago, according to Yankees spokeswoman Alice McGillion."He's a tremendous loss, but in terms of the operations of the franchise, it will be business as usual," says Ms. McGillion. "We're very confident that the right plans are in place." Write to Sarah E. Needleman at sarah.needleman@wsj.com

When the Folks Give You the Business

Wed, 28 Jul 2010 15:22:45 EDT

By Sue Shellenbarger Watching fellow college students working for $7.50 an hour after graduation, Tana Walther, a fashion-design major at Kent State University in Ohio, snapped up an alternative offered by her father—to run a Pita Pit restaurant franchise he would buy."I guess I bought her a job," says her father, Jan Walther, of North Canton, Ohio. Prospects of a career in fashion seemed remote, and Tana, a college athlete, loved eating at Pita Pit restaurants while traveling with her track team. Her first new restaurant opened last year near campus in Kent, and the 25-year-old hopes to open several more.Parents often say they would do anything for their child. Setting a child up in business is surely one big test of that bond. A lot is at stake: Small-business failures are common, and parents risk losing their entire investment, their life savings, or more. They also risk straining their relationships with young-adult children intent at this stage on independence.Still, many parents see business ownership as a better bet for their kids' future than a graduate degree. And in this era of renewed interest in entrepreneurship, some parents I interviewed described it as a way of recapturing for their children a stake in "the American dream"—the opportunity to control their destiny and have a chance at gaining wealth.Even when such start-ups work well, both parents and adult children have to make sacrifices. Dave Hughes, North Little Rock, Ark., bought a College Hunks Hauling Junk franchise last year for his son Nolen, then 22 and graduating from college. Dave had to cash in a retirement account, and Nolen had moved back home with his dad to conserve money."You have to be willing to make sacrifices when you own your own company," Dave told Nolen. When the two disagree, Dave says he has learned to step back. "If we butt heads, most of the time I just walk away and say, 'OK, fine, I told you what I had to say,' " Dave says. But Nolen has worked hard, often rising before dawn to drive his big trash-hauling truck around the city during rush hour. "It's a big billboard," he says. His father is pleased. "Nolen has more business savvy than I did at his age," Dave Hughes says. He heaved a sigh of relief when the business broke into the black a few months ago. After that, "I didn't worry any more. I think Nolen will be rolling on his own by next year," Dave says.Respecting an adult child's need for autonomy while watching them make mistakes can be painful, says Marvin Himel, a Jacksonville, Fla., sales-training consultant. After Mr. Himel bought his son Drew an Internet-consulting franchise, WSI, in 2007, Drew at first underestimated the need to get out and sell his services, spending time studying the Internet instead. "Those first few months you want to step in and do it for them, but at the same time you want them to grow and learn on their own," Marvin Himel says. "Finally I just stepped in and said, 'Look, nothing is ever going to happen if you don't make a sale.' " At first, Drew, then 23, dug in. "I was pretty independent-minded. I'd say, 'OK, Dad, what you say is great. I can see that you're a success. But I'm going to pave my own path.' " But when sales fell short of his goals, he relented and asked his dad for advice. "I told him, 'I'm going to follow what you say verbatim. Tell me what to do.' From that point on, I started to have a lot of success," Drew says. Drew has hired two employees, his income has risen and the business is growing.The setups can be stressful for young adults, too. Jon Kelecy's father, a Tampa, Fla., financial executive, set him up recently in a franchise for Fibrenew, a leather- and plastic- restoration business. Jon, 26, of Gainesville, Fla., loves the work and appreciates his dad's support. But he dislikes "being in his pocket," he says, amid all the anxiety of a start-up. Many parents choose franchises for their kids because they seem to offer marketing, branding and management support. While no data on failure rates is available, a study by the Small Business Administration's Inspector General in 2002, the latest available, said there was no evidence that franchises succeed any more often than independent businesses. Start-up costs, including leases for space and equipment, range from roughly $5,000 to $10,000 for such low-cost operations as cleaning franchises, to $1 million or more for popular fast-food restaurants. Information on risks and legal pitfalls for franchisees can be found at BlueMauMau.org, an online trade journal. Howard Bundy, a Kirkland, Wash., lawyer who represents franchisees and franchisors, says parents considering such a venture need an attorney experienced in representing franchisees, and both an accountant and an experienced business mentor familiar with both franchising and the target industry. Mr. Bundy also warns that parents run a high risk of losing their investment. One mother lost $250,000 when a fast-food franchise she purchased for her son failed, Mr. Bundy says. In another case, parents lost $350,000 on a coffee-shop business they financed for their daughter.For some parents, the potential rewards seem worth the risk. "As a parent, the best gift you can ever receive is to see your children happy and successful," and equipped to make a living, Marvin Himel says.None of the parents I interviewed expect any short-term return on their investment. A few viewed it as a gift. Some structured it as a loan and deferred repayment. Others took stock in the business, with an agreement that their child would use future earnings to buy it back.Some parents look farther ahead, hoping their child's business will support them in retirement. After supporting his own father in old age with proceeds from his Canton, Ohio, restaurant, Walther's Cafe, Mr. Walther says he hopes his daughter will do the same for him. Ms. Walther says she welcomes the prospect, adding, "this is a partnership." Write to Sue Shellenbarger at sue.shellenbarger@wsj.com

The SBA Has a Deal for You

Mon, 21 Jun 2010 13:54:46 EDT

By Marshall Eckblad The government is trying to entice more small businesses to tap one of its loan programs. Before applying for one of these loans, though, there are some fine points borrowers should consider.The Small Business Administration's 504 loan program lets companies take out fixed-rate financing to buy property, build or expand facilities, or refinance some existing mortgages. The borrower typically needs to put down just 10% of the transaction's total price.With the weak economy deterring many small businesses from expanding in the past couple of years, demand for these loans plummeted: Last year, the SBA approved $3.8 billion in 504 loans, down 28% from 2008 and 40% from 2007. Hoping to spur expansion among small companies, the SBA is offering inducements like lower rates and no-fee deals.The plan seems to be working, since demand is picking up again. If you're thinking of pursuing a 504 loan, though, there are some strategies and caveats to keep in mind. Here's what you need to know.First, you may not be able to get one of these deals with your primary bank; many lenders aren't interested in offering them. Why? Only about half the final government-insured loan amount sits on a bank's balance sheet, with much of the rest covered by a bond offering. Some banks prefer to offer SBA loans through programs that allow them to hold the whole loan and collect its full interest payments. Grady Hedgespeth, director of the SBA's Office of Financial Assistance, advises small-business owners to start by contacting the nearest certified development corporation, an authorized government partner in the 504 program. CDCs are typically nonprofits that aim to promote growth among small-businesses.The SBA's website, SBA.gov, also lists local SBA offices that can provide data for which lenders are issuing the most 504 loans and are therefore more likely to know the program well. Remember, though: The government offers guarantees and parameters for 504 loans, but many details are left up to borrowers and lenders to negotiate; different banks may offer different terms. Because terms can vary, ask to see side-by-side quotes for a 504 loan and a conventional commercial mortgage or construction loan. Although the 504 program will usually offer a better deal, your lender should make sure. Even after choosing the 504 option, many borrowers will need "gap financing," since some deals will face a 60- to 90-day delay between closing and government funding. That gap can reach a full year for construction projects, since the government doesn't deliver the money and its guarantees until after the property is completed.Prices and terms for temporary mortgages typically vary based on the property, lender and region. These loans are usually available from the lender executing the 504 loan, but they may carry additional requirements.Solera Salon Inc., in Greenwood Village, Colo., was recently approved for a 504 loan to build new facilities. But the company had to pledge additional assets, beyond the 10% down payment for the SBA loan, to secure gap financing.Apart from shopping for rates, experts say it's important to look at each loan package's fees and other terms—especially what happens if the project unexpectedly violates SBA rules. Michael Kleinberg, Solera's chief financial officer, notes that Solera will lose its 504 loan, and be stuck with its pricier gap financing, if the project suffers any "materially adverse" change, such as a lawsuit.Another challenge: Currently, the program only allows borrowers to refinance a portion of an existing loan if the business uses at least two-thirds of the proceeds to invest in expanding.Congress hasn't yet authorized the program to allow current business borrowers to refinance existing whole loans. But the SBA hopes such a deal will be in place soon. Mr. Eckblad is a reporter for Dow Jones Newswires in New York. He can be reached at marshall.eckblad@dowjones.com.

What Makes a Mattress Cost $33,000?

Wed, 16 Jun 2010 15:07:56 EDT

By Anjali Athavaley How much would you spend for a good night's sleep?Some people might say $33,000. That's the price of E.S. Kluft & Co.'s hand-tufted, king-size Palais Royale mattress and box spring, currently the most expensive American-made mattress set on the market. The company says it has sold about 100 since introducing it in 2008.Or maybe it's $44,000—the price tag on Kluft's Sublime model, which the company has teed up for a launch later this year.European shoppers will pay even more. At $69,500—roughly the price of a Porsche Cayenne S hybrid SUV—there's the Vividus king-size mattress set from Hästens Sängar AB, of Sweden. Hästens says it takes 160 hours to assemble this mattress entirely by hand, which has a Swedish-pine frame with thick layers of horsehair, cotton, flax and wool inside. The company says since introducing the mattress in 2006, it has sold 250 of them world-wide.There's an arms race under way in the world of luxury mattresses that jittery economists and sluggish home sales seem unable to stop. Even at the middle-to-upper-middle tiers, mattress prices are creeping up as companies cater to mainstream demand for luxurious sleep.At Sealy Corp., in Trinity, N.C., the lineup of products aimed at the luxury end of the market is expanding, says Jodi Allen, chief marketing officer. The company's higher-end Stearns & Foster mattresses range in price from $1,200 to $5,000 and take twice as long to make as the company's Sealy-brand mattress. This year, Sealy launched its most expensive Stearns & Foster model, the black-and-gold Golden Elegance, priced at $4,999 for a king set. It features individually wrapped inner and outer coils, which give extra support, and it contains wool, horsehair and natural latex inside.Earl Kluft, chief executive of E.S. Kluft, a family-owned company based in Rancho Cucamonga, Calif., says it takes 10 craftsmen about three days to make the Palais Royale, which contains 10 layers and more than 10 pounds of cashmere, mohair, silk and New Zealand wool that has been washed, dried and crimped. Natural latex foam and certified organic cotton are among the materials used to reduce motion transfer and provide cooling. The Sublime has a layer of horsehair for resiliency."We really want the consumer to get a better night's sleep," Mr. Kluft says. "When you think about it, the mattress is the most important thing in your house. You spend more time on your bed than anywhere else." Mr. Kluft says super-premium mattresses, or those costing $20,000 or more, made up 5% of Kluft's sales of $33 million in 2009, a year when overall sales were flat. In 2010, first-quarter sales were up 50% over the year earlier, Mr. Kluft says. At the high end, other mattress options range from Hollandia International's "3-D fabric," with raised fibers creating ventilation, to a customizable mattress from Organic Mattresses Inc., featuring layers of latex in varying firmness that are stacked to suit the customer. Some mattresses have aloe vera or lavender built into the top layers; a luxury mattress from Magniflex, an Italian line, is covered with fabric containing 22-karat gold. Exactly how much better will a person sleep on a super-expensive mattress, a shopper might ask. Not much, according to one sleep expert, Clete Kushida, medical director of the Stanford University Sleep Medicine Center. "For the vast majority of people who are generally healthy, bed surface won't make much of a difference in terms of their sleep," Dr. Kushida says. But as people age, they experience more sleeping problems and become more attuned to the comfort of their beds. And for those with medical problems, such as chronic pain syndrome, "even something as simple as a bed surface can make a significant difference," he says.Yet bad sleep was what drove Scott Kimple, a 44-year-old hedge-fund manager in Dallas, to invest $27,500 in a king-size Hästens 2000T mattress set two years ago. "I've had problems sleeping in the last couple of years, and I thought well, maybe a mattress might help," Mr. Kimple says."When I heard there was a $20,000 mattress out there, I thought it was kind of ridiculous." But Mr. Kimple is a convert. "It's light years better than anything I've ever slept on. It's like you're floating on air." An added plus: "They will come to your house and flip the mattress for you," Mr. Kimple says. The Hästens store in Dallas offers the monthly service to local customers for the first year; Mr. Kimple had it done.Less-expensive rivals are skeptical of a $20,000 mattress. "I don't know what the rationale is, quite frankly, as to why someone would spend that much," says Rick Anderson, North American division president at Tempur-Pedic International Inc., of Lexington, Ky. The company is planning this year to roll out the Tempur-Cloud Luxe collection, including a softer version of its signature Tempur foam, which conforms, with body heat, to the shape of the sleeper. A king set with an advanced adjustable base system costs $9,000—making it the company's second-most-expensive."Hand-made doesn't necessarily mean better sleep," Mr. Anderson adds. "I think you have to look for meaningful differences."The industry offers a little evidence to back up the notion that a new bed will help you sleep better. In 2006, the Better Sleep Council, an arm of the International Sleep Products Association, funded a study at Oklahoma State University. Researchers divided 59 people, who had no clinical history of sleep problems, into groups according to their "sleep efficiency"—that is, how well they reported sleeping. They recorded their quality of sleep for 28 days in their old beds, which were on average nine years old. Then they did the same for 28 days in a new, medium-firm bed. Subjects with poor sleep efficiency experienced greater improvement, but those with good sleep efficiency also experienced benefits, says Bert Jacobson, head of the School of Educational Studies at OSU. "A new bed is certainly not a cure-all," Dr. Jacobson says, but it can improve the sleep of even those who don't feel they suffer from poor sleep. And that may be why, in the luxury mattress business, unhappy customers are rare. Last year, Linda Wilde, 51, a hospital health information official, and her husband, Wayne, an administrator at a law firm, set out to replace the mattress she'd been sleeping on since the year Ronald Reagan was elected president (1980, to be exact)."It was a full size mattress, and we are two full-size people," Ms. Wilde says. "It was time we got a new mattress." The couple went to a mattress store near their home in Half Moon Bay, Calif., and tried out a Kluft. They glanced at the price and saw $1,700. "When we laid on that bed, it was like heaven," she says. "We were thinking, What a steal."Make that $17,000. But it was already too late—the Wildes were sold. Since purchasing the bed, her husband's back pain has vanished. Ms. Wilde says she doesn't intend to buy another mattress. "This is the bed we're going to die in," she says. "Hopefully not soon."For some, the eye-popping price is part of the appeal. "For any luxury brand, there has to be a perception of scarcity," says Dean Crutchfield, senior partner at Method Inc., a New York brand consulting firm. "If everyone was running around buying these beds, they wouldn't be as special. "Let's be honest, not everyone can have this. Not everyone can afford this. That's what this is about," Mr. Crutchfield says.Bloomingdale's, a unit of Macy's Inc., currently offers Mr. Kluft's Palais Royale in several stores. Just a few years ago, the company's mattress assortment topped out in the $5,000-to-$6,000 range."Once my buyers started testing the stuff and we saw the results, we went very aggressively after that business," says Joe Laneve, the retailer's senior vice president of home furnishings. Customers who buy a $33,000 mattress want to take their time in the store. "They lie down for a long time," Mr. Laneve says. Kluft trains the sales associates—Mr. Kluft calls them "disciples of the product"—to answer questions. "We do not pressure them to make a quick decision of that magnitude," Mr. Laneve says. Fidel Lecer, manager of a Mancini's Sleepworld store in San Francisco, says the most expensive mattresses sell themselves. Just a few days ago, he recalls, a woman walked in looking to spend less than $1,000 on a mattress-box spring combination; she walked out with a set that cost her $8,000."There's no one, in 95% of the cases," Mr. Lecer says, "that comes in and says 'Oh, I'm here to spend $15,000.' " Write to Anjali Athavaley at anjali.athavaley@wsj.com

Partisan Clashes Stall Legislation

Thu, 29 Jul 2010 21:03:21 EDT

By Naftali Bendavid And Stephen Power WASHINGTON—Partisan feuding Thursday jeopardized the prospects of legislation that would help small businesses and address the Gulf oil spill, but lawmakers anxious about political fallout promised to resume work on the small business bill next week.The 111th Congress has been one of the most active in decades, passing far-reaching overhauls of the nation's health-care system and financial industry regulations. But with midterm elections looming, lawmakers on both sides now are digging in for a tough campaign season and pushing to wrap up business ahead of their August recess.Senators on Thursday refused to advance the $42 billion small-business bill in a 52-48 party-line vote. That initially seemed to doom the bill for the time being, but its prospects had brightened considerably by day's end.The bill includes a $30 billion loan fund and $12 billion in tax breaks and other help, and many elements of the package have attracted wide support. But a dispute over how many amendments the Republicans could offer stalled progress.Democrats' failure to overcome a Republican filibuster, which would have required 60 votes, appeared to mean the bill would be delayed at least until after the August recess. But lawmakers of both parties face pressure to show they are doing something to help small businesses weather the tough economy, and enough progress was made by the evening that Senate Majority Leader Harry Reid (D., Nev.) suggested the talks resume next week."I say to everyone here, let's take a little time over the next couple days," he said.Senate Minority Leader Mitch McConnell (R., Ky.) added, "I know there is support on our side of the aisle for this bill, if we can get it right. ...I think we're heading back in the right direction."Partisan wrangling dimmed the prospects for quick action on Senate energy legislation. The House is preparing to vote Friday on its own bill in response to the Gulf of Mexico oil spill, but arguing between the parties jeopardizes that bill as well.The most contentious issue in both the House and Senate energy proposals is a provision to remove the current $75 million cap on economic damages paid to residents and small businesses by oil companies after oil spills.Republicans, and many oil companies, say this would kill jobs and make the U.S. more dependent on foreign oil by rendering offshore drilling impractical for all but the biggest companies.Democrats say the change is necessary to ensure that oil companies don't cut corners on safety and to protect taxpayers from having to foot the bill for such disasters.In an effort to break the impasse, Sen. Mary Landrieu, (D., La.,) a longtime ally of the oil industry, is pushing an alternative under which oil companies would contribute to a mutual insurance fund to cover spill damage. But negotiations over that idea are unlikely to conclude before the Senate goes on recess at the end of next week.On the small-business legislation, Republicans complained they were being blocked from offering their ideas for the bill."We could have been finished by this bill by now if you'd give the minority the right to offer a few amendments," said Sen. Olympia Snowe (R., Maine). Sen. Orrin Hatch (R., Utah) didn't criticize any provisions in the bill, but said it didn't address the real problems facing small business, such as the approaching expiration of Bush-era tax cuts."We don't have time to address small, Band-Aid bills when the patient, the underlying economy, needs a blood transfusion," Mr. Hatch said. Republicans also said Democrats were throwing unrelated spending into the bill, including $2 billion in agriculture disaster relief.Democrats, in turn, said Republicans offered amendments that had little to do with small business but were intended to embarrass the Democrats. Mr. Hatch, for example, suggested he wanted a measure to address the Bush tax cuts, which Democrats say is a broader issue that will be tackled later."I'm pleading frankly to a few Republicans senators," said Sen. Max Baucus (D., Mont.) "Let's pass it. Let's not get all hung up on who said what to whom."Mr. Reid at one point offered to withdraw the agriculture relief funds and allow the Republicans three amendments, but Mr. McConnell said that wouldn't be enough.Senators also fought over the $30 billion loan provision, which would provide money for community banks to lend to small firms. Many Republicans opposed that measure, saying it resembled the unpopular Troubled Asset Relief Program, which provided $700 billion to large banks.The $30 billion loan program would authorize the Treasury Department to lend money to smaller banks, those with less than $10 billion in assets, at 5% interest. That interest rate would fall to 1% if a bank significantly increases its loans to small firms.Other items in the bill included such provisions as allowing small businesses to apply tax credits to the previous five years, and letting investors avoid capital gains taxes on certain small business stocks. The bill also would increase the limits on a variety Small Business Administration loans and provide $1.5 billion to states for grants to small firms. Write to Naftali Bendavid at naftali.bendavid@wsj.com and Stephen Power at stephen.power@wsj.com

On a Tight Budget? How to Land a Client

Wed, 18 Aug 2010 10:54:14 EDT

By Emily Maltby It's a common conundrum for business owners when sales aren't pouring in.To get more customers, you need to market and advertise. But when cash is sparse, it's tough to allocate dollars toward promotional efforts, especially when there's no guarantee of a return.Amid the economic downturn, nearly half of business owners say they're straining to find efficient or innovative ways to market their products or services, according to a March survey of 734 entrepreneurs by American Express OPEN, the company's small-business division.For many, the outlay of cash is simply too risky. "It's a Catch-22. When business is slow, entrepreneurs don't have as much money [but] one of the things you need is more advertising," says Greg Gould, director of the Maine Small Business Development Center in Portland. "You should be spending more in a slow economy, not less."To minimize the potential drain on the budget, some business owners are trying creative or highly targeted means of reaching potential clients, Mr. Gould says. (Please read how numerous entrepreneurs are trying to land clients in the gallery at bottom.)For example, Mr. Gould is seeing more owners aggressively aiming to reach a specific demographic. A small company selling baby toys, for instance, might comb wedding announcements and send catalogues or brochures to recently married couples, rather than placing a generic ad in a newspaper or a magazine. Otherwise, "you might be paying to reach people you may not want to reach," he says.Other business owners are focusing more on niches or specialties within their industry.Lisa Feierstein, president of Active Healthcare Inc. in Raleigh, N.C., which provides medical equipment to treat a variety of respiratory conditions, directs her marketing efforts toward sleep apnea sufferers. "We were determined to not be a victim of the economy," says Ms. Feierstein, who used to wait for physicians to refer clients to her.One day a week last March, which is Sleep Awareness Month, she held free sleep apnea screenings and provided free repairs on sleep apnea equipment, even if purchased from a competitor.The efforts proved successful. About 150 people came in for screenings, and between 10% and 15% returned as patients, Ms. Feierstein estimates. And of the 50 people who came to get their equipment serviced, about 75% are now repeat customers who get services and supplies through her company.Mr. Gould says that offering free services can work to entice new customers, but that owners should go a step further, handing out coupons or promotions to encourage customers to come back. Otherwise, the strategy could end up being quite costly.Other small-business owners less keen on offering freebies are dedicating more time to strengthening their online presence, says Marc Karasu, a marketing consultant in New York who specializes in digital-marketing tools. "You don't need to be an expert," he says. "There are resources that didn't exist even a few years ago that level the playing field."Some entrepreneurs are learning more about search engine optimization. Others are providing customers with online newsletters or blog feeds. Owners are also responding and engaging customers on review sites such as Yelp and Angie's List, Mr. Karasu says.Owners can also build communities using social-networking sites like Facebook and Twitter. Still, 74% of business owners say they do not use social-networking tools, according to the American Express survey. Michael Sinkin, a dentist in New York, says he used to be "intimidated" at the thought of developing an online presence. Last year, he was skeptical of the effort required to create a website, "but once the site was launched and I saw it, I realized it was nifty," he says.Now, Dr. Sinkin is a regular social-media guru. He regularly writes on his blog, which he then touts on Twitter and Facebook.This summer, the number of new patients seeking his service has doubled. Part of the success, he says, came from a situation where a British businesswoman, traveling in New York for a short stint, sent out a Twitter message asking for dental help because her tooth had cracked. One of Dr. Sinkin's Twitter followers replied to her, providing his office details. Dr. Sinkin fixed the dental problem the next day. After the businesswoman left, she turned to Twitter again to rave about the level of care the dentist had provided."Virtual word of mouth becomes viral," says Dr. Sinkin, who has 1,500 Twitter followers and estimates picking up six new patients from the traveler's tweets. "I used to just give toothbrushes and toothpaste but now I have cards printed up that say 'Follow me on Twitter.' " Write to Emily Maltby at emily.maltby@wsj.com

Risky 'Search Funds' Draw Dollars

Mon, 12 Jul 2010 10:51:00 EDT

By Kyle Stock "Search" funds, small pools of money that seek to buy and manage small companies, are drawing a record number of would-be entrepreneurs and a new crop of investors, though they have realized few successes.Roughly 50 search funds were launched in the last three years, with each consecutive year marking a new high, according to a study to be released Monday by Stanford University, where the idea was born almost 30 years ago. John Fowler, who profitably bought and sold a logistics company through a search fund, now is approached by one or two people a week looking to forge a similar path. "It was kind of just a little secret of Harvard and Stanford 10 years ago, but it's not a secret anymore," Mr. Fowler says. Search funds work essentially like tiny private-equity shops. One or two prospective entrepreneurs round up between $200,000 and $750,000 from friends, family and outside investors to finance the hunt for an attractive business, a process that typically takes 18 months. If a deal is reached with the owners, the search-fund principals seek second rounds of financing from their initial investors to buy the company—typically for between $5 million and $10 million. Investors accept equity stakes in the purchased business, while the search-fund principals try to expand the business, generate returns and eventually sell it for a profit. On the map of the financial world, search funds are a tiny and little-known province; only 141 such funds have been launched to date. But the recent crisis, and the fissures that it spread throughout high finance, cultivated new interest in the strategy. Investors, soured by the performance of bigger markets, were lured to this segment of businesses too small to even gain the attention of private-equity shops. At the same time, midcareer professionals facing an uncertain future on Wall Street warmed to the idea of running tiny companies for a dedicated group of backers. G.J. King, for example, left a job in Goldman Sachs Group's private-wealth management unit to study search funds at Stanford. Mr. King, 27 years old and his partner, Will Bressman, started fund raising in February as they finished business school and will start their search for a target company next month. "I feared that if I returned to a traditional job, or a place like Goldman, I would always have that what-if wonder," Mr. King said. Mr. King and other recent search-fund players have tapped into a number of investors dedicated to the strategy. Nine out of 10 search funds are now backed by "serial" investors, according to the Stanford study. The group is so small and fraternal that it has been dubbed "the search-fund mafia," a moniker that also speaks to the collective power these investors hold to bless or kill fund-raising prospectsDespite the new interest, however, the strategy is arguably riskier than ever. Nearly one-third of search funds launched to date have lost all their investors' money, compared with 28% in 2007, the last time Stanford completed a search-fund study. And just 38% of all search funds have posted a positive return, down from 48% two years ago.Average returns, skewed by a few huge successes, were roughly 37%, down from 52% in 2007. Alpine Investors, a San Francisco-based firm that buys stakes in small companies, steers clear of most search funds, though it has seen a spike in search-fund pitches. Founder Graham Weaver says the key to the strategy's success is finding the rare candidate who excels at both finding and buying a business and handling the duties of a small-scale CEO. "That's a pretty unique skill-set," Mr. Weaver says. "They're teaching themselves to be a [private-equity] firm in two years. I've been in PE for 15 years and my learning curve is still steep."The purchase of a small business is just the start of a very unglamorous race, as many search fund managers describe it. While his former classmates were cashing Wall Street signing bonuses, Peter Day was making earrings and packing boxes with coffee mugs and dog toys. Mr. Day, a 35-year-old former investment banker, has now spent seven years at the helm of Eugene, Ore.-based Oak Patch Gifts."It's kind of the business equivalent of owning a small family farm," Mr. Day says. "It's got a nice ring to it—a romance—but the day-to-day reality is very different from what people imagine."What keeps everyone in the game, searchers and investors alike, is the prospect of a home run—the huge success story on which any venture-capital model depends. Several industry-leading companies have grown from search funds, returning investors' money many times over in the process. Asurion, one of the world's largest providers of cellphone insurance with more than 5,000 employees, has grown from an $8 million search-fund acquisition in 1995. Write to Kyle Stock at kyles@fins.com

CIT's Challenge: Find Cheap Funding Source

Wed, 09 Jun 2010 13:21:29 EDT

By Aparajita Saha-Bubna Lack of cheap funding continues to hamstring CIT Group Inc. (CIT), six months after leaving bankruptcy.The longer it takes for CIT to right its funding model, the lower its chances of making it as a stand-alone company and the more likely it is that it will be bought by a bank looking to expand its lending business to midsize firms.While CIT raised funds earlier this year in the credit market, its ability to increase deposits is hamstrung by restrictions imposed by banking regulators. This inability to increase its deposit base, a stable and inexpensive funding source, is forcing it to whittle down its balance sheet. Total assets at the company fell in the first quarter by $2 billion from the end of the year to $58.1 billion as CIT made fewer loans."If CIT is able to fix its funding model, we believe the company will be well positioned for growth," said Adam Steer, an analyst at CreditSights Inc., a credit research firm.CIT's new chief executive, former Merrill Lynch CEO John Thain, took the helm in February and has reiterated the lender's commitment to lowering its costly debt load and winning the confidence of regulators who have limited CIT's ability to raise deposits.To this end, CIT has paid down $2.25 billion of an expensive $7.5 billion credit facility. It reported a surprise first-quarter profit, proving wrong analysts who had predicted a loss. The lender also has put together a management team and is hunting for a finance chief. In addition, CIT is selling off assets it doesn't consider critical to its core business as it seeks to shore up its balance sheet. CIT also is employing existing deposits to make corporate loans.But its costly debt load is cutting into profits. For instance, as of the first quarter, for every $100 CIT lent, it earned 65 cents, as its interest payments ate into margins, compared with about $3.50 it earned before the financial crisis, estimates Keefe, Bruyette & Woods.The company not only has to get the go-ahead from regulators to increase its brokered deposits, it also has to get the green light allowing it to use its deposits to make more types of loans. In addition, it needs to build on its deposit base to include retail deposits, which are considered more stable than the brokered deposits CIT has now."There is no clarity around the time frame for when things can be cleaned up by the regulators," said Mr. Steer at CreditSights. CIT's Mr. Thain said in March that it would take at least a year to regain the confidence of regulators."There's room for more upside for CIT shares but for a really significant upside to occur, investors may have to be patient," said Sameer Gokhale, an analyst at KBW. "From what I can see, it may take until 2012 for CIT to report positive cash earnings." Mr. Gokhale has the equivalent of a hold rating on CIT shares.CIT shares closed Tuesday at $35.25, up about 28% so far this year."CIT continues to make progress reducing its cost of funds, improving operating efficiencies and charting the optimal path for its commercial businesses," said Curt Ritter, a CIT spokesman. "Our return to profitability this past quarter further strengthens our financial position, which includes strong liquidity and a solid capital base."Founded in 1908, CIT relied on bonds and commercial paper to raise funds, which it then lent out at a higher interest rate. The credit crisis made it difficult for CIT to raise capital cheaply and, unable to restructure its debt, the lender filed for bankruptcy protection in November.The bankruptcy court wiped out about $10 billion of CIT's outstanding debt, as well as a $2.3 billion investment from the U.S. Treasury's Troubled Asset Relief Program. CIT emerged from bankruptcy in December.KBW's Mr. Gokhale doesn't rule out a potential acquisition of CIT by a bank seeking to expand its lending business. Indeed, a marriage between CIT's knowledge and relationships in the small-business-lending space and a bank's access to low-cost deposit funding could be an outcome welcomed by shareholders."CIT may be better suited to being part of a larger bank," says Mr. Gokhale.CIT's Mr. Ritter declined to comment on that possibility. Write to Aparajita Saha-Bubna at aparajita.saha-bubna@dowjones.com

NYU Starts Venture-Capital Fund

Mon, 28 Jun 2010 10:50:42 EDT

By Joseph De Avila New York University plans to launch a $20 million venture-capital fund that aims to spur technology entrepreneurship at the school.The NYU Innovation Venture Fund is the latest initiative from the school to support new companies emerging from the university's research.Earlier this month, the Polytechnic Institute of New York University said it would join with New York City and Columbia University to host the NYC Media Lab to foster collaboration between media and technology companies, and the universities' researchers."The fund is continuing that effort to bring the university in the direction of solving significant science and technology problems and making a material impact on society at large," said Frank Rimalovski, the fund's managing director. Mr. Rimalovski last worked at New Venture Partners LLC, a Murray Hill, N.J., venture fund that he co-founded.NYU contributed $2 million to start the fund. The rest will be raised through donations.The fund will be making investments ranging from $100,000 to $1 million in early-stage companies in sectors such as information technology, computer software and biotechnology.Several other universities, including the University of Wisconsin, Purdue University and Boston University, have started similar programs, Mr. Rimalovski said.When a university launches one of these types of funds, it's making a statement to the faculty—and prospective faculty—that the school is willing to support their research, said John Taylor, vice president of research at the National Venture Capital Association."It's a sign that they are taking things up to the next level," Mr. Taylor said.NYU's venture fund comes at a good time for New York, which needs to identify new sectors for job growth, said Jonathan Bowles, director of the Center of for an Urban Future, a nonpartisan research group."For too long the city's major universities have not been supportive enough of entrepreneurial ventures," Mr. Bowles said. "It seems like a real departure that could have a significant impact on the city's entrepreneurial economy." Write to Joseph De Avila at joseph.deavila@wsj.com

Gloomy School Season Looms

Thu, 12 Aug 2010 10:24:18 EDT

By Emily Maltby Small retailers are bracing for another disappointing back-to-school season.Last year, a tougher credit environment made it difficult for small companies that cater to student needs to order inventory. This year, continuing credit woes, coupled with dismal consumer spending and competition from big-box stores, may further push some small players out of the market. Roger Brooks, president of Brooks Shoes for Kids in Santa Monica, Calif., remembers the decades of thriving sales in August and early September, when parents would bring children in for new shoes. Now, his 55-year-old chain, which has 10 locations throughout California, is looking at shuttering a store if the outlook doesn't improve. "My margins are pressed," says Mr. Brooks, who runs the store with his son. "I used to look at the business on a monthly basis, then on a weekly basis." Now, "I look at sales daily," he says.Continued economic uncertainty and frugality among consumers are the most significant challenges to a small company's growth and survival, outpacing issues such as health-insurance costs and taxes, according to a July report from the National Small Business Association. And small companies are still dealing with reduced access to credit, which makes stocking shelves with everything from sweatshirts to notebooks difficult. Some 80% say they've been impacted by the credit crunch, up from 67% in 2008, according to the association's survey of 400 business owners.The National Retail Federation reported last month that spending on school items for children grades K-12 and college students is expected to increase 16% this year to $55 billion. The average family will spend $606 on school-aged children, compared with $549 last year. Still, the lobbying group also reported that about 30% of consumers plan to make do with last year's items and 53% said they would shop for sales more often. "The recession changed the mindset of the consumer," says Daniel Butler, vice president of retail operations for the NRF.Some small retailers are integrating a variety of tactics to lure customers even though they can't compete with the prices of the big-box stores. "There are items that [big retailers] don't sell, like old typewriters and specialty items and business forms and legal forms, that I do carry," says Kwang Ahn, owner of a small office supply store in Chicago. "That is how we survive."Still, sales at the store have dropped 15% each of the last four years as consumers have gravitated to Office Depot Inc., Staples Inc. and OfficeMax Inc. stores in the area. So Mr. Ahn decided to provide mailing services and, as recently as six months ago added DHL shipping, to bring more people into the store. Kia Liszak, who co-owns the Blackbird Kid Shop LLC apparel store in Missoula, Mont., is using a different strategy. Her business, only in its third year, has had to adapt to weak consumer demand from the beginning. So it added a gently used section at the back of the store that provides customers with lower-priced items and allows returning customers to bring back clothes for partial store credit. But some businesses, like Mr. Brooks's, are taking the more drastic measures of shaving staff, lowering salaries and reducing inventory. "There's not much one can do," says Mr. Brooks, who saw one of his credit lines reduced two years ago. "I'm using every resource I've learned in the last 40 years to keep this business going." Write to Emily Maltby at emily.maltby@wsj.com

Enterprise Dispatch

Wed, 18 Aug 2010 21:20:34 EDT

Robotic vehicles have been used for space exploration, deep-water drilling and a range of other exotic applications. Now one start-up is creating robots to mow lawns, shovel snow and repave parking lots.Precise Path Robotics Inc. is preparing to unveil a $30,000 robotic mower for golf courses that will begin shipping in mid-October. The Indianapolis start-up just raised $4.5 million in funding from angel backers Scott A. Jones and Charlie Staples, to give it $10 million in total backing.Precise Path primarily builds the software and sensor technology for robots and outsources the manufacturing component, said Jason Zielke, the company's president and operating chief.The robot can handle unstructured environments, according to Mr. Zielke. That means if a gopher jumps in front of a robotic mower, for example, sensors inside will detect it and correct the mower's course, he said.While the company is preparing to ship robotic mowers, a number of other ideas are in the works, including robots that remove snow, repave parking lots and do specialty painting work, Mr. Zielke said.Two golf-management companies that represent a collective 100 golf courses in the U.S. are already booked as customers. Mr. Zielke declined to name them.Mr. Staples, one of the angel investors, is a 30-year veteran of the golf-course industry and has owned and operated more than 80 courses. Mr. Jones has been involved with the company since 2005, when an agency of the Department of Defense hosted a challenge where unmanned vehicles competed against each other in a race through rough terrain in California and Nevada.Precise Path, which was a finalist in the race, spun out of Indy Robotics Inc. the following year. Indy Robotics is now a holding company with a part ownership in Precise Path.The number of businesses filing for bankruptcy fell in the first six months of this year, according to data released this week by the Administrative Office of the U.S. Courts. But that's not necessarily good news for the small-business sector. Some 6,152 companies filed for Chapter 11 reorganizations, down 17% from last year, and 20,385 companies filed for Chapter 7 liquidations, which remained roughly the same. However, those figures "aren't an accurate portrayal of what's going on in the economy," says Deborah Thorne, a partner at the law firm Barnes & Thornburg LLP in Chicago who specializes in insolvency and restructuring.Because bankruptcy can be expensive, some owners prefer to sell the business or its assets at a deep discount or shut down altogether, Ms. Thorne says. And even then, the owner might still have outstanding debts. This is particularly true at small firms, as owners usually have personal guarantees tied to the business debts, she says. While there were fewer business bankruptcies, the number of personal and household bankruptcies rose 15% to 781,150Pacific Biosciences Inc. followed the lead of rival Complete Genomics Inc. this week, filing for an initial public offering that will fund the launch of a new, high-speed DNA sequencing technology.Both venture-backed companies have technologies that could expand what is already a big industry, but each faces strong competition from established companies and some upstarts, observers say.The principal competitor is Illumina Inc., which re-energized the DNA-sequencing market through technology it gained by acquiring venture-backed Solexa Inc. in 2007.

Dot-Jobs Draws Worry

Thu, 19 Aug 2010 11:09:44 EDT

By Sarah E. Needleman Job-site operators are bracing for an influx of competitors as the dot-jobs domain widens its reach.So far limited to only employers' names, as in Disney.jobs or Whirlpool.jobs, the dot-jobs Internet domain will begin accepting applications next month for generic names like hospitality.jobs and virginia.jobs. But the mostly small businesses that run job sites ending in dot-com say they worry how the development will affect their already crowded and distressed sector of the economy."I feel threatened," says Eric Shannon, founder of LatPro Inc., a Plantation, Fla., small company that owns DiversityJobs.com and other niche job sites. Mr. Shannon points out that if someone were to buy the rights to diversity.jobs, they could essentially create a duplicate of his business, which has already seen revenues shrink in half since the start of the recession.The job-site industry, which relies heavily on the sale of employment postings, has been struggling since the job market began to shrink, says Peter Weddle, founder and president of the International Association of Employment Websites, a trade group made up of mostly job-board operators. More employers have also been shifting their recruitment-advertising dollars toward newer and less expensive venues, such as Facebook, Twitter and LinkedIn, he adds.While anyone could apply to buy a dot-job site with a generic name, the domain-name holder, a small company called Employ Media LLC, is solely responsible for granting or denying approval, according to its agreement with the Internet Corporation for Assigned Names and Numbers, a global nonprofit that oversees the Internet. Employ Media was the only organization to apply for the right to operate the dot-jobs domain in 2003, says ICANN's Craig Schwartz. Dot-jobs isn't an open top-level domain, such as dot-com, which can be purchased by anyone seeking a name that's available on a first-come, first-served basis. Instead it's a "sponsored" top-level domain, meaning it is assisted by a third party, in this case, the Society for Human Resource Management, a trade group in Alexandria, Va. The trade group's role is to ensure that applicants fall into the job-site realm, rather than something unrelated, according to Gary Rubin, a spokesman for the group. The final decision rests with Employ Media.There are just nine sponsored top-level domains in operation that are overseen by ICANN, compared with 21 open top-level domains, says the nonprofit's Mr. Schwartz.The fact that dot-jobs is a sponsored domain as opposed to an open one means that Employ Media could reject a request by Mr. Shannon to purchase Diversity.jobs if the company deems his application noncompliant or if it favors another equally compliant applicant's plans for using the domain. Employ Media has yet to decide how it will go about reviewing applications for generic dot-jobs addresses or how much they'll cost, says the company's chairman and chief executive, Tom Embrescia. The small business says it is encouraging members of the global human-resources community to offer suggestions. Of course, it can be difficult to convince Internet users to visit a new domain, much less sell it. However, some domains are geared toward niche communities, mostly sponsored domains, and therefore don't expect to generate a lot of traffic or name holders. There are currently around 9,000 registered dot-jobs domains with company names. Dot-coop, another sponsored top-level domain for cooperatives world-wide that launched in 2002, has roughly 6,800 registered domains. By contrast, dot-com, which launched in 1985, has around 90 million.But many small job-board operators say they are also concerned about whether search engines will rank job sites with dot-jobs addresses higher than those with dot-com addresses, though there hasn't been any evidence that this will happen."Having a search-engine friendly domain is everything," says Harry Joiner, an executive recruiter in Atlanta who owns EcommerceJobs.com. Mr. Joiner says he's apprehensive about what might happen should Employ Media grant someone else permission to purchase Ecommerce.jobs or something similar. "That would hurt because I'm building my business on the back of a generic domain name," he says. "You've got a twin running around out there as you." Trademark protection, which helps many big brands fend off duplicate sites, is typically tough for job-board operators to obtain if their sites' names are made up of commonly used words, says Enrico Schaefer, a founding partner of Traverse Legal PLC, a Traverse City, Mich., law firm specializing in Internet law. Many dot-com job sites may be unable to stop dot-job competitors from launching sites with similar names, he says.However, some smaller job-site operators say they don't see any reason for alarm because they've spent years developing brand recognition and loyalty among consumers. "We don't care," says Eric Martinez, head of business development for SalesJobs.com, which has been listing job postings for sales professionals since 1997. For a dot-jobs site to emerge and try to compete with SalesJobs.com, "it's too late," he says. Write to Sarah E. Needleman at sarah.needleman@wsj.com

Monitoring the Monitors

Tue, 17 Aug 2010 14:28:31 EDT

By Sarah E. Needleman In 2003, Jane Terry installed software on her kids' computers to monitor their activities. Nothing worrisome turned up—but it was a different story when she used the business version of the program at her company, Ajax Boiler Inc.On one occasion, she discovered that an employee of 15 years was using a company computer to do work for a competitor. Another time, she learned that a newly hired manager was repeatedly hacking into a former employer's email system from his office desktop.She says she fired both employees from her Santa Ana, Calif., manufacturing company. "It's a good management tool," says Ms. Terry of the surveillance software. "It affords a level of protection."Many small-business owners are coming to the same conclusion as Ms. Terry: They need to keep closer tabs on their workers' keystrokes. And they have more options than ever for doing so. A host of software providers are beginning to offer surveillance and management tools with new pricing setups that make them more affordable for small companies.SpectorSoft Corp.'s software records computer screenshots, allowing owners to see what employees do on their assigned machines throughout the workday, such as send emails, copy files or upload videos. It also provides summaries of what it finds—across the company and on individual computers—in categories that business owners can custom-design, such as the 10 most-visited websites in a week.With Websense Inc.'s software, business owners can control what time of day employees visit certain websites, such as limiting access to Facebook or Gmail to a designated lunch hour. Owners can also prevent workers from sending or receiving information from specific online destinations, and block offensive and malicious content—such as pornographic images, foul language and links to harmful websites—from appearing on workers' desktops.Meanwhile, eTelemetry Inc.'s software provides insight into how much bandwidth employees eat up when they go online. Armed with that information, business owners can then manage the speed with which specific websites operate on their companies' computers. For instance, a business owner might give priority to a work-related site, such as SalesForce.com, over YouTube or Facebook. Owners can also block access to certain sites on some computers but not others.The number of small companies using these types of tools is on the rise. A 2009 survey of 503 businesses with fewer than 500 employees found that 20% use surveillance technology to keep an eye on workers' computer activity. That's up from 15% of 485 respondents in 2008, reports the Ponemon Institute, a research firm in Traverse City, Mich.For many business owners, this represents a big change. Small companies tend to be informal workplaces that lack stringent rules on Internet usage. Employees may be expected to put in long hours and do work on websites that they also use for personal reasons, such as Facebook and Twitter.Yet ignoring employees' possible misbehavior can be costly. Employee abuse of company computers—ranging from online game-playing and shopping to intellectual-property theft and fraud—can make a big dent in a small company's bottom line.Consider the impact of fraud, which workers often commit by tampering with computerized billing, payroll and other financial systems. U.S. businesses with fewer than 100 employees suffer a median loss of $150,000 for every case of fraud committed, according to the Association of Certified Fraud Examiners in Austin, Texas.Even cyberslacking can be costly to business owners. In June, 56 million Americans visited social-networking sites from a work computer, spending an average of 15 minutes on them per day, reports comScore Inc., a provider of digital-marketing information in Reston, Va. During the same month, 20.3 million Americans visited an adult site from a work computer an average of eight times, according to Nielsen Co., a New York media-information firm. Janice Brown, founder of Brown Law Group, a San Diego law firm that specializes in employment litigation, says monitoring employees' computer activities isn't illegal. But she advises business owners to inform workers of surveillance in the employee handbook. She says this could help protect businesses against legal retaliation from workers who were dismissed for inappropriate computer use and claim they weren't told about the surveillance in advance. "You don't have to tell how, but that you are," she says.Making employees aware that they're under the microscope may also help to discourage misconduct, she adds. "The more you can communicate directly about your expectations to your employees, the more apt they are to follow your agenda than their own," Ms. Brown says. To be sure, it's also possible that some employees will deem the implementation of surveillance software an invasion of their privacy—and something that doesn't fit in a laid-back small-business environment.Owners may be able to win over employees by explaining their logic, such as maintaining productivity and safeguarding proprietary information, says Rocki-Lee DeWitt, a professor of management at the School of Business Administration at the University of Vermont. "Those kinds of conversations convey trust and are consistent with what you might expect in a small workplace," she says. Ms. Needleman is a staff reporter in The Wall Street Journal's New York bureau. She can be reached at sarah.needleman@wsj.com.

For Some, Hiring Cheap Is Mistake

Wed, 23 Jun 2010 18:04:26 EDT

By Sarah E. Needleman You still get what you pay for.That's the message compensation experts have for small-business owners looking to pluck top talent at bargain rates from today's crowded job market. They warn that job hunters willing to take positions for meager salaries are likely to jump ship once the recession ends. And in the meantime, they may harbor resentment."Don't change your pay practices just because the market allows you to," says David Wise, a senior consultant for Hay Group Inc., a management-consulting firm headquartered in Philadelphia. "You still have to be within a range of competitiveness."Some business owners say it's tempting to offer potential recruits salaries lower than what they might propose in a healthy economy. "You can get people for cheap because times are tough," says Willis Cantey, owner of Cantey Technology LLC, a technology-services firm in Mount Pleasant, S.C., with eight employees. "People are desperate."Still, Mr. Cantey, who's currently looking to hire an account executive, says it makes good business sense to offer fair-market rates no matter what the job market looks like. "You got to pay people what they are worth or they will leave as soon as something better comes along," he says. "I'm looking for somebody who wants to work here for years, not a year." Business owners should also take caution to avoid the opposite extreme: Overpaying or offering candidates salaries their businesses can't sustain. "In this economy, it's critical for small businesses to carefully manage their fixed costs," says Mr. Wise. "Base salaries tend to be the single biggest fixed-cost line item." Some owners are grappling with the issue of how much to pay as they start hiring again. In May, businesses with between 50 and 499 workers increased their headcounts by 39,000, while those with fewer than 50 workers added 13,000 jobs, according to payroll company Automatic Data Processing Inc. It may behoove owners to take into account what their current staffers are earning if they previously had to reduce salaries or deny raises, says Rocki-Lee DeWitt, professor of management at the School of Business Administration at the University of Vermont. While salaries are typically negotiated in private, she says word of what a new hire is getting paid can spread fast within a small firm and turmoil can ensue. "You've got to make sure not to upset the apple cart," she says. "This is about managing fairness." To determine a reasonable rate for positions in their industry and geographic area, small businesses typically can't afford to hire pay consultants like their large-company counterparts. But some entrepreneurs say they've come up with free and low-cost alternatives to identify appropriate salary ranges, which tend to regularly fluctuate based on demand. For example, hiring managers at software provider TechSmith Corp. collect free salary survey data from trade associations they belong to, as well as contribute to at least one industry-wide study a year in exchange for a discounted copy of the results, says William Hamilton, its president. And since the 205-employee company frequently recruits recent grads from nearby Michigan State University, its hiring managers also secure pay information from the school's career center at no cost, he says. Other free resources for collecting salary data include ads on job boards, the Bureau of Labor Statistic's Occupational Outlook Handbook, and sites such as PayScale.com, Glassdoor.com and Salary.com. Business owners also can gather pay intelligence by interviewing as many job hunters as is reasonably possible and asking about their pay expectations, advises Tom Gimbel, chief executive officer of the LaSalle Network, a Chicago staffing firm. "The more candidates you meet, the more comparisons you have," he says. "See what you can get for 'x' amount of pay." Meanwhile, keep in mind that whatever number you settle on should take into account the cost of raises, he adds.Another tip from Mr. Gimbel: Exclude pay details in job ads. "If you post a salary too low you're going to discourage some really good, high-end candidates," says Mr. Gimbel. Job hunters tend to focus on base pay and ignore references to bonuses, he adds, since the latter compensation is typically tied to future performance. To be sure, many job hunters value more than just pay when considering employment, even when open positions are scarce. And while a small enterprise often can't compete with a big company's benefits package, it can typically be more flexible or accommodating when it comes to other items on a potential employee's wish list. "There's compensation and then there's everything else," says Dale Rodrigues, co-founder of Mary's Gone Crackers Inc., a Gridley, Calif., snack-food manufacturer. Selling points he emphasizes when courting candidates include the company's family-oriented culture and an upward career track, he says. "We give them something they rarely receive anywhere else and that's real, authentic opportunities to evolve and grow," he says.Sha Sha Harnik, owner of Distinctive Events, a Charleston, S.C., wedding- and corporate-event-planning business, says she asks candidates she wants to hire what matters most to them in a job so she can structure their pay offer accordingly. "A person's lifestyle and priorities are important facts to consider," she says. For example, if an attractive applicant strongly values work-life balance, she might suggest allowing this person to work from home a few days a week in exchange for a lower salary. "I have to be realistic as to what I can offer my employees," says Ms. Harnik. "I don't have lines of credit a large company has." Write to Sarah E. Needleman at sarah.needleman@wsj.com

White House Juggles Mideast, Economy

Tue, 31 Aug 2010 11:13:01 EDT

By Jonathan Weisman And Jay Solomon WASHINGTON—President Barack Obama will walk a fine line this week between pressing his Mideast foreign-policy priorities and keeping an eye on the domestic issue that could determine his Democratic Party's political future—the economy.On Tuesday night, Mr. Obama will deliver the second Oval Office address of his presidency, hailing the official end of combat operations in Iraq as the fulfillment of an antiwar promise that helped propel him to the White House. On Wednesday, he welcomes Israeli Prime Minister Benjamin Netanyahu and Palestinian Authority President Mahmoud Abbas to the White House for the launch of the first direct Israeli-Palestinian peace talks after a 20-month hiatus.But between preparations for those high-stakes efforts, the president took time out Monday to promise that new economic proposals were in the works, telling reporters in the Rose Garden, "Every single day, I'm pushing this economy forward, repairing the damage that's been done to the middle class over the past decade and promoting the growth we need to get our people back to work."Since passage of the massive health-care bill early this year, the White House has been promising a single-minded focus on the economy and job creation. The need for that economic focus has grown more urgent for Democratic leaders as their political prospects for this fall have dimmed. A daily Gallup poll tracking preference for control of Congress found Republicans on Monday with a 51%-41% edge over Democrats, the largest spread in the poll's history.Mr. Obama's long-sought pivot has been disrupted by a series of events, among them the Gulf of Mexico oil spill; the firing of the U.S. commander in Afghanistan; and the release of tens of thousands of secret defense documents by WikiLeaks.This week's foreign-policy initiatives are of Mr. Obama's own choosing. But they also show a realization that there is little he can do to boost the economy ahead of the November elections, said William Galston, a domestic-policy adviser to President Bill Clinton. "President Obama for the most part has decided just to be president and do the president's job for the rest of this year," Mr. Galston said. "That doesn't mean he won't be raising money for candidates, won't be doing some politicking.… But it seems to me at this point the president is taking a long view, perhaps because he has precious few alternatives." While the president demanded Monday that Republicans "drop the blockade" and allow passage of a small-business lending bill, and a new refinancing effort will be launched this month for struggling homeowners, the White House is no longer trying to keep an exclusive focus on such economic efforts. Mr. Obama also made an unannounced trip Monday to Walter Reed Army Medical Center to visit wounded service members. On Tuesday, he will travel to Fort Bliss, Texas, to greet troops returning from Iraq."People throughout the country have a sense the president is and has to be about more than one thing at a time," said White House Press Secretary Robert Gibbs.Mr. Obama's foreign-policy initiatives carry their own political risks of raising expectations too high. U.S. officials working on the Mideast summit said they had only modest hopes for this week's meetings. Much of the talks, they said, would focus on deciding the location and timing of the next round of discussions and general outlines of the topics. They stressed that Mr. Obama and the State Department wouldn't lay out a framework for the discussions at this stage.The president will kick off the summit Wednesday night, when he will hold bilateral meetings with the Israeli and Palestinian leaders, as well as with Egyptian President Hosni Mubarak and Jordanian King Abdullah II. The Mideast leaders will dine at the White House before engaging in formal proceedings Thursday at the State Department.U.S. officials acknowledge that the success or failure of the new round could be decided in the next few weeks. Mr. Abbas has threatened to terminate the talks next month if Israel doesn't extend beyond Sept. 26 a moratorium on new-settlement construction in the West Bank.Last week, the White House dispatched to Jerusalem Mr. Obama's top Middle East adviser, Dennis Ross, to try to find ways to extend the construction freeze. One formula being discussed, according to officials briefed on the talks, would be for Israel to commit to only building in neighborhoods already expected to form part of a future Jewish state.Still, U.S. officials said they worried that a new round of violence in the Palestinian territories could erupt if the freeze isn't extended. "We might end up preparing for a catastrophe instead of a prolonged peace process," said one U.S. official engaged in the talks.Mr. Obama has cited a comprehensive Arab-Israeli peace deal as one of his chief foreign-policy aims. He has said that he believed such an agreement could be achieved within a year, and that it would have far wider implications for stability in the Middle East.Many regional experts say they don't believe a peace deal can be reached without the White House more directly laying out the terms of a final agreement. Senior U.S. officials have suggested that Mr. Obama could eventually take such steps. But Israel's government has aggressively pushed back against any agreement being "imposed" on the Jewish state. "I'm of the mind that these two parties on their own won't be able to reach an agreement," said Jordan's former foreign minister, Marwan Muasher, at a conference in Washington Monday. Write to Jonathan Weisman at jonathan.weisman@wsj.com and Jay Solomon at jay.solomon@wsj.com

The Oyster Industry's Nemesis: Water

Tue, 20 Jul 2010 22:34:30 EDT

By Jeffrey Ball HOUMA, La.—Oysters are dying in their beds in the brackish marshes of southern Louisiana, but the culprit isn't oil spilling from the Gulf. It is, at least in part, fresh water.In April, soon after the oil spill started, Louisiana officials started opening gates along the levees of the Mississippi River, letting massive amounts of river water pour through man-made channels and into coastal marshes. It was a gambit—similar to opening a fire hose—to keep the encroaching oil at bay.By most accounts, the strategy succeeded in minimizing the amount of oil that entered the fertile and lucrative estuaries. But oyster farmers and scientists say it appears to have had one major side effect: the deaths of large numbers of oysters, water-filterers whose simplicity and sensitivity makes them early indicators of environmental influences that ultimately could hit other marsh dwellers too. State officials say it's unclear to what extent the fresh water releases are responsible for killing oysters.The oyster deaths in Louisiana—which produces more than a third of U.S. oysters, more than any other state—are just the latest reminder that efforts to protect this delicate ecosystem from the oil spill could produce environmental damage of their own. Louisiana and federal officials have quarreled over an ongoing state project to build large sand berms to fend off incoming oil, with some federal officials fearful that they could actually intensify erosion. And chemicals, known as dispersants, sprayed on the oil in the Gulf to break up oil slicks might contribute to underwater oil plumes that could harm marine life, some scientists say.Some marshes have been so inundated with fresh water that their salinity has plummeted to levels oysters can't easily survive, some scientists say. Deprived, at least temporarily, of the salty water they need, large numbers of the two-shelled crop that has defined this region's economy and culture for generations are dying off—even in parts of the Louisiana coast that appear to have been untouched by the spilled oil itself.Full-strength seawater typically contains roughly 35 parts salt per thousand parts water, scientists say. Some of the southern Louisiana waters most productive for oysters contain 15 or more parts salt per thousand parts water, said Earl Melancon, a biologist at Nicholls State University in Thibodaux, La. But in recent weeks, Mr. Melancon said, some waters in the vicinity of southern Louisiana's Barataria Bay have been found to have salinity levels below five parts salt per thousand parts water. Even the hardiest oysters, he said, have trouble surviving in that."They're dead, and they're dead because of fresh water," said Nick Collins, 38, an oysterman in Golden Meadow, La., citing government measurements of reduced salinity levels in the area. Over the century that Mr. Collins's family has been growing and harvesting oysters in Snail Bay, near Barataria Bay, innumerable hurricanes have sunk some of his family's boats and ripped apart their houses, he said. But no natural storm ever decimated the Collins Oyster Co.'s about 2,000 acres of oyster beds as much as the river water unleashed in recent weeks by state officials appears to have done. Mr. Collins surveyed some of his family's oyster grounds on Friday and found cluster after cluster of empty shells flapping apart—meaning the animal inside was dead.Wholesale oyster prices at P&J Oyster Co. have risen about 20% since the oil spill started and they are likely to rise further, said Al Sunseri, president of the longtime New Orleans oyster processor and distributor. "It's Economics 101," he said, citing the laws of supply and demand.Patrick Banks, the biologist at the Louisiana Department of Wildlife and Fisheries who oversees the state's oyster fishery, said his office recently tested the waters in one of the most productive parts of Barataria Bay and found that roughly 60% of the oysters had died. In other areas of the bay, he said, the mortality level was around 10%.One die-off a few weeks ago was so extensive that visible masses of oyster meat were floating on the bay's surface. "It looked like a fish kill," said Mr. Banks, explaining the kill occurred "so fast and was so large that the predators that normally would eat up the oyster meat just couldn't keep up." He blamed the deaths on the combination of summer heat and the salinity drop triggered by the opening of the fresh-water channels, known as "diversions"—a decision made by officials in another state office who were attempting environmental triage. "The state took the measure to try to protect the interior marshes," Mr. Banks said. "These are just some of the effects of that."A spokesman for the Louisiana Coastal Protection and Restoration Authority, the state entity that oversaw both the berm construction and the river-water release, said it is "obvious" that the state's fresh-water releases reduced salinity in the oyster beds. But he said those intentional releases were just one of several factors contributing to the salinity drop; others included rain and the natural flow of the river. Linking a specific number of oyster deaths to the fresh-water releases will be difficult, he said.The authority's chairman, Garret Graves, said in a written statement that state officials "are currently evaluating all of the adverse effects associated with the oil spill and that BP PLC "is expected to pay" for all spill-related damage.A BP spokeswoman said the company is "committed to paying all legitimate claims" but declined to say whether the oyster deaths are among them. In an underlying irony, the channels that ferried the river water into the marshes, apparently killing oysters, were built over the years largely at the oyster industry's behest.Decades ago, the construction of levees along the Mississippi River effectively stopped the river from flooding adjacent land. But that meant the river's fresh water no longer inundated the marshes each spring, annual rite of ecological renewal. That sent the salinity in many marshes too high, threatening oysters.After years of wrangling between the state and the oyster industry, officials built the channels as a way to restore some of the fresh water into the marshes.This spring, when the oil spill happened, state officials saw the channels as a tool to help keep out the oil.Mr. Melancon, the Nicholls State biologist, is attempting to measure the extent of oyster deaths from the fresh-water diversions. "Have these diversions created more harm than good?" he asked. "I am not going to be the person to make that determination. But it certainly has harmed the oyster industry more than the oil." Write to Jeffrey Ball at jeffrey.ball@wsj.com

Taking City Dwellers to the Hamptons in Style

Mon, 30 Aug 2010 10:41:42 EDT

By Jen Wieczner On a pristine strip in East Hampton, N.Y., well-heeled tourists pop into designer boutiques such as Ralph Lauren and Tiffany & Co. Down the block at The Palm, patrons sip cocktails by the window, watching the street.That's where the Jitney, a bus carrying passengers between New York City and the Hamptons, rumbles to a halt every 30 to 45 minutes in the summer."We actually like to think that by enabling frequent service in the early days, we helped put this place on the map," says Geoff Lynch, president of the family-owned motorcoach business, Hampton Jitney Inc. For 36 years, the company has maintained a near monopoly on express transportation to the Hamptons, drawing passengers with newspapers, snacks and beverages – all handed out, airplane-style, by uniformed attendants. And every so often, passengers get goodie bags with products that advertisers pay the Jitney to distribute like Tory Burch gift cards and Vera Bradley accessories. The company started in 1974 when summer resident Jim Davidson launched a van service between the hamlets with bike trailers hitched on the back. He called them "jitneys," from the old English word for a small transport vehicle. "Jim almost lost his shirt," Mr. Lynch says, and to save the business, offered rides to New York City at the end of the season. In 1988, an ailing Mr. Davidson sold the Jitney to his first cousin, Missy, who is Mr. Lynch's mother. (Mr. Davidson has since passed away.) That first summer, the young Mr. Lynch and his three siblings worked as drivers, mechanics, accounting staff and on-board hosts. By 1996, Mr. Lynch had taken on executive duties. The four siblings now own the company; Mr. Lynch's brother Andrew is vice president.After Mr. Lynch took over, the Jitney acquired other fleets, added stops, luxury "Ambassador" coaches, and made slight updates. For instance, the hosts of yore handed out peanuts; now, due to allergy concerns, travelers get chips and pretzels. Instead of pouring water or seltzer from large glass bottles, attendants dole out mini plastic cups. In recent years, the Jitney has added Wi-Fi and thwarted loud talkers by banning cellphone use. In bringing tourists to the Hamptons, "we help the place flourish," says Mr. Lynch, 41 years old, adding that the bulk of the company's $20 million in annual revenue comes from fares paid by summer riders. "The downside, of course, is the crowdedness and the overdevelopment in some parts," Mr. Lynch says. For example, The Palm says it appreciates business from Jitney customers, but doesn't like when riders' friends and family try to park in its lot all weekend while waiting to pick them up. And, "we always know when the Jitney comes in because we have an influx of people coming in to use our restrooms," says Lee Felty, The Palm's manager.The Jitney runs its service 365 days a year, with trips every half hour and multiple coaches during peak times. About 75% of its 600,000 annual passengers ride in the summer. "Once Labor Day weekend hits, we have a fleet of vehicles and a roster of drivers that we need to keep rolling," Mr. Lynch says. The company reduces its staff by a quarter, but keeps its 50 motorcoaches, which cost more than $500,000 apiece, on the road even in "the dead of winter," he says. To offset the drop-off, Mr. Lynch runs chartered trips to Canada and Southern states. For 20 years, the company has also carried "snowbirds" – and their cars on hired car carriers – between the New York metropolitan area and Florida.While the company grew in the '90s, business waned after the dot-com bust but picked back up during the "trade brigade" years, when Hamptons development boomed and builders commuted on the Jitney, says Mr. Lynch. At the start of the most recent recession, business slowed again. This summer, though, passengers returned in full force – and so did the traffic. "It's nice to see," Mr. Lynch says, although the slow crawl on the East End "hurts our operations." Over the years, the company has competed with at least three other motorcoach operators, such as the Hampton Luxury Liner, which offers nearly as many trips at about the same price as the Ambassador's $40 one-way ticket. But "they come and go," Mr. Lynch says.Rivals may struggle to challenge Hampton Jitney's brand recognition among New Yorkers. Its signature green-wave logo was designed by renowned artist Roy Lichtenstein. "It's the Hamptons bus," says Janine Just, a partner with The Blaq Group, a marketing and public-relations firm. She says she always recommends the Jitney to guests at client events in the Hamptons.Jitney vehicles have made several screen cameos, most famously on HBO's "Sex and the City." The company usually welcomes the exposure, but when two lusty characters headed into a Jitney bathroom on the CW's "Gossip Girl," "it was a little risqué for us," Mr. Lynch says.Since 2007, he's been working on opening a new $5 million terminal in Calverton, another hamlet on Long Island, to extend commuter service to western Suffolk County. And one day, Mr. Lynch says, he and his siblings may transfer the business to younger family members. "We would certainly like to see that," he says.

VCs Stretched on Many Boards

Thu, 29 Jul 2010 09:53:30 EDT

By Scott Austin Entrepreneurs looking for sage advice from their investors say they're encountering a problem: Some venture capitalists, stung by the economy, are juggling too many companies.As the troubled economy elongates the average time it takes for a young company to find a buyer or hold an initial public offering, venture capitalists—who often sit on the boards of start-ups they invest in—are sticking around longer, even as they join more boards. This means the hands-on guidance an experienced investor can bring to a start-up may become diluted. Dharmesh Shah says he was wary of venture capitalists who sat on more than 10 boards when he was raising money for his online marketing start-up HubSpot Inc."I definitely saw that as a negative signal," says Mr. Shah, who co-founded the Cambridge, Mass., company and also serves as its technology chief. "It's really hard for a VC to be excited and step up to bat for all 15 companies in the portfolio."On average, venture investors sit on 4.4 boards, although in some cases that number may be rising, according to a survey conducted late last year by the National Venture Capital Association and VentureSource, a unit of Wall Street Journal owner News Corp. More than half of the survey's investors expect their board seats to increase in the next two years.At venture firm New Enterprise Associates in Menlo Park, Calif., partner Forest Baskett now sits on 20 boards—more than he'd anticipated. "That's partly because we've been through a pretty long dry spell of IPOs and exits," he says. "I've been continuing to invest on a regular basis, and my existing portfolio has kind of stacked up."Mr. Baskett says that serving on multiple boards hasn't diminished his ability to be there for any one company. Rather, he just needs to keep a closer eye on time commitments, scheduling board meetings a year in advance, for instance, so they don't overlap, he says. But investors and entrepreneurs say it is difficult to keep tabs on so many companies at once. Four is the ideal number of board seats, according to venture-backed chief executives in the survey."If you're on more than 10 boards, there's just no way that you're good at all of them," says Randall Lucas, who spent five years at venture firm Voyager Capital before joining Seattle start-up Revenue Loan LLC this year. "What happens when a company hits a rough patch and you're not showing up to board meetings because you doubled down on your winners?"Mr. Lucas says investors who are spread too thin commonly ask less-experienced associates to fill in, or simply vanish for months. That can damage relationships and prompt some entrepreneurs to wonder what they're getting for equity they've given up, he says. When doling out money, most venture capitalists demand a board seat—sometimes two—in order to maintain control. The amount of time they devote can be especially vital to first-time entrepreneurs, who need direction or want to tap into a venture investor's vast network. Bob Davoli, a respected investor at Sigma Partners in Boston who sits on 19 boards, plays down the numerical count. "There is no ideal number," he says. "If you have five boards, and every single company is going under, and you have 19 boards and everything is going smoothly—guess who's going to spend more time with their companies?" Mr. Davoli recommends entrepreneurs do reference checks to "find out what type of a guy he really is on the board." Some entrepreneurs say they're not taking chances. HubSpot's Mr. Shah has raised $33 million in venture capital, and the start-up's three venture board members sit on fewer than 10 boards."My odds of getting access to the best people in a VC's network go up the smaller number of deals they have," he says. Write to Scott Austin at scott.austin@dowjones.com

Earning Cash With YouTube Videos

Fri, 18 Jun 2010 14:35:07 EDT

By Diana Ransom Like many realtors in hard-hit markets across the country, David DeVore of Orlando, Fla., hasn't had much luck selling homes in the last couple of years. DeVore's Plan B? The social media career of his young son, David.Last January, DeVore posted a video on YouTube of the then 7-year-old David's tipsy antics after a visit to the dentist. Since then, that video dubbed "David After Dentist" has been viewed more than 61 million times—capturing the attention of Tyra Banks and NBC's "Today" show, among others. The clip has even managed to spawn a number of parodies including "Santa After Dentist" and "David After the Divorce."Although DeVore has traveled the same path as countless hobby filmmakers, he has been able to extend his family's 15 minutes of fame into a small business. "Having worked in real estate, I've always had entrepreneurial things going on," says DeVore. "I saw that this might be a short opportunity to make this whole thing into a family business."So how does buzz become a business? In addition to collecting advertising revenue checks from Google's YouTube, DeVore launched the web site DavidAfterDentist.com where fans of the video can purchase T-shirts and stickers. He also signed a licensing deal with Vizio, an electronics maker, which allowed the company to use David's likeness in an advertisement that ran during the latest Super Bowl. And most recently, DeVore inked a deal with FoneStarz Media, a mobile content provider in the U.K., which aggregates videos for mobile phone operator Vodafone Group. All told, DeVore has collected around $150,000, which he plans to use to fund his two sons' college costs and give to charity.Similarly, Howard Davies-Carr, a former IT consultant in Buckinghamshire, England, managed to parlay a video of one of his sons biting the other's finger into a lucrative advertising partnership with YouTube. That video called "Charlie Bit My Finger" has been viewed more than 200 million times since its original posting in May 2007—landing the clip handily in the rolls of YouTube's top 10 most viewed videos of all time. With that kind of attention, spoofs and the ad revenue followed. Davies-Carr won't say exactly how much his family has earned from the video, but the added income made it more possible to afford a new house, he says.The prospect of earning even a modest sum is attractive, says Kevin Yen, director of strategic partnerships at YouTube. Since YouTube's partner program became formalized in 2008, the video portal has signed up more than 5,000 advertising partners globally. "We have individuals who do very well—generating more views and revenues than mainstream media companies," he says. In fact, "a good handful of our biggest contributors started off as individuals posting on YouTube."Still, the longevity of these so-called businesses is questionable, says Alex F. DeNoble, the chairman of the management department at San Diego State University's College of Business Administration. "While these videos do draw a lot of eyeballs to the site, for a successful business, the fundamentals have to be there," he says. "You have to have a solid reliable product or service that people can pay for and can be delivered profitably."Of course, as a marketing tool, YouTube along with other social networking sites including Facebook and LinkedIn are instrumental, says DeNoble. "If you can generate buzz, and build a following, that gives investors and advertisers confidence," he says. And depending on how many online followers a business generates the more leverage it will have to build credibility, DeNoble says.For Jeffrey Harmon, the CEO of OraBrush, a tongue-brush maker in Springville, Utah, YouTube was a crucial marketing tool. "Four out of 100 Canadians have now seen an Orabrush video and 1.5 out of 100 people know about us in the U.S.," says Harmon, who began posting a series of webisodes about bad breath on YouTube last October. Recently, YouTube gave the fledgling firm its own branded channel—thereby encouraging added self-branding opportunities. Write to Diana Ransom at dransom@smartmoney.com

Bernanke: More Needed To Boost Small-Business Lending

Tue, 13 Jul 2010 08:00:24 EDT

By Tom Barkley Federal Reserve Chairman Ben Bernanke urged banks and regulators Monday to seek out ways to ensure that small businesses get the credit they need to create jobs."Making credit accessible to sound small businesses is crucial to our economic recovery and so should be front and center among our current policy challenges," Mr. Bernanke said in prepared remarks to the Fed's forum on restoring credit to small businesses.Declaring small businesses as "central" to tackling unemployment, the Fed chief said not enough is being done to ensure that financially sound companies can obtain loans.Fed officials have become increasingly worried about the stubbornly high unemployment. The jobless rate edged down to 9.5% in June from 9.7% the previous month. But the economy shed jobs for the first time this year, with nonfarm payrolls falling 125,000 last month."The formation and growth of small businesses depends critically on access to credit," Mr. Bernanke said in the text of his remarks. "Unfortunately, those businesses report that credit conditions remain very difficult."The forum is the culmination of a fact-finding mission the Fed launched in February to identify how to improve credit access for small firms, which account for about 60% of job creation.Fed officials have hosted more than 40 meetings around the country with small businesses, bankers and community leaders to identify obstacles that have contributed to a continued contraction in lending.Mr. Bernanke cited data showing that outstanding loans to small businesses have declined to less than $670 billion in the first quarter of 2010 from about $710 billion in the second quarter of 2008.While major banks eased loan conditions for big firms during the first quarter, lending standards remained tight among the local banks that small businesses rely on, according to the quarterly Fed survey. Similarly, a survey by the National Federation of Independent Business found that the proportion of firms reporting tighter credit conditions over the past three months remained "extremely elevated," Mr. Bernanke said.Some lenders participating in the meetings viewed the current lending standards a return to more normal conditions following a period of lax standards. But Mr. Bernanke said "it seems clear" that some creditworthy borrowers and having trouble getting credit, even when strong cash flow is compensating for a loss in collateral."The challenge ahead for lenders will be to determine how to assess the credit quality of businesses in an uncertain and difficult economic environment," he said.Lending to creditworthy borrowers is in their interest, Mr. Bernanke said, since "that's how they earn their profits."Meanwhile, he said regulators should continue to work with lenders to help improve credit availability to sound small firms.The Fed has been encouraging banks to ensure that credit-worthy small businesses can get the credit they need. Reacting to complaints that its own bank examiners are contributing to overly tight standards, the central bank is also conducting training programs with examiners to drive home the message that encouraging loans to small businesses that can repay is positive for the banking system.Still, Mr. Bernanke cautioned against "one-size-fits-all solutions," saying that the meetings confirmed that each small business has a unique combination of local economic conditions and relationships with creditors and customers.He didn't make any comments on the outlook for monetary policy. Write to Tom Barkley at tom.barkley@dowjones.com

Small Firms Chafe At Senate Payroll Tax Proposal

Fri, 11 Jun 2010 17:23:02 EDT

By Martin Vaughan Gabriel Durand-Hollis, owner of a San Antonio, Texas-based architecture and interior design firm, is no John Edwards.But he could nonetheless see his taxes rise as a result of a Senate measure that seeks to crack down on a technique Mr. Edwards, a former U.S. Senator from North Carolina, once used to avoid paying hundreds of thousands in payroll taxes.The Senate provision, part of a broad bill that extends jobless benefits and renews expired tax cuts, would subject more of the profits of lawyers, accountants and other professionals to the 2.9% Medicare tax.Mr. Durand-Hollis, one of two owners of a firm that employees 25, said the provision, if enacted, would boost his federal tax bill by $30,000 or more."If we had to send a big check like that to the IRS at the end of the year, we'd have to take a hard look at whether we can afford Christmas bonuses, or that new software purchase," Mr. Durand-Hollis said in an interview.Criticism of the Senate tax provision comes as President Barack Obama Friday sought to highlight his support for measures aimed at helping pull small firms out of the economic recession."Small businesses will help lead this economic recovery. And that's why we will continue to stand by them," Mr. Obama said.Some small business advocates say the Senate provision does the opposite, and they have enlisted a powerful ally to fight it—Sen. Olympia Snowe (R., Maine), considered a swing-vote on the broader tax package.Snowe on Friday called the payroll tax provision a "poison pill in this tax bill, robbing American small businesses of the capital they need to create new, good-paying jobs."Congressional Democrats say it targets an abusive strategy used by some owners of S corporations. Those business owners paid themselves a nominal salary, while the rest of the firm's profits are paid through a dividend that is not subject to payroll taxes.Mr. Edwards drew criticism during the 2004 presidential campaign for his use of the tactic. He earned $26.9 million in four years in the late 1990s while reporting only $360,000 in salary.Mr. Durand-Hollis declined to disclose his salary, but said it is commensurate with what other architects with his experience make. His firm had gross revenue last year of about $3.5 million.There are about 4 million S corporations in the U.S., not all of which would be subject to the new taxes. The taxes would apply only to certain professionals including doctors, lawyers, athletes, performing artists and investment advisers.Dr. Joseph Smith, a Virginia podiatrist, said he could pay an additional $6,000 in payroll taxes as a result of the change. He paid himself a salary of $71,500 in 2009, and took an additional $48,500 as a dividend.His accountant, Nick Potocska, said Smith's salary is not unusual since he works almost exclusively with Medicare patients, who pay less than patients covered by private insurance.Critics of the Senate provision say it would treat all business profits the same as wages for services rendered, while failing to distinguish the return firm owners reap for investments of time and capital to grow their business."This bill blurs the line between a return on your capital and your risk, and wages. It's almost neutering the whole concept of capitalism," Mr. Potocska said.The Senate proposal has its defenders. James B. Davis, who heads the tax practice at the Gunster law firm, said the provision targets an area that is rife with abuse and brings the tax treatment of S corporations more in line with other types of business structures."All they're doing is putting S corporations on a parallel with C corps and partnerships. They are closing what would be easily construed as a loophole," Mr. Davis said.Snowe's opposition suggests that changes might be needed to the payroll tax provision to get it through the Senate.But changes that scale back the proposal will be difficult. It is projected to raise $11.2 billion for the government over 10 years, and any scaling back of the proposal would have to be replaced with other revenues. Write to Martin Vaughan at martin.vaughan@dowjones.com

Summer Calls, but Getting Away Is Tricky

Wed, 14 Jul 2010 18:01:09 EDT

By Sarah E. Needleman The official start of summer may be just days away, but for many small-business owners, relaxing at a beach resort, touring a foreign city or camping in a remote forest is still tough to picture – at least not without a cell phone, laptop or other communication device by their side. More than half—55%—of 750 entrepreneurs surveyed in May say it's been two or more years since they last took off for a week or longer, according to Discover Financial Services, which commissioned the study. This year, 51% of business owners say they don't plan on taking a vacation. Of those, more than three quarters blame the sour economy for their inability to get away, with 47% looking to save money instead, the survey shows. But with "staycations" being a low-cost alternative to traveling—just 8% of respondents say they're planning vacations at home this year—business owners who never break from work may only have themselves to blame. "They feel they're too important," says Rod Means, a district director in San Diego for SCORE, a nonprofit small-business mentoring and training organization. "They're afraid to leave the business with their employees. Nobody can make a decision but them."Yet that kind of attitude can actually hurt a business's long-term success, he warns. "Teams win and individuals lose," says Mr. Means.Besides, he adds, the basic principle behind entrepreneurship and working in general is to be able to afford a healthy and happy existence off the clock. "Work is but to feed the fun of life," says Mr. Means. And that's why some business owners have come up with strategies for taking vacations—real ones that involve no contact with their workplaces other than in cases of grave emergencies. Here's how they do it, and their best advice for other entrepreneurs.

What's in a Name? Potential Pitfalls.

Mon, 30 Aug 2010 14:50:08 EDT

By Sarah E. Needleman Kori Stanton's online cookie business seemed to be off to a promising start last spring when its goodies were featured on the "Rachael Ray Show."But the free national publicity had one unexpected and unwelcome consequence: A company with a different but similar name threatened Ms. Stanton with a trademark-infringement lawsuit."The website was available," says Ms. Stanton of the online address for her New York-based venture's original name. For this reason, she says she didn't foresee any problems. Though she was able to dodge the legal bullet by picking a new moniker, e.e. cookies, the former stay-at-home mom says the error cost her around $11,000 in wasted marketing materials and incorporation fees."It was very discouraging," she says. "I felt like I had to start over."When eager to launch a business, entrepreneurs may be tempted to quickly choose a name so they can move on to other tasks, such as designing a logo, ordering business cards and launching a website. But branding experts strongly recommend taking time to research a moniker's potential pitfalls, of which trademark violation is just one."You're doing this so you don't have aggravation later on," says Larry Chiagouris, a professor of marketing at the Lubin School of Business at Pace University. "If you end up having to change your name, you've wasted time and money." Scott Jensen says he and two friends erred last year by dubbing their health-snack business Daily Juice Foods in honor of Daily Juice, an Austin, Texas, juice bar where they came up with the idea for their venture. Several months after investing more than $25,000 in items featuring the name -- including labels, T-shirts and an email address -- he says it became clear that the name was confusing to both consumers and vendors."Is there juice in it?" people wondered of the kale chips and energy bars that their business sells, says Mr. Jensen, who turned to entrepreneurship after stepping down last year from a chief-executive job at a small food company.In April, the start-up's founders changed the business's name to Rhythm Superfoods, but headaches related to the old moniker still linger.For instance, many of the 175 retail stores throughout the nation that carry its products have yet to change their billing systems to recognize the new name, says Mr. Jensen. "We've probably got another three to six months of changing administrative and legal work," he adds.In selecting a business name, entrepreneurs also should keep in mind how it might be applied to a website address, says Enrico Schaefer, founding partner of Traverse Legal, a Traverse City, Mich., law firm that specializes in Internet law.A common faux pas is to choose a generic online name to increase the odds of being found by consumers. But these names typically don't qualify for trademark protection, he says, which means that a dot-com address could be copied by a competitor on a different domain such as dot-net or dot-org. What's more, competitors could buy up slight variations of a generic name."Resist the temptation to pick something arbitrary," Mr. Schaefer says.You also should avoid picking a name that means something offensive or embarrassing in another language -- or a name that's similar to a less-than-reputable person or organization. Susan Pierson Brown fell into this trap when she launched a consulting practice from her Seattle home in 2004 after getting laid off from a small advertising agency. She named her start-up Seven November to reflect her wedding anniversary, unaware that a terrorist organization called 17 November used to exist."A potential client asked me about it in a pitch meeting," says Ms. Pierson Brown of how she found out about the similarity. "I hadn't heard of it."Ms. Pierson Brown says at this point she'd been in business for more than two years and figured it would be too difficult and costly to change her company's name. As a result, she says she sometimes needs to assure prospective clients that she's not a terrorist sympathizer.To test the strength and originality of a name, Mr. Chiagouris recommends that entrepreneurs ask consumers in their target market to offer opinions on it. You can use informal surveys, for instance."The name has to convey to people some idea of what the business is," he says.Mr. Chiagouris also suggests looking up a potential name online and checking several pages of search-engine results for businesses with the same or a similar name. For businesses that serve a specific geographic area, include the location's ZIP Code in searches, he adds.Finally, if your budget permits, you might consider hiring an attorney with expertise in using trademark databases to gain an extra layer of protection, Mr. Chiagouris says. "Dig deep." Write to Sarah E. Needleman at sarah.needleman@wsj.com

Smaller Players Will Find Gulf Tougher

Tue, 22 Jun 2010 10:20:01 EDT

By Ángel González The troubles of behemoth BP PLC now threaten the small oil and gas companies that helped unlock the Gulf of Mexico's deepwater business. Increased regulation and higher operating costs will likely follow the BP oil spill, clouding the prospects of exploration and production companies that don't have the financial clout of energy giants such as Chevron Corp. and Exxon Mobil Corp. Most immediately, deepwater exploration is temporarily frozen by a federal drilling moratorium, squeezing the smaller outfits and the oil field services companies that work in the Gulf. On Monday, a federal court in New Orleans began to hear the case of a group of small offshore service suppliers that sued the government to lift the ban. A ruling is expected by noon on Wednesday.Also Monday, Interior Secretary Ken Salazar changed the name of the agency that oversees offshore drilling from the Minerals Management Service to the Bureau of Ocean Energy Management, Regulation and Enforcement, as he splits up the agency to avoid "conflicting missions" of revenue collection and safety oversight. He swore in Michael Bromwich, a former Justice Department inspector general, to helm the agency, succeeding Elizabeth Birnbaum, who resigned under pressure. Meanwhile, the two-month-old spill is giving investors an eyeful of the high cost of making mistakes in the Gulf. So far, BP has spent more than $2 billion in the cleanup effort and has agreed to set aside $20 billion for economic damages, an amount that would wipe out smaller companies fielding rigs in the deepwater Gulf, such as Plains Exploration & Production Co. and Noble Energy Inc.Even if the moratorium is lifted, drilling in deep water in the U.S. will become more expensive in the long term, and some companies and investors are asking if it's worth the effort.Plains Exploration CEO James Flores said in a conference call in late May that the company was considering selling some of its hard-earned deepwater Gulf assets. "Our success has created a lot of opportunity for us, but also a lot of exposure to deep water that we may not need or can stand, with the new costs and rates and liabilities that are out there," Mr. Flores said.The spill is disrupting a business that helped build the Gulf of Mexico into one of the most productive offshore oil and gas regions in the world. In the early 1990s, relatively small players like Kerr-McGee, Ocean Energy and Unocal were acquiring acreage in deep water; their finds helped prove the Gulf's worth to bigger brethren like Chevron, Devon Energy Corp. and Anadarko Petroleum Corp., which later bought these companies at a premium. Newer generations of small players, while they mostly operate in the shadow of majors like BP and Royal Dutch Shell PLC, provide valuable capital that helps mitigate the huge costs—and huge risks—of drilling in the area. Some of these also go solo, risking big bucks for a big payoff. "BP can screw up the business for a lot of smaller companies that added a lot of value to the Gulf of Mexico," said David Heikkinen, an analyst with energy research firm Tudor Pickering Holt. Cobalt International Energy Inc. is among the companies threatened by tightening regulation. The private-equity-backed, pure-play exploration firm, which has no oil and gas production, went public in December. In late May, Cobalt said a U.S. government moratorium on drilling would delay the planned drilling of an exploratory well in the Gulf by six months. The company, which didn't return calls seeking comment, has said it will forge ahead with its program. Bill Herbert, an analyst with Houston energy investment bank Simmons & Co., is skeptical. "Cobalt's future is pretty unclear right now," he said. ATP Oil and Gas Corp., a Houston company that began focusing on deep water in 2004, expected to see its 2010 production double to at least 12 million barrels of oil and gas but has now dropped its guidance to between 9 million and 10 million. ATP didn't return calls seeking comment.In Monday's New Orleans hearing, Judge Martin Feldman of U.S. District Court for the Eastern District of Louisiana said that he would seek to rule on the moratorium "no later" than Wednesday at noon, and possibly on Tuesday, according to case manager Steve Hill.The lawsuit was spearheaded by Hornbeck Offshore Services LLC, of Covington, La. Bigger offshore drillers are also trying to overturn the moratorium. On Friday, Diamond Offshore Co., one of the largest offshore drillers in the world, filed a similar claim against the Interior Department in federal court in Houston, a sign of the growing revolt in the Gulf Coast against the ban.Most of the sector's players are waiting for the new regulations to dispel the uncertainty, and some are optimistic. Noble Energy Chief Executive Charles Davidson said at the company's annual analyst meeting in June that costs will likely rise, diminishing some of the value of Noble's deepwater investments, but that exploration in the area would hold up in the long term because the government is "well aware of the importance of the independents in the Gulf of Mexico." Noble didn't reply to a request for comment. But the rising cost of insurance premiums, longer estimated time frames for completing projects and the potential lifting of a $75 million cap on oil spill liability make the independents' role uncertain."I don't think shareholders are going to want small-cap exploration and production companies in the deep water," Mr. Herbert said. "It's cost-prohibitive, and the risks are too great." Write to Ángel González at angel.gonzalez@wsj.com

Ryan Streeter: Asian Entrepreneurs Are Bullish on the Future

Fri, 06 Aug 2010 11:19:26 EDT

By Ryan Streeter The past few years have seen no shortage of commentary about the comparative economic environments in China and India, where growth and the rise of enterprising classes have gone hand in hand. Yet we have little data to help us understand how entrepreneurs in these countries think, and what motivates their decisions and actions. A new survey of more than 4,000 entrepreneurs, business managers and aspiring entrepreneurs, conducted by YouGov and released this week by the Legatum Institute, sheds light on the countries' respective enterprising classes—and raises some questions for policy makers and investors. Entrepreneurs in both countries are bullish. Nearly half of the respondents believe their societies are more welcoming of entrepreneurial activity today than 10 years ago, and only one-quarter in India and one-third in China believe the global financial crisis has seriously hampered the prospects for new businesses. The vast majority believe their lives will improve dramatically in the next five years.But the survey reveals two different styles of entrepreneurship have emerged. The differences start with why entrepreneurs launch businesses. Asked about their main motivation, the overwhelming majority of Indian entrepreneurs name "being my own boss," while the most popular response in China is earning more money. Indian entrepreneurs more closely resemble American entrepreneurs, who are more likely to cite "owning my own company" than "building my wealth" as the main reason they launched a business, according to a 2009 Kauffman foundation study.When asked what other factors inspire them to start businesses, nearly half of Chinese entrepreneurs give answers related to the state's efforts to promote and manage enterprise. Compared to just 9% in India, 23% of Chinese entrepreneurs say that what they learned in school or at university prompted their decision. This presumably reflects the government's strategy of using universities to promote entrepreneurship. Chinese business owners cite pro-business actions by the government or pro-business messages in the media (which in China are state-controlled) at three times the rate of their Indian peers. Twenty-one percent of Indian entrepreneurs cite family expectations as the source of their entrepreneurship, compared to 9% of Chinese. Twenty-seven percent of Indian entrepreneurs cite the inspiration they glean from knowing another entrepreneur, compared to 18% of Chinese.The differences in inspiration and motivation manifest themselves in many ways. The relational Indian model of business startups is evident in enterprise financing, where 49% of business owners rely on family resources to start their enterprise, compared to 25% in China. Chinese entrepreneurs are much more dependent on banks, with 49% taking out loans compared to 27% in India. Indian entrepreneurs use conventional financing through debt and investors at about half the rate of their Chinese peers. This raises interesting questions. Are Indian entrepreneurs more careful about working out the kinks in their business models before they start because they know a default will hurt their friends and family instead of a faceless bank? And are Chinese banks as good as Indian families at evaluating the business merits of an entrepreneur's idea before extending credit?In listing factors important for starting a business, Indian entrepreneurs place nearly as much value on personal qualities, such as creativity and the ability to take risks in the face of adversity, as they do access to finance. Access to information and knowledge, for instance, is more important to Chinese entrepreneurs than being creative. This suggests that Chinese entrepreneurs believe business success depends on external market conditions that can be known and manipulated, whereas Indian entrepreneurs regard success as the result of their internal ability to adapt to changing conditions. There are also significant differences in how entrepreneurs see themselves relating to their policy environments. In India, 81% of business owners say that jugaad, the ability to improvise and find ways around prohibitive rules and institutions, is important to business success. In China, 93% of business owners say guanxi, the networks and relationships (primarily with the state) necessary to succeed in business, are important to their own success. Generally, enterprising individuals in India believe they succeed in spite of the state, while in China they think they succeed through their connections to it. So far, our findings suggest entrepreneurship in India is marked by a kind of sustainability that is less evident in China. Because India's entrepreneurs have succeeded amid dysfunctional government and financial institutions by developing a kind of independent and experimental ingenuity, it stands to reason that the enterprising class would prosper even more were India to reduce barriers to business and clean up corruption. In China it is unclear what will happen if state efforts are no longer sufficient to entice and groom the entrepreneurs its economy needs. Mr. Streeter is a senior fellow at the Legatum Institute in London.

What's in a Name? Sometimes, a Lawsuit

Thu, 24 Jun 2010 13:34:44 EDT

By Emily Maltby Jimmy Winkelmann started a clothing company several years ago to mock fellow students who wore the outdoorsy The North Face brand, despite having no inclination to venture into the wilderness. He dubbed his company "The South Butt" and flipped The North Face's half-dome logo to look like buttocks.But at least one party wasn't amused: The North Face.Mr. Winkelmann, now a student at the University of Missouri at Columbia, received a cease-and-desist letter from the company last summer. He declined to comply, prompting a trademark infringement suit that was settled out of court in April.The South Butt is still in operation. Mr. Winkelmann's lawyer and a spokeswoman for The North Face, a unit of VF Corp., said the matter was resolved amicably, but declined to comment further. It's unclear if Mr. Winkelmann is required to make any payments to The North Face or if the company has imposed any conditions on his marketing efforts. Small businesses, unwittingly or not, have a history of running into scuffles by playing off a larger company's protected trademarks—sometimes resulting in legal battles they can ill afford, given the limited resources of most start-up operations. Some 3,500 trademark cases are filed each year in U.S. district courts, according to FTI Consulting Inc., a Baltimore advisory firm that tracks intellectual-property statistics.Large corporations are highly protective of the brands and logos they often spend years and millions of dollars promoting. Inexperienced entrepreneurs may not realize "that a lot of big businesses have people who are assigned to find people who are using their trademark," says Anuj Desai, an attorney specializing in trademarks and licensing at Arnall, Golden, Gregory LLP in Atlanta. Victor and Cathy Moseley of Elizabethtown, Ky., say they received an initial complaint alleging trademark infringement from Limited Brands Inc., the parent company of Victoria's Secret, within two weeks of opening an adult novelty and lingerie shop called "Victor's Secret" in 1998. The Moseleys ultimately changed the name of the boutique to Cathy's Little Secret, but still entered into a 12-year court battle to keep the original name. The shop lost an appeal in May. "It's discouraging," says Ms. Moseley, who plans a further appeal. Limited Brands declined to comment. The big corporation doesn't always win. Last fall, McDonald's Corp. lost an eight-year battle to prevent a family-run restaurant in Kuala Lumpur from calling itself McCurry. Malaysia's top court ruled that the Indian-food eatery could keep the prefix "Mc" in its name, as long as it distinguishes its food from the hamburger giant's. McDonald's didn't return a call for comment.But many small businesses find it's not worth picking a battle with a deep-pocketed corporation. Legal representation alone can run $10,000 to $50,000, or several hundred thousand dollars if the matter goes to court, according to Mr. Desai. Most owners who find themselves on the receiving end of a cease-and-desist letter often settle the matter quickly to avoid the cost of a prolonged lawsuit, he says.Problems could likely be avoided with some due diligence, says Maria A. Scungio, co-chair of international trademark and copyright practice for Edwards Angell Palmer & Dodge LLP in New York. When starting up, many small-business owners don't seek legal advice or register their name with the U.S. Patent and Trademark Office, which could tip them off if they are encroaching on someone else's trademark, she says. Ric Trader says he regrets not registering his company's trademark when he started Yard Doctor Landscaping in Punta Gorda, Fla., in 1998. That process, he says, may have made him aware of the existence of Lawn Doctor Inc., a national lawn-care company in Holmdel, N.J., that began franchising in 1967.Mr. Trader says he was sent a cease-and-desist letter by Lawn Doctor in 2002, when his company was already well established, breaking $1 million in annual sales. He ultimately decided to ignore the letter, reasoning that customers wouldn't be confused by the similar names. Lawn Doctor soon filed a lawsuit against the small company. Mr. Trader, who didn't retain a lawyer, says that the ensuing years of legal paperwork were draining.In an out-of-court settlement in 2005, Mr. Trader says he agreed to change his company's name in exchange for a five-figure sum. But with all the setbacks as well as Hurricane Charley taking a toll on his business, Mr. Trader decided to sell the business just weeks later. Lawn Doctor declined to comment. Write to Emily Maltby at emily.maltby@wsj.com

Need a Lawyer? A Route to Free Legal Advice

Fri, 20 Aug 2010 11:12:16 EDT

By Mike Michalowicz There's no way around it. As an entrepreneur, you'll (at some point) need the services of an attorney—whether it's to fend off a lawsuit or to avoid a legal mess in the first place. In fact, if you don't have access to an attorney, you could lose a ton of money—or even your business. I can hear you protesting loudly now, "Are you crazy, Mike? I can't afford a lawyer!" Well, actually you can—and at the risk of sounding like your mother—you can't really afford not to have an attorney. And in fact, you can get legal advice for far less than the normal $350 an hour (or more) billing rate. You can get it for free. Yes, you can get top tier-legal advice and the legal documents every small-business owner needs for free. How? Here's my secret:Go to a local college or university and talk to the head of the legal department. Volunteer your business to be a case study for a business law class. The class, under the direction of the professor, who is almost always an attorney, can create partner agreements, employment contracts, sales agreements, NDAs, all the legal mumbo-jumbo that's required on websites (such as disclaimers) and lots more—essentially all the legal documents a business owner will ever need. In times of crisis (think lawsuit), they may even provide free consultation, too.Having a business law class prepare custom legal documents for you is so much better than downloading the cookie-cutter legal docs found all over the web, which can be outdated or incomplete. And you don't have to worry about inexperienced students doing your legal work; the professor will be supervising the projects. This is one of those rare "everybody wins" situations. The professors are happy to take on your work since they prefer to have their students tackle real-life situations instead of boring textbook hypotheticals. The students are eager to participate because they get to put "real-world" legal experience on their resumes. And you – well, of course you're thrilled since you get thousands of dollars of legal work for nothing. (Consider occasionally treating the class to pizza or Starbucks as a thank you.)Sounds pretty good—but wait, there's more. I used this strategy several years ago and instead of giving my work to the whole class as a project, the professor recommended I talk to his best student who was graduating. The student prepared the contract I needed, and it served as a great interview technique. His work was so good that I hired the guy on the spot—and he went on to work in my marketing department and become one of my best employees. You can use this short cut for more than just legal work. Offering yourself as a living laboratory to students of marketing, web design and graphics, and computer programming (among other disciplines) is a great way to get a lot for a (very) little.

Three Best Ways to Convert Online Prospects Into Clients

Wed, 01 Sep 2010 17:36:23 EDT

By Grace L. Williams You've got a killer website that potential clients are visiting. But how do you turn those visitors into paying customers?Whether you offer a product or service, online customers can be fickle. According to Forrester Research of Cambridge, Mass., 88% of online shoppers that begin a transaction don't complete it, a term known as "shopping cart abandonment." And consider this: Researchers say consumers searching for goods or services online will visit an average of four websites within a 30-minute period. This means that if visitors to your site request more information, you've got to follow up fast to beat your competition to the punch. Here are three best ways to convert an online prospect into a client: 1. Reach out within seconds. Once prospects' information is in your hands—whether they've submitted a form or sent an email asking for more information—the clock is ticking. These days, customers anticipate a rapid response, and the longer you wait, the more likely you are to lose their interest, says Glenn Houck, co-founder of LeadQual LLC, a Stratford, Conn., firm that helps businesses turn leads into sales. He recommends following up within seconds, not just minutes. If a business doesn't have internal staff to monitor emails or response forms, it can hire providers of so-called "lead-management" services. For instance, for a fee of about $5 per lead, LeadQual will call prospects back within 50 seconds, as well as to follow up multiple times. Once prospects express more interest, they are put directly in touch with the business. While rapid response might not be the only factor that gets you the deal, the immediate attention can make a positive impression. 2. Follow up, again and again. There's no need to hang up your hat just because the prospect hasn't returned your call on the first try. Recent data released by Leads360, a provider of lead-management software in Los Angeles, indicates that repeated follow-up can lead to success. Leads360 found that making a second phone call increased the chance of making a sale by 87%. Further, the magical number of calls it took to change as many prospects as possible into clients was six. Jeff Solomon, founder and Senior Vice President of Leads360, says the six-call follow-up should take place within the first month of initially hearing from the prospect. If you want to do something other than phone calls, Mr. Solomon suggests reaching out with what he calls a "nurture email" that contains additional information, such as guides, online calculators and other tools that can help prospects better understand your interest in landing their business. 3. Get to know your prospects. Ever wonder who is coming to your site, what they are clicking on, and how they utilize it? If visitors don't fill out a form or suggestion card, it's possible to use analytics to determine a variety of useful information, including how the prospect found your site. Programs that track Web traffic range from Google Inc.'s free Google Analytics to ones that charge fees such as Adobe Systems Inc.'s Omniture. "Knowing how a customer acts within the site is vital," says Shmuli Goldberg, director of marketing and communications for online-analytics provider ClickTale. For instance, you can use analytics to find out where users click most on your site, or what grabs their attention and holds it. Another key bit of info you can glean is how prospects react to your online forms, down to what they won't fill out (incidentally, it's often their phone number). Once you know where you are losing visitors, you can make changes to your site that eliminate superfluous information and allow for a more user-friendly browsing experience. Write to Grace L. Williams at grace.williams@wsj.com

Bank of America Commits $10M in Small-Business Grants

Thu, 29 Jul 2010 13:25:21 EDT

By Darrell A. Hughes Bank of America Corp. on Thursday will commit $10 million in grants to nonprofit organizations that lend to small and rural businesses.A host of nonprofit lenders, such as Community Development Financial Institutions, or CDFIs, have been struggling to make loans throughout U.S. communities. Those entities typically receive their lending funds from federal agencies, but recession-driven funding restraints have limited the ability of these organizations to lend.Bank of America's Global Commercial Banking President David Darnell will announce the funding at a National Urban League conference Thursday."Even the smallest grant enables a CDFI to leverage as much as ten times that amount to lend to small businesses, which helps initiate a ripple effect," Mr. Darnell said in a statement reviewed by Dow Jones Newswires.According to Bank of America, the grants could lead to as much as $100 million in low-cost, long-term capital for small business microloans.Mr. Darnell said that "could translate into significant investment over the next five years."The banking giant's grant commitment comes after Federal Reserve Chairman Ben Bernanke expressed concern earlier this month that large financial firms aren't doing enough to help small businesses.Other companies are also promising action. Wells Fargo & Co. Executive Vice President Marc Bernstein's said his bank, in addition to providing funds for community lending entities, has undertaken a new "second look" program geared toward finding credible ways to approve small business loan applications that have been rejected. J.P. Morgan Chase & Co. has also rolled out in-house initiatives such as offering business customers reduced interest rates for hiring workers.Both Chase and Bank of America have second-look programs as well.Despite efforts to increase lending, many small businesses are still considered serious lending risks as indicators such as consumer spending remain subdued.Treasury's Assistant Secretary for Financial Institutions Michael Barr, in an interview, applauded the small business lending initiatives but said cooperative efforts between the public and private sectors are likely to be more effective.According to Mr. Barr, a pending small business bill would "help banks reach deeper into the small business pool to find borrowers that they might not otherwise lend to."The legislation provides some "downside protection" for banks, Mr. Barr said, stressing that a mixture of new and existing tools could lead to more readily, available credit.Mr. Darnell said the financial crisis has left small business in a tougher position than in previous downturns. "We're seeing something unique in this cycle," Mr. Darnell said, noting that many entrepreneurs have typically accessed home equity to fund start-ups but declines in personal wealth have limited that as an option. Write to Darrell A. Hughes at darrell.hughes@dowjones.com

Getting Customers to 'Check In' With Foursquare

Wed, 04 Aug 2010 07:57:01 EDT

By Riva Richmond When Alissa White, owner of online retailer Matcha Source LLC, of Los Angeles, opened a temporary "pop-up" shop in June in Manhattan selling Matcha tea, she knew success would depend on attracting people quickly and cheaply.Naturally, she looked to the Internet, courting popular New York bloggers and posting on Facebook and Twitter. But surprising success came from a newer online quarter: Foursquare, a leader in a pack of increasingly popular services that let friends tell friends where they're physically located using smartphones. For free, Ms. White was able to woo its users with a gratis cup of her Japanese green tea. A dozen took advantage in the two months Matcha Box was open, and 40 visited, some many times.Location-based social networks like Foursquare have become a hit, especially with tech-savvy urbanites who want to share information about restaurants, bars, shops, music venues and other destinations. Because people provide their location when they "check in," they can find their friends out on the town using these services, which also include startups Brightkite Inc., Gowalla Inc., Loopt Inc., Pelago Inc.'s Whrrl and review heavyweight Yelp Inc. Meanwhile, gaming elements like points, emblems and honorific titles for favorite haunts—"mayor" on Foursquare, for example—help keep users active.Businesses of all sizes are trying the services out, looking to tap the networks' ever-growing fan bases—Foursquare alone has 2.4 million users globally, and is growing 30% to 40% a month—and ability to harness enthusiasm for local establishments. For a small company with a limited marketing budget, the services are attractive because they're free or cheap, require minimal time and effort, and appeal to loyal consumers who favor local businesses over big, cookie-cutter chains.To get noticed, businesses "don't necessarily have to outspend their competition any more. They can outsmart them," says Dan Zarrella, social media scientist at marketing-software firm HubSpot Inc.An advantage of location-based social networks, Mr. Zarella says, is that they spotlight frequent patronage of a business. On Foursquare, for instance, users can repeatedly plug a favorite place, often simultaneously sharing that news with Facebook friends and Twitter followers. "On Facebook, I'm only going to 'like' it once. With Foursquare, I'm going to check in every time," he says. (With a half-billion users, however, Facebook still offers tremendous exposure, he adds.)On Foursquare, many businesses encourage repeat visits by rewarding customers with freebies on their fifth or tenth check-ins. "The good thing about Foursquare versus Twitter and Facebook is it's tied to a location, and, essentially, it can be a digital loyalty card," says Allison Mooney, vice president of emerging trends at consultancy MobileBehavior LLC, a unit of Omnicom Group Co. "It's closing the loop between digital social media and the actual point of sale."Take Ms. White, whose "special" on Foursquare promised users free tea if they left a digital "tip." The strategy led people to promote the shop by checking in (an in-store sign reminded them to do so) and add a public recommendation that popped up on friends' phones if they used Foursquare nearby. "I wanted people to be the preachers," she says. It worked: 18 people left tips on Foursquare, including Tanya Brown, age 23, who works around the corner at handbag company Botkier. She came for free tea after seeing the orange "special" tag flagging Matcha Box's promotion and left this tip: "hours are a bit uneven - so call before. the iced matcha latte = best thing of my life." She started following Matcha Source on Twitter and became a regular. Though full of potential for small businesses, marketing tools on location-based services are still limited. And some complain large companies, which pay for marketing opportunities, have an advantage."The larger businesses are really the ones who are getting to promote their brands," says Rick Bakas, director of social-media marketing at St. Supéry Vineyards & Winery in California's Napa Valley. Mr. Bakas also complains that companies can only promote their physical locations, rather than products or services that may be sold elsewhere.But change seems a matter of time. Foursquare aims to expand marketing using "badges," or digital emblems that users can win for an activity, although only Starbucks has its own custom badge now, says Tristan Walker, head of Foursquare's business development. Small businesses currently use standard badges. For instance, they can throw special "swarm" events at their stores to help Foursquare users win the "swarm" badge, a virtual yellow-bee emblem that's awarded if more than 50 people check in, he says.Since March, small businesses have been able to use Foursquare to set up specials and get data about check-ins. Some 10,000 merchants in big cities and small towns alike are participating, according to Mr. Walker. Even businesses without stores have jumped in, he says, pointing to a New York taxi service that gives its mayor free rides to the airport. "We really found merchants co-opting the platform to make it their own." Josh Williams, co-founder and chief executive of Austin-based Gowalla, which has 350,000 users, says Gowalla will roll out a small-business marketing product in the next six months, perhaps including custom "stamps" that users add to their digital passports. Whrrl, which also has about 350,000 users, launched a pilot free-rewards program on July 1 for businesses of all sizes that a few small companies are participating in. And Brightkite, which has 5.5 million users, has run promotions for hundreds of local businesses this year, says co-founder Rob Lawson. It lets businesses reward customers with badges and real-world perks and provides targeted local advertising.Yelp, which added a check-in feature to its iPhone app in January and Android app in June, could quickly become a force. Businesses have been able to set up "special offers" for free on Yelp for about two years, which are displayed to both its 33 million Web users and 2 million mobile users.

No Splendor in the Grass

Thu, 12 Aug 2010 13:59:44 EDT

By Sarah E. Needleman The brutal summer heat has cooled demand for many small landscaping businesses, adding distress to a sector already hurt by the recession. Last month, temperatures were above normal along the East Coast and several central U.S. states, with some cities—such as Hartford, Conn., Providence, R.I., and Washington—breaking records, according to the National Climatic Data Center. Precipitation levels were also below normal last month throughout most of the Southeast and several states in the upper West Coast, the center says.The mostly small businesses that serve these areas in the landscaping and lawn-care sector say the extreme heat has been killing grass and in some cases triggering the onset of weeds, insect invasions and diseases. As a result, consumers will likely need to wait for cooler weather before lawns can be revitalized through seeding and fertilization—services typically provided by lawn-care professionals. Meanwhile, landscapers say the extreme heat is prompting many consumers to put off investing in planting, mulching, fencing and the installation of patios and walkways. Such services, which landscaping and related businesses provide, are more popular when yards are plush and green.With more lawns turning brown, "business has dropped substantially," says Tim McCarey, owner of McCarey Landscaping Inc. in Middletown, N.Y., which offers lawn-care and landscaping services. He estimates revenues are down by about 30% from this time a year ago, and says he's had to reduce the number of workers he employs during summer to 38 from more than 50. "We've had to lay off people because the dryness affected us so much."The economy also has been a factor. "People who would normally have us install decorative mulch or stone around their house are buying materials and doing it themselves to save," says Mr. McCarey. And other customers "are saying 'cut our services from weekly to biweekly,'" he adds. Kevin Culbert, an analyst for research firm IBISWorld Inc., expects revenues to decline 4.7% this year for landscape-services companies as customers do their own work. "Not everybody can do plumbing but everybody can get outside and mow their lawn," he says. For Guier Fence Co. in Kansas City, Mo., which has also seen sales decline in recent years due to the recession, the intense heat is discouraging consumers from investing in its fence installation and repair services, says owner and president Lea Bailes. "They're not spending time outside," he says. "It's just out of sight, out of mind."The 80-employee business, which was founded in 1979, has increased its advertising spending by 20% for the month of August to make up for lost sales in July. That's helped a bit, "but my prediction is it won't help as much as we hoped," says Mr. Bailes. "The heat wins."The scorching hot weather is even dictating the amount of hours that lawn-care and landscaping laborers spend on the job because of the potential health hazards associated with being out in the sun. "It cuts off probably two hours of our workday," says Mr. Bailes. "We don't want them getting a heat stroke."The heat has also forced some lawn-care professionals to use more expensive products, boosting overhead costs. Grasshopper Lawns Inc. in Larksville, Pa., is using a slow-release fertilizer on all of its customers' properties that costs about 15% more than traditional growth stimulant, says Michael Kravitsky, who co-owns the 20-employee lawn-care business with his brother Shawn.On the bright side, some lawn-care providers say they're fielding more calls from existing and potential customers seeking help in reversing damage to their lawns caused by the heat. But until the weather cools down, little can be done, and so the influx isn't necessarily translating into increased sales—at least not until the fall. "It's a double-edge sword," says Clifford Drezek, part owner and general manager of Arbor-Turf Services Inc., a lawn-and- tree-care company in Marlboro, Mass., with five full-time employees. "We're not adding a lot of new customers and we're dealing with more concerns of existing customers." Lawn-care and related businesses, however, may be able to benefit later when the heat finally subsides, if they can retain their customers. "It's an educational opportunity," says Scott Frith, vice president of marketing and development for Lawn Doctor Inc., a 460-unit national franchise business in Holmdel, N.J., which has prepared information packets about the heat and its impact on lawns. An organization that fails to communicate with customers "would probably see a significant cancellation rate," he says. "You have to set the expectation that you're the expert rather than being reactive." Write to Sarah E. Needleman at sarah.needleman@wsj.com

Three Minutes to a Million

Thu, 17 Jun 2010 13:40:16 EDT

By Emily Maltby Rupila Sethi knew how much would be riding on the next three minutes. As she stood at the podium Tuesday at the Make Mine a Million $ Business Competition in Newark, N.J., she reminded herself to speak from the heart, rather than notes. Her goal was to communicate to the judges why her construction company, Aerial Design & Build Inc., was worthy of winning the competitionDespite her nerves, Ms. Sethi kept her composure through the presentation. She conveyed to the audience why her firm was successful, what challenges were ahead and how she was planning to push Aerial Design to the next revenue level. After she finished, Ms. Sethi breathed a sigh of relief and smiled as she returned to her seat. "My heart was pounding out of my chest!" she exclaimed afterward. Elevator pitches, commonly delivered at business competitions and at investor meetings, are typically one-to-three minute speeches that hit on key elements such as the company's business model, revenues and growth strategies. The name stems from the hypothetical situation of sharing an elevator ride with an investor. In that tight span of time, a business owner would have to recite the business concept quickly, while staying focused on the essentials that entice investors to learn more. A winning elevator pitch should illustrate – without business jargon – what the business does, who it targets, and why it's unique. The pitch should encompass the progress made to date, including revenue growth and other milestones. It should address future outlook, such as the challenges the company faces, and how the competition's prizes or an investment would be used. And it should explain to potential investors exactly what kind of return to expect.Delivering a solid elevator speech also takes practice and nerve control, as the 14 finalists in the Make Mine a Million competition learned. The event, which has been held 20 times since 2005, is open to women whose businesses are at least two years old and earn more than $180,000 in annual revenue. The day before this week's competition, each contestant got a chance to shake out all the bugs at a dress rehearsal in front of voice and business coaches. (Please see below gallery on how contestants improved their pitches.)During the warm-ups, criticism was at times harsh. Nell Merlino, CEO of the nonprofit Count Me In for Women's Economic Independence, one of the organizations behind the event, made all the women rethink their deliveries, to better convey their businesses' missions while also demonstrating entrepreneurial passion. "If you can't tell it, you can't sell it," Ms. Merlino said. "The difference between success and staying where you are is being able to tell your story." Of course, spinning the right tale isn't easy. Many of the contestants had a common problem – they knew their businesses so well that they talked about minutia and back history that didn't hold the audience's attention. Being able to strip away the "extraneous stuff" is key when refining a pitch, Ms. Merlino said. "That's why it's so important to [rehearse] with somebody else that can really listen for the essence of what your business is." Voice coach Hilary Blair and business coach Bill Dueease also helped the contestants adopt the right poise and attitude. In some cases, the coaches even advised the women what to wear, based on the entrepreneur's business or industry. They encouraged some contestants to include an anecdote that demonstrated their love of their work. "What's the favorite sales experience you had?" Ms. Merlino asked a contestant who owns a toy store. "We've got to feel that."To another contestant, who owns a Latin-cuisine company, she asked, "What are your top-selling products? Describe them to me. Make my mouth water."After honing their presentations according to the feedback, the business owners were ready to roll. As for Ms. Sethi, her final pitch encompassed nearly all the advice she had received. Unlike the dry run, she made sure to mention her recognizable clients and projects (Paul Smith and the Trump Towers), stress key words that illustrated her firm's qualities (on time, on budget, good quality) and point out what offerings set her apart from competitors (using eco-friendly construction materials). Ms. Sethi was one of the seven business owners who walked away with the grand prize. She will now receive free business coaching, financial training, publicity opportunities and products, such as a rewards card with 50,000 redeemable points from American Express Co., a founding sponsor of the Make Mine a Million competition. All the prizes are intended to push the businesses to the $1 million mark in annual revenue. But those who did not win tangible prizes walked away with valuable advice. "I know these women will go back and not only change what they say today," Ms. Merlino said. "They're [also] going to change their marketing materials, what they say on their website, and what they say the next time they go to a sales meeting, because they now understand what worked and what didn't." Ms. Sethi agrees. "I've taken so much from the judges and all my co-participants. I've just learned so much." Write to Emily Maltby at emily.maltby@wsj.com

And Now, the Tricky Part: Naming Your Business

Tue, 29 Jun 2010 14:05:15 EDT

By Emily Maltby Jake Schwarz, an attorney, spent months trying to settle on a name for his law firm. He considered using the founders' names, as many law firms do, but "Iida, Schwarz and Prenton" was awkward to spell and pronounce. He contemplated "Lighthouse Law Group" and "Summit Legal Partners" but thought they sounded like motivational posters. Some of the more promising names he mulled were "Consilium" and "Acuity Law Group," but he realized that half his clients, based in Japan, would struggle with the phonetics. "Literally, I was banging my head against the wall," Mr. Schwarz recalls.As many entrepreneurs can attest, deciding on a name for a new business is no easy task. One with pizzazz can set a new company apart; one that misses the mark can make a burgeoning start-up fall flat. The problem, marketing and branding experts agree, is that there is no magic bullet to picking the best name. Business monikers can run the gamut, from straightforward names that summarize the company's offerings—say, General Motors Co.—to so-called "empty-vessel" names that have no apparent association to the product or service, until they create their own meaning over time— think, Yahoo! Inc.For a small company with tight resources, a safe bet is to pick a name that's neither boring nor obscure. "If your marketing dollars are limited, opt for a more descriptive or suggestive name," says Nina Beckhardt, president and creative director of The Naming Group LLC in New YorkThe process can require some brainstorming. (Please read how entrepreneurs came up with their business names in gallery at bottom.) Alexandra Watkins, chief innovation officer at Eat My Words, a San Francisco firm that generates names and taglines for businesses, suggests using glossaries, baby name lists and rhyming dictionaries. She also encourages associative thinking, such as jotting down a list of loosely related terms or phrases that conjure up your concept. "If you want to name a clothing line, think of [names of] hip places, like London night clubs," she says. "If it's a new energy drink, look up the names of race horses." Experts don't recommend using the entrepreneur's name in most cases, as it's typically not descriptive and can limit future endeavors, such as a merger with another firm. It can also be problematic for the next owner, if the business is successful enough to sell or even pass on to the next generation. Jeb Brooks and his family, for instance, are now running the sales training firm that his father started in Greensboro, N.C., some 30 years ago. His late dad named the firm after himself, William T. Brooks & Associates and later changed it to The Brooks Group. But the name says little about the company's mission – in fact, Mr. Brooks says he has to repeat the word "sales" at least three times when pitching new clients. He'd like a catchier name, but won't likely change it "because we'd lose the recognition in our industry."One of the least effective ways to come up with a name is to "crowd source" on sites set up for that purpose, or ask too many customers, clients or even family and friends for their ideas. Both Ms. Watkins and Ms. Beckhardt caution against that strategy, arguing that too many chefs in the kitchen can clutter the process.In the end, the most successful names are the ones that are easy to say and spell, and summon an image or meaning that can last as the business grows, the experts say. Once you've narrowed the field, make sure to test the candidates out in a real-life setting. Ms. Beckhardt suggests pretending to answer the phone using the name, and typing it as a url. "HomesExchange.com could be HomeSexChange.com," she warns. "Take those precautions and get comfortable with it because you'll have to live with it for a long time."For attorney Mr. Schwarz, the months of struggling to come up with a name for his law firm finally came to an end when he stumbled upon inspiration in—of all places—the shower. As he reached for his shaving cream, the name on the label, Pacific Shaving Company, reminded him that his clients in Japan and the U.S.'s West Coast shared a common ocean border. Mr. Schwarz eventually named his firm Pacific Crest Law Partners in 2008. "The name is perfect for what we're doing," he says. Write to Emily Maltby at emily.maltby@wsj.com

Fundraising From Friends and Family

Fri, 06 Aug 2010 12:20:17 EDT

By Dyan Machan Bank lending to small businesses is still in the dumpster, and venture capital investment remains way down. But even if times were flush, some entrepreneurs would rather get funding elsewhere. Business owners like Erica Duignan Minnihan and Susan Reiner wouldn't take out a bank loan if President Obama delivered it on a silver platter. They've turned to a capital source often better suited to slow-growing times: friends and family.According to a University of Michigan study of entrepreneurs, the lion's share of initial start-up capital comes from individual savings, friends and family. Though numbers don't track it, under-the-radar financing may be gaining in this economic climate, according to William Dunkelberg, chief economist for the National Federation of Independent Business. Even among banks that want to fund start-ups, he says, "no one is exactly knocking down their door." If Mom, Dad and the neighbors are a more popular option, it's not because they're a soft touch; it's because they're less likely to demand terms that constrain the way the business develops.Duignan Minnihan, 34, is an MBA-wielding mother of three; having worked in investment banking and for an angel investor group, she certainly has contacts for fund-raising. But when she needed $50,000-plus to launch her online business—Healthy Mama Enterprises, which sells the Mamatini, a beverage for nursing mothers—she looked no further than her parents. Why not outsiders? "Too expensive," she says. The typical angel investor, she says, wants a tenfold return on capital in five years—quite a challenge, "unless you can spin gold out of straw." Her parents, of course, weren't so demanding. Duignan Minnihan works from home and outsources tasks to keep overhead low. Her strategy is to get established before she considers courting bigger investors: "I don't want to take $1 million and get in trouble."Ms. Reiner, with partner Wendy Drapanas, started Rock of Ages Press in 2008 to sell products with a spiritual bent to boutiques. A friend who had retired from the mutual fund industry offered start-up funding of several hundred thousand dollars. Ms. Reiner and Ms. Drapanas granted him 51 percent of the company, but the founders retain the right to buy back some of those shares when they repay his investment; it's rare to obtain such favorable terms from an angel investor.Of course, just because investors are friendly (or genetically linked) doesn't mean the relationship should be casual. It's crucial to formalize financial arrangements. Duignan Minnihan, for example, signed a convertible note that gives her parents the right to claim equity in her company. She also drew up a formal business plan, just as she would have for the folks at the bank. Gauging investors' risk tolerance is also important. When the founders of Bonobos.com, a men's clothing retailer, launched their company, family members sought to pitch in, recalls CEO Andy Dunn. But the team ultimately raised money only from the few who could afford to lose it; otherwise, should business go awry, "that can invite some serious dysfunction into your life," notes Mr. Dunn.Today Bonobos.com has $5 million in annual sales—and about 30 friends-and-family investors, who also act as word-of-mouth marketers. The only (minor) downside? "When we hang out, I get a million Bonobos questions," Mr. Dunn admits. Hence the final lesson on fund-raising from pals: Set appropriate conversational boundaries. Write to Dyan Machan at dmachan@hearst.com

Chutes & Beers: When Quitters Make Dramatic Exits

Mon, 16 Aug 2010 11:20:00 EDT

By Sarah E. Needleman To the relief of most bosses, few employees garner as much media attention (or folk-hero status) as now-famous JetBlue flight attendant Steven Slater did when they quit their jobs. But business owners say many ex-staffers broadcast their dissatisfaction in a manner that can be disruptive—and perhaps alarming—to a small workplace.For instance, Larry Fox remembers when an entry-level computer programmer shouted that he could make more money "working at McDonald's" when tendering his resignation. Mr. Fox's reaction? Knowing that other employees at the software firm were listening, he urged the programmer to find out if that were true."He actually went over there and got a job. We saw him in uniform and everything," recalls Mr. Fox, who now works as a business-development executive. The programmer turned fast-food worker "got canned about a week later and came groveling back," says Mr. Fox, who declined to re-hire the man. "You have to stand up for yourself. Don't allow that person to poison your business." Business owners say they sometimes have to act quickly to minimize the damage to the company's reputation. These days, more disgruntled employees are turning to Facebook, Twitter or all-company email blasts to widely disseminate their displeasure in real time.At his last law practice, Michael Cavendish remembers when a young attorney shot an angry email to colleagues, clients and competitors, announcing that he was quitting and implying that "something was amiss" at the small enterprise. Mr. Cavendish says the firm's partners and owners decided to take the high road, sending a reply-to-all wishing their former employee well.That way, recipients of the resignation email "could determine who's more credible," says Mr. Cavendish, now a partner with Gunster, Yoakley & Stewart PA, a small West Palm Beach, Fla., law firm. "We wanted to immediately take the narrative back."Some bosses have learned that an employee's angry, dramatic or even bizarre behavior can be rooted in problems outside the workplace—and sometimes, it pays to have a heart-to-heart private conversation.That's what happened at one small advertising company, after an employee threw water from a glass in a supervisor's face, essentially quitting on the spot, says Tom Peric, a communications consultant who provided advice to the owner. Moments earlier, the employee had been given orders to stay late that evening, according to Mr. Peric, president of Galileo Communications Inc., a small business-consulting firm in Cherry Hill, N.J. Mr. Peric says he encouraged the owner to meet with the employee outside the office to ask what triggered the outburst. The owner did and discovered that the employee was having trouble at home, though he didn't offer the man his job back. Mr. Peric advised the owner to meet with the rest of the staff and encourage them to speak up if they ever feel they're being treated unfairly—an important step to maintaining morale and preventing future blow-ups.In some cases, it's not just employees that lash out: It's bosses themselves. In what may be a worst-case scenario for business partners, Ken O'Berry says his co-founder in April got fed up and quit, telling employees they therefore no longer had a job. "He basically had had enough and took all our money out of the bank," says the entrepreneur of his former partner. "He said he wasn't paying our employees and that the business would fail."Mr. O'Berry says he diffused the situation by calling a meeting with his three employees and assuring them he was still committed to the technology company, which was just about to launch its first product, an iPhone application. "I was open and transparent with them and allowed them to ask whatever questions they had," says Mr. O'Berry, who says he's now funding We Geo Inc., located in an incubator in Research Triangle Park, N.C., with his retirement savings. (Mr. O'Berry declined to identify the former partner, adding that he's since re-incorporated We Geo.) "You need to be an open book. When one of the team members leaves in such an openly outrageous way, it affects the perception of the employees on the entire leadership team, and not just the person who took those actions."Indeed, if a staffer resigns in an obnoxious or attention-seeking way, business owners should consider sharing the company's side of the story to reassure the workplace and avoid the spread of false rumors, says Manny Avramdis, senior vice president for global resources at the American Management Association, a business-education provider in New York to more than 3,000 U.S. companies. Depending on the situation, it's sometimes best to wait until things cool down rather than responding immediately or trying to stop the resignation mid-stream. "A lot of times you're not going to be able to control that person," he says. That was probably the case on Monday when Mr. Slater, the flight attendant, grabbed two beers and slid down an emergency chute. But small-business owners say any sort of unexpected resignation can be problematic, including the kind in which the exiting employee doesn't say anything about his or her departure at all. At Adams County Winery in Orrtanna, Pa., two employees recently resigned on separate occasions by failing to show up to work, says co-owner John G. Kramb. Neither one ever called or emailed the vineyard to explain their absence. "They both quit on a Friday, and Saturday is our busiest day," says Mr. Kramb. "When you're down one person, and we normally have six, that's a significant number." Write to Sarah E. Needleman at sarah.needleman@wsj.com

10 Mistakes That Start-Up Entrepreneurs Make

Thu, 02 Sep 2010 12:17:20 EDT

By Rosalind Resnick When it comes to starting a successful business, there's no surefire playbook that contains the winning game plan.On the other hand, there are about as many mistakes to be made as there are entrepreneurs to make them.Recently, after a work-out at the gym with my trainer—an attractive young woman who's also a dancer/actor—she told me about a web series that she's producing and starring in together with a few friends. While the series has gained a large following online, she and her friends have not yet incorporated their venture, drafted an operating agreement, trademarked the show's name or done any of the other things that businesses typically do to protect their intellectual property and divvy up the owners' share of the company. While none of this may be a problem now, I told her, just wait until the show hits it big and everybody hires a lawyer.Here, in my experience, are the top 10 mistakes that entrepreneurs make when starting a company: 1. Going it alone. It's difficult to build a scalable business if you're the only person involved. True, a solo public relations, web design or consulting firm may require little capital to start, and the price of hiring even one administrative assistant, sales representative or entry-level employee can eat up a big chunk of your profits. The solution: Make sure there's enough margin in your pricing to enable you to bring in other people. Clients generally don't mind outsourcing as long as they can still get face time with you, the skilled professional who's managing the project. 2. Asking too many people for advice. It's always good to get input from experts, especially experienced entrepreneurs who've built and sold successful companies in your industry. But getting too many people's opinions can delay your decision so long that your company never gets out of the starting gate. The answer: Assemble a solid advisory board that you can tap on a regular basis but run the day-to-day yourself. Says Elyissia Wassung, chief executive of 2 Chicks With Chocolate Inc., a Matawan, N.J., chocolate company, "Pull in your [advisory] team for bi-weekly or, at the very least, monthly conference calls. You'll wish you did it sooner!" 3. Spending too much time on product development, not enough on sales. While it's hard to build a great company without a great product, entrepreneurs who spend too much time tinkering may lose customers to a competitor with a stronger sales organization. "I call [this misstep] the 'Field of Dreams' of entrepreneurship. If you build it, they will buy it," says Sanjyot Dunung, CEO of Atma Global, Inc., a New York software publisher, who has made this mistake in her own business. "If you don't keep one eye firmly focused on sales, you'll likely run out of money and energy before you can successfully get your product to market." 4. Targeting too small a market. It's tempting to try to corner a niche, but your company's growth will quickly hit a wall if the market you're targeting is too tiny. Think about all the high school basketball stars who dream of playing in the NBA. Because there are only 30 teams and each team employs only a handful of players, the chances that your son will become the next Michael Jordan are pretty slim. The solution: Pick a bigger market that gives you the chance to grab a slice of the pie even if your company remains a smaller player. 5. Entering a market with no distribution partner. It's easier to break into a market if there's already a network of agents, brokers, manufacturers' reps and other third-party resellers ready, willing and able to sell your product into existing distribution channels. Fashion, food, media and other major industries work this way; others are not so lucky. That's why service businesses like public relations firms, yoga studios and pet-grooming companies often struggle to survive, alternating between feast and famine. The solution: Make a list of potential referral sources before you start your business and ask them if they'd be willing to send business your way. 6. Overpaying for customers. Spending big on advertising may bring in lots of customers, but it's a money-losing strategy if your company can't turn those dollars into life-time customer value. A magazine or web site that spends $500 worth of advertising to acquire a customer who pays $20 a month and cancels his or her subscription at the end of the year is simply pouring money down the drain. The solution: Test, measure, then test again. Once you've done enough testing to figure out how to make more money selling products and services to your customers than you spend acquiring those customers in the first place, roll out a major marketing campaign. (See related article, "On a Tight Budget? How to Land a Client.") 7. Raising too little capital. Many start-ups assume that all they need is enough money to rent space, buy equipment, stock inventory and drive customers through the door. What they often forget is that they also need capital to pay for salaries, utilities, insurance and other overhead expenses until their company starts turning a profit. Unless you're running the kind of business where everybody's working for sweat equity and deferring compensation, you'll need to raise enough money to tide you over until your revenues can cover your expenses and generate positive cash flow. The solution: Calculate your start-up costs before you open your doors, not afterwards. 8. Raising too much capital. Believe it or not, raising too much money can be a problem, too. Over-funded companies tend to get big and bloated, hiring too many people too soon and wasting valuable resources on trade show booths, parties, image ads and other frills. When the money runs out and investors lose patience (which is what happened 10 years ago when the dot-com market melted down), start-ups that frittered away their cash will have to close their doors. No matter how much money you raise at the outset, remember to bank some for a rainy day. 9. Not having a business plan. While not every company needs a formal business plan, a start-up that requires significant capital to grow and more than a year to turn a profit should map out how much time and money it's going to take to get to its destination. This means thinking through the key metrics that make your business tick and building a model to spin off three years of sales, profits and cash-flow projections. "I wasted 10 years [fooling around] thinking like an artist and not a business person," says Louis Piscione, president of Avanti Me