Project: Liftoff

I was at a very interesting panel discussion on socially-responsible businesses on Saturday, and the question of whether or not a socially-responsible business should be expected to make as much of a profit as profit-focused businesses came up. This is a common topic, and there are a lot of people out there who will argue forcefully that investors should accept it when socially-responsible businesses make fewer profits than other businesses in the same industries. These people are completely wrong: we must demand socially-responsible businesses reach the same level of profit as any other company. Many years ago, I did PR for non-profits for a little while. One thing I learned is that the pool of money available to non-profits is pretty static in size: people give about how much they give, and you can’t really get them to give more. That leaves non-profits all competing for their own chunk of a fairly small pie, and it means that new entries in the non-profit space are stuck trying to enter that ecosystem. That’s a tough challenge for any new non-profit venture. In contrast, in the for-profit arena an innovative new entrant can find its own market, and many do create something new. Starbucks launched when few people really wanted a coffee shop that served high-end products, but now hundreds of millions of people around the world spend money there, every day, money that probably didn’t go to incumbent coffee shops. Imagine how much more effect a new socially-responsible for-profit venture can have, working in such a wide-open market, than a new non-profit with the same mission. Of course, the question follows: shouldn’t the socially-responsible for-profit just make less total profit, and devote some of its revenues to its mission? That gets a big “yes, but…” Yes, the socially-responsible for-profit should devote some of its revenues to its mission. No, that shouldn’t decrease profit over time – it should _increase_ profit over time. The way to maximize profit for a socially-responsible venture is to bake that profit into the very concept of the products and services you offer. To return to Starbucks, one of Howard Schultz’s social goals for his company was to provide health insurance to all employees. Starbucks didn’t offer to put a few percent of the price of a fifty-cent cup of weak, burnt coffee, as one found in those days, towards a non-profit that provided healthcare; they gave their employees healthcare, they priced their products to be able to afford that, and they delivered sufficient value to their customers to justify that price. The whole package was innovative – and they grabbed an enormous market that never existed before. Yvon Chouinard made the environment a fundamental piece of Patagonia’s products, and that only made them more able to command a premium price for the target market. Today, Patagonia is an innovator and a leader in the outdoor clothing market. So don’t add on your mission – make it a fundamental part of your product or service. Make it a part of your identity and your value proposition. Then your mission will drive you to more profit, more success, and more contribution to society, rather than less, less, and less.

Many entrepreneurs spend big chunks of time seeking money for their start-up. Whether it’s the chase after a VC or walking through bank lobby after bank lobby, finding that money becomes a full-time job. The entrepreneur thinks they’re starting their dream venture, but, months in, they realize: the money, not their great business idea, has become their full-time business. Raising money and starting a business are two different things. The one may be essential to the other, but this fact is inescapable: the time you spend getting that money takes you away from the tasks you need to do to start your venture and earn money. It’s easy to become distracted by the business of raising money, and that involves as big a strategic change in the company as changing your product or service. (Just often a less intentional change.) Marketing people make decks. Executives practice pitches. Finance people fill in applications and produce slightly different financial forecasts. It’s a full-time job: making a product, with a customer. That’s why so many entrepreneurs are comfortable with the process. And that’s why so many entrepreneurs get distracted by it. The search for funding means doing the same activities they planned to do, just with a different audience. Heck, the message is the same – look at this great stuff we do! But don’t get confused: raising money is not your business. Starting your business is your business. The raising money game has a gotcha at the end: once you’ve done it, you’ve got a chunk of cash, not life-sustaining revenue. I spend a lot of time with clients trying to help them identify the right kind of financing for their business. The right kind of financing is the money that matches your needs, your strengths, and your resources. I discovered this myself a few years ago, when I was starting a food company. We went for an SBA loan, and got offers – just not enough money, because there wasn’t enough collateral available to cover the size loan we were looking for. We could’ve known that beforehand, and sought out other kinds of funding; instead, we spent about 3 months full-time on loans, and didn’t get an inch closer to launched for it. There’s a lot of lessons like that in financing: don’t go for a bank loan if you don’t have collateral. If you’re a great networker, go after VCs. If you need an entrée into a domain, pursue Angel money. If your business needs ongoing cash resources, find a factor. I’ll get more into the different kinds of financing and whom they might be right for in a later entry. But the point is: if you have a good plan, then you know how much money you need, when you need it, when you’ll need it again, what your personal strengths and resources are, and what you need beyond money. If you look at raising money through that lens, then the chase after funding can become closer to being part of your business launch, not the pursuit of a different line of business.

There’s a series of questions I ask every new client. A lot of it is background stuff, like “what are your goals” and “do you have specific financial or personal challenges at this time,” so that I can make sure that we’re on track to create something meaningful for their lives. But some of it is about the little things, the things you have to do to get and keep your business running. And there’s one box that, so far, not a single client has checked. That box is “do you have your city business license?” Almost nobody has one – and that can cost you. The City of Los Angeles sweeps business rolls every year and seeks out businesses that don’t have licenses, then collects licensing fees and fines. Some cities – Torrance, for instance – set a cap on the number of years of back fees they can go after; others may not. Many businesses, particularly those in the food industry, also need to have industry-specific permits. Even if you’re renting a certified commercial kitchen, your state may require a staff member certified in food handling to be on-site while you operate. Specialized packaging methods may require specialized permits as well. A good attorney can help you take care of permitting during your start-up phase. If the lawyer who is doing your business organization doesn’t know anything about permits, ask them for a referral to an industry specialist; there’s probably a lawyer in your area who works just with people like you. You can do a lot of the work yourself online, too; a great place to start at is Business.gov’s Permit Me Web site. Just enter your zip and select your industry from a list and they’ll come up with a step-by-step list of permits you may require, taking you from incorporation through business launch.

The first start-up I ever worked at was a dot-com. It was an exciting place to be, back in 1999, and, like others of my generation, I caught the start-up fever. Then I started something with friends, and found myself doing programming – strange for a liberal arts major, but I was actually pretty good at it. The first thing that any programmer writes in a new language is traditionally a little tiny program that does nothing but write “hello world” on the screen. So “hello world” seems an apt entry for this blog. The purpose of the little “hello world” program is to get the programmer familiar with the language – it’s the first step in a journey. You learn just enough to actually get the words on the screen; then you learn enough to do it elegantly; then you move on to creating something really worthwhile. Entrepreneurship has its own language and is its own journey. This blog will be about those two things, from the perspective of two industries I know well – technology and food. (You might as well do what you love!) It will be about having start-up fever and about channeling that, both in a new venture and by taking an existing business to exciting new places. It’ll be about tips and tricks. I’ll throw in some news analysis and maybe even a policy discussion, for policy that affects start-ups and small businesses. It’s a challenging time out there but also an exciting one. For America to grow we must start new companies and help the ones we have grow. That’s what I do. This is my blog’s “hello world”; the next entry will be more elegant, and, down the road, we’ll have some great content that is truly worthwhile. But, for the moment, hello, world!