Posts Tagged entrepreneurial education

David and Goliath: The Dyson story


The Dyson vacuum cleaner story is an interesting case study about a man taking on the established vacuum cleaner industry by believing in a superior product. Dyson believed in making the world better through ingenuity and took on the giants. Dyson took on the role of the consummate protagonist (Carruthers, 2007).

Dyson grew up in a family in which he had little direction and he developed a distaste for conventional institutions. Dyson’s parents knew of his rebellious side and wanted him to take up teaching, become a doctor, or become a professional. Dyson gained an understanding of industrial product design through the art school he attended in London (Carruthers, 2007). Entrepreneurs typically have a disdain for the way conventional businesses do things and have it in their DNA to reject conventional wisdom. Rebellion is an integral part of the entrepreneur’s mold.

Entranced with the idea of improving the vacuum cleaner, Dyson began his adventure by stripping down the Hoover Junior to understand its poor performance. Dyson introduced the cyclone and clamber in developing his prototype. At first, Dyson had no fear, but balked when low-income, a big overdraft occurred, and he faced the uncertainty. Dyson experienced several brushes with bankruptcy (Carruthers, 2007). Entrepreneurs have to learn how to deal with their fear and overcome it by moving on. Keeping an eye on the opportunity trumps the original fear, but the entrepreneur faces failure each time he encounters a hurdle and has to deal with it in a positive way. Risk-taking is scary even to the most accomplished entrepreneur.

Jeremy Frey had mentored Dyson and provided the original funding for his venture. Dyson met Frey at college, and the millionaire and founder of Rotork served as an innovative person with whom he could identify. Dyson spent three years working on thousands of  prototypes and testing them. Dyson found industry unwilling to accept or license his ideas, but Japan did eventually license the Apex and G-Force products. Dyson relied on inventing and marketing himself instead of the conventions of big business and its marketing tricks (Carruthers, 2007). Entrepreneurs are bold people who reject established mediums and want to improve on them, but fighting with the enemy has its risks.

Dyson decided rather than to license his work to produce the product himself. Self-manufacturing the products, obligated Dyson to raise capital by borrowing against his property putting his family at risk. Dyson decided to take this path and export directly to the to the United States (Carruthers, 2007). This experience shows entrepreneurs have to look danger square in the eye and have the confidence to deal with it.

The last challenge for Dyson is to bring the product to the United States, the world’s largest market, where he must beat Hoover, Amway, and Black and Decker. Although Dyson set up manufacturing in Asia, he must confront the Big Three on their own turf in the United States. To bring the product to the United States, Dyson has to distastefully import the product from Asia and play by the rules. Dyson successfully captured enough of the United States market, but faced intense competitive pressure from his rivals. Hoover infringed on Dyson’s patent rights and Dyson filed suit to protect his business. Despite the challenge, Dyson wins the battle and confirms his success (Carruthers, 2007). Entrepreneurs often want to create the rules they play by, but sometimes have to conform to win the larger battle. The Dyson story shows how entrepreneurs can persist and improve existing products. David beat Goliath!

What have you learned from the Dyson story? Please let us know your thoughts. If you need help getting started I urge you to seek our help now. Learn more.

References

Carruthers, I. (2007). Chapter 5: The Entrepreneur’s Story Great brand stories Dyson: The domestic engineer: How Dyson changed the meaning of cleaning (pp. 85-99). London: Marshall Cavendish Limited.

 

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Defining Roles: Visionary versus Missionary Leadership


Many times people starting a new business find a partner they know little about. Defining the roles partners play in the business at the start is important to avoid problems later. Looking at a live example might help identify the problem and discover some lessons learned from forming a new partnership. This story applies to either a partnership or a small business corporation such as a limited liability company or an S corporation.

Joe and Jerry worked together as real estate agents at a local brokerage and decided they wanted to start their own. Joe had extensive experience in management and finance. Jerry came from the ministry after serving as an Episcopal priest. Joe and Jerry worked well together as real estate agents, but knew little about each other otherwise.

The two men worked together to develop a plan to start their own business. Joe and Jerry decided to divide the business equally and make an equal contribution. Joe and Jerry did not know is the role each would play in the business, but Joe believed Jerry had excellent marketing skills because of his dealings with people. Jerry believed Joe had excellent administrative and financial skills to run operations, but neither man shared their beliefs with the other or formalized the role each would play in running the business.

The men did work together to find a real estate office available at an excellent location and proceeded to lease the building. Jerry wanted to make the office comfortable and professional insisting on first-class furniture and equipment. Joe wanted to find sales Associates as quickly as possible to train and ramp up sales.

After leasing the office space, the two men worked to redecorate the office and lease furniture and equipment. Jerry took the lead on redecorating the space and Joe worked on incorporating a business. Each man did what he thought important to start the business and prepare for the grand opening.

Once the office opened, Joe worked feverishly to recruit sales agents to start finding business. Jerry showed up occasionally and worked from home. Joe quickly recruited 16 new agents and began to train them, while Jerry continued to work from home expecting a paycheck despite not having enough revenue to earn a salary.

Joe and Jerry started having discussions about how to develop enough revenue to meet continuing expenses. Joe continued working feverishly to train agents and teach them how to sell. Jerry continued to work at home contributing little to the operation. Jerry continued to insist he needed a paycheck despite a lack of revenue. Joe argued both he and Jerry should work the plan keeping the vision in mind for the future. Jerry continued to espouse his mission to earn a paycheck.

Although the sales agents started to develop, the revenue did not keep pace with Jerry’s mission for a paycheck. Joe felt good about the developing sales agents who started to ramp up sales. Jerry began withdrawing from the company because his sole mission relied on earning a paycheck. Joe started to feel overwhelmed because he had to do everything himself.

The lesson learned from Joe and Jerry’s experience is to know your partner and decide on their roles before starting a business. In this case, Joe took the role of the visionary leader to follow plan. Jerry’s only role came from his mission to receive a paycheck. A visionary leader needs to have teamwork. The missionary leader has more selfish motives and sits back waiting for business to develop.

Before taking on a partner consider not just how to divide profits, but what role each will play in running the business. Consider the expected time the business needs each partner to devote and what to hold each partner accountable for. Decide how often partners will meet and go over plans to stay on track. A few questions to ask include:

  1. How does the company track and share information?
  2. How does the company decide on use of available capital?
  3. How are organizing goals decided and carried out?
  4. Who is responsible for carrying out the strategic plan?
  5. What steps does the company need to seek more assets?
  6. Does compensation match with the role of the partner?

Are you thinking of taking on a partner? Have you defined the roles of each partner before starting your business? I urge you to do so before problems start to develop. Do you want help in setting up a plan and agreement for your partner? Learn more.

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Entrepreneurs Connect Where Others Fear to Tread


Entrepreneurs have the unique ability to connect with consumers and find out what they need. Big companies usually brand their products and use already proven models to produce profitable lines of business. These companies do little to connect with the consumers they aim to serve once they find a working model, but the entrepreneur is in a unique position to see what works for consumers and what does not. The entrepreneur continually reaches out to consumers to note changes and find ways to serve them (Rae, 2004).

Bruder (2010) offered several accounts of entrepreneurs who wanted to reach out to consumers and develop their stories to personalize their products and show consumers why they benefit them. Bruder explained such accounts humanize the products to customers and show them why their products will solve their problems. Big companies often overlook the human touch and personal connection with consumers. Rae (2005) developed a model showing entrepreneurs learn their businesses from contact with consumers through personal and social connections, recognizing opportunities from cultural exchanges, and engaging with consumers. Entrepreneurs have more intricate relations with consumers and can better address their needs by learning and gaining experience from such dealings.

Thilmany and Loughlin (2010) suggested entrepreneurs should never stop learning and finding ways to improve their products. Experience with consumers helps the entrepreneur understand flaws in the competition and shows commitment to solving problems consumers face with existing products. Conversely, big businesses work their model until it matures and starts to falter before exploring flaws giving the entrepreneur an edge because of the closeness to the consumer.

Rae (2004) explained savvy entrepreneurs should spend more time working on the business than in the business. Opportunities come from learning what works and what does not. Working on the business spreads and minimizes risk, attracts and retains employees, and improves developing innovations. Working on the business helps build customer relations, develop managers and teams, and develop new markets.

Do you as a small business owner go where others fear to tread? Please let us know your thoughts, or if you want help I encourage you to contact us now to learn more.

References

Bruder, J. (2010). Turning business owners into stars of their own stories, New York Times, pp. B.8-B.8. Retrieved from http://search.proquest.com/docview/757765326?accountid=35812http://linksource.ebsco.com/linking.aspx?genre=article&issn=03624331&volume=&issue=&date=2010-10-14&spage=B.8&title=New+York+Times&atitle=Turning+Business+Owners+Into+Stars+of+Their+Own+Stories%3A+%5BBusiness%2FFinancial+Desk%5D&au=Bruder%2C+Jessica&isbn=&jtitle=New+York+Times&btitle=

Rae, D. (2004). Practical theories from entrepreneurs’ stories: Discursive approaches to entrepreneurial learning. Journal of Small Business and Enterprise Development, 11(2), 195-202. doi: 10.1108/14626000410537137

Rae, D. (2005). Entrepreneurial learning: A narrative-based conceptual model. Journal of Small Business and Enterprise Development, 12(3), 323-335. doi: 10.1108/14626000510612259

Thilmany, J., & Loughlin, S. (2010). Taking care of business: Entrepreneurs share their success stories. Biomedical Instrumentation & Technology, 44(6), 472-473. doi: 2229159061; 56859991; 68217; BMIT; 21142509; INODBMIT0006941046

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Entrepreneurs: Knocking on Heaven’s Door


Alexander Graham Bell once said, “When one door closes, another opens; but we often look so long and so regretfully upon the closed door that we do not see the one that has opened for us” (Bell, n. d.).

Often the entrepreneur dwells on the negative instead of pursuing more positive leads. The doors of opportunity are all around us, but when a prospect shuts the door we spend too much time looking for reasons the door shut on us. The savvy entrepreneur moves on and does not dwell on doors shut by prospects. The novice entrepreneur spends too much time trying to find out what went wrong. Entrepreneurs can learn from the shut door, but should move on. Often the reason comes out later anyway. So why dwell on misfortune instead of focusing on new opportunities?

The next opportunity may show the entrepreneur what went wrong the first time around, but if the entrepreneur does not pursue the next opportunity, likely he or she will not learn nothing from the lesson of the closed door. Comparing experiences helps the entrepreneur see how effective different strategies are. The entrepreneur should not keep taking the same steps if the results do not change. Trial and error helps entrepreneurs open doors the next time around.

Extensive planning and analysis is for managers, not for entrepreneurs. Entrepreneurs find success by failing and trying new approaches. Dwelling on closed doors puts the focus on failing, but trying new approaches focuses on opportunities. The more the focus is on new opportunities, the greater the chance of succeeding by learning from mistakes (or failures).

Each failure is a step closer to the next success and entrepreneurs should look at failure not as failure, but as a mover closer to success. Failures are a challenge all entrepreneurs must overcome to see success, but they should not let failure paralyze them. Why fail when you can succeed?

I encourage you to start find the motivation to look at opportunities instead of failures. Start knocking on heaven’s door. You can start now by signing on with us to help you. Learn more.

References

Bell, A. G. (n. d.). QuoteWorld.org. Retrieved from http://quoteworld.org/quotes/1168

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Evidence Social Entrepreneurship is on the Rise


I have expressed the view previously the next great wave of entrepreneurship will come from social entrepreneurs. I found evidence the rise of social entrepreneurship is on the horizon in an article I found in this week’s Bloomberg Businessweek.  The article is about a firm headed by Chamath Palihapitiya called Social+Capital Fund. Palihapitiya is a former Facebook executive, who left about a year ago to launch the new venture capital firm (Bennett, 2012).

Palihapitiya believes properly placed venture capital can solve the world’s biggest problems left from gaps caused by the shrinking scientific ambitions of government, foundations, and other global organizations (Bennett, 2012). Politicians demonize government handling of social problems leaving  social entrepreneurs as the suitable outlet for dealing with these problems. Universities have dwindling funds devoted to research and can no longer deal with social problems.  Bennett explained how Kauffman Foundation, an independent organization, has failed to produce results in dealing with issues it funded over the last 20 years. Palihapitiya believes private equity or as he puts it “purpose-driven money” is the answer to solving such problems (Bennett, 2012).

Social+Capital has amassed an army of technologists and entrepreneurs to find and build products aligned with solving problems in the health care, education, and the financial services industry. These people include Reid Hoffman (LinkedIn), Sean Parker (Napster and Facebook), Kevin Rose (Digg), and Joe Hewitt (Mozilla and Facebook). Several companies funded by Social+Capital have already started to deal with social problems in these industries. The idea is for these companies to make money while solving societal problems. Palihapitiya’s idea is to find brilliant people of the Steve Jobs variety and invest in them to develop solutions to societal problems (Bennett, 2012).

Palihapitiya admitted inequities in the global economic system precipitated his idea to find brilliant leaders to solve societal problems by making money (Bennett, 2012). Between 1987 and 1997 nonprofit organizations grew to 1.2 million or by 31% (The new nonprofit almanac & desk reference., 2002; Noruzi, Westover, & Rahimi, 2010). These numbers show a growing need exists for social entrepreneurs to solve societal problems. Palihapitiya has started his firm to fund innovation solutions and allow entrepreneurs to make money, while solving such problems.

Social entrepreneurs will play a major role in the global economy. Innovative solutions from social entrepreneurs will create great value by addressing societal needs. I encourage prospective entrepreneurs to start now to take advantage of this opportunity. We can help you get started and I encourage you to learn more.

References

Bennett, D. (2012, July 30 – August 5). The league of extraordinarily rich gentlemen. Bloomberg Businessweek, 54-56.

The new nonprofit almanac & desk reference. (2002). San Francisco: Jossey-Bass.

Noruzi, M. R., Westover, J. H., & Rahimi, G. R. (2010). An exploration of social entrepreneurship in the entrepreneurship era. Asian Social Science, 6(6), 3-10. doi: 2233824571; 56997641; 137930; SSCS; INNNSSCS0000567695

 

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Small Business 101: Lessons Learned from the Dog


 

One of the most important ways for entrepreneurs to learn is to watch others, and what better way than to learn than from watching the pets we love. I have learned so much from my dog, a yellow Labrador retriever, and I want to share some of the tricks I learned from her. Abby is my most loyal and obedient partner and I value the lessons she has taught me. I hope you can learn from what she taught me.

One of the first tasks an entrepreneur needs to learn is how to hunt when hungry. Abby has the distinct ability to sense when she needs a meal. She knows how to hunt and find food to satisfy her appetite. An entrepreneur is hungry often when first starting out and must also find a way to hunt to satisfy the urge to eat. Too often I find entrepreneurs taking hunting for granted mistakenly believing hunting is not an important task, but I find hunting is one of the most basic primal tasks an entrepreneur has. Good entrepreneurs learn to hunt early and often because they  need to eat to prolong their existence. Hunt if you want to survive.

Abby also taught me to keep digging. An entrepreneur’s work is never done and to find what one needs one must always keep digging and not let obstacles stand in the way. If a fence or roadblock exists dig under it and find the way to what you need. An entrepreneur never knows what he or she might find, but keep digging and the treasure will come. Dig to find your way.

Another trick I learned from Abby is to keep my sights high. You never know what might drop from the sky. I have seen Abby look at the squirrels on the fence or in the trees and one misstep causes them to drop to the ground in striking distance. I have seen the same result when Abby kept an eye on the birds that did not leave themselves enough room to climb back up and dropped to the ground. Entrepreneurs should keep their sights high as no one knows if something good will drop in their lap. Keep up your head and salvage what drops from the sky.

On a related note, I also learned from Abby to make my presence known. Abby lets me know she is there and if something falls from my grasp she is there to reclaim it. Squatters rights matters! The entrepreneur can also claim something that falls from a competitor or supplier’s grasp and use it to make life better. Claim the prize by making your presence known.

Once Abby claims a prize she also never lets go. Once the squatter’s rights rule takes effect, entrepreneurs need to hold on to what they have gained presuming it has value.  If the entrepreneur fails to protect the prize the same can happen to the entrepreneur that happened to the competitor or supplier. Never let go if you want to keep the prize.

Similarly, Abby taught me to keep an eye on the prize. If you have not yet gained the prize this step is most important because once you take your eye off the prize, the more apt you are to lose it. Entrepreneurs need to stay focused and continually look for what they are after. If you want a prize bad enough you have to keep your focus. Never let your eye off the prize.

Once Abby finds a prize, she taught me not to waste anything. Waste violates the survival rule as the entrepreneur should always set aside enough for down times. Squander what you find and do not use as it can come in handy when business is down. Never waste what you have, but keep it for when you fall on hard times.

Another trick I learned from Abby is to have a sixth sense and keep prepared. When someone comes to the door Abby is on her way before anyone knocks or rings the bell. Good entrepreneurs need to prepare for the unknown and have a sixth sense. Anticipation puts you in front of others. So prepare yourself by having a sixth sense and anticipating what is to come.

Abby has another natural knack that I learned that has to do with networking. Abby keeps abreast of the trends and setting by networking with her peers. Entrepreneurs need to scan the environment to find their niche and identify new opportunities.  Sniff out opportunities by looking at what peers do!

One other find from Abby’s behavior is to play the game by your own rules. If Abby has the opportunity to define how to play the game she does and lets others play by her terms. Entrepreneurs need to define the rules by which to play the game or risk letting someone else control how they play. Define the rules to benefit how you play and do not rely on someone else to set them for you.

With what I learned from Abby, I have conferred on her the doctor of fine bones degree. I think she has earned her degree and can teach others many good lessons about entrepreneurship. I hope you have found her teachings informative. I continue to learn from Dr. Abby and you can too. I encourage you to act now and learn more.

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America’s First Entrepreneur and Founder


“Content makes poor men rich; discontent makes rich men poor” (Franklin, n. d.).

Ben Franklin is America’s true founder and first entrepreneur and his story can teach us many lessons. Franklin exemplified the supreme risk taker because he signed the Declaration of Independence with 55 other men who risked their lives to forge America’s future. Franklin educated himself by reading and had a reputation as a contrarian, humorist, and adventurer. Franklin used his will to build a successful business and a nation the world would envy (Otto, 2011).

Although Franklin started his life in poverty, he died in great wealth and had a passion for his Christian religion and a movement called the Great Awakening. This movement believed in the welfare of the people and had a contempt for cruelty and corruption. Because of his religious beliefs, Franklin thought politicians should serve the country without pay (Otto, 2011). Franklin also stressed the importance of creditors supporting inexperienced entrepreneurs to foster  representation and build a national culture. Franklin believed in public projects benefiting the nation  and appealed to working-class people (Baker, 2000; Mulford, 1999).

In 1729 after working for his brother James for a few years, at age 17, Franklin bought the Pennsylvania Gazette.  Franklin began publishing the Poor Richard’s Almanac in 1932, which became the most popular publication in America. Apart from his publishing career, Franklin founded the first proprietary library as part of the Academy of Pennsylvania, which later transformed itself into the University of Pennsylvania.  Franklin also helped develop the postal system and became the first postmaster. Beside this accomplishment, Franklin invented bifocal eye glasses, mapped the Gulf Stream off the East Coast, and provided evidence lightning is electricity by inventing the lightening rod (Otto, 2011).

Besides his inventive prowess, Franklin served in the Continental Congress and became the oldest member to sign the Constitution. Only six people signed both the Declaration of Independence and the Constitution, and Franklin is one of these people. Franklin had an instrumental hand in uniting the founding fathers to sign the Constitution despite some who did not fully support it (Otto, 2011). Entrepreneurs unite people with a common vision and Franklin personified this role.

Ben Franklin saw the greatest vision through in the history of this country and deserves credit for his remarkable accomplishments. Because of his vision, the United States became a great country and a haven for people to gain and respect individual liberty, freedom of expression, and have a government representative of the people (Otto, 2011).  Now is a good time to reflect on the vision of America’s founder. Franklin united the country through his vision and entrepreneurs should have a special place in America because of it. Yet, today entrepreneurs do not have the same esteem despite their role in creating economic growth and jobs.

I want to hear your thoughts on what this country can do to regain Franklin’s vision and return entrepreneurs to the prominence they deserve. Post your comments here.

References

Baker, J. J. (2000). Benjamin Franklin’s autobiography and the credibility of personality. Early American Literature, 35(3), 274-293. doi: 64935335; 1281372; 14371; PEAL

Franklin, B. (n. d.). Greatest Benjamin Franklin Quotes. Great Quotes – Powerful Minds. Retrieved from http://www.great-quotes-powerful-minds.com/benjamin-franklin-quotes.html

Mulford, C. (1999). Figuring Benjamin Franklin in American cultural memory. The New England Quarterly, 72(3), 415-443. doi: 45962354; 1065448; 29070; NEQUA7; PNEQ; 04514915; 99454974

Otto, L. (2011). Benjamin Franklin: America’s original entrepreneur. Leadership & Organizational Management Journal, 2011(4), 132-149. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=ent&AN=73204254&site=ehost-live

 

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Reclaiming the Entrepreneurial Spirit


I read an article in Bloomberg Business Week about Andrew Mason. Mason is the headwaiter at a Japanese restaurant in Chicago’s Wicker Park. However, the job is Mason’s part-time evening job as by day he is the chief executive officer and founder of Groupon. What struck me reading the article is that Mason has matured from his playful childlike demeanor, which allowed him to develop the Groupon concept. Mason has become a more seasoned entrepreneur trying to hold on to what he started and run it in a more businesslike manner (Etter & MacMillan, 2012).

Although investors and analysts have challenged Mason’s running of Groupon, he has kept a lock on what he created. Mason wants to improve Groupon without giving it away to suitors offering him large amounts of money to buy the company. Mason turned down an offer by Google to buy the company, which would have allowed Mason to cash out. Mason turned down the offer despite problems it has had with profitability and holding up share value.  Mason admitted the company has had problems with its operating system and commented, “we have to get good at this” (Etter & MacMillan, 2012, p. 50)

Meanwhile, executives at Groupon have noted the level of seriousness has notched up and the company now employs more lawyers and accountants. Groupon has even purchased other companies and has set up a location in the Silicon Valley in California.  Despite his critics lashing out at him, Mason wants to preserve control over the company he started and claims he is in the business for more than just the money.  Mason said his company wants to solve a business problem, which is his main motivation (Etter & MacMillan, 2012).

Although Mason may have much to learn, he has the entrepreneurial spirit to perfect and hold on to what he started.  Mason still has a vision and he wants to cement it instead of giving it away to someone else.  Mason still studies the disconnect in the operating system as maitre d’ of his part-time job at the Japanese restaurant and has learned from the experience. Even though Mason has learned from his experience, he realizes still has much to learn.

Only time will tell if Groupon can get to the next level, but I admire Mason for his stick-to-itiveness. I believe Mason has the characteristics of a genuine entrepreneur as he loves what he does and wants to perfect it. Money is not his only motivation and his quest for perfection overshadows any thirst to get rich quick. Mason continues to learn from his experience and enjoys every minute of it. Mason does not fear failure, but looks it straight in the eye. I believe more entrepreneurs need to reclaim the entrepreneurial spirit.

What is your take on reclaiming the entrepreneurial spirit? I want to hear from you. If you want to develop the entrepreneurial spirit I suggest learning more about how you can starting now. Learn more.

References

Etter, L. and MacMillan, D. (2012, July 16-22). Groupon tries to ‘Get Good’ at growing up. Bloomberg Businessweek.

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Stop the Predator Soothsayers


One of the traits of a good entrepreneur is to stop people trying to take advantage of them by foretelling the future. So often I see people trying to sell their products and services telling the small business founder if he or she does not buy the product the sky will fall on them. Savvy entrepreneurs filter the predator soothsayers claims to conserve capital.

My advice to a new business founder is to buy goods and services as you need them only if they are absolutely necessary to the business’s plans. Predators will try to sell the small business founder everything under the sun. If the predator is so hungry, the small business founder should ask for a free trial with no strings attached to see if the product or service performs as intended. Before signing on, business founders should ask themselves if the product or service is absolutely necessary or if they can get by without it.

Capital preservation is critical when a business is in an embryonic stage. The small business founder should take great care to preserve capital. I have seen too many small businesses spend foolishly and eat the capital the company needs to survive. A savvy entrepreneur learns to make do with less. Learning to say no is a tough assignment, but pays dividends in the long-run. When in doubt, return to the business plan and only say yes to those items included in the business plan.

Are predator soothsayers knocking on your door? How do you deal with them? If you need help learning to say no I encourage you to get help now. Contact us for help.

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Starting a New Business Doesn’t Have to Be Taxing


One of the most often forgotten about benefits new business founders overlook is the ability to carry forward and carry back a net operating loss. Founders of new business struggle to find sources of cash flow available to bootstrap their way to sustainable profits. A new entrepreneur founding a business should consider the benefits of cash flow from the net operating loss.

A company has a net operating loss when its business expenses exceed it business income. Business expenses excludes any capital losses, personal exemptions, and 50% of the gain from the sale or exchange of a qualified business stock. Business expenses also exclude alimony paid, contributions to an individual retirement account or self-employed retirement plan, payments to a health savings account, and most itemized deductions with some exceptions.

A founder can carry back a loss two years before the year in which the company incurred the loss creating a refund of previously paid taxes. A company can carry forward any remaining losses for up to 20 years reducing future tax liabilities. When a new business struggles to make ends meet it should not lose sight of this important tax benefit.

Most new businesses take 3 to 5 years to achieve profitability, but meanwhile the company can preserve cash. Using the net operating loss deduction can produce cash from the refund of taxes paid previously. This refund produces cash a business owner can use in the business.

Have you built the net operating loss into your cash budget? If you want to take advantage of the net operating loss, but have not already done so I encourage you to get help now. Contact us.

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