Entrepreneurs’ Favorite Mistakes

April 16, 2007

By Stacy Perman, Jeffrey Gangemi, and Douglas MacMillan

Success and failure are two sides of the same coin. Any successful business person, from a multinational mogul to the owner of a corner taco stand, has made a mistake-in most cases several. But those who have come out on top all say the same thing: It wasn’t so much the mistake but what they learned from it that made the difference toward their end goal of success.

BusinessWeek.com recently spoke to small-business owners and entrepreneurs and asked them each to pick their favorite mistakes and explain how they turned their mishaps around.

David Landis

Founder and president, Landis Communications

Public relations firm
San Francisco
www.landispr.com
Founded in 1991
Sales: $1.7 million

“I learned the most important lesson during that last economic downturn (and a new way of doing business that is still in place at our agency today). Namely, that for CEOs and CFOs to understand the value of your product or service, you must quantify the results and demonstrate value that supports their business.

“We developed a new proprietary ROI metrics program-we call it ‘Promised Results.’ At the outset, we sit down with new clients, tangibly define what success will look like-and then individually tailor an ROI metrics program that supports the bottom line.

“‘Promised Results’ is my favorite mistake. Because of it, we had our second-best year last year, with revenues of $1.7 million, and we’re on track to do even better this year. Here’s to more mistakes!”

Jodi Gallaer

Founder, Jodi Gallaer Lingerie

Maker of lingerie for full-busted women
Newport News, Va.
www.jodigallaer.com
Founded in 2004
Sales: NA

“When I first started, I figured the best thing was to get my product into as many stores as possible. Most new lingerie terms will ask for payment right away or COD, but some retailers will ask to pay later. If a store asked for 30 days of credit, I was too willing to provide it. A couple of them had been in business for a long time, so I thought it would be no problem. It took me months and months and months to collect. I never extend credit anymore, at least not for any new clients.”

Patricia Helding

Owner of Fat Witch

Wholesale brownies manufacturer
New York
www.fatwitch.com
Founded in 1991
Sales: NA

“The only thing I could bake was brownies. I think we might have been more successful sooner if we had a broader scope. On the other hand, I think what it did in the long run was help create our brand. [Now] we’re going to branch out with cookies and stuff.”

Peter Tourian

Founder and CEO, Synergy HomeCare

Franchise company offering in-home, nonmedical care to individuals requiring daily living assistance
Gilbert, Ariz.
www.synergyhomecare.com
Founded in 2002
Sales: NA

“I was eager to attract new franchise owners. I spent tens of thousands of dollars on Internet advertising only to find that traditional marketing methods, like referrals, direct marketing, and PR, were more effective for me.

“I have since cut back on Internet advertising and found that the quantity and, more importantly, quality of my leads have increased. To date, franchise sales have increased 35% since decreasing Internet advertising and relying more on these old-school methods. I expect to reach my goal of selling 300 franchises over the next five years with this continued approach.”

Mark Smith

Owner and chef, Tortilla Press

Mexican restaurant
Collingswood, N.J.
www.thetortillapress.com
Founded in July, 2002
Sales: $1.22 million

“The first three and a half years of the business, I kept hiring people who were ineffective, just because they were nice people. We were hiring basically on personality and not on experience and qualifications. We decided that wasn’t working for us, and we ended up developing a profile for the job and a specific list of criteria for the candidates. As a self-made entrepreneur, you have to keep trying things until you find the right combination. Somebody either had to beat us over the head or we had to make the mistake.”

David B. Demyan

Franchisee, Express Personnel Services

Provider of personnel employment and payroll services
Boca Raton, Fla.
www.expresspersonnel.com
Founded in 2006
Sales: NA

“Before becoming an Express Personnel Services franchisee, I had been in the staffing industry for the past 20 years as half-owner of a technical staffing firm in New Jersey. After moving to Boynton Beach, Fla., in 2003 and trying to run my New Jersey staffing firm from afar, I realized I simply could not be in charge of day-to-day operations while living so far away. I would need to either give up that role or give up my ownership in the business.

“Not ready to retire, I decided to sell my interest in the New Jersey business and open an Express Personnel office in Boca Raton. Living just a few miles from my new business, I could make all important decisions regarding daily operations. I wish I had done this sooner. It was difficult and frustrating not being able to grow my previous business. I felt badly that I was not able to give my all to a company that I helped build.

“Had I made the decision earlier, I would have had three extra years to grow my new business. If someone is planning to move to another state, I recommend they give up the daily responsibilities associated with running the business. If they are not ready to do that, then they should start a similar business near their new home.”

Nina Riley

Founder and CEO, Water Sensations

Maker of clear-liquid flavor enhancers for water
Southport, Conn.
www.watersensations.com
Founded in 2005
Sales: more than $1 million in first year

“I would’ve rethought the pricing strategy more specifically. Instead of going with the 16-count, I should’ve gone with the 12-count package size [of the product]. With a price point at $3.99, instead of $2.99, we were limiting the number of people who would try the product.

“When things go bad-at the first indication-you gotta nip it in the bud, wrestle it to the ground to fix it. You just can’t let it go. If this is your own company, you have to strive to be perfect.”

Nick Lindauer

Owner, Sweat ‘N Spice

Online hot-sauce vendor
New York
www.sweatnspice.com
Founded in 2001
Sales: $130,000

“Making investments in product lines that aren’t marketable was the first learning curve we [dealt with]. We were brand new, didn’t know the industry quite as well, and we bought a bunch of product that didn’t sell very well. We’ve learned to pick out the correct products that are going to sell online. Those that we’re unsure about, we’ll buy a smaller amount and we’ll test-that testing has really let us pick out the right products for the mix.”

Bob Kodner

CEO, The Crack Team

Foundation and crack-repair company
St. Louis
www.thecrackteam.com
Founded in 1985
Sales: about $10 million

“If we had to do it over again, we would’ve incorporated humor into our marketing campaign earlier than 2002. That’s when we rolled out [logo and character] Mr. Happy Crack [and] our leads went up 80%. We were just in the process of starting to franchise and immediately found that we had this powerful brand that separated us-not only from competitors in our industry, but from a slew of franchise opportunities that people had to choose from. Entrepreneurs should go with their instincts and roll the dice now and again.”

J.B. Schneider

Co-founder and marketing & product development manager, P’kolino

Maker of innovative children’s playroom furniture
Dania Beach, Fla.
www.pkolino.com
Founded in 2005
Sales: NA

“If I could call a do-over, I would replay our initial manufacturing strategy of finding a one-stop shop. In theory, having only one source for fine-tuning and producing our premier product would save us time. In reality, it nearly cost us our company.

“We were so determined to follow this strategy that when we could not find willing parties in the U.S. or China (we were too new and too small), we went to Brazil. The distance, communication gap, and unfamiliarity with U.S. regulations [took] so much time-so much of our time. Seemingly simple product changes prove

d difficult. There was just too much that was out of our control and we were often left waiting.

“The one-stop shop can be a tremendous asset. But for a product startup, I would now much rather have the control and flexibility of a small local manufacturing network to get a product to market.”

Peter Marston

Founder, Marston & Langinger

Designer and manufacturer of custom-made residential conservatories, greenhouses, garden rooms, and interior furnishings in Europe and the U.S.
London
www.marston-and-langinger.com
Founded in 1972
Sales: NA

“When we brought Marston & Langinger to New York, I was determined not to make the classic cultural mistakes-New York isn’t California, which definitely isn’t Michigan. I’m sure Americans are as irritated by Europeans talking of the USA as if it were one homogenous market, as Brits are by being lumped in as a stop on a Europe trip or sales campaign.

“We learned from our mistakes when we opened in Germany [and] got everything wrong, such as opening on Saturday, which we learned wasn’t the way things were done.

“This time, coming to New York City, we were much more careful about understanding who we are serving and where to be. We had the help of a brilliant Realtor who steered us into SoHo, which has proven to be ideal for our brand and the lifestyle we sell.”

Source

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The End of a 1,400-Year-Old Business

April 16, 2007

The world’s oldest continuously operating family business ended its impressive run last year. Japanese temple builder Kongo Gumi, in operation under the founders’ descendants since 578, succumbed to excess debt and an unfavorable business climate in 2006.

How do you make a family business last for 14 centuries? Kongo Gumi’s case suggests that it’s a good idea to operate in a stable industry. Few industries could be less flighty than Buddhist temple construction. The belief system has survived for thousands of years and has many millions of adherents. With this firm foundation, Kongo had survived some tumultuous times, notably the 19th century Meiji restoration when it lost government subsidies and began building commercial buildings for the first time. But temple construction had until recently been a reliable mainstay, contributing 80% of Kongo Gumi’s $67.6 million in 2004 revenues.

Keys to Success

Kongo Gumi also boasted some internal positives that enabled it to survive for centuries. Its last president, Masakazu Kongo, was the 40th member of the family to lead the company. He has cited the company’s flexibility in selecting leaders as a key factor in its longevity. Specifically, rather than always handing reins to the oldest son, Kongo Gumi chose the son who best exhibited the health, responsibility, and talent for the job. Furthermore, it wasn’t always a son. The 38th Kongo to lead the company was Masakazu’s grandmother.

Another factor that contributed to Kongo Gumi’s extended existence was the practice of sons-in-law taking the family name when they joined the family firm. This common Japanese practice allowed the company to continue under the same name, even when there were no sons in a given generation.

So if you want your family business to last a long time, the story of Kongo Gumi says you should mingle elements of conservatism and flexibility—stay in the same business for more than a millennium and vary from the principle of primogeniture as needed to preserve the company. The combination allowed Kongo Gumi to survive some notable hard times, such as when it switched temporarily to crafting coffins during World War II.

Burst Bubble

The circumstances of Kongo Gumi’s demise also offer some lessons. Despite its incredible history, it was a set of ordinary circumstances that brought Kongo Gumi down at last. Two factors were primarily responsible. First, during the 1980s bubble economy in Japan, the company borrowed heavily to invest in real estate. After the bubble burst in the 1992-93 recession, the assets secured by Kongo Gumi’s debt shrank in value. Second, social changes in Japan brought about declining contributions to temples. As a result, demand for Kongo Gumi’s temple-building services dropped sharply beginning in 1998.

By 2004, revenues were down 35%. Masakazu Kongo laid off employees and tightened budgets. But in 2006, the end arrived. The company’s borrowings had ballooned to $343 million and it was no longer possible to service the debt. In January, the company’s assets were acquired by Takamatsu, a large Japanese construction company, and it was absorbed into a subsidiary.

To sum up the lessons of Kongo Gumi’s long tenure and ultimate failure: Pick a stable industry and create flexible succession policies. To avoid a similar demise, evolve as business conditions require, but don’t get carried away with temporary enthusiasms and sacrifice financial stability for what looks like an opportunity. These lessons are somewhat contradictory and paradoxical, to be sure. But if sustained success came easy, then all family businesses would have a 1,428-year run.

Source

Take Two Yields One Speedy Startup

April 16, 2007

Will Anderson, a 2006 Stanford B-school graduate, knows something about making the most out of a business failure. Despite winning the 2005 Business Association of Stanford Engineering Students (BASES) business-plan contest, his company, Adaptive Hearing Solutions (AHS), which aimed to revolutionize the hearing aid industry with its sound filtering technology, proved to be a dud. “We had gotten to the point where we could test the technology, but in the end, the tests didn’t pan out,” says Anderson. “The assumptions didn’t hold, and we had to give up. Otherwise, we could have spent four years trying to make something out of nothing.”

Since shuttering the fledgling business, Anderson, 30, started Start-up Fund, an incubator designed to test potentially VC-worthy business ideas. Anderson was determined not to waste any more time than necessary on ideas without legs. “The purpose of Start-up Fund was to find, test, and launch one company that would have a high probability of success (compared to a typical seed-stage startup). Once this company was formed, Start-up Fund would be folded into the new company. It was not meant to be a perpetual new venture incubator,” says Anderson. His plan was simple: He’d spend about one month assessing each opportunity, identifying the critical assumptions upon which its success would depend, and then spend the next four to six months testing the assumptions, with a target budget of less than $100,000 per idea.

Multiple Pitches

For money, he relied on a handful of investors whom he knew through Stanford and the BASES business plan contest. Unlike traditional investor/startup relationships where investors bet seed capital on a single entrepreneurial venture, Start-up Fund relied on investors willing to throw in between $50,000 and $150,000 each, who would count on Anderson’s experience with the failed AHS to determine each idea’s viability. Since Anderson wasn’t pitching one idea, investors had to be convinced that he would be able to find good ideas, identify and test the critical assumptions, and then execute a business strategy to make the company successful. And Start-up Fund was designed to own equity in the company that resulted from it, so the investors wouldn’t receive a payout until the company achieved a successful exit in either an IPO or acquisition.

The ideas Anderson tested came from a variety of sources. Some of the 10 or so on his list were his own. Others were technologies developed at Stanford or ideas referred through contacts in VC firms, where partners see a lot that are just too early for their funds. “It used to be the case that an engineer could get funded with little more than a patent application,” says Anderson. “But, in the last seven or eight years, VCs are now doing less but bigger deals. This means they have to chase the bigger, later-stage deals and can’t focus so much on the seed deals. This is the market gap that I wanted to exploit,” says Anderson.

The Bottom Line

Anderson believed an entrepreneur with a good idea might only need $100,000 to test a potential blockbuster, but with all the other costs—including manpower, technology, market research, and other resources—the actual cost could approach $500,000 to prove its worth. Start-up Fund’s system was designed to wipe out the extra $400,000 in expenses.

Many times, entrepreneurs need to raise seed capital from a number of different investors, only later going to the VCs if the idea has the promise of scalability and big profits, says Anderson. But he believes it’s important to do the testing before building out a whole company structure. “You wouldn’t want to build a huge sales force before you know your technology,” says Ira Ehrenpreis, general partner at Technology Partners, a Palo Alto (Calif.)-based venture capital firm. “The [venture capitalist’s] discipline is in the initial identification in what the elements of risk are, and ensuring that you’re capitalizing a company to reach discrete risk mitigation milestones,” Ehrenpreis adds.

Start-up Fund embraced that idea. It just sped up the process by removing the inefficiencies of the startup process. It enabled Anderson to test several ideas under one legal entity, without going through a separate fund-raising process for each, while maintaining the ability to kill an idea that didn’t pass validation. “Rather than investing $500,000 to test one idea under the old model, a similar amount of money could test three or four ideas under the Start-up Fund model,” says Anderson. And they would get a bigger stake in the resulting company—providing it is successful.

In the Driver’s Seat

Anderson was in the process of testing various ideas when he hit pay dirt: a Web-based automobile loan origination platform with products aimed at solving problems faced by dealerships, lenders, and borrowers. He quickly set about launching the new business, folding Start-Up Fund into it and maintaining the same pool of investors. His new company, Risk Allocation Systems, closed its Series A funding and officially incorporated on Mar. 21. On July 1, the Redwood City, (Calif.)-based company will launch its first lending products in California, with initial customers consisting of Bay Area automobile dealerships and lenders.

“For me, I just wanted to build and manage a fantastic company. Start-up Fund gave me a better starting point for doing that,” says Anderson. Today he is doing what he originally set out to do—using his experience with failure to increase his chances of success.

Source

What the Turnaround Ace Knows

April 16, 2007

In his 21 years as a business turnaround expert, George Cloutier, founder and CEO of American Management Services, has seen just about every kind of business failure imaginable. After reviewing 6,000 companies in hot water, Cloutier says, he’s concluded that 90% of failures are due to bad management.

Business owners who are lax, unengaged, fearful, or in denial will never run successful companies, he says. Cloutier spoke recently to Smart Answers columnist Karen E. Klein about how entrepreneurs can avoid startup pitfalls and set their companies up to profit right from the start. Edited excerpts of their conversation follow.

Why do businesses fail?

Because they don’t make a profit. Profits aren’t everything—they are the only thing. With 90% of our clients, we install a cash management system. They don’t have cash flow plans, and they don’t budget.

Let’s say your company’s going to make $100,000 a year, or $1,400 a week after taxes. You put that amount on a spreadsheet, and you work up a budget. It’s not that tough.

Yet most business owners whose companies go under point to lack of funding as the cause.

If you’re out of money, it’s usually because you’re a bad manager. Of course there are exceptions, but in more than 80% of our clients we find they have not managed their resources correctly.

For instance, we did business with a lock and key company. They had $1 million worth of keys in their inventory but no system of keeping track of them. All the keys were different—they couldn’t identify which ones were selling and which were not.

So the company’s assets were all tied up in these keys, and a lot of them were the wrong keys. You can’t finance your way out of problems like that, you have to manage your way out of them.

Does bad management typically begin at business startup?

It may start right at the beginning, or it could be that business owners have some early success, then get carried away and get lazy or become distracted. Even though your business is doing wonderfully, you can’t spend all your time playing golf. You still have to work 60 to 70 hours a week to be a successful entrepreneur. Companies just don’t run themselves.

What are the specific hallmarks of failing to manage successfully?

Not doing financial statements honestly and accurately each month is the real killer. If you’re in school, and you get a bad report card, you know you have got to change those Ds and Fs if you want to graduate. In business, you’ve got to look at the report card and make changes if you want to succeed. But you can’t make those changes if you don’t have financial statements, or the ones you have are not accurate.

So, don’t include receivables that you’re never going to collect, don’t fantasize about sales that are never going to happen. Look at your profit and loss and cash flow statements in the cold, hard light of day.

Don’t make excuses; don’t deny bad news. Face the problems and figure out why you’re losing money. Either your prices are too low or your product costs are too high. Deal with that right away. Don’t implement a plan that will reduce your losses in six months, because you’ll go out of business before then.

Is it human nature to want to deny or put off tough decisions?

Tough decisions usually involve confrontations, and most people don’t like those. But my mother used to tell me to eat my vegetables first, and that’s what I tell clients.

We all have things we don’t want to do or we shy away from: Increase prices on our biggest clients, fire an employee who’s not doing the job. It’s easy to delay or procrastinate, but it’s much better to make a checklist of those tough things, do them, and then move on.

Time is money, and procrastinating wastes your money. Every day you let that situation continue or keep that ineffective employee on the payroll, it’s costing you money.

How do employee issues lead to failure?

Many small businesses—and even big businesses—fail to demand top performance from their employees. If someone bills themselves in an interview as the best salesman since sliced bread, hold them to it! They should be as good as they say they are.

The same goes for your suppliers, manufacturers, distributors, and anyone else you work with. You’re paying them to deliver excellent performance, and if they don’t, you have to find someone else who will.

Again, it’s tough because people don’t want to have confrontations. But if you want to be a business owner, you’re going to have to confront people, and if you can’t handle that, you’re going to fail.

The other thing about managing employees is that most business owners don’t have pay-for-performance policies. If a potential employee asks for $35,000 a year, give them $30,000 with the option to earn $40,000 if they do well.

It will be worth your money to pay 25% more if you get the performance level you want out of that employee. If other employees complain, you tell them they can earn just as much if they perform just as well.

What additional management errors do you commonly run into?

There’s way too much emphasis right now on business owners needing to delegate. When you’re a small-business owner you do have to delegate, but you can’t abdicate. Ultimately, you’re responsible for the company and you have to stay on top of things.

Even after you’ve delegated something crucial to an employee, you have to circle back regularly and make sure you’re getting the right performance in that area. Don’t blame others for their shortcomings if you didn’t bother to follow them closely enough.

I tell clients there are no bad employees, just bad owners. If an employee isn’t working out, you have to get rid of him. If you’re too busy to notice something’s going wrong, you’re not managing your time correctly or working hard enough.

If your business is in danger of failing, should you bring in a consultant?

If you bring a consultant in, make sure you’re paying them to get a new system implemented. Don’t just pay for advice—you can get loads of that for free.

Consolidating the advice and implementing it is the hard part. Get someone in who can really help you get your hands on the problems and change them. We spend 80% of our time at clients’ companies working with management and employees, doing training, and hiring and firing.

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From Startup to Success Story

April 16, 2007

By Stacy Perman

First, some good news for entrepreneurs looking to start new ventures: In 2005 some 671,800 new small businesses were launched, according to the Small Business Administration. Now the bad news: About 544,800 of them closed not long after, felled by any number of issues such as capitalization and market forces.

However, there’s no standard method of measuring startups and failures, and a 2005 Monthly Labor Report gives a considerably more optimistic picture: 66% of new businesses survive the first two years, and 44% the first four years.

“During the first two years a company is either on the road to profitability or the road to growing quite rapidly,” says Bruce Phillips, senior economist at the National Federation of Independent Businesses, a small-business lobbyist in Washington. And if not, they are likely on the road to closure.

“I don’t like to say these are failures, but business dissolutions,” he says. And a business can dissolve for any reason at all. For Phillips, “a complete failure is bankruptcy, and that number is 35,000 to 50,000 [a year].

According to Phillips, while any number of reasons can bring a business to “dissolution,” those small businesses that have the best chance of passing the two-year mark are generally helmed by people who have education and background in the type of business they are launching. “Often successful people have experience in industry. It’s not like one day they don’t like their job and, boom, become self employed,” he says.

With the historical data in mind, BusinessWeek.com checked in with a handful of small businesses started in the past five years to gauge how they’ve fared in the crucial early years following their launches and to examine the strategies they’ve employed to keep moving ahead.

The Counter

In 2003, Jeff Weinstein opened The Counter, a build-your-own-burger joint in Santa Monica, Calif., offering 300,000 possible combinations and a hip atmosphere that attracted a steady following. Less then two years later the business earned national kudos when it was ranked No. 15 in GQ magazine’s seminal list of “20 Hamburgers You Must Eat Before You Die.” After Oprah Winfrey mentioned The Counter’s burgers on her show, sales jumped from $44,000 a month to $245,000, and Weinstein soon began plans to expand through franchising.

In 2005 he told BusinessWeek.com that he planned to roll out a new restaurant in Palo Alto, Calif., to be followed by 12 spots in 2007 and 60 by the end of 2008, with an eye toward 400 to 600 nationwide locations in Florida, New York, Arizona, and Nevada.

Last year the first franchise did indeed open in Palo Alto, and Weinstein says sales are on track to reach $2.1 million, up from the original target of $1.7 million. However, Weinstein has had to slightly scale back some of his early projections and goals. For starters, this year the company will likely open 10 stores rather than 12. “I was hoping for more to be open at the beginning of 2006, but real estate takes time, and the business climate changes,” he says.

As well, in attempting not to dilute the cool neighborhoody feel of The Counter, Weinstein has found he’s had to be prudent in hiring staff, partnering with franchisers, and developing new locations. “We are continuing to seek out the best people that fit in with our ‘Counter-culture,'” he says. “It’s difficult to find the right partner and people that will make us a success. So we’ve been over-conservative with who we hire.”

And that of course has affected the speed of his expansion plans. “The problem from the start is that we didn’t want to become too cookie-cutter. My goal is to have 500 stores, but I want them to be 500 great stores. We don’t want to end up in the graveyard [with] Krispy Kreme and other concepts that dove for the goal too fast and forgot what made them special.”

That said, Weinstein says the company has hit most of its goals. He estimates the two stores will bring in about $5 million in sales this year.

Rick’s Picks

Rick Field, a former producer for newsman Bill Moyers, turned his passion for creating artisanal pickles in his Brooklyn kitchen into a bona fide business, Rick’s Picks, in 2004. During his first year in business, Field says, his sales increased 200%, and by 2005 he was selling 10 different varieties, online and in specialty stores in nine states, including Whole Foods and Dean & Deluca.

Now, Field says, Rick’s Picks is a national business, and his Phat Beets and Windy City Wasabi are sold in more than 300 stores in 35 states. Sales have grown sharply, with a 120% jump in 2006 from 2005. “In 2004 we were only in business three months,” he says, “so this is a more significant sign than the 200%.”

While sales and retail distribution are strong, Field says he is trying to “recognize the power of the Internet for our small business. We are in the middle of [turning] a new Web site into more of a selling machine and enhancing the consumer experience.”

One of the important lessons that Field says he has learned is the importance of understanding what made his brand—which first garnered notice when sold at New York area green markets—unique in the first place, and being able to communicate that message as the company continues to grow.

“I think that being able to work with distributors was a key step in spreading the message to the widest possible audience,” he says. However, as far as missteps go, “ours is a brand that needs to be managed. When you go into a new region, you are starting a new relationship, and you need to be attentive to that new partner. As a small business, we are challenged in terms of human resources. I spend a lot of time on the road. I found we are less successful in places where we have not shown up physically and put the pickles in the mouths of customers.”

Camp Bow Wow

Five years ago, Heidi Flammang launched Camp Bow Wow, a Denver doggie day care center, and a year later sold her first franchise. By 2005 she had 11 different locations and planned by the end of that year to expand to 75, each bringing in between $750,000 and $2 million in revenue annually, depending on size and location.

Like The Counter’s Weinstein, Flammang has had to recalibrate some of her targets. “The company is doing very well, and everyone is very happy. But personally, I wanted to be farther ahead as far as the number of camps opened and as far sales go.”

Flammang says she has sold 180 franchises, but only 35 are operating, well under her initial target of 75 in operation by the end of 2005. However, she says that by the end of this year she will have sold 225 franchises and there will be 75 Camp Bow Wows up and running.

“We are selling more [franchises] than we thought, but they are taking longer to open,” she says. The biggest obstacles, she says, are zoning and construction issues. “It takes so much time, and we can’t speed this up [because getting permits depends] on local municipalities.”

Flammang has also readjusted her sales goals to $600,000 to $700,000 per store, in large part because she has also scaled down the size of each camp. “Our original model has not proven that bigger camps are better,” she says. “We wanted to [keep the] intimate, boutique-camp feel… And having more than 150 dogs in a facility is too crazy.”

She’s learned a few lessons about franchising along the way. “One thing I’ve noticed is how important cash flow management is for us and the franchisees,” she says. “It’s important to have working capital and to invest wisely and to advertise. A lot of franchisers did not want to advertise. Now we have strict rules on that. We didn’t have [those rules] a few years ago.”

All in all, however, Bow Wow’s future looks good. Flammang says the company brought in $10 million in revenue last year. Based on her new goals, she expects to hit $100 million by 2010. There are Camp Bow Wows in 28 states and Canada—more than double the number in 2005.

Source

Begin with the End in Mind

March 20, 2007

I think I’m ready to start my own business, but how can I be sure? And once I do get started, do I really need a formal business plan?

To start, I’ll tackle the first part of your question. The way to know if you’re ready to be an entrepreneur is to make sure you can provide thorough and compelling answers to some very basic questions.

What do you want to build, produce, and provide? For whom? You need to be as specific as possible—for example, what type of consumer are you aiming for? What characteristics do they share? Where do they live? At the same time, you need to make sure your market is truly a large market—especially if you want to build a large scalable business.

Focus on a market or segment that’s too limited, and your business by definition will be equally constrained. Also, consider that if the market around you is large and growing, you will have more of a margin for error—time to recoup or readdress the target and a greater chance of success.

You should also be able to identify a “pain” that your product or service will alleviate. There’s truth in the old expression that people will pay more for a pain reliever than for a vitamin.

Know Thyself

Another key question to ask yourself is, “Why am I eager to start this business?” This is a question that relates both to the market and to you personally.

You need to be able to answer why you believe there’s a need for your product or service, why it’s superior to anything else available today, and why you will continue to have a competitive advantage.

Just as important, you also need to know why you want to do this personally. Why are you motivated to start this business? How deep is your passion for it? How far are you willing to go to make it a success? The answer to this part of the “why” question needs to satisfy you fully. You need to be totally convinced that you will succeed. Once you make the commitment, and when investors, friends, and family understand that you’re driven to achieve your goal, you will find people when and where you least expect, willing to assist. This leads to the following question:

Assembling a Team

How will you build your product or service? This is the essence of the business plan and operating plan. And don’t forget to be able to show exactly how you will get it to market. Often, people nail the first part of this question. For example, they have a new patentable approach for mobile search algorithms, a great development team, and a solid timeline. But they often wrongly assume that if they build it, customers will come.

That’s simply not the case. It’s critical to think through your “go-to-market” strategy. What sales methods, approaches, and channels will you use? What creative marketing approaches? Do you have alliances you can form with major companies? Do you have targeted strategic buyers? Have you tested your idea with at least 50 key potential buyers?

And then, of course, there’s the who question: Who’s on your team? Take a hard look at your own skill set. What are your strengths, and what kind of talent would complement your background? Who can you attract to your team? Who will serve on your advisory board?. Who will attract investors? And is this a business that you want to build and run? Or would you consider hiring a CEO at some point along the way? Is this a “lifestyle” business, or are you ready to scale your idea into the next billion dollar company? These are the critical questions.

Winning Qualities

Answering these questions is what forms the basis of your business plan—a living document that morphs every few months but nonetheless is a foundation upon which you build. The days of five-year business plans are long gone; but having a clear crisp five-year vision, and then a solid 12-to-18 month operating plan, will keep you in good stead. There are many resources with templates for good business plans. Keep it simple is my motto. And keep it flexible. Check out the Women’s Technology Cluster for a wealth of resources.

And if you’re ready to think big, it’s worth looking into the research of David Thomson, a colleague who decided not to take the entrepreneurial plunge right away. Instead, he decided to find out just what are the attributes of successful ventures. He lists seven criteria that almost all companies share that not only hit $100 million in annual sales but grow exponentially and hit the $1 billion mark. There’s sound advice here even for the company still in incubation.

So hold fast to your vision, but develop a plan, and begin with the end in mind. Here’s to your success!

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The Perils of Being First

March 19, 2007

By GWENDOLYN BOUNDS

In July 2001, two young entrepreneurs clad in surfer attire strode into the offices of Juice It Up!’s California headquarters to present top executives with a rather audacious request: prominent display of their new brand on the chain’s menus.

The brand was Sambazon, and its product was the frozen pulp of a Brazilian berry called açaí (pronounced ah-sigh-ee), which was chock full of antioxidants and healthy Omega fats. The fruit was virtually unknown in the U.S., and these two brothers who ran Sambazon Inc., Ryan and Jeremy Black, by most accounts, were the first U.S. supplier. But to Larry Sidoti, Juice It Up! Franchise Corp.’s vice president of development, açaí was just another smoothie ingredient, like a banana or blueberry.

“We aren’t in the business to promote brands,” Mr. Sidoti says he told the Blacks. “We’re in the business to promote Juice It Up!”

To Mr. Sidoti’s surprise, Ryan looked at his brother and shot back, “I guess we don’t have anything else to talk about then.” Explains Ryan, now 32: “They must have thought we were crazy, but if they were going to say, ‘We’ll just sell açaí,’ but not Sambazon, I didn’t see that as even an option.” Fortunately, Mr. Sidoti kept listening, and an hour later the brothers left with an agreement to supply Juice It Up! with açaí — and have it billed under the Sambazon brand.

One cornerstone of entrepreneurship is to be at the forefront of trends, pushing the envelope to find and deliver the next big thing. But being ahead of the pack can also be a tough place to be, and — as the story of Sambazon shows — being first can be even tougher. From educating consumers to outmaneuvering new rivals and perfecting packaging, trailblazers like the Blacks face a raft of challenges.

“The first guy on the beach usually gets shot,” warns Jeremy Black. “That’s the danger when you are a small guy, a pioneer.”

Today some half-dozen serious players with names like Zola and Bossa Nova compete in the açaí space. Billion-dollar beverage giants, including Coca-Cola Co., PepsiCo Inc.,Anheuser-Busch Cos., as well as Bolthouse Farms Inc., are adding the fruit to their beverage lineups. Procter & Gamble Co. recently infused açaí into its Herbal Essence shampoos and conditioners. As a result, sales of açaí products catapulted to $13.5 million in the 52 weeks ended last October from $435,000 in the same period two years earlier, according to natural-food tracker Spins Inc.

Amid it all, Sambazon, which now has 100 employees, has more than survived. The San Clemente, Calif., company’s sales totaled about $12 million last year, and the Blacks this year expect sales to increase by 50%, and to turn a profit. Their products are distributed at such stores as Whole Foods, Wild Oats and Jamba Juice, as well as many conventional grocery chains, while Sambazon açaí is found in hundreds of other companies’ products, including those of Stonyfield Farm and Häagen-Dazs.

Is the company’s future guaranteed? Not yet. But how the Black brothers made it this far offers a road map for others forging new ground.

What exactly is açaí? That’s what Ryan Black wondered on a 1999 turn-of-the-century surfing trip to Brazil, where he marveled at the crowds downing bowls of the frozen purple mush. Açaí grew atop palms dubbed the “trees of life,” and locals waxed about its mystical powers of vitality. Workers would shimmy up trees, pluck the berries into baskets and send them by boat to processing plants, where the skin was scraped off the seed, blended with water into a pulp and then pasteurized and frozen to preserve its nutrients and flavor — a curious earthy blend of chocolate and red wine.

A health-conscious former college and (briefly) pro football player, Ryan Black sensed açaí would appeal to mainstream U.S. consumers craving healthier fare. After raising $100,000 from friends and family, he and his brother began setting up an infrastructure in Brazil to harvest açaí organically and do it in a way that protected the rain forest and promoted fair trade. The trouble was, almost no one stateside knew what açaí was — or even how to pronounce it, for that matter. So how could they get their story out with no real marketing budget?

The answer was, essentially, to be traveling professors on their own. They would personally teach the nation what açaí was all about, by visiting stores and giving the stuff away.

From the beginning, the Black brothers hit music and environmental festivals and marathons, setting up booths and building a grass-roots following. They canvassed smoothie vendors, their first customer base, blending açaí into drinks, leaving literature behind and hawking their broader mission. “They’d put on quite a show, going from store to store and putting on this Barnum and Bailey act,” recalls Mr. Sidoti of Juice It Up!, which now has 130 stores in California and other states. “It helped get people behind them.”

Such education is crucial if you’re introducing consumers to a strange, new product. Steve Demos, now a member of Sambazon’s board, spent 28 years struggling to educate consumers about soy before his company, White Wave, hit the jackpot with its Silk soy milk. Mr. Demos believes it’s imperative for Sambazon to “feed people everywhere you can.”

Even as Sambazon segued into mainstream retail outlets, even as it received some $9 million in outside financing, it pressed on with its educate-the-customer-by-giving-it-away approach. Sambazon spent $500,000 last year on store demos, doing 50 a week. Top retail executives took note. “Typically, smaller companies don’t have payroll to compete with bigger players who can kick in money for advertising,” says Chris Jacoby, a category manager for Albertsons grocery stores. “But Sambazon has been first-class in terms of setting up demos. I run into their reps in our stores more than any other company.” Adds Whole Foods Market Inc. president Walter Robb: “Guys like this, you keep an eye on.”

In the meantime, açaí buzz spread. Best-selling author and dermatologist Nicholas Perricone extolled the fruit on Oprah. Early last year, a study touting the robust antioxidant properties of açaí was published in the Journal of Agricultural and Food Chemistry. This year, foods from the Amazon “such as açaí” are among top supermarket trends, according to Mintel International, a trend-spotting firm based in Chicago and London. The key for Sambazon is to now take advantage of the rising tide and not fall behind its competitors, which can take advantage of the trail that Sambazon has already forged.

Concedes Ryan Black: “Açaí is moving a lot faster than Sambazon.”

Deciphering the best way to sell açaí wasn’t as easy as with, say, a new bottled water. Frozen berry pulp in small blocks — Sambazon’s original item — was fine for smoothie bars, but not for mainstream retail. In other words: How did consumers want to consume this new product?

Mr. Demos of Silk soy milk recalls his own battle on this front. “We went through hundreds of iterations of soy foods. We made hot dogs, hamburgers, dressings, dips and entrees before we found milk.” Putting Silk in clean, familiar refrigerated milk cartons took away the “weirdness” of the soy category, he says. Mr. Demos sold his company to conglomerate Dean Foods Co. in 2002.

The Sambazon brothers threw a lot of spaghetti at the wall — perhaps too much — trying to find what would stick with consumers and simultaneously protect the taste and superfood qualities of açaí. They tried boxed juice packs that would be shelf stable without refrigeration, but they thought it distorted the flavor. “We had test runs that cost us over $10,000, and we were doing less than that in [monthly] revenue,” Jeremy Black, 33, says. Going into refrigerated coolers made more sense. They started with a smoothie product in 2003 that had a 30-day shelf life, but realized that wasn’t a long enough window to get bottles shipped, stocked and sold. So they went looking for a packer that could bottle and flash-pasteurize the açaí so it would be stable for 90 days. Finding that partner delayed their entry into bigger stores and required a $1 million investment.

In the meantime, the company launched a line of açaí pill and powder supplements and a juice line. It’s still selling its frozen smoothie packs and recently introduced a sorbet. In total, Sambazon now has 26 flavors and makes of products, which has spread it thin on a manufacturing level. “The business guys say, ‘Which ones are you going to go big with?’ ” Jeremy Black says. “The fear is that as we take it to the next level, we’ll have too many moving parts.” He plans to cut out nine products this year.

One of the hardest tasks with both being first and then competing against new rivals has been honing the brand message. When consumers don’t even know what the product is, how much can they really think about the rain forest?

Consumers, says Mr. Demos of Silk, “think, ‘It’s great, warm and fuzzy that you are saving everything but the whales, but…all I care about is saving my sorry ass, and if you can do that with your food, great. If not, I gotta keep looking.’ “

To that end, Sambazon has boiled its message down to simple slogans such as: “Superhealthy. Supertasty. Superfood,” and “Get with the purple berry.” It now relies on its Web site to explain its social work in the Amazon. And it has scaled back the size of the word “açaí” on its bottle, focusing more on promoting the Sambazon brand to stand out. Given all its competitors, “the calculated gamble is people might be looking for açaí and miss our product,” Jeremy Black says.

The surge of açaí players has tested Sambazon in several ways. In 2003, the Blacks sued a rival, claiming his açaí company used similar marketing verbiage. “It was really rough,” says Jeremy Black. “They sent out all their [marketing material] to our customers. We were very fragile, and barely making any revenue.”

The lawsuit cost Sambazon $25,000, and the imbroglio underscores the fragile nature of nascent competitors. The suit was settled with the defendant, Amazon Preservation Partners Inc., agreeing not to use certain phrases such as “Amazon Açaí” or “Power Fruit of the Amazon” in its marketing. But today the company’s Zola juice products are in some 3,000 accounts nationwide competing directly with Sambazon’s new juices, and the rivalry is intense. Chris Cuvelier, Zola’s founder, says it was never his intention to create confusion among consumers. Still, he adds, “some people out there are more litigious, and some people just want to be entrepreneurs.”

Larger rivals brought other obstacles. “The big companies…want to wait and then jump in and blow it up bigger,” Jeremy Black says. “The danger is then that someone can take it from you.” For instance, Sambazon’s açaí products sometimes get stocked inside the coolers of Odwalla açaí juices; Odwalla is owned by Coca-Cola. Because Coke distributors are in stores several times a week, the Blacks say Sambazon product often gets pushed to the back of coolers. The only way to fight this is to get more Sambazon sales staffers into stores — a costly order.

Meantime, growth has brought trade-offs. Once Sambazon began signing deals with other big juice chains, Juice It Up! stopped promoting the Sambazon brand on its menus. “I don’t blame them,” Mr. Sidoti of Juice It Up! says. “But loyalty like that is a two-way street.”

The crowded field and Sambazon’s success has raised another predicament: whether to sell out if an offer is made. It’s a choice not totally up to the Blacks; their angel investors now own one-quarter of the company. “I was in one board meeting, and I said, ‘I started this to do positive things with the world and to do good in the Amazon, not necessarily to get a big payout,’ ” Ryan Black says. “And one of these guys looked me in the eye and said, ‘Well, the problem is, then you went out and took $9 million of other people’s money.’ “

Signs suggest they can stand alone for now. Sambazon açaí products accounted for 10% of total frozen-fruit sales in natural-foods channels in the year ended January 2007, according to Spins. And by one account, their early Juice It Up! gamble has paid off as planned. Says Mr. Jacoby of Albertsons: “When I think of açaí, I think of Sambazon.”

Source

Don’t Go It Alone: Create an Advisory Board

February 1, 2007

We can all benefit from advisers—they’re the friends from the trenches who have been on the business battlefield longer than we have. Or they’re friends from a different industry or field who provide a unique perspective. Or they’re seasoned or high-profile executives who lend you credibility, thus helping you secure customers, financing, or a crucial introduction. You need advisers to bounce ideas off, to provide a reality check, to tell you when you’re about to mess up, to confide in when you’re alone at the top.A board of directors has a fiduciary responsibility to the company. They can be liable for mistakes (accounting and otherwise) that a company makes. So it’s tough and expensive to secure board directors, especially since Sarbanes-Oxley. But advisory board members don’t have fiduciary responsibility, and thus cannot be held liable. Hence their compensation is a fraction of what a board director receives.

Further, board directors have an obligation to the company first, and the CEO second. It’s the opposite with advisers—the CEO/”advisee” comes first. Don’t get me wrong—a good adviser is still looking out for the company, but their aim is to steer the advisee in the right direction to best care for the company.

Here’s a process for getting and keeping advisers on your team. Remember: Life equals the people that you meet plus what you create with them. Let’s start meeting and creating.

1. Define your advisory board member profiles. This is a list of skills and connections you want advisors to have. For instance, I recently mentored a startup in the fashion world. They had two strategic goals: to get a deal with Target and to secure more celebrity endorsements. So, some of the advisers they would need would have experience/connections in the following areas:

a. Cutting favorable and binding deals with mass-market retailers

b. Selecting, managing, assuring quality of outsourced manufacturers, shipping, lines of credit, all aspects of back-end retail infrastructure and operations

c. Securing celebrity endorsements in the music, film, TV worlds

d. Building and motivating a field sales force to ensure that hot boutiques carry their wares and that their merchandise is included in high-profile displays

e. Marketing expertise in building buzz and perception for an exclusive hot brand, and carefully crafting a separate brand for the mass-market retailers that wouldn’t cannibalize their own high-end brand (see BusinessWeek.com, 8/28/06, “Small Company, Big Brand”)

You get the idea. You want advisers who will help you build your business as well as mentor you as an executive. The best size for an advisory board is eight to 10 people. With a group of this size you’ve got plenty of room for diverse skills and contacts.

2. Determine your expectations of each adviser. For some advisers, you will be happy just to have their name on your Web site. For others, you will want to interact with them on a regular basis. For the latter, start out by asking for 15 minutes per quarter. This doesn’t sound like much, whereas one hour per year might scare busy potential advisers away.

You want to develop a mentor/sounding-board relationship with your advisers, so be willing to communicate via the method most convenient for them. Let them invite you to meet in person. Don’t immediately ask for favors—ask their opinion, ask for advice. Don’t be greedy. Do be grateful. Over time, they will gain trust and introduce you to their contacts.

3. Create your pitch and comp package. Why should someone become an adviser to you? What’s in it for them? Getting involved in a developing company in a super-cool field? Access to thought-provoking people, such as your executive team and other advisers?

Focus on the “soft” benefits first, as you likely won’t have tangible financial benefits to offer just yet. You should be able to explain the opportunity to them in five minutes or less. Like your financing pitch, your adviser pitch must be concise and compelling. If you have stock, of course you should offer it. Standard advisory board stock ranges are .25% to 3% of your common stock (vested in equal increments over 24 months), based on the degree of interaction you expect from them and their desire for involvement (from light to intense).

If you have to give away 3% of your common stock to an adviser who could seriously help your company, it may be worth it—just make sure the expectations are set out in advance. If you don’t have stock to give away, what other compensation might you offer? Perhaps volunteering at their favorite non-profit, or helping them with a project at their office, or helping to remove a problem/hassle they may have in their life.

You don’t have to offer specific compensation if you don’t have anything to provide at the moment. You must, however, express appreciation frequently, plus the desire to help them with a project at a later date.

4. Brainstorm your target list. This, my friends, is where you work it! You will be glad you’ve invested time in building your network, because it’s about to pay off. Ask your friends, colleagues, mentors, vendors, and financiers if they know people who meet the profile you seek. Practice your pitch on them to see if they find it compelling. Ask for personal intros to your target advisers. For “cold” pitches, gather all necessary contact info and research the interests of each targeted adviser. What causes do they care about? What are their hobbies? What are their interests?

5. Seek out your targeted advisers and recruit them. Perhaps they’re scheduled to speak on panels, at bookstores, at a conference. I’ve traveled great distances to meet potential advisers, and it has been worth it. Once you give your pitch, they will likely want to know more. A business plan must be concise, compelling, and complete. A pitch must only be concise and compelling in order for the prospect to request more info. That’s the time to then be complete—once they want to know more.

6. Celebrate, incorporate, communicate. After celebrating your great good fortune in securing some rocking advisers, it’s time to incorporate them into your company’s communication flow. Add their names and bios to your Web site, set up an e-mail list for monthly or quarterly high-level advisory-board communication (10 bullet points per message, max), and consider two advisory-board conference calls twice per year.

Keep your requests to a given adviser within the scope of their expertise so you can establish a success pattern from the get-go. As you work together over the coming months and hopefully years, fulfilling relationships and terrific business connections will result.

Some advisers will contribute more than others, and don’t worry if an adviser doesn’t end up working out. Rarely is it worth “firing” one—you will still gain credibility via your association with them.

If you committed a high stock compensation package to an adviser, and after repeated requests and they still don’t give you any time, have a respectful conversation with them and suggest changing their comp package. It’s better to reduce the options you give an adviser than to “fire” them.

Do you have an advisory board or individual advisers? If so, how are they working for you?

Source

Tech Stars Brighten Northern Skies

October 11, 2006

With a number of Nordic technology startups snagging eye-popping venture investments recently, one could be forgiven for feeling a sense of déjà vu. After all, in the late 1990s, Scandinavia became a breeding ground for rising European technology stars, especially in the mobile arena. But after the dot-com bubble burst, many of those entrepreneurs—and the companies they founded—fell to earth with a thud.

In recent weeks that giddy feeling has started to return to the region dubbed “Silicon Fjord.” Rebtel, a Swedish company that offers free mobile phone calls using Voice over Internet Protocol (VoIP), became the latest outfit to hit the jackpot, securing $20 million from Geneva-based Index Ventures and Benchmark Capital of Menlo Park, Calif.

Indeed, venture capital has been pouring back into the region with relish. Swedish companies alone snagged €852 million ($1.07 billion) in startup and growth capital last year, according to the European Venture Capital Association. That nearly matches the peak set in 2001 and is more than twice the amount raised in the trough year of 2003.

SECOND MARRIAGE. What’s more, this time around the startups are a lot better run. The dot-com experience reinforced the importance of having a solid business plan based on profitable, long-term growth, not just a hot fad. The crash also gave rise to a generation of entrepreneurs who lived through failure, an experience many venture capitalists consider highly educational and desirable.

“At the end of the ’90s you could do a PowerPoint presentation and get backing,” says Hjalmar Winbladh, co-founder of Rebtel, and a self-described “serial” entrepreneur who previously founded a mobile software company called SendIt that was bought by Microsoft (MSFT) for $150 million. Windbladh says it’s more difficult to get seed funding now, but argues that greater rigor is better for the long-term health of the entrepreneurial culture.

The rebirth of entrepreneurial spirit in Scandinavia is owed in part to a recent batch of inspirational success stories. The Goliath, of course, is Skype (EBAY), the VoIP software company founded by a Swede and a Dane and acquired by eBay for $2.6 billion this year. But there’s also Oslo-based Opera Software, which is a leading supplier of browsers for mobile phones and set-top boxes, and Trolltech, also in Oslo, which has carved out a niche in Linux-based software for handsets.

TAKING THEIR TIME. The main lesson learned by these Nordic startups is that there’s rarely such a thing as overnight success. Opera CEO Jon von Tetzchner and co-founder Geir Ivarsy developed one of the world’s first Web browsers in 1994 in the labs of Norway’s national phone monopoly, Telenor. But when the big telco didn’t want to take the project further, the duo struck out on their own, zeroing in on the gap in the market for browsers on mobile phones and other non-PC devices.

Telenor “gave us a flying start,” Tetzchner says, but years of hard work lay on the road to eventual success. Though Opera remains an also-ran in PC browsers, its software is now used in more than 17 million mobile phones. The publicly-traded company generated revenue of $23 million last year.

Eirik Chambe-Eng, co-founder of Trolltech, had an equally tough path. When he and co-founder Haavard Nord approached the Norwegian agency in charge of fostering startups in the mid-1990s, they were told “Guys, the job market is good, go get good jobs,” Chambe-Eng recalls. They rejected the advice, but “it was an uphill battle all the way.”

COATTAILS OF SUCCESS. It took a year before Trolltech started generating any revenue, and the pair had to rely on their wives’ incomes until the company was up and running. But it paid off: Trolltech booked sales of $17.7 million in 2005 and listed on the Oslo Stock Exchange earlier this year.

Now, industry watchers are poised for a new crop of startups to emerge from the region, inspired by the likes of Trolltech, Opera, and Skype. “Scandinavia has created world-class entrepreneurs who’ve gone on to build world-class services,” says Danny Rimer, general partner at Index Ventures, which backed Skype. “That has been amplified in the past few years. Success breeds success.”

It helps that there has been a sea change in attitude toward entrepreneurs since the dot-com bubble burst, says Rebtel’s Winbladh. “Failing is not seen as bad as before.”

MOVING ABROAD. Yet for all the inspiration and technical expertise, entrepreneurs say there are elements of Scandinavian society that still must change if entrepreneurialism is to flourish. One big sticking point: It’s tough to motivate employees by giving them stock options because options are taxed at high personal income tax rates when they’re exercised.

It’s thus “very difficult to employ people who can share the upside…which is what you need to grow,” says Winbladh. As a consequence, some entrepreneurs say, startups move headquarters abroad at their first opportunity to ensure they can attract the best talent.

There are encouraging signs of change. Many entrepreneurs say, for instance, that they expect the new center-right Swedish government to usher in a more startup-friendly environment. Others call for more collaboration between government and industry to keep the entrepreneurial breeding ground fertile. “It won’t happen on autopilot,” said Eilert Hanoa, founder of Mamut, a Norwegian company that makes business software for small to midsize enterprises.

Source

The spark is back in the north. After all, who doesn’t dream of being the next Skype?

Bright Ideas from Young European Minds

October 9, 2006

By Andy Reinhardt

Europe’s economic growth may lag that of the U.S. and Asia, but there is no shortage of ambitious young people with good ideas itching to pursue their dreams and start their own businesses. In this first ever BusinessWeek.com competition to identify promising young entrepreneurs in Europe, we asked our visitors to nominate candidates until Oct. 1. Now, for the next month, we’re hoping you will look at the intriguing group of nominees in the following slide show and pick the biz whiz you think shows the most promise. Browse through, cast your vote, and we’ll report later on the winner and runners-up.

Tristan Cowell

IC-Innovations

http://www.ic-innovations.com
Sheffield, England
Age: 25

Despite its name, IC-Innovations has nothing to do with integrated circuits. Rather, it’s an ideas factory started two years ago by Tristan Cowell, then a recent geography graduate from University of Nottingham. The seed was planted when Cowell’s mother was looking for a way to display her Christmas cards and he noticed a strip of Velcro sticking out of her sewing basket. His “Eureka moment,” as Cowell calls it, was the idea of sticking the cards to a strip of Velcro hanging from the wall.

After incorporating in 2004 and exhibiting at trade shows in England, Cowell had his big break thanks to a 100,000-unit order from Asda Wal-Mart. But his local suppliers couldn’t possibly produce that volume in time for the 2005 holiday season, so Cowell hopped a plane to Shanghai, lined up manufacturing, and made the deadline. Since then, he has rolled out Photo Hangups, Fridge Hangups, and three other novelties for displaying cards and photos. Revenues in the year ended last June hit $285,000, and Cowell figures they’ll quadruple this year. For Cowell, who has had business schemes since he was a teen, this is only the beginning.

Ben Woldring

Bencom

http://www.bencom.nl
Usquert, The Netherlands
Age: 21

Child prodigy or early entrepreneurial itch? Ben Woldring started his first company in 1998 at the age of 13, and now ranks as one of The Netherlands’ best-known young entrepreneurs. That first site, known as Bellen.com, was a place where consumers could go to compare prices and rate plans for mobile phone services.

Since then, Woldring’s company, called Bencom, has expanded to eight sites that offer clear, detailed information about fixed-line and mobile phone plans, Internet services, and utilities. The comparison services are free of charge to users. How does Woldring make money? After reading Bencom reviews, consumers can also subscribe online to the phone or utility services of their choice, and Bencom gets a referral fee. Bencom also makes money from banner ads and licensing its tools ot telecom providers and resellers. Revenues are in the “multiple millions of euros,” Woldring says.

Karm Singh

Desitouch

http://www.desitouch.com
London
Age: 25

Imagine a Web site that’s a blend of iTunes, MySpace, and YouTube, but stocked with Bollywood movies, soundtracks, and Bhangra music, and you get an idea of what Karm Singh is up to with Desitouch. A British-born Indian who built his first Web site at 16, Singh is fiercely proud of his cultural heritage yet firmly planted in the high-tech West.

His inspiration, dreamed up while studying computer science at King’s College, London, was to combine the two. Even the site’s name, which juxtaposes “desi,” the Indian word for “tradition,” with a “.com” suffix, fits the bill. Visitors can download South Asian music and videos in a variety of formats, and upload their own media from PCs or mobile phones. Singh aims to make money from transaction fees and advertising.

The self-financed Desitouch.com launched only a few months ago, but Singh expects to reach 100,000 hits a month by December. “I aim to be the world’s No. 1 South Asian entertainment Web site,” he says. At this rate, he might get there.

Lars Duursma

Debatrix

http://www.debatrix.nl
Rotterdam, The Netherlands
Age: 24

Teaching people how to constructively argue is the novel business concept behind Debatrix, based in Rotterdam. The company was started in early 2005 by Lars Duursma, the reigning world debate champion in the non-native English-speaking category. Clearly, Duursma is a believer in the power of persuasion. While a student at Erasmus University, he was hired by several Dutch firms and agencies to give speaking and debate training. “Then the entrepreneur inside me said, ‘Why not do this yourself?’” he says.

Less than two years later, Debatrix is one of the top four Dutch providers of persuasion training. It also coordinates debates for governmental bodies and companies such as ING that want to use an interactive format to present new ideas and generate discussion. Duursma is boosting his own visibility right now with a series of weekly newspaper articles analyzing the rhetorical skills of Holland’s major politicians.

With 15 freelance trainers on board and a growing roster of clients, Duursma looks to be well on his way to improving the quality of arguments in The Netherlands. That’s a goal every country might aspire to.

James Gibson

BinFix Ltd.

http://www.binfix.co.uk
Nottingham, England
Age: 24

Necessity, invention’s mother. Back in 2002, when James Gibson was a student in sports management at Brighton University, his roommate complained that nobody ever emptied the overflowing trash pail in the kitchen or replaced the bin liner. “What we need is a liner that comes up from the bottom of the bin,” the roommate said. Lightbulb moment. Gibson became obsessed with the idea and, improbably, turned it into a company.

In 2004, he moved to Nottingham and applied for space at a local business incubator. By last year, he had filed for a patent, developed a working prototype, and started looking for manufacturers. The product: a triangular cardboard box, stuffed with extra-thick trash bags, that lives at the bottom of the can. Pull one bag out, and another comes up to take its place.

A few trade shows and an award for household cleaning product of the year by Grocer magazine got BinFix noticed, and Gibson started getting orders from supermarkets. But building a company with the scale to compete against giants like Proctor & Gamble looked too daunting, so Gibson decided to license the concept to an as-yet-unnamed consumer products company. Now, with a potential royalty stream of tens of thousands of pounds annually, Gibson is pursuing a raft of new business ideas. Clearly, a young entrepreneur to watch.

Marvin Dominic Andrä

Bagpax Cargo Systems

http://www.bagpax.com
Saarbrücken, Germany
Age: 24

Like most inventions, Marvin Dominic Andrä’s “a-ha” moment came from a real-life experience. Asked by his father to take some garden clippings to the dump, Andrä was startled while driving by a spider that climbed out of the load and nearly got on his face. Had he been an arachnophobe, Andrä says, he might have crashed the car.

Thus was born BagPax, a series of padded liners that fit in the truck or back of a car and protect it from messy payloads-whether dirty children’s toys, sandy beach togs, or bug-laden compost. “Germans like clean cars,” says Andrä, who has sold hundreds of the patent-pending BagPax, which cost from $38 to $62, over the Internet and through German auto shops. Big contracts are on the horizon.

Andrä, an economics graduate from Saarbrücken University, set up BagPax from the beginning as a “virtual” company, with suppliers and partners in Turkey and Poland and a call center in Karlsruhe. For now, the trunk liners are only sold in Germany, but “it could work elsewhere, too,” Andrä says. Spoken like a true entrepreneur.

Neil Waller

Information Websites Ltd

http://www.marbellainfo.com
London
Age: 22

While earning a degree in business administration from University of Bath, Neil Waller went to work for a private-equity firm in London. But like most Brits, he hankered for getaways to the sunny south coast of Spain-especially the resort of Marbella. Yet Waller was disappointed in the quality of information available on the Internet about hotels, restaurants, and local events there, so he decided to set up his own Web site.

Thus was born Marbellainfo.com, whose traffic has increased fivefold in the past few months and now has 33 sponsoring companies. Waller’s real surprise, though, was how quickly Marbellainfo.com evolved from a site aimed at tourists into a community site used by local residents to find services and exchange information. Seeing an opportunity for other such tourist-cum-community sites, he and his business partner are now aiming to roll out similar such sites for the Algarve region in Portugal and Dubai. Someday, he says, he hopes to offer a network of hundreds of cities. Not a bad dream for a guy who was just looking for fun in the sun.

Julien Genestoux

Jobetudiant

http://www.jobetudiant.net
Lyon, France
Age: 23

French youth rallied this year against an aborted plan to make it easier for companies to hire and fire young workers. But they’re certainly eager to find jobs, as entrepreneur Julien Genestoux has quickly discovered. As a student at engineering school Insa in Lyon in 2000, he couldn’t find any summer job listings on the Internet. So three years later, he decided to build his own jobs service aimed specifically at students.

Now, a year after its launch, Jobetudiant (literally “student job”) has 200,000 registered job-seekers, an average of 10,000 open job postings every day, and should book more than $100,000 in revenues this year. Genestoux, now a business graduate student at Essec, outside Paris, thinks he could triple that in a few years. Listings are free, but lots of advertisers pay $64 per ad for higher placement, and many students pay up to $3.80 per month to see new postings via e-mail before they hit the site. More than 50% of revenues come from advertising. Genestoux attributes his success vs. larger rivals such as Monster to greater specialization. Looks like he has found the right formula in a country that needs to put more people to work.

Grant Lang

Mozzo

http://www.mozzo.co.uk
Southampton, England
Age: 24

As a business management and marketing student at Southampton Solent University, Grant Lang helped make ends meet by working in bars and cafés. But he was also passionately interested in sustainable development and local community. In March, 2005, he found a way to tie it all together by starting a coffee company, called Mozzo, that sells organic “Fair Trade” beans and helps local artists gain recognition.

Lang first tried to open his own coffee shop, but couldn’t raise enough money. So instead, he bought an Indian rickshaw, fitted it with solar panels and a wind turbine, and launched an eco-friendly coffee cart. To top it off, he hung the works of local painters on the sides of the cart and played local bands over the boom box. The bright red cart garnered attention, and soon stores and cafés asked to resell his beans. Last May, Lang started a coffee distributor, which he figures will notch sales of $225,000 in its first year. To stay true to his values, Lang will donate 5% of profits to community causes.

Next year, he finally aims to open that coffee shop, while continuing to branch out into other Fair Trade imports. Lang is convinced he can build Mozzo into a “sustainable lifestyle” brand. He’s in pretty good company: The success of The Body Shop, among others, proves that entrepreneurs can do well while doing good.

Fathi Said

Ecommerce Holding

http://www.ecommerce.com
Freistadt, Austria
Age: 24

German-born Fathi Said has the distinction of having launched and lost his first company, Web hosting outfit Hosting-Network Inc., by the time he was 20 years old. He says he got into business with the wrong partner-and clearly, the collapse of the firm, which hit $7.5 million in annual revenues in 2002, still hurts.

So guess what Said did? He started another Web hosting company in 2003-this time called Ecommerce.com. Headquartered in Austria, but with its main data center in Kentucky, Ecommerce has attracted 80,000 customers and plays home to more than 150,000 Web sites. The company has 130 employees in five countries, and revenues should hit $12 million this year.

Matt Roberts & Irfan Badakshi

Bean2Bed Ltd.

http://www.bean2bed.com
Birmingham, England
Ages: 23 (Roberts) and 25 (Badakshi)

Back in Matt Roberts’ second year at Aston University in 2002, a bunch of friends came up for a weekend birthday party. An offhand comment planted the seed of his future inspiration. “Somebody said, ‘I wish I could flatten out this beanbag chair and sleep on it,’ ” recalls Roberts.

Two years later, Roberts and buddy Irfan Badakshi had run with the concept. They met with designers, worked through 44 prototypes, rejected polystyrene pellets, maxed out their student loans, and unveiled Bean2Bed at a home show in July, 2005, at Earl’s Court. The finished product is, in effect, a mattress filled with crumb foam that stuffs into a corduroy, denim, faux suede, or imitation fur sack the size of a beanbag chair. One minute it’s a comfy chair in the corner, and then presto, it’s a bed.

Thanks to publicity and word of mouth, Roberts and Badakshi have sold thousands of Bean2Beds, which cost $285 to $475. They’re available on Amazon.co.uk and more than a hundred stores in Britain. The company figures to book sales of more than $570,000 this year. Not bad for the aftermath of a college party weekend.

Matteo Böhme

Matteoevents

http://www.matteoevents.de
Dresden, Germany
Age: 24

A self-confessed inline skating fanatic, Matteo Böhme began organizing skating events five years ago at the age of 19. His great knowledge of the sport and the skating scene in Dresden made him a natural to set up and manage local competitions and celebrations.

But now, Matteoevents, the company he set up in 2001, has blossomed into something bigger: a general events management business with three full-time employees and 25 contractors. Böhme presides over a group that has managed events for Red Bull, local breweries, and even the family day at the nearby AMD chip factory. Böhme may have been just a skating dude once, but now he’s got a growing business on his hands.

Matthew Hubbard

Reels in Motion

http://www.reelsinmotion.co.uk
Stoke-on-Trent, England
Age: 24

Three partners, all recent graduates in media from Staffordshire University, started Reels in Motion in late 2004. It was a classic entrepreneurial gambit. “Given how creative we wanted to be, we felt we wouldn’t be doing ourselves justice to give our talents to a larger organization,” says co-founder Matthew Hubbard. “So we just went for it.”

The trio found office space in a local business incubator supported by the Enterprise Fellowship Program, which provided administrative support and a business mentor. They started to make a name for themselves producing educational and training DVDs, especially in the area of special-needs education. Hubbard knew the subject from personal experiences.

Now business is starting to come in over the transom. Turns out there’s healthy demand in the West Midlands for the talents of three ambitious filmmakers who wanted to go their own way from the start.

Joav Ben Jaakow

BJ Bewässerungstechnik

http://www.benjaakow.de
Lengfurt, Germany
Age: 22

When Joav Ben Jaakow was just 15 years old, he and his parents went into business together importing state-of-the-art drip irrigation systems from Israel and selling them to farmers in Germany, Austria, and Switzerland. Now, eight years later, the younger Jaakow is the manager of the business and will become its top shareholder when it’s converted into a limited liability corporation next year.

“We started in a garage, just like HP,” Jaakow says. The whole family helped with packaging products, sending out bills, and other jobs. The younger Jaakow even dropped out of school for a while to help grow the business. Now the Ben Jaakow company has 10 full-time employees and books nearly $4.5 million a year in business.

Wayne Berko

Uni-versalExtras

http://www.universalextras.co.uk
London
Age: 24

Working as an extra in a movie: It’s a quick, easy way for students to make cash, and you can’t deny the glamour of being in a film. But, it turns out, production companies don’t always have an easy time finding extras, especially in off-beat locations. And many people interested in being extras don’t know where to look for jobs.

Enter Uni-versalExtras, a matchmaking Web site launched a year ago by Wayne Berko. The site has now signed up 30,000 students who want to work as extras. Film companies find them there, and Berko takes a 15% cut. He has recently expanded as well into professional extras, who pay a one-time $20 fee to post their profiles. Already the site gets 800,000 hits per month, and Berko aims to start selling ads to sponsors who want to reach his attractive student demographic. Lights, camera, startup!

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