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Starting Your Own Internet Business

Starting Your Own Internet Business. A LoudOffice.com Workshop. Donald E. Chase, Partner Donald@LoudOffice.com http://www.LoudOffice.com/Class/Business/. Step One: Understanding You and Your Opportunity. Before Starting Any Business:. Are You an Entrepreneur? What is Your Idea?

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Starting Your Own Internet Business

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  1. Starting Your Own Internet Business A LoudOffice.com Workshop Donald E. Chase, Partner Donald@LoudOffice.com http://www.LoudOffice.com/Class/Business/

  2. Step One: Understanding You and Your Opportunity

  3. Before Starting Any Business: • Are You an Entrepreneur? • What is Your Idea? • Who is Your Team? • Who is Your Customer? • How Do You Reach & Convert Them? • Do You Have the Resources? • Are You Ready?

  4. Are You an Entrepreneur? • How do you define an entrepreneur? • What qualities does an entrepreneur have? • What entrepreneurial qualities do you have? • What areas do you need to improve on?

  5. Reality Check!?! 10 Questions You Must Ask Yourself: • Are You Passionate? • Are You Self-Confident? • Are You a High-Energy Person? • Are You Competitive? • Are You a Leader? • Are You Organized? • Are You a Good Communicator? • Are You a Risk Taker? • Do You Have Buy-In? • Are You Ready?

  6. Your Idea • Where does your vision comefrom? • Your personal goals • Your prior work experiences • A problem you’ve solved • Dumb luck • An improvement of someone else’s idea • Take a few minutes to write a personal vision statement.

  7. Evaluating Your Idea • Can you clearly articulate your vision? • Do you know the industry? • What PROBLEM does your idea solve? • Is your solution better? • Can you protect your idea? • Is your idea yours? • Can you make money from your idea?

  8. Your Team Unless you are a “Jack of All Trades”, chances are your business could probably benefit by having a well-rounded team assist you in your business.

  9. Your Team (Cont.) • If you are going to look for financing, most investors will want to see a solid, experienced, and professional team in place. • Some gaps are normal, but you should never expect to get financing for a large-scale business all on your own.

  10. Understanding Your Market • Know Your Industry. • Gather Data on Your Market. • Talk to Prospective Customers. • Research The Competition. • Test Your Product. • Determine Your Pricing Strategy. • Is There a Niche You Can Fill?

  11. Understanding Your Customer • Who is your core customer? • What does your customer care about? • Can you solve a problem? • How is your customer addressing that problem right now? • How do you solve that problem in a unique way? • How big is the market for the problem you are trying to solve? • How much are people willing to pay for it?

  12. What Are Your Resources? • Prepare a personal financial statement. • What assets do you currently have? • Can you raise additional capital? • The 3 Fs: Friends, Family, & Fools? • Traditional Bank Financing? • Investment Capital? • Other than cash, what resources do you need and can you meet these? • Materials, talent, intellect, etc.

  13. The Resources The Idea The Team Sizing Up The Opportunity If you have a good balance, you should have an attractive opportunity.

  14. Your Opportunity Checklist • Does the idea translate into a product or service? • Is it a product that consumer’s want? • Can product attributes be communicated so that customers know they want it? • Can the product be developed today?

  15. Opportunity Checklist (Cont.) • Will the product be better or cheaper than competitors? • Is the “window of opportunity” opening? • Are you the right lead entrepreneur? • Do you have a strong team? • Do you have or can you get the resources?

  16. The Three Ms • Market Demand • Customers are there. • Market Size & Structure • There is a large enough market for you to break into. • Margin Analysis • You can be profitable.

  17. Step Two: Business Basics

  18. Choosing and Registering A Name • Unless you are doing business under your own name, you will need a business certificate which is normally filed with your local city or town hall. • Corporations (and LLPs & LLCs) need to file with the Secretary of State (One Asburton Place, Boston).

  19. Patents and Trade Names • You can check for patents and trademarks online. • If your name is or could be valuable, you are well advised to register a trademark for your name.

  20. How to Structure Your Business • See Starting a Business in Mass. (pg 12) • Sole Proprietorship • Partnership • A Corporation • S Corporation (quasi-corporation) • C Corporation (“normal” corporation) • Limited Liability Company • Limited Liability Partnership

  21. State & Federal Taxes • If your business is a partnership, corporation, or sole proprietorship with employees, you will need a federal identification number (Form SS4). • Mass. D.O.R. requires you to register if you have employees or collect certain fees or taxes (see page 21).

  22. Employer Taxes • If you have employees, you will need to be aware of the following taxes: • Federal & State Income Tax • Unemployment Insurance • Workers’ Compensation • Payroll Taxes • Etc. Ad Nauseum • Massachusetts requires you to report all employees w/i 30 days of hire.

  23. The Importance of CASH FLOWS! • Cash flow is the difference between the movement of money into and out of your business over a period of time. • Even if you are making money, you could have negative cash flows. • Without cash, your business is dead.

  24. Cash Inflows Owner Investments Cash Sales Payments on Receivables Interest Dividends Other Cash Outflows Cash expenses Payments on accounts Owner withdrawals Interest Payments Other Cash Flow Lingo Starting Cash + Cash In – Cash Out = Ending Cash

  25. How Much Cash Will You Need? • The total cash you need includes what it’ll take to start the business, run the business for 3 months, and keep you from going hungry: • Initial Setup Costs • Business Operating Costs (90 Days) • Personal Living Expenses (90 Days) • See “Estimating Cost of Startup” Handout.

  26. SHOW ME THE MONEY!!!!!!!! How Much Financing the Inc. 500 Used: Starting Capital% of the Inc. 500 Less than $5,000 25% Less than $25,000 50% Less than $100,000 75% More than $1,000,000 5%

  27. Where to Get Financing • Personal Funds • Personal Borrowing • Personal Loans, Mortgages & Credit Cards • Family & Friends • Banks • Small Business Administration • Angel Investors & Venture Capitalists

  28. Bank Lending • Banks are a great source of money if you don’t need any. • Banks don’t like risk. • Banks rely on collateralization. • Banks cannot collateralize technology.

  29. The Small Business Administration • Started in 1953 to provide government loans and serve as an advocate for small business concerns. • The SBA does not make loans, it only guarantees loans. • Last year the SBA approved more than $12 billion loans to more than 1 million small business owners.

  30. SBA Positives • Loan approval based on SBA Guarantee • Faster- SBA has implemented three programs to speed up transaction times • Low Doc for loans less than $150,000 • SBA Express • PreQualification Programs • Better Terms • 5 to 10 years for Capital / 25 years for R.E. • SBA caps interest rate that commercial bank can charge

  31. SBA Negatives • Collateral requirements are strict and personal guarantees are expected in many cases • Paperwork can be voluminous depending upon the size and type of loan • Double review requirements from local bank followed by SBA adds to processing time on certain loans

  32. SBA Loan Programs • The 7(a) Loan Guaranty Program • SBA's primary loan program. • SBA reduces risk to lenders by guaranteeing portion of loan. • Enables lenders to provide financing to small businesses when funding is otherwise unavailable on reasonable terms.

  33. SBA Programs (Cont.) • SBA LowDoc Program • For loans up to $150,000 • Offers a simple, one-page SBA application form. • SBA guarantees up to 80 percent of the loan amount. • Usually processed within two or three business days. • Business start-ups, as well as businesses with average annual sales for the past three years not exceeding $5 million and with 100 or fewer employees, including affiliates, are eligible.

  34. SBA Programs (Cont.) • 7M-Microloan Program • Micro-loans of $100 to $25,000. • Provided directly by a network of intermediaries approved by the SBA. • Can be used for the purchase of machinery, equipment, furniture, fixtures, inventory and working capital. • Most small businesses that are unable to obtain funding through conventional sources or the other SBA guaranteed loan programs should contact the microloan lenders in their area.

  35. Angel Investors • Angel Investors are wealthy individuals (often successful entrepreneurs) who like to invest in early stage companies. • Typical Angel investments run from $10K to $500K.

  36. Venture Capital • Venture capitalists generally: • Finance new and rapidly growing companies; • Purchase equity securities; • Assist in the development of new products or services; • Add value to the company through active participation; • Take higher risks with the expectation of higher rewards; • Have a long-term orientation.

  37. Watch Out! • Remember, for every one deal an Angel or VC is successful with, another 3-5 FAIL. • You will have to give up control and ownership interest in order to attract funding. • There is such a thing as “Smart” money.

  38. Writing a Business Plan Business plans are a requirement if you need to get any type of financing, but they also serve as a great tool to help an entrepreneur focus on what they want their business to become, and how they intend to get there.

  39. Your Business Plan • Your business plan is a road map that shows you, your employees, and investors how you will take your business from Point A ($0) to Point B ($1,000,000).

  40. Why Write a Business Plan • To Sell Yourself on The Business • To Obtain Bank Financing • To Seek Investment Funding • To Arrange Strategic Alliances • To Obtain Large Contracts • To Attract Key Employees • To Complete Mergers and Acquisition • To Give Your Business a Focus

  41. Types of Business Plans • Summary Business Plans • 10 pages or less, normally to attract bank financing or provide some focus. • Full Business Plan • 10 – 40 pages, normally to attract investment, alliance, or M&A. • Operational Business Plan • 40 – 100+ pages, normally very detailed.

  42. Table of Contents Executive Summary Description of Company Management Product / Service Market Analysis Marketing Plan Competition Operating Plan Financial Plan Risks Benchmarks / Milestones Appendix Business Plan Contents

  43. Preparing a Business Plan “Pitch” 1 Company overview and elevator pitch; Mission Stmt. 2 Problem Buy-in; Opportunity; 3Ms 3 Your solution and products; with benefits 4 Title; Speaker Intro How much you need More solution details 5 6 Technologies Competition 7 Entry Strategy; Growth Strategy; Mkting Strategy 8 9 10 Team Status; Timeline; Use of Funds 11 12 Recap; Call-to-action Business Model; Revenue Drivers Cost Drivers

  44. Where to Go For Help • Mass. Small Business Development Center Boston College142 Beacon StreetChestnut Hill, MA 02167617-552-4091 • Small Business Administration 10 Causeway Street, 2nd FL Rm 265Boston, MA 02222617-565-5590 • SCORE (Service Core of Retired Executives) 617-565-5591

  45. Mass. Office of Business Development (MOBD) • Mission is to assist in the creation and preservation of jobs in Massachusetts. • Assists current and potential businesses in areas such as financing, tax incentive, site selection, and more. • Partners with local Small Business Development Centers.

  46. Finance and Tax Incentives • Bond Financing Program & Equipment Financing Programs. • Emerging Technology Fund. • Export Finance Programs. • Predevelopment Assistance Program. • Capital Access Program.

  47. How to Contact the MOBD • Online: http://www.state.ma.us/mobd/ • Address:10 Park Plaza, Suite 3720Boston, MA 02116 • Phone: (617) 973-8686 • Fax: (617) 973-8797

  48. Starting Out On the Right Foot • Be mentally prepared to give it 100%. • Be prepared to sell yourself. • Be single-minded in getting your first customers. • Keep your business model easy to understand. • Don’t expect financial miracles on day one. • Be prepared for the unexpected.

  49. Run Your Business Like a Business • Plan your efforts carefully. • Focus on service first, flash last. • Keep track of everything (in writing). • Use credit wisely, extend credit more wisely. • Systematize all of your operations. • Know your numbers.

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