Monday: Getting Started

Margaret Webb Pressler

This Monday at 1 p.m., Washington Post reporter Margaret Webb Pressler talks with Jonathan Silver, general partner in Commonwealth Holdings Inc., a private fund that invests in small and mid-size companies, about the keys to succeeding as an entrepreneur.

It's a boom time for small businesses. The economy is strong, Internet technology is creating new opportunities, and there are a growing number of "how to do it" resources for entrepreneurs.

But what does it really take to make a success of a new venture? Why do some businesses grow so fast, while others never get off the ground? What do investors look for in a start-up plan?

Please submit your questions now and during the discussion.

Alexandria VA: Hi, I'm Margaret Pressler hosting this chat today about starting a small business. My Guest is Jonathan Silver, a professor of entrepreneurship at Georgetown University and a partner in Commonwealth Holdings, which invests in small and medium sized businesses. Here's the first question: I am working on a software project that could be worth millions. -Really- But I can't really quit my job to engage in serious R&D. What are my options and how do I trust a potential partner?

Jonathan Silver: First, let me congratulate you on having found an idea worth millions!
More seriously, you are right to be concerned about launching off without a saftey net. You are likeier to do better if you have some financial security net beneath you.
I would encourage you to consider the following:
1) get a partner
2) review your personal expenses and develop a game plan for what you can and cannot do.
3) talk to your current emplyer about the possibility of its becoming an investor
4) wait to launch until you can ammas some angel capital
Good luck!

Washington, DC: What do you think is the best form of advertising for a retail business that is just starting? What about advertising on the internet?

Jonathan Silver: In general, retail businesses do better by advertsing in their home communities. The internet is more useful if your product has generic or national applications, but advertising on the web can be expensive and its results are hard to track. Consider instead, holding special openings and generating free cover age from the local media

Ellicott City, MD: I'm a 20-year-old who wants to open my own mini-golf course. I'm getting by as a waiter, but it's certainly not enough to start up a small business. What's the best way for a young entrepreneur to get his hands on the thousands needed to begin a venture like this?

Jonathan Silver: Raising capital is one of the hardest things for an aspiring entrepreneur to do. My first suggestion is that you sit down and write out a fully developed business plan: what you want to do; why its a good opportunity; how much capital you will need; what it will be used for; and what an investor can hope to make if things work out.
Then, instead of looking for insitutional capital, look to family and friends for your first round. They know you the best and you will have the most time to explain it to them.
Only later will you be in a position to attract sources of profesional capital.
Good luck!

Washington DC: What are the steps to secure start-up capital for investable ideas? How do yu go about finding a venture capitalist? Thanks

Jonathan Silver: There is an easy answer to how to find a venture capitalist. GO to the library and get out a reference text called Pratt's Guide to Venture Capital Firms. This book lists all the firms in the country and will tell you something about what they like to invest in; how much they invest and how to reach them.
But, before you do all this be sure that a VC firm is your best bet for capital. It can take a long time to get an introduction to a VC firm. You might be better off raising money from individuals you know and/or companies already in the industry you want to go into.

Gaithersburg MD: In your experience what is the best approach to become a better marketer of a new business? Where can I learn and what can I read about effective marketing of my new business? I am a speaker on leadership, service and coaching in the business world and want to showcase my services to various industries.

Jonathan Silver: Effective marketing is the key to any successful business. There are a number of things you can do to improve your marketing skills.
1) Since you live in MD, contact the University of Maryland about possible marketing courses you might enroll in.
2) Join an online chat for marketing professionals.
3) Set up an occassional get-together for local marketing professionals to trade war stories and provide advice and counseling.
4) There are a number of good books on marketing available through your local bookstore. One I like a lot is Guerrilla Marketing.

Alexandria, VA: I'm concerned about protecting my ideas for an Internet-based service. How can I hire people and seek funding and maintain secrecy. My concern is that a well-funded competitor could take my concepts and implement them before I can.

Jonathan Silver: Intellectual property protection is always an important issue for internet companies. I suggest you talk to an IP lawyer to understand what your particular concerns may be.
More generally, make sure that when you send out business plans you also get people to sign non-disclosure agreements.

Potomac, MD: I am just beginning to research information about becoming an independent marketing and communications consultant. I have an advanced degree in Marketing and many years of diversified experience. What would be the best route to take in terms of acquiring information?

Jonathan Silver: An increasing number of Americans are setting up their own companies and consultancies. In fact, the magazine Fast Company just dedicated an entire issue to the trend, refering to people like you as members of the "Free Agent Nation".
Most successful consulting firms generate business first by word of mouth. If you have the resouces, consider taking on some clients for free or for a reduced fee, so that you can establish a track record.
For more information on how to set up your own consulting firm, contact the Association of Independent Consultants.
Good luck!

Washington, D.C.: Myself and a friend are interested in starting a business of our own. We have about $15,000 to get started. We are having trouble coming up with ideas. We do know we want to do something involing internet technology. Any suggestions on generating ideas?

Jonathan Silver: A great question, but I'm not sure you will like the answer much.
In general, I would encourage you not to launch a business you do not have a passion for and have not thoroughly researched. Don't be blinded by what you read in the papers; for every internet billionaire out there, there are hundreds whose companies have never taken off.
Keep your savings ready for the time a really good idea that you care about hits you. It'll happen.Just think about how many things bug you every day....then find a solution!

washington, dc: I am planning to open a dry cleaners near a university and I want to know how I can project the number of customers I can expect. What type of market study should I perform?

Jonathan Silver: I think I can make your life a little easier. Believe it or not, there have been a number of business school studies done about the dry cleaning industry. Try to get you hands on one and you will find a lot of very useful information (for example, the key thing in establishing a dry cleaners, not surprisingly, is LOCATION).
However, the first study I would do is one to determine foot traffic in the area you've picked. Its not enough to know how many people live there, you've got to know if they will visit the store. If they drive, is there ample and easy parking.
Good luck!

Bethesda, MD: Please describe the process of bringing a business plan to your company for investment consideration. What is the minimum one should have prepared before approaching you? Will you review a raw idea? Or are you looking for developed ideas with prototypes and business plan?

Jonathan Silver: Some firms, particulaly those thta specialize in "seed" or early stage investments, will listen to "raw' ideas...and will help you develop a business around the idea if they think its a good one.
However, most VC funds don't look at seed investments. At a minimum, they - and we- require a fully fleshed out business plan. In addtion to the issues I mentioned needing to address before, you will also need to have created a set of financial projections.

Occoquan VA: What would be the first step you recommend for finding angel investors?

Jonathan Silver: In the greater Washington area, there are a number of ways to reach angel investors. Contact:
1) the Private Investors Network
2) the Dinner Club
3) the Capital Investors Group
4) the Dingman Center at the University of Maryland.

There are also online sites you might explore. Consider a visit to garage.com or the SBA's web site. MIT also runs an agel network.
Good luck!

Clarksburg, Maryland: I'm a computer scientist who just got my Ph.D. I'm thinking about starting my own consulting company. I heard that there are some advantages to start in VA instead of MD,
is that true? What would be the first step I need to do?

Jonathan Silver: I suspect you must be refering to how companies and partnership are taxed in each state. While I can't go into that fully here, talk to your accountant. There are some important differences in not only where you locate, but where you incorporate and the kind of company you start.

Atlanta, GA: Besides money, where do you start when opening a business? i.e. lawyers, contracts, local, state, fed, certifications.

Jonathan Silver: Actually, believe it or not, money is not really the first thing you need.
The very first thing you need is a good idea - one that has a large and growing market, a clear and present need, a customer base willing to pay for the product or service you offer and a management team with the skills to pull the whole thing together.
If you can do all that, I guarantee you you'll find the money!

Bowie, MD: I am presently creating a business plan to setup an E-Commerce business. I have taken courses on marketing on the internet and found them absolutely amazing. Where could I find a good resource that displays potential customer based information pertaining to the users on the internet?

Jonathan Silver: There is a lot - and a lot of useless- information about internet users. Even big companies are still wrestling with what they know, what they need to know and how to best get it.]
For general information, try MediaMetrix or any one of the data mining companies. Microstrategy, a locally based data mining company may be able to help you.

Germantown, MD: When is a business loan a good idea? How can you forecast earnings for a small business when preparing your business plan? -Without being too optimistic-.

Jonathan Silver: I'm not sure if you are interested in loaning money to a company or in obtaining a business loan. In general, though, a loan is "cheaper" momeny than equity. That is, although you owe interest on the capital, once it is repaid, you still own the company.
Getting a business loan can be tough for a small company, however. Consider also, vendor receibales or some sort of equipment lease financing.
Forecasting earnings is both an art and a science. I'll try to address this more fully in another question, but for now I would say, focus on your actual expenses (get them right!) and then build up a revenue model by extrapolating from current conditions. don't make assumptions that require revenues to skrrocket to succeed.

Columbia, MD: What is an "angel investor"?

Jonathan Silver: An angel investor is an individual(often a cashed out entrepreneur) who will invest his or her own funds into a company. There are many more of them than there are VC's and, on the whole, they invest about 10 times what VC firms do in small companies.

sterling,va: I'm trying to start a business and I'm having trouble writeing a business plan. What is the best way to strart and write one?

Jonathan Silver: If you are having trouble writing a plan, and none of the many books on whriting a plan seems to help, consider writing yourself a letter. Forget the format and the technical mumbo jumbo. What are you trying to do? Why? Why is it a good idea? This may help you break out of your writer's block.

Mclean, VA: I am interested in starting a food franchise. Do you really think most people in that industry are not doing so great? What agency is best to find out about available new and old food franchising?

Jonathan Silver: Franchising is huge industry with a volatile business cycle. Food cycles are even more volatile. In general, food franchisees run into problems because
1) the host company is not adeequatley financed
2) they themselves are not adequately capitalized
3) franchisees don't realize how much work it is
Still, if you want to get into the business, there are a number of trade associaitions to support franchise operators.
Good luck!

Washington, DC: I've got unlimited conceptual ideas, but know knowledge of how to make them real or where to go for advice. For someone who has an idea of how to make the perfet widget, or widget services, what resources -both human and otherwise- are available for the hopeful entrepreneur?

Jonathan Silver: It sounds like you need a business partner, someone with fewer initial ideas, but more experience in how to put them into practice.
My strong advice, given what you've said about yourself is not to go into business on your own.

Washington, DC: I am interested in starting a small retail shop. I understand that location is important but how do I find which sites are available for leasing without going "door-to-door"?

Jonathan Silver: The internet is beginning to transform the commercial leasing industry. There are a number of good websites which capture local data. Talk to a real estate broker for the name of a useful local site.
Also, just as there is an MLS listing for residential properties, so there is a similar listing for commercial space. Try to get a print out of all the space available in your area from one of the lcoal commercial brokers. This should be free. Don;t let them charge you for it.

fairfax, va : My partner & I own a successful restuarant that has been open four years. I know the business well but the restaurant business is all-consuming. I may sell at which point I would have capital to invest in a new venture. I am looking for ideas.

Jonathan Silver: Talk to the person who just wrote in about having loads of ideas, but no business experience. Sounds like you two would make great partners!
Good luck!

Englewood, CO: I have a 13-yr-old company that includes a 5-yr old printing co. My biggest problem has been in finding and properly incenting sales people for my printing, graphics commmunications and marketing commmunications services. Do you have an approachfor the small firm that is somewhat competitive with sales opportunities in bigger companies?

Jonathan Silver: Yes.
Consider offering your sales people a piece of "phantom equity" in the company. That is, the better the company does, the bigger a pool of capital you will set aside for them in the event of a sale or merger.

Woodbridge VA: Do you recommend outsourcing back office functions. For instance do you ask the businesses you invest in to consider using payroll companies or professional employer organizations?

Jonathan Silver: Outsourcing is useful for really big companies and really little ones. In between, its a toss up. If you think you will save at least 35% of your back office costs, outsource. If not, as a medium sized company, don't bother.

centreville, va : I've started my own business selling wedding invitations and graduation announcements. I have a website and would like to obtain an 800# to begin doing business outside Virginia. I'm just wondering how people will be able to see my inventory. I can't possibly scan everything onto my website. Hallmark stores carry some of the vendors I use, but not all. Any suggestions?

Laura Brandon

Jonathan Silver: now this is a case where you might consider outsourcing. Why not hire a server company, to scan and stroe your images for you. Let a web site design firm set up your page so that people can let you know the kind of images they'd like to see, and you can call it up for them.

Falls Church, VA: In the early stages of developing the business plan there is the need to have an attorney, accountant and other professional services. Are you better off paying as you go or "bartering" with them in exchange for partial ownership in the company?

Jonathan Silver: You are alsmost always better off to pay for services as you need them.
However, if they are going to provide you with far more than you can pay for, you might consider a mix of cash and equity.
Always try to keep as mucj equity as you can.

Beltsville, MD: We are a talented, full service business computing firm, servicing small-medium size clients. We've been in business for a few years, but can't seem to get to off the ground. Our company operates on a limited budget, which makes advertising difficult. Any advice for a company in our position? Thank you.

Jonathan Silver: Perhaps you could make your clients your partners. Can you offer them a discount for recommending you to others?

Bladensburg, Md.: is there a formula of some type to estimate of how much capital one should look to have before starting a new business? for example, so much money to cover one's mortgage for x amount of months, or x amount of dollars for payroll, etc. In other words how does one come up with the magic number to go to a investor with?

Jonathan Silver: Yes.
there are a whole sreis of ratios that ideally you would be familar with to build your financial model. Among those you should look at are the quick ratio; the current ratio; and your coverage ratios.

Falls Church: What criteria do you recommend that one use to evaluate the credentials of an "angel".
Does success in one venture make the case for the next venture?

Jonathan Silver: I think you should choose an angel by not only the capital he or she can bring to the table, but by the breadth and depth of their relationsahips and industry contacts.
The simplest test is to ask an angel for some references...feel free this is a two-way street!

Washington, DC: How careful should I be with my business idea? When individuals approach your company with a business idea - plan, do you sign an NDA with them? How secure is an NDA? Any other thoughts on protecting business plans - intellectual capital - ideas?

Jonathan Silver: In general a NDA is a good thing, and most professional will willingly sign one...although we for instance, will not agree to return materials, because we get such a flood of unsolicited proposals.
One observation: people seem to worry a little too much about the secrecy of the idea. Believe me, Ford knows what GM is doing. Its implementation thats the key.

Margaret Pressler: Thank you all for tuning in to this small business chat with Jonathan Silver. He's been a great guest and you all have asked terrific questions. Unfortunately, we got so many inquiries we were not able to answer them all. Good luck to everyone!

Bethesda, Maryland: I very much want to start a company that provides services and products to the senior market.
The only thing is that the state and federal regulations around services for seniors is so stringent, that there is no way I can get a handle on all of them. Is there anyone or anyplace I can go that can help me?
Also, where do I get info on direct marketing, as I would like to begin a catalogue company with products for people age 50 and over.

Jonathan Silver: Marketing to seniors is a huge and growing business. It is, however, a market that can, and should, be targeted more directly,a nd perhaps that would help you. Are you interested in all seniors, the very old; the handicapped; the infirm; or something else. Do you intend to build a business locally or nationally?
the more you can refine the idea, the more easily you will be able to deal with the myriad of regulatory issues.
Good luck!