From Stanford's Entrepreneurship Corner:
Jason Green, Founding Partner at Emergence Capital, speaks on how to select a venture partner. Green emphasizes that selecting a VC is a long-term partnership commitment and encourages entrepreneurs to pay attention to four things when selecting a venture partner: 1) Negotiate from a position of strength, 2) Find shared belief, 3) Listen to your instincts and 4) Pay more attention to the partnership than the terms.
Thursday, December 11, 2008
Buying and Selling Small Business
Patrick Gross, MGT 386, December 10, 2008
I have grown up around parents and grandparents who have run a family business for my entire life. For 58 years my family has been in the business of the distribution and manufacturing of hydraulics and pneumatics. For the past thirty years my father has been the owner and driving force behind what is now called The RG Group. For the 22 years I have been around that business I have seen him grow the business through acquisition of smaller entities similar to the RG Group. I spent this past summer in Pennsylvania working there for the first time and saw what he did on a day to day basis to search for new acquisitions.
I found that there are some tough things about buying and selling a small business. The toughest thing is not finding them because people are always looking to cash out. I think the biggest thing is finding a place to meet on price. A lot of small business owners have worked their whole lives to make an organization worthwhile and when someone comes along trying to make a deal assumptions about value don’t always seem to meet at the same place. The standard is to usually take EBITDA and multiply it by 4 and that’s what you should be paying. In other words multiply the earnings of this business to find the true value.
For a small distributor like our family owns the only way to grow is through acquisition. There could be a need in that market to help business advertise or better value small businesses. I know that for our business it is the job of the senior leadership to seek out new opportunities for expansion. When they do identify one my father comes in and decides if it is a worthwhile investment and either pursues or he doesn’t. When he does find a worthwhile investment it immediately pays returns due to the fact that he does not have to keep the companies leadership on staff. He really is just paying for their customer base. What he buys is more people to sell his products.
Recently we had a former accountant and new franchisee of B2B CFO come to our Business Honors Class to speak. This was an interesting concept for me to observe due to my previous exposure to a small business merger and acquisition. B2B CFO is a company that seeks out former accountants to become franchisees. These franchisees then develop a client book of small business owners and help them grow through acquisition. The franchisees do also help their clients to better manage their finances. From what I understand this is a good way for small business to look for quality acquisitions due to the fact that the B2B CFO is financially literate and can help “Joe the Plumber” value a business accordingly.
I have also recently heard of some e-commerce sites that are attempting to fill the market need of having a so called small business exchange. My opinion is that this will not be successful. I think this because I have seen the personal relationships my father has had to develop in the past to complete these mergers and acquisitions. It takes a lot of wining and dining to convince someone to sell their life’s work at a reasonable price. The social network or e-commerce site would only be good for introducing the opportunity to the small business owner.
References:
1. www.B2BCFO.com
2. www.rg-group.com
3. http://www.practicalecommerce.com/articles/451-Selling-Your-Ecommerce-Business
4. www.Businessforsale.com
I have grown up around parents and grandparents who have run a family business for my entire life. For 58 years my family has been in the business of the distribution and manufacturing of hydraulics and pneumatics. For the past thirty years my father has been the owner and driving force behind what is now called The RG Group. For the 22 years I have been around that business I have seen him grow the business through acquisition of smaller entities similar to the RG Group. I spent this past summer in Pennsylvania working there for the first time and saw what he did on a day to day basis to search for new acquisitions.
I found that there are some tough things about buying and selling a small business. The toughest thing is not finding them because people are always looking to cash out. I think the biggest thing is finding a place to meet on price. A lot of small business owners have worked their whole lives to make an organization worthwhile and when someone comes along trying to make a deal assumptions about value don’t always seem to meet at the same place. The standard is to usually take EBITDA and multiply it by 4 and that’s what you should be paying. In other words multiply the earnings of this business to find the true value.
For a small distributor like our family owns the only way to grow is through acquisition. There could be a need in that market to help business advertise or better value small businesses. I know that for our business it is the job of the senior leadership to seek out new opportunities for expansion. When they do identify one my father comes in and decides if it is a worthwhile investment and either pursues or he doesn’t. When he does find a worthwhile investment it immediately pays returns due to the fact that he does not have to keep the companies leadership on staff. He really is just paying for their customer base. What he buys is more people to sell his products.
Recently we had a former accountant and new franchisee of B2B CFO come to our Business Honors Class to speak. This was an interesting concept for me to observe due to my previous exposure to a small business merger and acquisition. B2B CFO is a company that seeks out former accountants to become franchisees. These franchisees then develop a client book of small business owners and help them grow through acquisition. The franchisees do also help their clients to better manage their finances. From what I understand this is a good way for small business to look for quality acquisitions due to the fact that the B2B CFO is financially literate and can help “Joe the Plumber” value a business accordingly.
I have also recently heard of some e-commerce sites that are attempting to fill the market need of having a so called small business exchange. My opinion is that this will not be successful. I think this because I have seen the personal relationships my father has had to develop in the past to complete these mergers and acquisitions. It takes a lot of wining and dining to convince someone to sell their life’s work at a reasonable price. The social network or e-commerce site would only be good for introducing the opportunity to the small business owner.
References:
1. www.B2BCFO.com
2. www.rg-group.com
3. http://www.practicalecommerce.com/articles/451-Selling-Your-Ecommerce-Business
4. www.Businessforsale.com
Patents. What are the steps to filing for a patent? Is a patent search necessary or recommended?
Elisha Baity, MGT 386, December 10, 2008
A patent is a property right to the inventor of a product that is issued by the U.S. Patent and Trademark Office (www.uspto.gov). The patent grants exclusion of others making, using, offering for sale, or selling an invention in the U.S. or importing the invention into the U.S. (www.uspto.gov). To obtain a patent, an application needs to be filed with the U.S. Patent and Trademark Office (www.uspto.gov).
There are twelve major steps in filing a U.S. Patent application. The steps are as follows (Prashker, 2006):
1. Inventor needs to prepare and submit a written disclosure to company managers of the idea or innovation for review and summary evaluation.
2. Company managers need to review the written disclosure for potential commercial worth and value.
3. Patent counsel prepares a summary evaluation of the written disclosure, identifying technical working essentials and to make sure the essentials meet patent merit requirements.
4. Review the summary evaluation and decide patent protection actually needs to be sought
5. Hold a meeting of the inventor/creator(s), patent counsel, and company managers to determine the scope of the idea in commercial and non-commercial terms. Also, at this meeting, there needs to be details of the inventorship, operation limits and optimal use range.
6. Inventor/creator needs to prepare and submit a full written description of the invention, giving sufficient detail, relevant drawings, useful background information, a list of advantages and a list of unexpected benefits.
7. Patent counsel needs to prepare and distribute the first draft of the patent application to the inventor/creator and company managers.
8. The inventor/creator need to review the first draft patent application text and return the revision to the patent counsel
9. Patent counsel needs to comment and make changes on the revised patent application.
10. After the patent counsel has made comments and additional changes and the final draft has been approved, the manuscript is ready to be sent (with formal supporting documentation and requisite fees) to the U.S. Patent Office.
11. The supporting documents are completed by the patent counsel.
12. Final approved application (approved by patent counsel), supporting documents and fees are sent to the U.S. Patent Office. A serial number is issued along with a filing date for patent purposes.
The patent process is somewhat intensive. Therefore, it is important to do a patent search before embarking in the timely and costly process. It is important to make sure no one else has already patented the idea (www.patensearchexpress.com/patent_search.html). Also, a patent search will prevent lawsuits from violating another person’s patent. One can also read similar patents to their product to find ways to improve the design. Also, a patent search helps reduce the risk of another inventor invalidating the product (during the process, the similar patents should be checked to see what they cover). Lastly, a strong patent search will help determine if the idea can be patented and licensed.
www.patensearchexpress.com/patent_search.html. Retrieved December 10, 2008.
Prashker, David (2006). Twelve Steps To Filing A U.S. Patent Application. Ezine Articles. Retrieved December 10, 2008, from www.ezinearticles.com.
www.uspto.gov. Retrieved December 10, 2008.
A patent is a property right to the inventor of a product that is issued by the U.S. Patent and Trademark Office (www.uspto.gov). The patent grants exclusion of others making, using, offering for sale, or selling an invention in the U.S. or importing the invention into the U.S. (www.uspto.gov). To obtain a patent, an application needs to be filed with the U.S. Patent and Trademark Office (www.uspto.gov).
There are twelve major steps in filing a U.S. Patent application. The steps are as follows (Prashker, 2006):
1. Inventor needs to prepare and submit a written disclosure to company managers of the idea or innovation for review and summary evaluation.
2. Company managers need to review the written disclosure for potential commercial worth and value.
3. Patent counsel prepares a summary evaluation of the written disclosure, identifying technical working essentials and to make sure the essentials meet patent merit requirements.
4. Review the summary evaluation and decide patent protection actually needs to be sought
5. Hold a meeting of the inventor/creator(s), patent counsel, and company managers to determine the scope of the idea in commercial and non-commercial terms. Also, at this meeting, there needs to be details of the inventorship, operation limits and optimal use range.
6. Inventor/creator needs to prepare and submit a full written description of the invention, giving sufficient detail, relevant drawings, useful background information, a list of advantages and a list of unexpected benefits.
7. Patent counsel needs to prepare and distribute the first draft of the patent application to the inventor/creator and company managers.
8. The inventor/creator need to review the first draft patent application text and return the revision to the patent counsel
9. Patent counsel needs to comment and make changes on the revised patent application.
10. After the patent counsel has made comments and additional changes and the final draft has been approved, the manuscript is ready to be sent (with formal supporting documentation and requisite fees) to the U.S. Patent Office.
11. The supporting documents are completed by the patent counsel.
12. Final approved application (approved by patent counsel), supporting documents and fees are sent to the U.S. Patent Office. A serial number is issued along with a filing date for patent purposes.
The patent process is somewhat intensive. Therefore, it is important to do a patent search before embarking in the timely and costly process. It is important to make sure no one else has already patented the idea (www.patensearchexpress.com/patent_search.html). Also, a patent search will prevent lawsuits from violating another person’s patent. One can also read similar patents to their product to find ways to improve the design. Also, a patent search helps reduce the risk of another inventor invalidating the product (during the process, the similar patents should be checked to see what they cover). Lastly, a strong patent search will help determine if the idea can be patented and licensed.
www.patensearchexpress.com/patent_search.html. Retrieved December 10, 2008.
Prashker, David (2006). Twelve Steps To Filing A U.S. Patent Application. Ezine Articles. Retrieved December 10, 2008, from www.ezinearticles.com.
www.uspto.gov. Retrieved December 10, 2008.
Franchising: Who Does it Really Benefit?
Patrick Gross, MGT 386, December 10, 2008
Last year Chick-fil-A opened roughly 70 new franchises throughout the United States. This is a surprisingly low number considering that they had over a 1000 applicants. Usually when a franchisee opens a new McDonald’s or Burger King they need to have extremely good credit and large amounts of capital up front close. Chick-fil-a only requires that you have 5000 dollars and strong moral fiber. How is it that Chick-fil-a does this? Is it a profitable business model for them? How well has it worked in comparison to other fast food restaurants.
Let me start by explaining why you only need $5,000 to open a Chick-fil-a. Chick-fil-a’s corporate office covers all the costs of starting the new franchise. They own the real estate, the building, and they even hire a start up team and pay for your training. They also send out a team of marketing consultants and operational consultants to assist you in an extravagant grand opening. This all sounds great but what is the catch? The catch is that for the rest of your career you have to pay Chick-fil-a 50% of you your net profits. In addition to that you are limited to one or maybe two franchises if you are lucky. On the other hand people still make a quality living being a Chick-fil-a operator. Take for example an owner example owner operator Brad Williams out of Suwanee, Georgia who lost year produced revenues at one Chick-fil-a a little over three million dollars. This produced a twelve month net profit close 440,000 dollars. Not bad for serving waffle fries and chicken sandwiches.
So is this a profitable business model for them? In my opinion, yes it is. The secret to this or any restaurant business is that it is all about the people. Due to the fact that you only need 5000 bucks to open one of these money makers, Chick-fil-a has thousands of applicants annually. The more applicants they have the more selective they can be in choosing quality individuals to run their restaurants. This model has provided them with MBA’s or entrepreneurs who have started their own restaurants. With quality people running their restaurants they do not have to worry about very many of them tanking.
If this is such a great business model for franchising why does every fast food restaurant not do it? I would argue that a company like McDonald’s or Burger King has operated with the same type of business model since it originated. I would also argue that Chick-fil-a’s business model is unique and provides them with a competitive advantage and it is something other fast food restaurants should be aware of.
In terms of the individual at this stage in my life I would apply for a franchise with Chick-fil-a and not McDonalds. I say this because I do not have millions of dollars in lines of credit but I think I could come up with a few thousand dollars. Also from a more personal perspective I believe in the same things that Chick-fil-a does from a corporate standpoint. I can easily identify with who they are as people and the reasons they do what they do.
References:
1. Eat More Chikin Inspire More People, Written By: Truett Cathy
2. Research Info from Business Honors Project (Attached Excel Spreadsheet)
3. www.Chick-fil.a.com
Last year Chick-fil-A opened roughly 70 new franchises throughout the United States. This is a surprisingly low number considering that they had over a 1000 applicants. Usually when a franchisee opens a new McDonald’s or Burger King they need to have extremely good credit and large amounts of capital up front close. Chick-fil-a only requires that you have 5000 dollars and strong moral fiber. How is it that Chick-fil-a does this? Is it a profitable business model for them? How well has it worked in comparison to other fast food restaurants.
Let me start by explaining why you only need $5,000 to open a Chick-fil-a. Chick-fil-a’s corporate office covers all the costs of starting the new franchise. They own the real estate, the building, and they even hire a start up team and pay for your training. They also send out a team of marketing consultants and operational consultants to assist you in an extravagant grand opening. This all sounds great but what is the catch? The catch is that for the rest of your career you have to pay Chick-fil-a 50% of you your net profits. In addition to that you are limited to one or maybe two franchises if you are lucky. On the other hand people still make a quality living being a Chick-fil-a operator. Take for example an owner example owner operator Brad Williams out of Suwanee, Georgia who lost year produced revenues at one Chick-fil-a a little over three million dollars. This produced a twelve month net profit close 440,000 dollars. Not bad for serving waffle fries and chicken sandwiches.
So is this a profitable business model for them? In my opinion, yes it is. The secret to this or any restaurant business is that it is all about the people. Due to the fact that you only need 5000 bucks to open one of these money makers, Chick-fil-a has thousands of applicants annually. The more applicants they have the more selective they can be in choosing quality individuals to run their restaurants. This model has provided them with MBA’s or entrepreneurs who have started their own restaurants. With quality people running their restaurants they do not have to worry about very many of them tanking.
If this is such a great business model for franchising why does every fast food restaurant not do it? I would argue that a company like McDonald’s or Burger King has operated with the same type of business model since it originated. I would also argue that Chick-fil-a’s business model is unique and provides them with a competitive advantage and it is something other fast food restaurants should be aware of.
In terms of the individual at this stage in my life I would apply for a franchise with Chick-fil-a and not McDonalds. I say this because I do not have millions of dollars in lines of credit but I think I could come up with a few thousand dollars. Also from a more personal perspective I believe in the same things that Chick-fil-a does from a corporate standpoint. I can easily identify with who they are as people and the reasons they do what they do.
References:
1. Eat More Chikin Inspire More People, Written By: Truett Cathy
2. Research Info from Business Honors Project (Attached Excel Spreadsheet)
3. www.Chick-fil.a.com
Protecting a trademark. How do you protect your trademarks and servicemarks? How do you file with the government?
Elisha Baity, MGT 386, December 10, 2008
A trademark is a word, name, symbol, device, or combination thereof used for a good for identification purposes (www.sec.state.ri.us/corps/trademark/trademark-q.doc). A servicemark is a word, name, symbol or device used for a service for identification purposes (Moore, 2008). A trademark or servicemark should be established at the earliest date of initial use of the good or service (www.amerilawyer.com). Reasons to obtain a trademark or servicemark include the following (www.amerilawyer.com):
* The name of a product can become a valuable asset to a company
* Registration of a trademark or servicemark helps in keeping others from adopting your product or design
* Failure to register a trademark or servicemark can mean no protection or limited protection in a local geographic region
* Registration allows for use of the Federal trademark symbol ®
* Promotion and advertisement of the product can be done with extra assurance
* Injunctions and statutory damages can be allotted if a copycat situation occurs
Requirements to file include filing under the owner’s name, specifying the type of business entitiy, describing the use of the product or advertising of the product on an actual use application, a statement of good faith in an intent-to-use application, and a visual of the product (www.amerilawyer.com). When registering a product or service, the owner must choose a category that is best representative (www.sec.state.ri.us/corps/trademark/trademark-q.doc). If the product or service falls into more than one category, an application needs to be filed for each one (www.sec.state.ri.us/corps/trademark/trademark-q.doc). The registration process for a trademark or servicemark is a six-month to eight-month process (www.amerilawyer.com). Once the registration process has begun, the owner may us the trademark symbol, ™, until the process is complete. After completion, the owner may use the Federal trademark symbol ®.
Failure to register a product or service can cause a company to lose out on substantial benefits. The benefits include nationwide protection, presumption of validity in infringement litigation, and permission to use the ® symbol (www.amerilawyer.com).
References
Moore, Shannon (2008). Trademark vs. Servicemark. Ezine Articles. Retrieved December 10, 2008, from www.ezinearticles.com
www.sec.state.ri.us/corps/trademark/trademark-q.doc. Retrieved December 10, 2008.
www.amerilawyer.com. Retrieved December 10, 2008
A trademark is a word, name, symbol, device, or combination thereof used for a good for identification purposes (www.sec.state.ri.us/corps/trademark/trademark-q.doc). A servicemark is a word, name, symbol or device used for a service for identification purposes (Moore, 2008). A trademark or servicemark should be established at the earliest date of initial use of the good or service (www.amerilawyer.com). Reasons to obtain a trademark or servicemark include the following (www.amerilawyer.com):
* The name of a product can become a valuable asset to a company
* Registration of a trademark or servicemark helps in keeping others from adopting your product or design
* Failure to register a trademark or servicemark can mean no protection or limited protection in a local geographic region
* Registration allows for use of the Federal trademark symbol ®
* Promotion and advertisement of the product can be done with extra assurance
* Injunctions and statutory damages can be allotted if a copycat situation occurs
Requirements to file include filing under the owner’s name, specifying the type of business entitiy, describing the use of the product or advertising of the product on an actual use application, a statement of good faith in an intent-to-use application, and a visual of the product (www.amerilawyer.com). When registering a product or service, the owner must choose a category that is best representative (www.sec.state.ri.us/corps/trademark/trademark-q.doc). If the product or service falls into more than one category, an application needs to be filed for each one (www.sec.state.ri.us/corps/trademark/trademark-q.doc). The registration process for a trademark or servicemark is a six-month to eight-month process (www.amerilawyer.com). Once the registration process has begun, the owner may us the trademark symbol, ™, until the process is complete. After completion, the owner may use the Federal trademark symbol ®.
Failure to register a product or service can cause a company to lose out on substantial benefits. The benefits include nationwide protection, presumption of validity in infringement litigation, and permission to use the ® symbol (www.amerilawyer.com).
References
Moore, Shannon (2008). Trademark vs. Servicemark. Ezine Articles. Retrieved December 10, 2008, from www.ezinearticles.com
www.sec.state.ri.us/corps/trademark/trademark-q.doc. Retrieved December 10, 2008.
www.amerilawyer.com. Retrieved December 10, 2008
Wednesday, December 10, 2008
Problem-Solving Paradigm
From Stanford University's Entrepreneurship Corner
Take a big problem, apply the best minds to its prospects, add the fuel of entrepreneurial energy and a touch of capitalist greed, and one has the perfect recipe for solving any social, environmental, or cultural dilemma, says Vinod Khosla. Mere good intentions are not enough to invoke real change. But the course of industry can only be altered when all angles of the problem-solving pyramid are in place.
Take a big problem, apply the best minds to its prospects, add the fuel of entrepreneurial energy and a touch of capitalist greed, and one has the perfect recipe for solving any social, environmental, or cultural dilemma, says Vinod Khosla. Mere good intentions are not enough to invoke real change. But the course of industry can only be altered when all angles of the problem-solving pyramid are in place.
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