Startup Infrastructure: Fundamentals of Building Your Business

First off, what do we mean when we say startup infrastructure?

We literally mean everything from technology, to systems to talent, to the actual bricks and mortar of your workspace, plus the service providers you choose to partner with. Having the right systems and infrastructure in place to make decisions will enable you to minimize risks and easily recover from mistakes.

Ready? Then let’s get started.

1) Startup ecosystem
When you’re setting up, choose professional services firms with broad networks and enough visibility to offer you access to new ideas that you wouldn’t be able to get exposed to on your own. You should be looking for long-term value in terms of expanding your connections as well as for recruiting talent and potential business collaborators. Look for partners that can support your needs now, but who can also scale with you so you won’t have to bring in new ones once your business is mature.
How do you identify the right firms? Ask around. Get recommendations and referrals from like-minded people. You’ll find you hear the same names over and over again.

2) Accounting
This encompasses everything from an AP/AR system to account for, track, and pay your bills, to accurately generating billing to facilitate collecting payments. QuickBooks is a good platform to start with and it can scale.

3) Expense reporting
The level of granularity companies need varies, but one thing that absolutely will not work is doing this through a checking account or on spreadsheets. Create separate business and personal accounts and DO NOT commingle them. Use your business account to track all expenses and receipts.

4) Financial
You need to create and revise projections, develop short and long-term budget plans, and especially manage and remain vigilant about your cash position. Bottom-up financial forecasts are more realistic versus top down ones and show investors you understand all the key levers (headcount, marketing, sales spending, customer acquisition costs, etc) that will drive your spending/funding needs. All of these essential functions, plus your financial controls, GAAP compliance, and accounting system (accrual-based, not cash), fall under the category of financial infrastructure.

5) Compliance
Oh boy, this is a meaty one! Not devoting enough attention to setting up all the elements of your regulatory infrastructure can really come back to bite you, not just at tax time, but also in the form of lawsuits or other potentially expensive situations.

6) Legal entity
This will be one of your first questions. It’s an important decision, with far reaching and long-term consequences. All your options (partnership, sole proprietorship, LLC, etc) have pros and cons, so how much flexibility you want as an organization versus the degree of complexity you can live with will weigh heavily here. It’ll also be influenced by any plans you might have to take on external partners or shareholders.

7) Taxes
Definitely make sure you understand your tax obligations. You’ll need to properly estimate, pay and record quarterly taxes as well as calculating and withholding payroll taxes. And if shareholders are part of your capital structure, you’ll need to arrange for certain type of valuation. This ties back into your financial reporting. Poor financial controls will make doing your taxes a nightmare…and it’s a big red flag for audit screens!

8) HR Compliance
This is an especially big deal. It’s definitely not an area where you should play fast and loose. Typically 80% of the funds founders raise gets spent on human capital. There are multiple pieces to manage such as: payroll, insurance, and expense management. Hiring vendors here can be much more efficient than managing these functions yourself.
Partner with providers who offer not just transactional services but true end-to-end systems that can help you put best practices and systems in place and support you with things like incentives and employee development plans. And document, document, document! That will help enormously with risk management (i.e., potential litigation).

9) Physical
Think big picture as you plan your workspace needs. Consider the environment you want to be in. Are you looking for a collaborative space? How will that work if you’ll be doing a lot of outbound sales? Do you need to have flexible month-to-month lease terms because you expect your employee count to fluctuate? Where do your employees live? What are your technical needs? What type of community are you looking for?

10) Legal infrastructure
Have a credible support resource to pull into negotiations. Consider both your current needs (contracts, technical licenses, patents, IP, and documentation management) and your future ones (term sheets, M&A transactions). Don’t be shortsighted by going with the cheapest guy. Lawyers and bankers are great sources for referrals and introductions to potential funders. Focus on the relationship’s long-term strategic value and your future growth needs. While you might pay a bit more than you’re comfortable with, it’ll pay off when you’re trying to leverage your network later on.

11) Sales & Marketing
Don’t underestimate the value of a well-designed, great looking website. And pay attention to details: every aspect of how you conduct your business from employees, to your workspace, through logo and business cards, right down to your email address, is branding.

Bottom line — You don’t have to have it all solved and you will make mistakes. That’s why pulling together a solid group of partners who can help you navigate both the early days and the later stages will save you a lot less pain and expense.

Deborah Adeyanju is a New York based Content Strategist & Social Media Manager. She provides small to mid-sized companies with day-to-day accounting, strategic finance, CFO, tax, and valuation services and support. Deborah is a Chartered Financial Analyst (CFA) charterholder with more than a decade of experience as an investment analyst and portfolio manager in New York, London, and Paris.

Business Plan is the GPS of the Entreprenuer’s journey.

Business Plan is  the GPS of the Entreprenuer’s journey.

I presented my 13th Startup Seminar at the New York State’s Business Mentor NY.  This is my 4th year as a mentor, and I have successfully mentored 7 startup entrepreneurs.

As an advocate of the need for every startup to have a business plan, I am always taken aback when someone states that business plan is overrated and that one does not need a business plan to start a business. This was the case when a participant in the seminar commented that he didn’t need a Business Plan when he started his business.

In my part-time gig as a small business and startup coach/consultant, I normally direct my clients to the right answers or solutions to their problems by asking questions rather than tell them what to do.

So, rather than argue the point why this particular entrepreneur needs a business plan, I asked him what he wants to get out of his participation in the seminar. His answer was to learn how he can raise money to help market and grow his business.

Then, I asked him if he thinks someone will invest in his business without him presenting a business plan. He answered, no, and that he knew that but that he didn’t need a business plan when he started.

Anyways,  every startup needs a plan,  it can be a plan written on a tissue paper, a one-page or a comprehensive 30 to 60-page business plan. You need a plan when you started on how you started and how you need to grow your business.

A business plan makes it easier to gauge and manage progress of your startup. Even if you’re funding the startup without outside investors, it makes sense that you know what you are spending your own money on and how successful you’re at every stage of your startup.

Look at a business plan as a guide in your entrepreneurship journey, just as a GPS guides you to your destination. Before the GPS, we were able to get to our destinations but think of the extra time, steps and work we did, we asked someone for directions,  wrote the directions on a piece of paper, bought the street finder (local street maps), got lost and found our way back. We got to the destinations alright, but I did rather have a Global Positioning System (GPS) to guide me.

The entrepreneur must be aware and understanding of every position at every stage of the startup in order to measure the success of the startup and remain competitive. Being able to explain the position of your business in numbers helps you in measuring your business and its position in the marketplace.

While Elevator Pitch might get investors interested and to give you a second look, a business plan tells them how you plan to manage and grow the business in order for investors to recoup their investment.

I wrote about business plans and how to grow your business in my first book on entrepreneurship,  “The Way It Is: Ideas and Solutions for Entrepreneurs for Startups and Growth Companies“, The book will enter it’s 10th year anniversary in January 2018. Look out for its second and Nigeria edition in 2018.

In my other book/handout “The Nuts and Bolts of a Business Plan“, I detailed a more comprehensive business plan guide.

From the desk of the HGBSE Founder.

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How to Start a Small Business on a Shoestring Budget

Have you ever had an idea for a small business? Maybe it’s a unique product you believe would be a hit, or a brick-and-mortar storefront that would provide a needed service to a neighborhood.

For those would-be entrepreneurs who actually take steps to realize their business idea, however, many eventually hit a brick wall. Financing a business startup can often prove too big of an obstacle or present too much of a commitment in time and resources. As much as you may want to run your own small business, quitting your full-time job and mortgaging your home in order to get a business off the ground can be too much risk to take on.

But many businesses can be started on a shoestring budget without a full-time obligation. In fact, some of the best small business ideas can be found in favorite hobbies you’re already doing in your spare time. There are countless stories of entrepreneurs who turned their weekend passions into full-time, successful businesses.

Following a passion can be a key ingredient in a successful shoestring business, which is loosely defined as requiring less than $1,000 in startup costs. Such startups should not require special skills, or skills that can’t be acquired in a short time with the right resolve.

An example of a shoestring business might involve a person’s love of photography—the shutterbug who is always taking photos of family events or nature scenes. That passion could be parlayed into work in wedding photography, gaining experience by assisting an established photographer or building a portfolio by photographing friends’ or family members’ weddings for free. It’s also a business with working hours on the weekends, making it easier to manage with a full-time job.

Likewise, an avid hiker and outdoor enthusiast could turn his passion into a business by leading tours as a field guide. Or, a dedicated knitter could build a following by selling her unique patterns and designs online. Clothes and accessories models can capitalize on their fashion sense and style, and sell globally sourced unique items online.

Small business owners such as these are able to keep marketing expenses on a shoestring level by promoting themselves through word-of-mouth, or by designing a website on the cheap to help drive business. Social media sites such as Facebook and Twitter are excellent tools to attract customers and are free—other than the time needed for posting content.

Harnessing the power of social media is a great no-cost way to promote a shoestring startup, such as one inspired by a love of food and cooking. Whether you enjoy baking desserts or re-creating beloved family recipes, posting a menu and photos of your day’s offerings and taking delivery orders can be done online or through popular mobile apps with no overhead costs required. A food-centric business such as this can also gain customers at farmers markets or as a street vendor tweeting out times and locations to followers.

The key to a successful shoestring startup is to combine an activity you enjoy with an identified business niche.

Expert Consultant Entrepreneurs

Expert Entrepreneurs are entrepreneurs who are expert at what they do. They are a rare breed, gifted in unique ways as they have spent years as employees, adding many skill sets and professional certifications to their belts.

For expert entrepreneurs, consulting is the best route transitioning from employee to entrepreneurs, particularly if you’re in an industry that prefer consultants to hiring full time employees.

To successfully start and grow  a consulting enterprise, expert consultant entrepreneur need to be mindful of the following:

How to Calculate and Negotiate Your Hourly and Project-Based Pricing.

If you’re a consultant, freelancer or any business that charges by the hour, you are going to have to determine and continuously review your pricing structure. For example, do you charge by the hour? What’s a reasonable rate to ask? Are you better off charging clients on a project basis?

For me, it depends on the client and the type of gig. While it’s advisable to research on the industry market rates, I take a step further to research what a particular company is paying their full time employees as different companies have different rates.  Here are some tips for calculating your hourly and project rates and how to negotiate pricing with your client.

1.  Determining Your Worth Deciding what to charge clients is a balancing act between market factors, business costs, and the value you bring to your clients. Before you quote any work, ask yourself these questions: What is the market rate for work like yours in your industry and location? How experienced are you? Not just in your line of work, but as a business owner? Being good at a skill is one thing, but being able to manage deadlines, meet expectations and above all, being dependable, are essential qualities for freelancers and consultants. What rate are you willing to accept and will it cover your costs?

2.  Calculating an Hourly Rate If you’ve been a salaried employee all your life, making the switch to self-employment requires a change of thinking. Some companies may be tempted to coerce you into a rate that reflects what they’d be willing to pay a salaried employee. But self-employment brings its costs and credit to you. Your rate should reflect this, as well as your expertise. If you are used to being a salaried employee, here’s a good rule of thumb to follow when determining an hourly rate: Divide your former salary by 52 (work weeks); then divide that number by 40 (the number of work hours in a week). Then mark it up 25-30%. Here again, I’ve gone up to 40-50% markup depending on the company and the global coverage of the project.

Your mark-up covers both your value and experience, but also takes care of our business costs such as networking, selling, and other administration, not forgetting your self-employment tax obligations and healthcare insurance costs.

Most importantly, if you have to travel internationally, never negotiate your travel expenses in your fees. Ask that you present travel, and accommodation expense for reimbursements. Speaking from experience, you will be glad you did, because global companies can have projects in different continents that your consulting gig will cover. If you are lucky enough, technologies can have you doing the work from anywhere in the global and then less travel.

3.  Calculating Project Rates Many clients will prefer to manage their costs and ask for you to price your work as a fixed project fee. This can also work to your benefit, if you price it right. However, it can also work against you, especially if your client is new and the project scope creeps beyond your original expectations. I try not to follow this strategy for a project without a defined scope. The best way to calculate project rates is to spend some time scoping out what you’ll deliver. For example, if you are a freelance copywriter and a client wants you to price out a two-page white paper, use your knowledge of your own work methods and familiarity with the subject matter to structure your time commitment, for example: Research: 2 Hours Interview subject matter expert: 1 Hour Produce First Draft: 4 Hours Two rounds of edits: 2 Hours Total: 9 Hours @ $x hourly rate = $x Remember, you don’t have to put this calculation in front of your client, but it gives you a useful framework for covering your costs and delivering within scope. Don’t forget to add a caveat to address that any work done over and above this scope of work will be charged at an hourly rate.

4.  Negotiating Your Rate Negotiation is hard to avoid and can often shed light on whether this is a client that you really want to work with. If you are confident that your pricing reflects your value and the market rate, being haggled hard on price can get a relationship off on the wrong foot. Likewise, being locked in at a low rate can quickly devalue the relationship from your perspective. So, when it comes to negotiating, be prepared to stand your ground but be willing to compromise. If you foresee further business here, try to be flexible. For example, could you deliver a one-page white paper, instead of two or cut back on the review cycles?

5.  What About Retainers? If a client starts to send a lot of volume your way, retainer-based pricing can be advantageous, even if it’s at a lower hourly rate than your advertised price.  A retainer is a fee paid for a pre-determined amount of time or work (usually within a month) and is often paid up-front. A retainer agreement can deliver the benefit of predictable work and income while giving your client the reassurance of having you on “stand-by” and a clear view of monthly costs. Many consultants charge the full retainer fee, even if they don’t work the entire hours allocated. If you value the relationship, steer clear of this; instead, roll unused hours over to next month.

How Do You Get Clients?

Industry and Professional networking is a must, and yes, your previous employers could be your initial clients.

Go through professional agencies: These agencies will make money from the work you do but they usually get you clients easily as they have developed a network companies they supply to.

Be Legit

If you can’t do your own taxes, make sure you have an accountant that is working with you.

And, finally, don’t sell yourself short.

Good luck!

Cletus Olebunne

‘Quality’, the Biggest Differentiator for Your Business: Why SMEs Should Take Note.

Why SMEs Should Take Note

Irrespective of the type of an enterprise, quality is an anchor that gives credibility to a business. As far as MSMEs are concerned, quality is a sina-quo-non for business success. It has to be looked as a strategy for scaling up for survival. What drives repeat purchase for MSMEs is the trust that develops due to superior product quality and flawless service. If this trust is broken, customers will not shy to move to other players. Unlike large corporates, MSMEs do not have deep pockets to spend on marketing and to attract the customer’s attention and influence purchase.

I am not trying to scare MSMEs, but the fact remains that quality is at the center-stage of their entrepreneurial effort. Creating a business known for quality is not easy and requires a whole lot of things that need to be done in tandem to get things right. To get this agenda going, I would recommend MSMEs to follow the LIMCA principles of quality. “LIMCA” is an acronym coined by me and refers to the five strategies that a business owner should adopt and relentlessly follow them. So here are the LIMCA principles:

L = Leadership is the prime driver of quality

Quality has to be the agenda of the business owner or the CEO driving the business. You ca not delegate this to someone junior and continue to have the aspiration to provide quality product or service to your customers. Quality has to be treated as a key strategy for business success.

As the father of modern quality management, Edward Deming, rightly said: “94% of quality improvements is the responsibility of management (business owners in case of MSMEs). Commitment to quality for a small business owner means being hands-on in his effort which is doing things such as regular performance reviews, keeping an eye on metrics, building a culture, getting deep into complaints and never comprising on quality to make sale.

It is leadership and only leadership that makes quality possible. MSMEs which I have mentored have been successful because they had a business-owner who was passionate about quality. The owner had an open mind and knew that getting the quality right was not a matter of choice but a must for business success.”

I = Improvement and not certification is the name of the game

I have come across business owners of MSMEs who have this notion that getting a quality certification such as ISO is the end goal of a quality implementation. A journey of quality improvement does not have an end. It only has many milestones. An ISO certification is one such milestone which indicates that the business has well-defined quality systems. However, what a business needs are to move beyond and embed an engine of continual improvement which ensures existing systems and processes are improved on an ongoing basis.

It is about following a structured approach to make an organization better, bridge its shortcomings and sustain leadership in marketplace. As a matter of fact, a business owner should get worried if things are status-quo. These improvements could be triggered by customer feedback, complaints, competition, future requirements and so on.

M = Mindsets are the silent force

As you create a quality organization, do not forget employees and their mindsets. If processes make products, it is the people behind them who make it happen. It is employee habits, beliefs and behavior towards quality that will drive enterprise culture. Among all the five LIMCA principles, this is the most difficult and takes time to accomplish. There are no short cuts here. To change mindsets, one has to use tools such as training, communication, performance review, rewards, recognition, quality circles, etc. As Das further adds, “One of the main reasons why MSMEs are not able to produce a high quality product at low cost is because they focus on the wrong or incomplete set of metrics. They do not realize that it is both efficiency and effectiveness measures that need to be kept on the radar.”

C = Costs get reduced as quality deployment matures

It is commonly believed that focusing on quality adds to cost. Well, this is not true. As a matter of fact it is just the opposite. A successful deployment of a quality improvement program leads to a reduction in costs over a period of time. How does this happen?

This is due to reduction in “cost of poor quality” (also called: COPQ) which refers to costs that get incurred due to defective products or sub-par service. It includes things such as rework, defects, scrap, spoilage, supplier quality issues, warranties, replacement etc. It has been found that COPQ can be as much as 15%-20% of sales revenue. So when defects reduce, complaints go down or there are lesser service breakdowns, the COPQ automatically reduces. And this has direct impact on product cost which makes it more competitive in the marketplace. This should be music to the ears of an entrepreneur.

A = Ascertain performance of quality effort

At the heart of a quality deployment are the organizational processes. The outcome of quality is measured on how these processes perform. Typically, when people think about quality, they just think it is ensuring that the product or service meets the customer’s requirement. Actually it is much more. ‘Effectiveness’ or meeting customer requirement should be the first milestone of a quality journey. However, a holistic quality deployment positively impacts two other metrics which are “Efficiency” and “Adaptability.”

”Efficiency” is about how effectively resources get used in a process and includes people, materials, other inputs etc. Remember, a good quality product should be both effective and efficient which means that the product not only meets the customer’s requirement, but also be produced in the most cost-effective manner. A business owner should keep a sharp focus on both these metrics. However, as his business matures, to remain competitive in the marketplace, he should also track “Adaptability,” which is the ability of a process to manage the changes in the requirement of customers and larger business context without impacting effectiveness and efficiency.

Copyright 2017 Bennett Coleman & Co. Ltd. All Rights Reserved.