Build a Board but Don't Let Investors Boss You Around

You love being your own boss, but will investors in your company love it, too?

Taking venture capital – or even just a few thousand dollars from mom and dad – often comes with strings attached.  Be ready for investors to ask for a seat on your board of directors – even if you don’t have one yet!

Julia Stamberger, co-founder and president of Go Picnic, talked to me about taking a round of capital – and a new board of directors – into her fledgling Chicago food-service business.  (If you haven’t seen them yet, Go Picnic sells snack boxes to airlines. You’ve probably eaten their food on your last trip through O’Hare Airport!)

Julia was fortunate to attract several investors, including angels and VCs. But all of them wanted board seats … even though the company did not yet have a board!

What Do They Really Want?

Asking for a board seat might be code for asking for something else.

What investors usually mean is that they want the right to control how their money is used. They want financial reporting, and they want to be consulted about changes in the business plan. What they may not want is the risk and liability associated with board seats (which will give you all good reason to look at your company’s insurance policies).

Should You Do It?

I say firmly, Yes! The expertise and oversight provided by a board is invaluable. If your investors are angels, in particular, it is likely that you’ll get great advice on a number of topics that could otherwise trip you up.

But hang on. There’s a difference between a board member and a boss. The control you give to an investor should not involve day-to-day decisions. If you have to seek investor approval for every decision – like whether to buy paperclips! –  you’re headed into dangerous territory for both the investor and the entrepreneur.

Consider Alternatives

If granting a board seat does not suit the situation (or your temperament), suggest board “observer” status. This avoids liability while preserving the investor's “insider view” of operations and financial performance.

Or avoid the whole board experience by entering into simpler contractual relationships with investors. It is possible to take an investor’s money and use it for “project finance” or to create a small “joint venture” between you and the investor. These solutions could give an investor some control over just a piece of the company and leave you free to be your own boss.

At Go Picnic, Julia granted two board seats to her investors. And she’s glad she did. Having a board to report to each quarter has kept her focused on results. “The financial reporting they look for [is] not mandated by any other part of your business,” she said. “It’s great to have the discipline [of reporting to a board]. It prioritizes things that are essential for your business.”

Devilish Details

Investors make the best board memebers because their goals are so closely alighned with yours. As a bonus, they often are compensated only by the gains on their investments rather than salaries or fees. These kinds of details are important. Be sure you negotiate every aspect of their participation, from fees to voting rights to when meetings will be held. Having clear expectations up front will save you a lot of future headaches.

Flexibility and efficiency are also concerns for a board of directors. The most effective boards mix investors, founders, and pure outsiders. Three, five, or seven total members helps avoid deadlocked decisions. A small, balanced board provides the agility and skill set needed to contribute to a growing company.

I think that almost any business can benefit from a board. They take careful planning and a bit of work, but they can also direct you toward rapid growth. So when an investor asks for a board seat, smile and welcome him aboard!

Dedicated to your profits,

David Worrell

PS: I am a business owner just like you. I'm also a fundraiser and social networking maven! If you're looking to raise money for your business, visit my website where readers of AllBusiness.com have a special page and exclusive access to free business finance resources. If you like what I write, please leave a comment below or contact me.

Disaster in Japan an Important Reminder for Us Here at Home

As you have probably already heard, on March 11 at 2:46 p.m. Tokyo time, an enormous 8.9-magnitude earthquake struck the northern coast of Honshu, the main island of Japan, causing widespread damage and triggering a massive tsunami that swept inland, sweeping away boats, cars, and even buildings. Early reports state that hundreds have been killed, but that number is expected to rise. Several of Japan's nuclear reactors were damaged and had to be shut down to avert radiation leaks, with evacuations ordered for nearby residents.

This morning we received tsunami warnings all the way across the Pacific Ocean here in San Francisco, where the AllBusiness.com offices are located, and the San Francisco Chronicle is reporting that high water is already hitting our local beaches, even damaging some boats.

The horror of such an event can barely be imagined, and my heart goes out to the residents of Japan and anyone with friends and family living there. This disaster is particularly personal for me, as Japan is a country dear to my heart. After graduating college I spent two years teaching English in the town of Toyota (home of the car factory) about an hour outside of Nagoya, a large city in central Honshu. Nagoya is pretty far from the areas hardest hit by this quake, and I'm hopeful that all my old students and friends are OK.

Whenever an act of nature this violent occurs it serves to remind us how fragile we really are -- and how important it is to prepare. Here in Northern California we are keenly aware of the ever-present dangers posed by earthquakes and wildfires. In other areas, the danger is more likely to come from tornadoes, flooding, or hurricanes. And, of course, there's always the possibility of man-made catastrophes, such as last spring's Deepwater Horizon oil rig explosion that devastated the Gulf Coast economy with a massive oil spill.

In addition to the personal dangers, if you're a small business owner, disasters can also destroy your business. That's why it's so important to address the danger ahead of time:

First and foremost, you need to assure the physical safety of your employees. What have you done to ensure that your staff is safe? Do you have fire extinguishers in key areas of the office or store? Is there a fully stocked disaster kit readily available, and are emergency exits clearly marked in your place of business? In the aftermath of a disaster, do you know how to help your employees cope?

Do you have a disaster plan in place? If not, now is the time to form a crisis management team with your key employees. Who will be responsible for planning emergency exit routes, communicating with employees in the aftermath of a disaster, and taking an inventory of the critical business functions that must be resumed as soon as possible?

Think about what you are doing to protect not just your physical assets (equipment, inventory, etc.) but also your critical business data. Are your vital business and legal records stored safely offsite -- preferably out of range of any local disaster -- where they can be recovered later? If you haven't already done so, now is the time to start using a data recovery service.

Is your business fully insured? Disaster insurance doesn't necessarily protect you against everything (floods and earthquakes are often excluded), so do your homework and make sure your policy covers the events for which you're actually at risk. If you live in earthquake country, then a named peril policy may be a better choice than a more general all-risk policy.

Check out the Disaster Planning section of AllBusiness.com for more advice on how to protect your employees and your small business should the worst happen.

A traditional Japanese saying holds shikata ga nai ("It cannot be helped"). This fatalistic aphorism reveals a lot about the Japanese psyche, and I often mutter it to myself when things go wrong. There's no more simple or profound way to say that these heartbreaking events were completely out of anyone's control. Here's hoping the worst is over, and that as the sun rises on Japan this morning, the damage won't be as extensive as feared.

Loan Application Lessons: Always Sweat the Details

Often I run into business owners who micro-manage their companies on the small inconsequential stuff and then fail to properly supervise business duties and roles that need the utmost attention to detail.

Small businesses have always had to run “lean and mean.” With a small management team you might have to wear more than one hat at one time. You might be acting as CEO one day and controller the next, while always wearing your chief sales officer hat. This can be a great way to save management expenses, but be careful. There are lots of "tasks" that can be delegated and some that just shouldn’t be. If you are the owner, remember that no matter what someone on your staff says or does, you are ultimately responsible for the decision. It is your signature on the contracts and your personal guarantee for loans and leases. That doesn’t even take into consideration your company’s reputation, growth potential, or lost opportunities if something goes wrong.

I am a big believer in delegating tasks. For example, getting a loan at the bank or another type of funding involves a great deal of paperwork. There is usually a large list of documents that need to be prepared and delivered to the lender. But it is your responsibility to make sure that once you collect the documents you verify each one before it leaves your office.

Over the past couple of months I have seen businesses hurt while applying for loans by relying on employees too much and not having good oversight. Here are some examples of what can go wrong:

Management titles not matching on all loan documents. If you are a CEO and controller, decide what your official title is before filling out any applications. Sending in documents that have you listed as CEO on one document and have someone else listed as CEO on another is a red flag for any lender.

Obtaining a new loan will require a "use of funds" statement. Make sure that you have listed all required funds and what they are for. Also make sure they are within the guidelines of what the funding source will loan against. If you put down $XX for "goodwill," and the lending source will only lend against hard assets, your document creates problems.

Personal financial statements must be signed within 90 days of submission. I have seen many loan applicants just re-date the document. This is fine if nothing has changed, but there is a good chance things have. Re read the document completely in great detail before resigning. In some situations you might be required to pledge additional personal collateral for a loan. If you list a larger amount of money as cash and they are reserved for paying taxes, that could create an obstacle in getting your loan approved. If assets on your personal financial statement are “reserved,” so indicate.

Read all contracts before you sign, and then read them again. If you don’t understand something, turn to your trusted advisors (attorney, CPA, banker, business coach) for help. Once you think you understand the contract, explain it back to your advisor just to make sure you really understand ALL the details. Neglecting a small detail or stating it incorrectly could potentially cost you thousands of dollars.

Remember: No matter how long someone has worked for you or how competent they are, everyone makes mistakes. Make sure someone else’s mistake doesn't cost you or your company.

Sam Thacker is a partner in Austin Texas based Business Finance Solutions
Direct Email: [email protected]
Twitter: @SMBFinance

3 Steps to Challenge & Change Lender Assumptions About Your Business

Loan decisions are made on assumptions. Will you pay the loan? How? How does the lender know? If your business was challenged during the recession, take these steps to challenge and change the lender's assumptions that your business is (still) troubled.

My husband met his orthopedic specialist when he was in a wheelchair and under the influence of narcotics due to a back injury. When the treatment was a success, the doctor told Bill he could resume his normal activities. Luckily, I was there!
I asked if that included chainsawing down trees. Or chopping wood. Hmmmmm... the doctor decided perhaps he should hold off on those. His perception of my husband was colored by the man in the wheelchair who could not follow a conversation -- not a chainsaw-wielding outdoorsman.
If your cash flow was tight the last time you sat down with your business lender, and you were a bit desperate -- and assuming things have improved -- here are three steps to take to shift the lender's perception of you:
Set up a meeting before you need a loan. Invite the lender out to see the business. Show him or her the evidence of rehiring, new contracts with customers, and a buzzing business. Improve your personal finances. Be sure you have personally paid down credit cards and other debt. How is your personal liquidity? It is likely your personal guarantee will be required, and it needs to be worth something. Share your plans and strategies. A lender wants to know you have not been hiding your head in the sand during the recession. Sure, some of what you tried did not work, but what did? And how did you shift to take advantage of what worked and jettison what did not?

New class for coaches:Fast Track To Fully Booked

We have a brand-new class opening for registration today.

And to celebrate the opening of this new class, we have a very big button for you to click.

Now, if you’re a coach, seriously, go ahead and click it. I dragged a ninja out of bed at 1 am for this button.

If you’re not a coach, just sit back and relax. A week from now, everything will be back to normal.

That is all.

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Should You Have A Signature Service?

It is generally accepted as lore that if you want to be a Very Important Coach Indeed – or, in fact, be able to purchase Christmas gifts for your loved ones – you must have a Signature Service.

A signature service, also known as “Off The Shelf”, “5 Step Program”, and a few other things that enterprising gurus have trademarked – basically means factory coaching.

The client comes in one end, goes through a prefabricated set of steps in a pre-assigned set of time and hocus pocus alakazam, comes out fixed, whole, and ready to refer rich friends to you.

A signature service needs at least one of two factors to be present. (Having both is better.)

1. The coaching topic itself lends itself to a prefabricated system in the first place.

Some topics lend themselves to steps. Others don’t. Yoga For Beginners – yes. Find Your Passion – maybe. Work Through Your Grief – probably not.

2. The coach is the type of person who likes that sort of methodical, prefab process. Not everybody does. Some people color code their file folders and have realistic to-do lists every day. (My esteemed partner, for example.)

Other people institute a paper-full office policy and officially only read written communication scribed in magic marker or crayon. (Moi.)

The former would be good at signature coaching packages. The latter, not so much.

* If you do not get this reference, you are required to Google it before you come back to this blog. Go ahead. I’ll wait.

A big part of your decision about what kind of coaching package to offer comes down to what your customers are looking for and how possible it is to give it to them. Just because they want it to be a simple process doesn’t mean it can be.

We’re talking about unknowns and x-factors here. Unknowns are the things you don’t know about the person coming in. Where they are in the process, for example. You may have a six-week program that your client may not be ready for.

If we offered a signature service called “Get Your Book Launch Ready in Six Weeks,” we don’t know where you are. You can give us your money and when we take a look at your product and list size, it may come out that you need a lot of work before you’re even ready for week one.

On the other hand, you may have already done so much that you don’t need the first two weeks of the signature program. Oops, looks like you’re not hiring us. Sucks to be me. You just don’t know what unknowns are out there.

Then you have the x-factors, the things that could throw that Spaniard in the works. There may be something unique about a client’s situation that actually means the process in the signature service doesn’t apply to them. They may legitimately not be able to use pieces of your process. They may have a more complicated situation than your easy-peasy, cookie-cutter process can handle.

Examples:

If you are offering something like l1">weight loss coaching, the process generally doesn’t change no matter how much l1">weight the client has to lose. You can also predict a range of “special cases” to factor into your process – wheat allergies, bad knees, busy schedules – and create a system that can accommodate them relatively easily.

In other words, the chances of being able to say “Just go do this” for the vast majority of your clients is high.

If you are counseling spouses of patients with Borderline Personality Disorder, the process can be anything but straightforward. The unknowns and x-factors here make this situation a mystery wrapped in an enigma wrapped in a taco.

So the chances of being able to say “Just go do this” for the vast majority of your clients is very low.

So that’s the basic guideline. The fewer the unknowns, the lower the chances that an x-factor could hose you, the better a candidate you are for an off-the-shelf program.

Someone suggests to you that you create a standardized system, a formula of sorts. 12 weeks, standard process, same for every client. What is your response?

1. This is my idea of heaven.
2. This is my idea of hell.

Read this blog post again, think about it, then do whatever you like. No matter who tells you that it’s a crucial, must-have-or-you’re-going-to-the-food-bank… they’re just plain wrong.

We have never offered a signature package and we are still alive and kicking. Other people would die without one. So much depends on what you like to do, what market you’re in, and what your customers want.

And that’s up to you to decide, based on all your unique factors, which neither your gurus nor I have access to. If it seems like a good idea for your topic and your personality, go for it. If it only seems like a good idea for your bottom line, think hard.

Now, speaking of coaching packages, tune in next week when we’ll talk about how many packages you should (could? might?) have. Enjoy your weekend in the meantime.

Further Reading can be found at Q&A Time! (Or, A Few Bits Of Advice For Coaches)

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Do I Really Need to Pick a Niche?

The word on the street is (and kind of always has been) that you MUST pick a niche or your business will fall into obscurity, and you will end up in the streets panhandling next to all the other poor saps who didn’t pick their niche.

(And all the while you’ll be begging for scraps, because one of your fellow panhandlers “niched down” his location to in front of the bus stop, thereby taking your best prospects before they even got to you. Oh, the humanity.)

This is a particularly frequent piece of advices for coaches. And it should be, because many coaches articulate their target market as “people who need my kind of coaching”, which is a little to broad to really get a foothold in the market. A little targeting never hurt anyone.

And while that’s one end of the spectrum, it can easily pendulum the other way, and then you’re a coach who helps 25 to 35 year old left handed women in transition in the greater Toronto area.

Ridiculous, yes.

Also not far off the mark for a lot of coaches wondering why they can’t fill their book.

But hope is not lost! Read on to learn how to make niche-related headaches go away for good.

One of the dictionary definitions of niche is “a specialized market.” The idea is that the more you specialize, the easier it will be to find clients. If no one is trying to corner the market on those left-handed women in transition in Toronto, you’re about to be golden.

Maybe, maybe not.

“A specialized market” all by itself won’t necessarily make it easier to get clients. Just because Joe The Parenting Coach decides he’s going after “upscale parents of toddlers” doesn’t mean that the fact he picked that niche is going to guarantee any level of success.

It’s kind of like art. The Mona Lisa is a one of a kind, and that’s one of the reasons that it’s worth millions. But just because you paint something that’s one of a kind doesn’t mean you magically get points for that. There are a lot of other factors at play there. (One of which is that Leonardo Da Vinci is dead.)

Yes, picking a specialized market can help you on your fill-my-damn-book-already journey. But you have to pick that specialized market with the right end in mind if you want it to actually sway the odds in your favor.

Let’s step away from what a niche IS, just for a moment, and think about what a niche is supposed to DO.

Basically, picking a niche serves two purposes:

First, a niche gives someone a specific reason to feel an affinity to you that they wouldn’t otherwise have. Think of this as the thing that a potential client thinks in terms of “people like me” or “people in my situation” rather than the rest of the masses.

You are currently reading this because your business is so small, you don’t even think of it as a “small business.” It’s itty. Not small. That’s why reading IttyBiz sounds like a better idea to you than Small Business Daily Tips. That site would appeal more to the owner of Bill’s Coffee Nook, with 8 employees and a very organized bookkeeper. (Bill, by the way, is sleeping with his bookkeeper. Shh. The wife doesn’t know.)

For a coaching practice, your target market or niche or whatever you want to call it is going to revolve around a certain type of person, or a certain type of problem, that you can put into actual words. Words that match up with the words that those people use in their heads.

Those words are the ones that make the person thinking “I want a coach” start thinking “I want THAT kind of coach.” So Joe is a bit on to something targeting upscale parents with toddlers, provided he’s solving problems that upscale parents tend to have. He’s halfway there.

Second, a niche gives someone a more concrete deliverable to consider buying. Coaching clients, for the record do not want coaching. No matter how many times they say it – to you, to themselves, or to their golden retriever – they do not want “coaching.”

All together now… NOBODY WANTS COACHING.

They want something very particular that the coaching will give them. They don’t call Joe because they want parenting coaching. Who the hell wants parenting coaching? Who has time for that crap?

They call Joe because they feel over their head on how to discipline a toddler. Or because they need help cultivating a budding prodigy. Or because they want some guidance on how to do the parenting thing when they and their partner have very different parenting philosophies.

There is a very specific thing, when it all comes down to it, that’s more or less your coaching superpower. This is the thing that generally should make it into your tagline.

It’s the core benefit that falls into “what the client is trading her money for”, and it should be clear and easy to understand. But the thing that the client is trading her money for cannot simply be “help.”

People don’t pay for help. They pay for a specific kind, flavor, or style of help. That’s your niche. Think of the medical / wellness field. Pain-free pediatric dentistry for scared kids. Physical therapy for athletes in high-impact sports. That kind of thing.

So the first part of your niche addresses who, within the masses of your target demographic, is the right kind of client for what you do. The second part of your niche is the kind of thing that your client is coming to you for.

The more specific you get, the more likely the specific kind of person who would like to access your specific superpower will say “That sounds like the thing I want to buy from that person.”

Do you need a highly targeted niche to succeed?

Maybe yes, maybe no.

You can afford to be less specific with the market you serve if you are more specific with what you do for that market.

If you’re a behavioral therapist coachy type who helps kids with very serious anger issues, you don’t need to care so much about what kind of parents you’re targeting. If your specific service is “Keeping your kids from ending up in court one day”, that’s probably clear enough to carry you through.

You can be afford to be less specific with what you offer if you are more specific with who you offer it to.

At IttyBiz, I am a marketing consultant for, generally, single-person businesses. Yes, technically they are a small business. But they are TINY. And they think of themselves as tiny. They LIKE being tiny. It would never cross their mind to be anything OTHER than tiny. So I can be more general about my services, because I’m very specific about the market.

You can afford to be less specific with what you offer if you have brand strength on your side.

If you are a big brand, your niche is actually based around your reputation or what people already know about you. Target and Wal-Mart are huge. They can offer anything under the sun. Martha Stewart can make paints and drapes and cupcake tins and superhero Halloween costumes for your dog.

If you are a very big name in your industry, you can attract clients on name recognition and the qualities that recognition contains, so you can also offer anything under the sun (to a point).

Until you’re at that point, though, offering too many things that hit a wide spread can work against you. So you should probably consider targeting yourself a bit more.

Look at the part above about the two things your niche is supposed to be doing for you.

Think about if you’ve got those covered.

Also think about where you can afford to get looser with your niche and see if that applies to you.

Remember, people don’t want “help” and they don’t want “coaching.”

They want to know what they’re paying for, and know that they’re buying it from the kind of coach that’s right for them.

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