I ran into Lauren Solomon of LS Image Associates, whom I worked with several years ago, and haven’t seen in good while. She introduce me to Elyissia Wassung of 2 Chicks with Chocolate.

We went inside, and here are my live blogging notes (excuse typos and partial sentences – this is raw note-taking).

Street Smarts Live – an Inc. Magazine Event:
The Knack, How Street Smart Entrepreneurs Learn to Handle Whatever Comes Up, by Norm Brodsky and Bo Burlingham.

How Street Smart Entrepreneurs Learn to Handle Whatever Comes Up.

Norm: 1st Business  asked How were our sales yesterday didn’t understand that there were more than sales gross margin, profits, etc are important
Cash is the hardest commodity to get, and easiest to spend. Lots of first time entrepreneurs think image type things like stationery is important, decorations, etc. They’ll need to have cash later on, don’t waste on fancy stuff. He always bought furniture at bankruptcy or close-outs.
Logo design did within company  – never outsourced to designers.

Sold recent business for much more than last one because it had better gross margins important to understand.

Norm always learns from mistakes.
Biggest mistakes entrepreneurs make is in planning  don’t just start business do free market research also, other executives in business  not in  your exact field or territory may answer questions for you. Go to sector groups.
Make sure business you are starting fits in with your life/life plan. For example, if you only want to work 3 days a week, don’t start a 24/7 store. His long range plan was to take off 16 weeks a year. It took him 15 years to set the business up that way, but he worked to it.
Make sure you’re capitalized sufficiently to get to level that you don’t need to be borrowing. If business will cost 200k, put 50k in reserve (25%).
Most people are overly optimistic in projections.
Most common problem in running, on going business: people don’t understand gross margins. They’re not making enough in sales. Sell service for 10$, your direct cost is $6, 4$ is your gross profit. $4is used for overhead,   If we hire and pay salesperson 40k a year, we need 100k to hire him or her.

Accounting is Quickbooks good? QB or any accounting system crap in, crap out. If you do it by hand you may understand relationship between numbers more directly.
If you follow numbers by hand, it may show you trends that you might not notice on computer.
Accountants are great historians, but when you get year end or quarterly statements it may be too late. You need understanding quickly.
Q: as business starts, most people micromanage everthing. As business grows, you have to hire others. How to do this best.
A: Important to set culture of the business. Learned he’s a terrible manager liked to be involved in everything. It is hard for entrepreneur to let go and let others do their jobs. Also promote people to peter principle to too high a position. Learned also to hired people for attitude, and can teach them abilities. Try to promote from within. If you hire good in the beginning, you’ll be better later on.
Let people make some of own mistakes.
Eventually let staff lock him out of staff meetings.
Q: When’s the right time to step out of the business?
A: business must be running on own cash flow, and you know that people there can do the job.
Q: Bo there are different stages to this at one time, you backed off from meetings, but you were still involved.
A: He was also making decisions that were in best interest of him, not of the company. He stayed on for a few years when he sold company, and there were challenges.
Q: What happens when you have been running business for years, economy changes, and you have to grow it. The employees aren’t of the ability to grow it?
A: You have to take emotion out of business decisions people work with him or for him but they are not friends, because sometimes you have to make decisions that affect them in a mental or monetary way. If you make decisions about what’s best for company, you may hurt people along the way but the company, if it gets bigger, may be better for everyone. The business comes first.
Q: Did you have investors invest in  your companies?
A: First business funded by lawyers and accountants that financed him. He eventually bought them out (didn’t have a buy out agreement, so there was a dutch auction). He had customers fund cash to fund his buyout. 95% of all companies do <$1M a year in business.
Only 5000 companies do 30m a year or more. Microsofts and HPs are the rarities in business.
Q: How to get away from staff and day-to-day to create systems and processes
A: Believes in critical numbers simple reports, weekly: Sales, margins, new boxes in, etc. and a few more, and via that he can tell how business is going. In fact, staff will tell him how things are going put in notes when things change.
Also, surround yourself with someone who’s great with numbers, and other weak points, but learn to understand it.
Bringing up 2 entrepreneurs now, Brian Kelly, City Beans, and Mike ? West End ? Express
Mike: Wanted to get from $1MM to 10MM a year, Norm told him he couldn’t do it in way he was talking about got him to $3MM, then eventually. They allowed him to do it while taking off weekends, having a life plan. If he had done sales sales sales, he never would have been able to enjoy life.
Brian: Went to Norm, article about shredding business, had a coffee business and was working as fireman, Norm helped him get business started.
Business nightmare starbucks was moving in next door to his store. He had been competing with Dunkin, business was cash-flow positive. He was worried that they’d cluster around him and drive him out of business. Norm helped him look at it a different way – $bucks is big company, what can I do that they do, and how can I make up for the loss of business they’re going to have  what’s the plan? The answer was he had done catering for years they did soup, salad, sandwiches, and did corp catering. Lost 11% but gained it back in catering business.
The important thing is you’re going to have competition, you have to figure out why you’re better than everyone else.
Norm: Dad was door-to-door peddler bought dresses for $4, sold for $8. There are opportunities everywhere.
Customer asked box storage question he did research, found industry prices, and realized he had opportunity to outsell them. Put boxes in his office to start, eventually became largest archival storage company in the country.

Q: New entrepreneurs most difficult part is finding sufficient capital. Where is capital most easy to access?
A: Norm: it is A difficult part, always an issue. Most people start with their own, bank accounts, 2nd mortgage on house, go to family and friends or rolodex for money. Some unconventional avenues  – going to potential customers  get them to invest in your company if you’re going to produce service for them. You may have big idea, but start at a smaller level. Get investor to help you do small part, before you go to larger idea.
Brian financed first Coffee business by working 2 or 3 jobs, took money from tax returns, credit cards, built coffee bar himself as carpenter.
Q: You spend time finding the Niche you have to continue to look for ways.
A: Perfect Courier  the only computer you could buy was an IBM32  a big box that could take customer addresses and total a bill. Was trying to get Scalia, McCabe, Slobes as a client. Problem they had was a chargeback to clients they were not getting the data in way that accounting department could use it. He took 1500 tickets, had 20 typists type the bills perfectly  the agency’s accounting department wanted the program he said it was proprietary. He had to have 60 typists until he got the thing programmed 4 months later.
He went from courier to a billing service.
Niche he discovered with storage service he was closer into town than big companies like Iron Mountain he could do faster delivery.
Q: Focus on making sale, getting customer and develop a relationship What’s value of capital vs getting customers?
A: You’re either an onsite or offsite shredder offsite was 750K, onsite cost 250k.  Partnered with someone outside of town. Eventually he doesn’t own a shredder he basically owns customer relationships and partners with everyone.
Q: You’re making money – how to expand correctly
A: Before you start business, you don’t know opportunities stick to One. Once you’re running business you see many opportunities. Once you have cash flow sufficient, you can expand, but also do them one idea/expansion at a time.
Be careful you don’t kill golden goose.
Q: Debt vs equity financing? Challenge of getting rid of equity
A: doesn’t like to give away equity. In beginning, you may not be able to get rid of debts quickly enough.
Q: Finding partners and structure
A: His 2 partners were sweat equity partners, took >20 years for them to get it, with right to buy it out.
Q; In book you talk about compensation of sales people no commission  how do you keep them motivated?
A: Doesn’t believe that only commission motivates people. If you’re not feeling fairly paid, or happy with job, they can find other jobs. They have a culture, and pay sales people fairly, and prosper for bonus, and how company does. Sales people also want consistency  it can be positive for them. Sales people can cover for each other.
Q: Have run by KASS rules up to now, has challenge finding a good lawyer.
A: Rarely gets involved with lawyers both sides walk away a little unhappy is a good settlement. Lawyers shouldn’t make business decisions for you  they’ll tell you about the law.

helping government become more open, transparent and effective through better use of published information.” Show Us a Better Way asks “Do you think that better use of public information could improve health, education, justice or society at large?”  The task force put up 20,000GBP for the winner of that competition to develop the best idea. (I noticed the Google prize via Tom’s blog).

All these prizes to improve the world, plus X-prizes for 100 mile-per gallon cars, space travel, and more.

I hope that these contests and market forces can help us improve the world in some significant way, and I’m glad some big companies are asking for solutions with their hands on their wallets. Now, about that idea for a jet pack I had…

Martijn Roordink took Bill Sobel, Roeland Reinders, and me around on a tour of the
beautiful new space,which is taking final form over the next 6 weeks. The concept combines elements of shared space like Regus clubs (printing, coffee bar, and other services on site) with concepts of co-working (with an entire area for soloists who will share space).

From this new glass top to the building, making the entire inside an open court, to board rooms and common areas designed to get the companies and workers interacting, there’s a lot that’s well-thought out about this place.

Flickr is giving me a hard time about photo uploads this morning, so I will update with more photos later. Additionally Bill Sobel and I took some video and when we upload that later, you’ll get a much better sense of the place, and I’ll expand this entry.

After a great drive out to Eindhoven, (thanks Martin), and some initial networking, I met Tom Paffen and Tom De Bryune who spoke on Venture Capital raising and on “Freaks and Geeks” as the leading indicators of where social media and social networking tech are heading as cultural and technical phenomenon.

The photo set is on Flickr.

Bill and I spoke after the break. Bill did an excellent job talking about the “3 screen world” where TV, Computers and Smart Phones are the locations that people are using when they view and interact with content, all to different extents, of course. I chimed in afterward about how media companies are using Social Web tools to create new kinds of stories (like the Heroes show and related content), and also about how, as seems to come up in conversations a lot lately – destination sites are not the future. Having content everywhere, via syndication, mashup, widgets, and basically where your viewer, user, customer wants it, will be the future. The panel finished with questions and more networking.

I know the slides and information on the panel, as well as the full video will soon be posted on Efactor.com and I’ll update with a link to that when it’s available.

BTW, Mashable did a brief review of the E.factor here.

Key ideas: 600K companies start every year. Only 50k are funded by angels. Rest are funded by the founders, or by friends/family.

VC: Professional investors.
Angels: Rich-ish people investing own money and their mentoring time for a good economic and personal returns. – Early Stage Deals.
Profile of Angels – 57 yrs old, masters degree, 15 year entreprenur, 2.7 ventures founded. Has to be an accredited investor (1MM in assets,or 200k/yr income for 2 years or more). Invest for 9 years, in avg of 10 companies, have had 2 exits/closures, and 10% of their wealth is in angel investments.

Startup food chain is: You! first. You fund your own business. But, if you’re at a University or can create an app, you can go for an SBIR/STTR grant – phase I is up to 100k, phase II is up to 700k. Or, Bootstraping – get your own contracts/sales, and start up yourself.

Banks don’t like to invest – they rent money.

When you sell shares of your company, your first stage is usually sold to friends and family. This is a first test – if you believe you have a business that can scale, if you can’t convince friends or family to invest, there’s probably a problem.
Next stage – Angels – 25k – 250k.
In the middle -the gap – between 250k and 2MM. – Angel Groups – group of angels who share deal flow, pool capital, shared expenses (via dues), variety of experience, standardized terms, and lets them be smarter investors and enjoy social experience.

Later on stages – Venture Capital Firms, 200k and up.

Over time, there have developed over 300 groups. Typical groups do 7.3 deals, 4.5 are new, rest are follow-on, 1.9 mm (NY angels did 5-6MM), do aprox 250MM per round, on average. Typical angels are investing around 33K. NY Angels do 25k minimum per investment.

VCs invest in less than 1% of deals. Angels, about the same.

NY Angels get 30-40 plans/month. What do they look for?

• Great Entrepreneurs – integrity, passion, skills, expertise in the domain, business management skill, leadership, commitment, vision, ability to listen and be coachable
• Scalable business model – something that will get big, fast. Which is why web businesses can get funded.
• Unfair advantage – something special that’s important to the angels , ex patents
• External Validation – ex. sales, beta tests with known companies, great advisors,
• Low investment required -
• Reasonable Valuation – in case of angels, that often has to be low valuation – 1MM to 2-3MM

Secret economics of Angels -

1. $1MM for angel investment from a person’s portfolio. Must diversity portfolio so
2. Distribute it across 10 deals
3. 1.25(to the 6th) = 3.8x ROI – it’s as risky as it gets, wants 25% annualized return, this is a long term hold 5-7 years (6 yrs).
4. However, not every investment returns that amount.

• 5 return 0. 0
• 2 return 1x. 0.2 return
• 2=3x return. 0.6 return
• 3.8-.8 – last deal has to return 3x money. You have to make 30x to help the angel make their return.

So, if your deal isn’t in the position of returning 30x, they won’t invest.

How do you find an angel? Network and tell everyone. Get introductions. Lawyers, accountants, etc. LinkedIn could be good for it.

Angel groups have two parts of a process.
Part 1.

1. Have a detailed business plan. They may not read the whole plan, but you must know the answers to the questions they’ll ask
2. Research the groups to find a good fit.

Application to the group – including a video.
You get a one pager back, and gives to the angels, all the salient features of your business.

Angels get this – and try to figure out which are appropriate for them.

Part 2 – if your submission is accepted, (30 submit, 15 go forward)

1. You’ll meet a screening committee – 3 deals per month are recommended forward to present
2. You’re coached by angels to improve your presentation
3. You’re then able to present to whole group
4. Exec committee meets – once they find good company – will present to other groups in a network
5. Attend a Due Dilligence meeting (2 hours) – meeting with those who are interested, go through financials, meet with mgmt team
6. Negotiate terms sheet

From the angels’ point of view – showing dashboard that’s the backend for over 400 angel groups.
Your submission creates a secure deal room, where angels can collaborate, links to your documents, your video, your one line pitch and your summary, your referrals. System also tracks the updates, the notes, etc.
This also lets other angels see who’s investing and their commitment.

For entrepreneurs, your one upload can be shared with all angels via “Open deals.”

UPDATE: Apparently the final few lines of what I wrote last night didn’t post – I had some trouble with the WIFI (Free wifi appreciated, 92nd St Y, but it was having some issues).

So, I thought David did an excellent job laying out the Angel landscape and helping entrepreneurs see it both from their side and from the Angel’s side. The networking both before and after the event was pretty high quality. I spent some time with Hank Williams and Jason Olim, both of whom will be on my panel at NYSIA this coming Monday the 14th. Also got a chance to catch up with Franklin Madison from ITAC and Sanford Dickert. I also caught up briefly with Karen Kline from Softbank, who always has something going on.

Why a newsletter? I have many friends who are all over Twitter, Facebook, and other social tools like Utterz and Seesmic, but for many of my contacts, email is still a primary communications tool. Not everyone of you regularly reads blogs, and for those who do, not everyone can keep track of all the blogs they want to. So, the newsletter is a way for me  point you to articles I’ve written that may have value in your business, but you may have missed. I also point to other smart thinkers whose work I enjoy.

The newsletter is also the answer to the question “what have you been up to?” I have been reaching out to a lot of people for everthing from my upcoming college reunion to going through my address book looking for people I haven’t talked to in a while, and this is the inevitable question. So, the newsletter is a way to keep a monthly presence in the lives of people who I care about as business connections or friends.

Finally, I’ve suggested that clients associate a newsletter with their blogs, and it is time I stepped up to do so too.

So far, just the feedback from the opt-in email has been fantastic, with connection notes from about 10 people I haven’t heard from in a while. That alone would be a great value for this effort. But, the ultimate goal is having you read what I’ve written and learn something. And if you like that, to have you pass me on to someone else who might do the same. If there’s work that I can do for you, or for that person, all the better.

Please let me know what you think of the newsletter, and share it with a friend if you have a moment. Thanks.

Howard: Did you have to raise capital to run the event?

Stephanie: The company isn’t incorporated, so from a legal perspective I’m doing this event under my own name. In Switzerland that’s how it works. I’m looking into the incorporation, but I want to make sure the first event is successful before I do the administrative work to set up the company. There was no initial capital. The event should be self-financing, with attendee payments and sponsorship paying for it. That’s why I have some aggressive early bird pricing.

Howard: Are you paying yourself?

Stephanie: My objective is to pay myself, but the first ambition is that the event doesn’t lose any money. Hopefully I’ll make enough profit to pay myself.

Howard: Did you take time to budget the event?

Stephanie: Yes, I have spreadsheets but I was a bit naive about cash flow when I started. You can do a what’s coming in, what’s coming out, and hope the total of revenue is greater than expense. Or you can add a time component to the budget and you have a week-by-week vision of what’s coming in and what’s going out, to ensure that by, say, week 5, you’ll have enough money in the bank or incoming to be able to pay out at the end of week 5. This was something I hadn’t though about previously.

Howard: So you figured out from this you wouldn’t need to take a loan or any additional capital for your event? : Well done for your first event.

Stephanie: I hope it works out like I hope.

Howard: Tell me about the big event?

Stephanie: It’s an event about freelancing. Lots of people start freelancing because they know how to do something and get paid for it, but you have to fix your rates, find clients, deal with accounting and paperwork, etc. So we’re taking a day to talk about all these issues. I have a number of speakers who are going to explore these topics in depth. I’m expecting 150 people, on the 16th of May in Lausanne, Switzerland, just next to Geneva, and the web site is http://www.going-solo.net/
It’s more intended for the freelancers in the web and related industries, from Europe, but all are welcome. As it’s a one-day event, we are also looking to organize a “bar-camp-type event” on the next day so people will feel comfortable coming and then spending the weekend. (A camp is an un-conference where anyone can present or attend, done in a space like a university, with rooms, WiFi, and a big board where people write the topics being discussed attendees know what’s going on and where to go.) I hope the one day event plus the camp will bring people in.

Howard: Thank you for your time and for sharing your business start with everyone.

Stephanie Booth is a blogger, freelance Internet consultant and a new entrepreneur who is starting a conference business. Her first conference is for other freelance workers in the web and technology space and it focuses on the essentials of running a business. And Stephanie herself is learning these essentials in real-time as she prepares for the event.

(We also recorded this discussion. It will be published shortly at A Chat and A Song (Episode 18). I’ll change the link when it’s ready UPDATED: Direct link to episode 18 as an mp3  or click on that icon and listen to it in this page).

Howard: I know you have quite an interesting and varied background. Tell me more about how you got here.

Stephanie: I’ve been online for quite sometime, and blogging since 2000, and I primarily describe myself as a blogger and someone who understands the Internet. I studied Chemistry, Philosophy, French, Indian Religions, then worked as a project manager, a schoolteacher, and then up until recently I was a freelance consultant. My new business is called “Going Far” and it’s a media company. I organize events. I’ve been to many conferences, and I complain too often – the WiFi is bad, there’s no bottled water, the sessions aren’t interesting. A friend suggested that I could put on better events.

Howard: You complain at events. What will you do when people complain at yours?

Stephanie: I will probably crawl under the table embarrassed. I’ve realized it is a lot of work, and things are more complicated than they seem.

Howard: What things are more complex than expected?

Stephanie: Two things — First, it was tough actually getting design and graphics created for the events. I spoke to a designer, then got recommendations for others, and suddenly didn’t know which of the three designers was the ‘right’ choice, and didn’t know how to negotiate it. Also, as a non-graphics person I didn’t really know what I was asking for.

The second thing was finding a system for registration. I thought it would be straight forward but suddenly realized it was going to cost a lot of money (via processing fees). I started comparing options, but they don’t charge the same way, so doing the comparison ended up being complicated, until one of my advisors said “don’t spend so much time on that,– just choose one and be done with it.”

Howard: Do you ask your advisors a lot when you need to solve challenges?

Stephanie: All of them, all the time. I’d never be able to do what I’m doing on my own. I’m someone who in general asks for advice easily, and I tend to ‘crowdsource’ my decision-making – the Internet is really useful for that, and it helps me connect to people to make the decisions. I make the final choices, but having people that I trust makes it easier.

Howard: There are lots of events and event planning firms – -what distinguishes your firm? How are you going to, as you put it, “make a sustainable living”?  And, by creating this business what are you hoping to accomplish?

Stephanie: First, I’m interested in events that are European-centric, without excluding the rest of the world. Events like the “Web 2.0 Expo,” even when held in Germany, are based on American events.

Second, I want to hold events that are more focused on niche topics. I want to take a topic and dive deeper into it. So this first event is going to be “Freelancing,” the next will be “Blogging and Social Media in the Business Setting” which is a more specific topic. At a web expo you may get one session on blogging in business, I want to spend a whole day on it.

Third, my ambition is to organize events of the quality level I’d like to attend. Stuff like having a venue that’s welcoming, food that’s nice, WiFi that always works, a good experience from start to finish.

My initial driver is to start something that I can live off. I’m not money hungry in that I’ll sacrifice the experience or the program or people coming for financial considerations, but this is something that I’m doing now with the hope of a) putting on great events and b) making a living.
In part 2, we discuss the financial aspects of starting her firm and Stephanie is quite candid about what it took to figure out how to make a go of it. 

Wow. My client is helping his old friends meet some new friends, who have a better product that will save the old friends time and even money. That’s a lot different than ‘selling them.’ There’s a clear benefit on both sides, and he’s not compromising his integrity.
Selling is often a tough part of any new business venture. Not everyone is comfortable with all steps of a sales process. But it is clearly part of every Entrepreneur’s skill requirement set. Even if a startup hires someone to sell, the ultimate responsibility to get money in the door is with the founder(s). So, maybe it is time to reconsider what “sales” means to you. If you’ve got something that will make people’s lives easier, or their work easier or faster or cheaper, maybe NOT selling it to them is wrong thing.

After that talk in Raleigh, NC, I reconnected with Chuck Hester, Director of Corporate Communications for iContact, a company that allows businesses, non-profit organizations, and associations to easily create, publish, and track email newsletters, surveys, blogs, autoresponders, and RSS feeds according to their site. Chuck told me how he used Social Networking service LinkedIn.com to find his current job, promote his own brand and his companys, and to do some good in the world.

When Chuck moved to Raleigh in 2005 he had only a few connections on LinkedIn, and only one or two in Raleigh. As a new person in town, Chuck began to network and add his connections to his online tools. When he left his previous employer, he searched his network connections in Raleigh for Software, Advertising and Marketing people to assist with his search. Ryan Allis invited him in to talk, and Chuck landed the job at iContact.

Around this time, Chuck started paying more attention to his Social Networking tools, and noticed that LinkedIn had a designation of 500+. When you get to 500 connections, they stop reporting your number of connections, and your name shows with a 500+ logo. So Chuck set a goal of exceeding that mark.

Around February, 2007 he decided to connect with the really big connectors. He joined several Yahoo groups where you can send out connection requests to all the members. Every time he got new connections via these groups, he looked at these new connections friend of a friend links, and messaged the 5 most relevant links to connect.

By June, Chuck had over 700 Raleigh connections and was getting lots of calls, doing coffees, getting together to meet people in person. One of his friends who is also very active in Raleigh said “Why not get all our connections in one room and create a Raleigh Network?” In July 2007 they invited their online friends to LinkedIn Live and 50 people showed up. One connection was a bar manager who provided a back room, and another connection was an advertising person who invited a reporter for the News and Observer. Sheattended the event with a photographer, and LinkedIn Live showed up on the front page of the Sunday Business section. People started asking Chuck When’s the next event?  They now have their meetings every other month, and it’s grown from 75 people to 120, to 170 showing up. People in other cities are asking Chuck how to start their own LinkedIn Live events.

How has this benefited Chuck and iContact? Brand Recognition. Everyone knows who I am, and the company I work for. If they need email marketing services, they think of us first. And, we’ve taken our recognition to larger audiences, with mentions on the Fast Company blog, Wall St. Journal, and even via Michelle Rafter at Inc. Magazine (who was a networking connection.)

Chuck’s advice to entrepreneurs is to use the tools that are part of your Social Networking platform. Connect with connectors – people in your network that have lots of connections, and find their connections who can be of value to you. Then, politely ask for introductions. You also have to reciprocate, so be conscious that your connections also have value, and share them with people who have been shown to be trustworthy. Your connections and the way you treat other people’s connections reflect on you. Finally, be part of the conversation. LinkedIn has a feature called “Answers” which allows people to ask questions and get opinions from their contacts. Chuck says, “When people ask questions, answer them if you can, and soon you’ll be known as a resource in your area of expertise.” While respecting the “no advertising” convention of  Answers, crafting a factual  answer that refers to something you’ve written or a service you’ve given another client can drive traffic to your own Blog or company website.