Bus 101 from a fire hose

Getting Started

An Introduction to the
Nuances of Business

Tom Niewulis CEO
www.ncdcs.com
360-666-3443
NCDCS, Inc. copy right 2009

Drinking It From A Fire Hose

www.ncdcs NCDCS, Inc. Copy right

Agenda
 Overview
 Attributes of the Serial Entrepreneur
 Organizations: Living Entities
 Business Structures
 Napkin Business Plan
 Introduction to Business Strategic Planning


Overview
 7% of the Adult Population Starts a
Business Every Year
 As many as 60% of New Business Fail
Within Three Years
 Statistics Show the Majority of Failures Do
Not Have a Business Plan
 Plethora of Information on the Internet
 Who Has the Time in the Middle of the
Fray

Attributes of the Serial Entrepreneur
 Absolute Support of  Visionary
Spouse & Family  Self-confident
 Tenacity  Communicator
 Commitment  Creative - Able to
 Good Judgment Improvise
 Adaptive  Overcomer
 Optimistic  Risk Taker
 Financial Understanding  Organizational
 Responsibility  Understands Good
Governance


Support of Family
 Emotional support
 Future proofing
 Disaster avoidance
 Who are you doing it for


Tenacity
 Not thick headed or stubborn
 Hangs on like a bull dog
 Focused on valued ideas with passion
 Pursued with reason and good judgment
 Knowledge and beliefs
 Get’r done
 Know when to punch out


Visionary
 A Critical trait
 Streams ideas
 Not always an operational executer
 Knows when other talent is needed
 Should learn excellent communication skills
 Understands leadership
– Responsibility
– Authority
– Accountability
 Can believe in others

Commitment
 200% + in!
 Time is constricted - Not your own
 Responsibility Responsibility
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Personal Time


Self-confidence
 Not arrogant
 Built on experience
 Develops trust with others
 Humility


Good Judgment
 Result of Life Experiences
 Common Sense - not so common
 Solid decision making
 Virtue
 Results based learning
 Hands on learning
 Mentoring


Creative
 Able to improvise
 Imaginative
 Needs balancing
 Operationally inventive and adaptive


Adaptive
 Functional shifts - spinning hats
 Quick responsiveness
 Get out of the comfort zone


Overcomer
 Execute no matter what the circumstances
 No excuses
 Always a result
 Ascend
 Prevail
 Surmount
 To gain superiority


Optimistic
 Positive perspective of the Future
 Forward
 Faith
 Knowledgeable Confidence


Risk Taker
 Bed to bathroom
 Business is risk
 Understanding the affects
 Poke it here and what happens all over
 Watch out for paralysis
 Calculate


Financial Understanding
 Capital  Cash Flow
– Capitalization  COGS
– Working  Business Ratios
– Margin highlights
 Revenue
– Growth rate
 Expenses – Capital return
 Balance Sheet – Employee efficiencies
 Dash Boards


Organizational
 Personal  Business
– Time management – Structure
– Filing – Documentation
– Email – Processes
– Appearance – Procedures
– IT
– Communications


Good Governance
 Usually a public company issue
 Being pushed down by the Feds
 Basic Principles:
– Processes
– Customs
– Policies
– Laws
– Accountability


Responsibility
 An active moral consciousness
 A state of accountability
 Actions independently executed


Organizations A Living Entity
 Whole-istic view of a business
– a comprehension of the parts of the business
entity as intimately interconnected and
explicable only by reference to the whole of
business entity
 Interconnection of key business
components
 Maturation to a sustainable legacy


Key Business Components
 Management  Sales
 Product  Finance
 Markets  Accounting
 Marketing - Branding  Customer Service
 Advertising  Distribution
 Production  IT - Data
 Communication Management


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Origins Of A Business
 Conceived as an idea
 Developed in a vision
 Has the genetics of the founder
 Birthed as a legal entity
 Develops a personality
 Matures through growth
 Builds a legacy
 Hopes to be sustainable


Interesting
 2008 U.S. Census data indicates about 196
million adults over age 25
 SBA Report to the President indicates about 7%
of adult population begins a business every year
– 13,720,000 business starts per year
 Close to 60% of businesses started will fail in the
first two years
– 4.5 million will advance
– Another 50% may not succeed over the first 5 years


More Interesting
 Deals that get venture funded per year
– 6 out of 1,000
– Between 3% to 5% of the submitted business
plans are read beyond the executive summary
– Only about 10% then get though to the
screening process
– Then, only about 10% make it past due
diligence and get any funding


Beginning the Process
 Stop and breath
 Make choices with knowledge
 Ask the questions you know you have
 Take your time when selecting a business
entity
 Remember: that every business should be
looked at as its own entity


Choosing A Structure
 The structure sets the fundamentals for
building a legacy
 Stepping out of the skin
– Outsider looking in
– Influencer
 Review who and what you are compared to
who and what the business entity is
expected to be


The Initial Questions
– Is there a plan to develop this personality so that it matures
according to the goals being established for it?
– What are the interdependencies that produce functional
relationships?
– What is natural for this entity to do in accomplishing its
plan?
– What is the entity doing that is un-natural to
accomplishing its plan?
– Who or what are the influencers that contribute to the
entity moving forward or what is inhibiting it?
– What legacy should this Living Entity have?


The First Step of Structure
Choosing
 Name search
– State Attorney General web site
• Ensure you do this for each state you will do
business in
 Review the Initial Questions
 Build an Advisory Board as soon as
possible
 Legal or other professional assistance as
needed

Napkin Check List


Entity Comparison
Sole General Limited Limited Liability Limited Liability S corporation C corporation
Proprietorship Partnership Partnership Partnership Company
(LP) (LLP) (LLC)
Ownership Single Person 2 or More Persons 2 or More Persons or 2 or More Persons or 1 or More Persons or No More Than Unlimited Number of
or Entities Entities Entities 100 Shareholders Shareholders
Entities (Spouses Are
Considered One
Shareholder)
Formation No state filing Agreement Certificate of Limited State filing required. State filing required. Articles of Articles of
required. However, between two or Partnership State In California, the use Articles/Certificate of incorporation with incorporation with
If more parties. filing required. of LLP is limited to Formation/Organizatio State filing required. State filing required.
Public Notice of No state filing accountants & n
Trade Name is required. lawyers.
Desired, You Must
File a DBA
(Doing Business As)
or
Fictitious Name
Duration of Dissolved if entity Dissolves upon Perpetual Dependent on Dependent on the Perpetual Perpetual
existence ceases doing death or withdrawal the requirements requirements imposed
business or upon of a partner, unless imposed by the state of by the state of
death of the sole safeguards are formation. formation.
proprietor. specified in a
partnership
agreement.
Liability Sole proprietor has Partners have At least one general Partners are not Members are not Shareholders are Shareholders are
unlimited liability. unlimited liability. partner has unlimited typically responsible typically responsible typically not typically not
liability. for the debts for the debts of the responsible for the responsible for the
of the LLP. LLC. debts of the debts of the
corporation. corporation.
Operational Relatively few Relatively few Some formal Delaware, Georgia, Some formal Board of directors, Board of directors,
Requirements legal requirements. legal requirements. requirements, but less Pennsylvania, Texas, requirements, but less annual meetings, and annual meetings,
formal than and Virginia require an formal than annual reporting. and annual
corporations. Need LLP to carry insurance corporations. Need to Need To reporting. Need To
to Draft and maintain or escrow account to Draft and Maintain an Maintain Minutes of Maintain Minutes of
"Partnership cover liabilities. "Operating Meetings and By - Meetings and By -
Agreement" Agreement" Laws Laws
Management Sole proprietor has Typically each Limited partners are All partners have the Members have an Managed by directors Managed by
full control of partner has an excluded from right to manage the operating agreement who are elected by directors who are
management and equal voice, unless management unless business directly. that outlines shareholders. elected by
operations. otherwise they serve on the management. shareholders.
arranged. board of directors.
Taxation Not a taxable Not a taxable entity. Files taxes as a Files taxes as a If properly structured, No tax at the entity Taxed at the entity
entity. Each partner pays separate entity, must separate entity, must there is no tax at the level. Income/loss level. If dividends
Sole proprietor tax on his/her share meet certain criteria meet certain criteria to entity level. passed through are distributed to
pays all taxes. of income and can to avoid being taxed avoid being taxed as a Income/loss is passed shareholders. shareholders,
deduct losses as a corporation. corporation. through to members. dividends are also
against other taxed at the
sources of income. individual level.
Pass-through Yes Yes Yes, if requirements Yes, if requirements Yes Yes No
Income/loss are fulfilled. are fulfilled.
Double No No No No No No Yes, if income
taxation distributed to
shareholders as
dividends.
Cost of Depending on State Depending on State State filing fee State filing fee State filing fee State filing fee State filing fee
creation License Fees License Fees required. required. required. required. required.
Raising Often difficult Contributions can Contributions can be Contributions can be Possible to sell Shares of stock are Shares of stock are
Capital unless individual be made from made from partners, made from partners, interests, though sold to raise capital. sold to raise capital.
contributes funds. partners, and more and more partners and more partners can subject to operating
partners can be can be added. be added. agreement restrictions.


Sole Proprietorship
 Expedience or Life Style business
 First brush points
– The business is a ‘one-person’ operation,
– They don’t believe they will have, need or want a
partner,
– They see that it has the easiest forms to fill out on the
states’ Department of Licensing or Attorney General
web site,
– They don’t care that the taxable income shows up on
their personal tax return,
– They don’t understand the other forms of business
entities

My Life Style Business
Analysis
 Desire to make money from a hobby
 Loss of a job and came up with an idea for a product

 More time with the family and can be self-motivated

 Desires to sustain a static level of income - does not envision
having a large market impact
 Desire a family owned business that is more regional

 Wants to enjoy what they do and doesn’t care about the rest of
the world going crazy
 Demands high quality of their service or product and will not
compromise for the sake of investors or greater income


Sole Proprietor Legal Definition
 A business structure in which, an individual and
his or her company are considered a single entity
for tax and liability purposes. A sole
proprietorship is a company, which is not
registered with the state as a limited liability
company or corporation. The owner does not
pay income tax separately for the company, but
he or she reports business income or losses on his
or her individual income tax return. The owner is
inseparable from the sole proprietorship, so he or
she is liable for any business debts. The entity is
also called proprietorship.

Napkin Sole Proprietorship


Simple Execution Mechanics
 COGS - the Cost of Goods Sold - A costly
error!
– Pricing model
• Hard cost vs. Product or Service specific cost
– Hard Cost = Location + Phone + Lights + Office help + Other
Similar
– Product or Service Cost = Raw materials + Labor + Shipping +
Everything specific to the product or service
 Margin - Calculated by deducting operating expenses (e.g. cost of
goods and services, sales and marketing, general and administrative, and
depreciation and amortization) from total revenues and dividing the result by
total revenues.


Simple Execution Mechanics
 Vendor Selection
 Marketing
 Taxes - everywhere!!!
– Federal
• Social Security
• Unemployment
• Income
– State
• Income - Depending on the state
• Unemployment
• Labor & Industries - Industrial Insurance
– County
– City


Simple Disaster & Exit Planning
1. Know that you need a plan and
develop one. Plan for how you want
to leave the business on the upside:
– An income level that you personally would want to attain
– A revenue or customer base the business will attain that
could be valuable in the sale of the business
– An age that you want attain so you can go do something
else
– Develop some set of other goals that will allow you to
leave having met these planned goals


2. As well as planning for the downside:
– Personal injury
– Financial downturn
– Not meeting your financial and customer objectives or
– Just plain running out of money in the startup phase (know
when to pull the ripcord on the parachute)

3. Develop an Advisory Board
4. Know your Business Plan inside and out.
Plan the plan and execute knowing that
you have to be dynamic and flexible to
market changes.

5. Get a good handle on your financial
model and know everything about it,
especially your cash flow.
6. Train and communicate - processes
• Choose a trusted person OR
• cross train several trusted employees
7. Ensure your spouse has some
understanding of everything going on


8. Vendor management and strategy
9. Ensure all taxes are accounted for and the
cash is reserved to pay any monthly or
quarterly amounts. Never, Ever use the
tax monies for anything other than taxes
10. Business Plan or Strategy checklist


11. All documentation, processes,
procedures, financial data, personnel
data, customer information, vendor
information and other info well organized
and accessible
12. Plan the Plan then work the Plan


Partnerships
 History - First recorded in Rome 3rd century BC
 Definition:
A type of unincorporated business organization in which multiple
individuals, called general partners, manage the business and are equally
liable for its debts; other individuals called limited partners may invest but
not be directly involved in management and are liable only to the extent of
their investments. Legal liability includes all of the general partners being
bound by the actions of a single general partner. Unlike a limited liability
company or a corporation, in a partnership the partners share equal
responsibility for the company's profits and losses, and its debts and
liabilities. The partnership itself does not pay income taxes, but each
partner has to report their share of business profits or losses on their
individual tax return. Estimated tax payments are also necessary for each
of the partners for the year in progress. Partnerships must file a return on
Form 1065 showing income and deductions. Estimated tax payments are
also required if they expect their income to be greater than $1,000.

Partnership Influencers
 A well-defined organizational structure
 Job description definitions
 Information and communications processes
 Generalized processes and common
procedures
 A dynamic business plan
 Strategic plans and a financial model


Key Partnership Consideration
 EACH participant is EQUALLY RESPONSIBLE
for the liabilities
 If one general partner gets a wild hair and makes
a commitment without the say of the other
general partners then all the general partners are
liable for that commitment
 Must have clarity of roles and responsibilities,
clarity of vision and a well defined plan to
execute


Partnerships with Limited
Partners
 Depends on the legal construct
– General Partnership (GP)
– Limited Partnership (LP)
– Limited Liability Partnership (LLP)
 Limited partners may be:
– The financiers
– The investors
– Junior members of the organization
 The entity needs explicit agreements


Summary of Partnerships
General Limited Limited Liability
Partnership Partnership Partnership
(LP) (LLP)
Ownership 2 or More Persons or 2 or More Persons or 2 or More Persons or
Entities Entities Entities
Formation Agreement between two or Certificate of Limited State filing required.
more parties. Partnership State filing In California, the use of LLP
No state filing required. required. is limited to accountants &
lawyers.
Duration of existence Dissolves upon death or Perpetual Dependent on
withdrawal of a partner, unless the requirements imposed by
safeguards are specified in a the state of formation.
partnership agreement.
Liability Partners have unlimited At least one general partner Partners are not typically
liability. has unlimited liability. responsible for the debts
of the LLP.
Operational Requirements Relatively few legal Some formal requirements, Delaware, Georgia,
requirements. but less formal than Pennsylvania, Texas, and
corporations. Need to Draft Virginia require an LLP to carry
and maintain insurance or escrow account to
"Partnership Agreement" cover liabilities.
Management Typically each partner has an Limited partners are excluded All partners have the right to
equal voice, unless otherwise from management unless they manage the business directly.
arranged. serve on the board of
directors.
Taxation Not a taxable entity. Files taxes as a separate entity, Files taxes as a separate entity,
Each partner pays tax on his/her must meet certain criteria to must meet certain criteria to
share of income and can deduct avoid being taxed as a avoid being taxed as a
losses against other sources of corporation. corporation.
income.
Pass-through Income/loss Yes Yes, if requirements are Yes, if requirements are
fulfilled. fulfilled.
Double taxation No No No
Cost of creation Depending on State License State filing fee required. State filing fee required.
Fees
Raising Capital Contributions can be made Contributions can be made Contributions can be made
from partners, and more from partners, and more from partners, and more
partners can be added. partners can be added. partners can be added.
Transferability of interest No Yes, pending approval of other Possible, dependent on
limited partners and the general operating agreement
partners. restrictions.
Advantages Division of responsibilities
Limited personal liability for
limited partners
Easier to raise capital
No corporate income

Disadvantages Impermanence of existence
Difficult to find compatible
partners
Annual reporting requirement


Corporations
 Latin word corpus means body or body of people
 Rome and India had entities that engaged in commerce
and had legal standing
 The oldest is the Stora Enso with a charter of 1347 for a
copper mine
 On 31 December 1600, a date as ominous as any in
history, the East India Company was given its charter
 1886 The Supreme Court case - Santa Clara County v.
Southern Pacific Railroad set a precedent, a corporation
was a "natural person”, not through the court ruling on
"corporate personhood," but by the misleading notes of a
clerk.

Definition of Corporation
The most common form of business organization, and one that
is chartered by a state and given many legal rights as an entity
separate from its owners. This form of business is
characterized by the limited liability of its owners, the issuance
of shares of easily transferable stock, and existence as a going
concern. The process of becoming a corporation, called
incorporation, gives the company separate legal standing from
its owners and protects those owners from being personally
liable in the event that the company is sued (a condition known
as limited liability). Incorporation also provides companies
with a more flexible way to manage their ownership structure.
In addition, there are different tax implications for
corporations, although these can be both advantageous and
disadvantageous. In these respects, corporations differ from
sole proprietorships and limited partnerships.

The Corporate Veil
 Protects shareholder and executives from
personal liability
 Caution to new corporations - banks, credit card
companies and other financial facilities will want
personal guarantees. DON’T Do It!
 Very few understand what it means to fulfill the
corporate “duty of care” as part of the fiduciary
responsibilities in corporate governance
 Executives have a responsibility to another
entity, the corporation


Corporate Summaries
Limited Liability S corporation C corporation
Company
(LLC)
Ownership 1 or More Persons or No More Than Unlimited Number of
Entities 100 Shareholders Shareholders
(Spouses Are Considered One
Shareholder)
Formation State filing required. Articles of incorporation with Articles of incorporation with
Articles/Certificate of State filing required. State filing required.
Formation/Organization
Duration of existence Dependent on the requirements Perpetual Perpetual
imposed by the state of
formation.
Liability Members are not typically Shareholders are typically not Shareholders are typically not
responsible for the debts of the responsible for the debts of the responsible for the debts of the
LLC. corporation. corporation.
Operational Requirements Some formal requirements, but Board of directors, annual Board of directors, annual
less formal than corporations. meetings, and annual reporting. meetings, and annual reporting.
Need to Draft and Maintain an Need To Need To
"Operating Agreement" Maintain Minutes of Maintain Minutes of
Meetings and By - Laws Meetings and By - Laws
Management Members have an operating Managed by directors who are Managed by directors who are
agreement that outlines elected by shareholders. elected by shareholders.
management.
Taxation If properly structured, there is No tax at the entity level. Taxed at the entity level. If
no tax at the entity level. Income/loss passed through dividends are distributed to
Income/loss is passed through shareholders. shareholders, dividends are also
to members. taxed at the individual level.
Pass-through Income/loss Yes Yes No
Double taxation No No Yes, if income distributed to
shareholders as dividends.
Cost of creation State filing fee required. State filing fee required. State filing fee required.
Raising Capital Possible to sell interests, though Shares of stock are sold to raise Shares of stock are sold to raise
subject to operating agreement capital. capital.
restrictions.
Transferability of interest Possible, dependent on operating Yes, observing IRS regulations Shares of stock are easily
agreement restrictions. on who can own stock. transferred.
Advantages Legal entity separate from Legal entity separate from Legal entity separate from
individuals individuals individuals

Limited personal liability Limited personal liability Limited personal liability

Continuity of existence Continuity of existence Continuity of existence

Continuity of management Continuity of management Continuity of management

Easier to raise capital Easier to raise capital Easier to raise capital

No corporate income tax Readily transferable interests Readily transferable interests

Net operating loss is deductible No corporate income tax
by shareholders
Net operating loss is deductible
Less "Formal" record – keeping by shareholders
requirements
Disadvantages Subject to government May have only one class of stock Subject to government
regulations regulations
Subject to government
Annual reporting requirements regulations Annual reporting requirements

Cannot raise capital through Annual reporting requirements Possible double taxation by
issuance of stock paying both corporate and


Limited Liability Company LLC
 Each state is unique in its requirements to form
an LLC
 there are requirements in the enabling
statutes/formation laws
 requires you to conform to and declare certain
criteria or else you will find you’re not really an
LLC
 understand the intrastate laws regarding the LLC
formed in your state doing business in another
state or country

Breathing Life to the LLC
 Has members at the core of its being
 Through an operating agreement, the
members begin to influence the personality
of this organization


LLC Operating Agreement
 Several key components of this agreement
– Who the members are and how they will be elected into the charter in the
future.
– How managers will be selected and what their duties, salaries, and
grounds for dismissal will be.
– How major decisions will be made. Which decisions will require
unanimous approval of the members and which require a simple majority
vote? Which decisions can be delegated to the manager in charge of daily
affairs?
– How compensation (salary) for actively participating members will be
determined.
– How new capital should be acquired should the company need it.

– What procedures must be followed to transfer interests in the company?

– Penalties, if any, if members or managers fail to act in accordance with the
operating agreement.


LLC Summary
 Like the Sole Proprietorship and Partnership, the individual humans involved
in conjunction with the foundational documents will develop the initial
personality of the business.

 This contractual combination will continue to influence the LLC persona
throughout the limited life of the entity. That is correct, an LLC does not live
forever. You have to reconstitute them when they reach their termination
dates, some default to 30 years.

 An LLC does not necessarily have to comply with corporate governance rules
as noted by the Delaware court. Be prudent and check your state regulations
to make sure. Also, the Revised Limited Liability Company Act suggests to
states that they review LLC’s for conformance to good governance.

 Consider how the sum of all the individuals in the LLC will be the influencers
regarding how this entity establishes its legacy. Individual members
participating in the LLC will leave a legacy, but what should the entity look
like beyond the members’ participation.


“S” Corporation
 Came into existence as part of the Technical
Amendments Act of 1958
 Developed as a way to boost the economy at the
time
 Greatest advantages:
– A unique blend of a true corporation
– While retaining the taxing properties of a Partnership.
 For most small businesses an “S” Corp is an
optimum entity type


“S” Corp Limitations
 Must be a domestic corporation.
 Must not have more than 100 shareholders.
 Allowed to own subsidiaries.
 Allowed to create an employee stock ownership
plan.
 Exempt from the unified audit and litigation
procedures.
 Must include only eligible shareholders.
 Must have only one class of stock.
 Taxes distributed to shareholders as regular income

Plusses of A “S” Corps
 Compliance & Governance requirements apply
 Requires more significant thought and planning
 Flexibility
 Tax treatment as a partnership
 Always check with your attorney as you work
through the process
 As with an LLC, Exec’s, don’t sign any loan
papers…the corporate veil will be pierced.


“C” Corporation
 Basic Definition:
A corporation in the United States that, for Federal
income tax purposes, is taxed under 26
U.S.C. § 11 and Subchapter “C” (26 U.S.C. § 301
et seq.) of Chapter 1 of the Internal Revenue
Code.
 A Corporation must file under Subchapter
“C” if it fails to meet even one requirement
to qualify as an “S” Corporation.

Key Pointers on “C” Corps
 Taxed directly since it is a legal Living
Entity
 The profits are taxed when earned
 The profit is taxed to the shareholders
when distributed as dividends
 Tax rate varies from 15% up to 38% of
profits that include dividend distribution
 Advantage to consider - if a future
consideration is a public offering

Corporate Personality Influencers
 Board of Advisors
– Don’t need to go it alone and you shouldn’t
– Good counsel adds value of the Living Entity
 What is it?
The advisory boards are group of individuals that
can be developed for technical or specific
business areas such as sales and marketing,
information technologies or manufacturing
processes.

The Advisory Board
 Constructing a dynamic Advisory Board
– What is the purpose of the board?
• The first Advisory Board be focused on your
product or service
– Look for trusted experienced people; a mix of
talent that contributes directly to the purpose
and broadly to the business
• don’t look to these people as surrogate executives


The Effective Advisory Board
 Executive responsibilities to the Board
– Time management
– 360˚ Communications
– Respect your board members
– Get rid of dweebs
– Compensate
 Board Size
– Startups: three to five
– Mature: Depends on purpose; may even have more
than one Board


Corporate Personality Influencers
 Board of Directors
The BOD is comprised of individuals elected by the
shareholders to oversee the management of the
corporation for the purpose of protecting the
interest of the shareholders.
 The Board legally assumes responsibility
for all corporate activities and is critical to
maturing a functional corporation


The Conscience
 A BOD as the conscience soul of the
corporation
 Sets the ethic standards of operation
 Is the life force for strategic development
and financial accountability
 Hierarchical structure of the corporation is:
The Shareholders, The Board of Directors,
then the Executive Management Team and
the employee base

Board Empowerment
 Set the company's strategy that includes – ethics, policy,
objectives, and overall direction
 Full financial fiduciary responsibilities
 Oversight in holding accountable the CEO and Executive
Management Team
 Modify and adopt bylaws
 Within the board; name members of the advisory, executive,
finance, compensation and other committees
 Hire, monitor, evaluate, and fire the Chief Executive Officer
and senior executives
 Determine and pay the dividend
 Issue additional shares


Functional BOD
 The entire Board is held liable -under the doctrine of
collective responsibility
 A mix in membership
– the top executives ('inside directors' or 'executive directors')
– industry experts or respected individuals, ('outside directors' or
'non-executive directors')
 Must be educated in:
– Good Governance
– nuances of financial management

 Must be free to offer unbiased advice in all areas of the
corporation as well as insisting on oversight and audits

Functional BOD
 Find missing expertise with the industry experience, funding, finance
and marketing.
 Independent minded - will speak truthful, qualified opinions.
 A broader candidate base - look at senior executives in addition to
CEO types.
 A manageable size – Always have an odd number.
 Have ready and willing participants
 Have specific committees
 Communicate, communicate…communicate!
 CEO’s and Executive Management LISTEN
 Fire bad Board members - Get rid of them.


Perception Is Reality About the
BOD


The Personality Influencers
Summarized
 The executive team - the mind and heart of the
corporation
– The embodiment of the consciousness transferred
from the BOD
– Establishes the essential character of the personality
for the Living Entity
 The Board being the conscience and soul of the
corporation
 The employees are the spirit of the Living Entity


Outside Influencers
 Customers
 Vendors
 Media
 The Stock Market (for public companies)
 Political
 Social


The Napkin Business Plan


The Business Plan Formula
BP = MP + SP + FM + ES
Business Plan = Marketing Plan + Strategic
Plan + Financial Model + Exit Strategy
 The Marketing Plan is one of the most critical first steps
that should be accomplished - SWOT analysis
 The Strategic Plan using the Political, Economic, Social,
and Technological analysis with the Risk analysis
 The Financial Model is complex tool that takes into
account all the monetary nuances of business
 Exit Strategy is the way out for Exec’s and Investors


Reasons for a Business Plan
 Getting Funded or Financed
 A higher probability to succeed
 Identify what the executives don’t know
 Understand resource requirements and
when you will need them
 Stipulate actions for problem solving
 Knowing when set goals are attained
 A Communication tool to others


12 Step BP Summary
1. Grab their attention fast. The first few sentences must tell the
reader what you do; why you are unique; what size market you
serve; what share of market you expect to capture; and when you
intend to accomplish that.
2. Analyze your existing customers. Define them by customer type,
values and products/services including major accounts.
Remember that the '80:20 rule' often applies here, 80% of your
business comes from 20% of your customers)
3. Explain your products and services - refer to the strategic
propositions, what these propositions will do for your customers.
4. Detail solid distribution methods. The routes to market,
gatekeepers, influencers and strategic partners; the other
organizations and individuals you will work with to develop your
market, including, commissions,endorsements, accreditations,
approvals, licenses, etc.


12 Step BP Summary
5. Competitor analysis with the SWOT analysis compared to
SWOT analysis of each competitor
6. Sales plan (1 year min) showing sales and margins by
product or service stream, mix, values, segment, 'distributor',
etc, whatever is relevant, phased monthly, in as much detail
as you need.
7. List the executable actions (marketing campaigns, sales
activities, advertising, other) that will deliver the above, with
costs and returns.
8. Solid Management expertise is absolutely critical to both
your success and your ability to raise venture and angel
financing.


12 Step BP Summary
9. Believable and Captivating Financials from the in-depth
financial model.
10. Overcome Barriers to entry. Need to show a sustainable
competitive advantage. Are there patents, copyrights, a
proprietary process or technology, exclusive licenses or
agreements? Is the business the first to market? How long
can the lead be protected if a big company enters the market?
11. Pay attention to details and ensure that the numbers are used
consistently, the document is concise - from five to thirty
pages depending on the audience, easy to read – don’t use
technical jargon – keep it simple and an appropriate business
style
12. Make sure all the company data; logo and contact
information is on the cover page.


Exit Strategy Reasons
 Plan the Exit before you begin
 For the Investor - simple but complex
– Want their money back with high returns
– Depending on stage from 5x to 12x
– Most common exits are IPO, merger or
acquisition
 For the Executive
– Disability, Death, Divorce and Departure


Exit Strategy


Intro to Strategic Planning
 Strategies are different from tactics in that:
– They are proactive and not re-active as tactics are
– They are internal in source and the business
venture has absolute control over its application
– A strategic plan is used as guidance to define
functional and divisional plans, including
technology, marketing, etc.
 Deals with one of three key questions:
– What do we do?
– For whom do we do it?
– How do we excel? Or How to bear or avoid
competition?

Why the Strategic Plan
 The heart and soul of a sounding board
 Can validate what it is doing now and set
goals and objectives to move to the next
level of opportunity
 Write it down or draw a picture, record it
so it can be listened to or etch it in a rock
so it has to be picked up to review


Napkin Strategic Plan


Implementation
1. Developing the plan
2. Commitment to the plan
3. Knowing all the resources are available
4. Understanding your reality
a) Your internal reality: qualified employees, processes,
finances and so on
b) Your external reality: customers, suppliers and other
stake holders

5. Have a Communications plan
6. 6. Plan for Murphy

Why Do Any of This
 Statistically Those that don’t either fail or
never reach their fullest potential
 Acting on one area of the business causes
reactions everywhere
 Every business is a Living Entity that
needs maturation to develop a legacy
 Ensuring the vision comes to reality
 Success is defined by executing the plan

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