Seed for Success | Empowering Women Entreprenuers

I just got off the phone with entrepreneurs Dana Rubinstein and Tamar Rosenthal to get updated on their new company, Dapple (and their fabulous new website). Like all new business owners, they are working 24/7 and dealing with a constant barrage of decisions and demands on their time.

Since I have a sales and marketing background, and theirs is law and public interest, they seemed most interested in my advice regarding public relations, getting the word out, press coverage and getting their product line into stores.

One thing I tried to stress is that they have to get their products in front of decision makers, whether that is a retail baby store or an organic grocery store like Whole Foods. I suggested that they start a newsletter that they might use as an email blast to customers and potential customers — perhaps a weekly update on all things green — just to help build brand awareness, their names and show their products. We talked about putting flyers into baby stores, Gymboree type programs, programs for new moms at local YMCAs, doctor or pediatricians offices and the like.

They asked about seeming too aggressive. I told them that the best entrepreneurs have to be fearless when it comes to getting in front of the right people. That they had to be creative in getting appointments, whether it mean currying the favor of the assistant who might aid in getting them into see a buyer with a cute little baby-related item, or sending gift baskets of their products to the customer to whet their appetites. Calling someone many times is not something they should be afraid of!

Dana and Tamar do have a public relations agency and I said they had to have a PR business plan from them and meet with their PR team quite frequently to brainstorm and to assess PR progress. I suggested they schedule a weekly phone call to go over their attack plan! The squeaky wheel gets the attention.

I also mentioned finding either online or locally, a women-owned business organization that they could join and learn from. There are many of them, and the camaraderie and advice from those who have already started their own business could be invaluable, maybe critical to their success.

Being aware of their competition was also a subject we touched on so they know where they can continue to be unique and where they will be challenged.

We agreed to talk again in a month to assess progress on the above and/or on other problems or opportunities that might arise. They seem very enthusiastic and committed. I asked about their financing and they said they had already been approached by private equity. I mentioned that private equity will want a large share of the stock, and most importantly, private equity invests in a company with only one goal in mind…to get it to a stage where it can be sold for a large profit, usually in no more than five years.

It was a very good dialogue and I hope a helpful one!

~Cathie Black
President, Hearst Magazines

All three of our Seeds For Success finalists recently had the opportunity to sit down for meetings with Nina Kaufman, Esq., a New York attorney who specializes in small business and entrepreneurship. Nina’s website is www.askthebusinesslawyer.com. She has generously provided all of us with six vitally important matters to consider when launching a business. Here are the first three:

Entrepreneurship is a wild ride. You’re riding high with the rarefied air of possibility and creativity. Add to that the blessing of the Yahoo! Seeds for Success grant, and you might even start feeling invincible. It’s at that point that entrepreneurship meets law . . . and you feel like a bucket of ice-cold water has just been dumped on your head.

As a business attorney who has advised thousands of entrepreneurs, including our Seeds for Success finalists, I’m used to being the “wet blanket” in the business equation. But starting and running a successful business involves more than a wing and a prayer: it takes “management.” That’s where the pesky details of legal (and accounting) issues come in.

Our finalists (I’ll keep the specifics of our conversations confidential) had a number of questions that many entrepreneurs face. They include concerns about the legal form of business, how to work with freelancers, trademarking a logo, business partners and investors, and finding a good attorney. Here’s a quick tidbit on each one.

1. Form of business – how to choose?

Many small business owners are trying to choose between an S Corp (so-called because it is a corporation taxed under the rules in Subchapter “S” of the Internal Revenue Code) and a limited liability company (LLC). Which is better? The short and obvious answer is . . . it depends. It depends on who will own the business. If you want to have passive investors who are not part of the day-to-day management of the company, then an LLC will let you structure that more easily. If you’re a sole owner who would prefer to stay that way, then (from a legal perspective) either form would serve you. However, S Corps and LLCs are taxed slightly differently and have different financial and tax advantages. An LLC may have a lower tax rate (depending on your state), but an S Corp may allow you greater leeway in dealing with self-employment taxes. An LLC may cost less than an S Corp in annual accounting fees but more than an S Corp in formation fees.

Like the old scales of justice, there’s no hard and fast answer. You need to weigh and balance the different considerations to come to the decision that’s right for your situation. That’s why it’s so important to have an accountant on your team who understands the ins and outs of these issues too.

2. Legal issues with freelancers

Freelancers are an amazing resource for small businesses. Freelancers enable them to get quality service without having to hire staff full-time (and take on all the costs of employment taxes, overhead, benefits, training, etc.). But freelancers are business owners too. So there are several points you want to make in writing with any freelancer.
· Services. What do you have the right to expect? How many revisions will you get of the work (if applicable)? What’s the deadline – when can you expect to receive it?
· Price. What is the fee you will pay and how is it calculated? By the hour? By the project? Is payment at milestones or on certain dates?
· Satisfaction. What happens if you’re not satisfied with the work? Can you cancel the contract early? Are you entitled to a refund?
· Work for Hire. Don’t pussy-foot around with this language. Your agreement should clearly state that the work is being done as a work for hire for you and that you are entitled to all the rights.
· Confidentiality. To enable the freelancer to do the best work for you, you may need to divulge some of your company’s sensitive and proprietary information. Make sure your agreement states that they cannot use the information for any purpose but the work done for you. Also make sure the agreement has “teeth” – penalties if the freelancer breaches that provision.
· Independent Contractor Status. Don’t mess with this either. Make it clear that you’re treating your freelancer (especially if the person is operating his/her business as a sole proprietor and not as a corporation or LLC) as an independent contractor and that the freelancer is the one responsible for paying employment taxes.

Did I say agreement? I sure did. Don’t dismiss me because I’m an attorney – agreements dealing with the transfer of intellectual property rights (in this case from freelancer to you) MUST be in writing.

3. Trademarking a logo

When’s the right time to do so? Hard to say. Your logo is like a website – it can change and develop and your company changes and develops. But each time you change it, you need to file anew. So there’s definitely a financial investment. On a shoestring, decide what’s an absolute necessity. And understand that for trademark purposes, there’s a subtle difference between your company name and your “trademark.” The two are not necessarily identical. What will bring more “bang for the buck,” as it were? How do you want to be known in the community? You may want to start with one tag line or logo and roll out the others over time as cash flows in. An intellectual property/trademark attorney can help guide you through a strategy that fits your needs. Remember too, that the quest doesn’t end once the Trademark Office grants you the ® — you then need to monitor the mark for the rest of the life of the mark to make sure no one it using it. And that costs money, too.

Read on for more of Nina’s advice to our finalists!

Here are points four through six of the great advice our finalists received from Nina Kaufman, Esq., a New York attorney who specializes in small business and entrepreneurship. www.askthebusinesslawyer.com.

4. Business partners

People use the term “business partner” loosely . . . which makes attorneys cringe. “Partner” is a word that has a legal connotation. If you refer to someone as your business partner, there is an assumption that that person will have an ownership interest in your business and be responsible for a commensurate share of the debt. There’s no rule of thumb as to when it’s right to bring on a business partner. However, budding entrepreneurs are often feeling so grateful for whatever helpful ideas, concept-honing, and moral support comes their way, that they fritter away pieces of their company before they realize it. Once a business partner is in your midst, it’s a torturous process to get them out (unless you’ve worked out the formalities in an agreement).
Here are examples of potentially problematic business partner arrangements:
· A former colleague, who works full-time for another company, “helps out” with product design on occasion. Is her contribution really worth 50% of the company?
· A family member was promised a small share of equity as “thanks” for his role in shaping the concept for the company’s first product. There are now several more products to which the family member contributed no intellectual capital (or financial, for that matter). Does Uncle Joe continue to deserve the same percentage of what’s now a bigger pie?
· Two owners agreed to spit the business 50/50, but now one is making noises that she deserves a bigger piece because she’s the “face” of the business, whereas the other is the “back office.” Is that fair?

That’s why a partnership/shareholder’s/operating agreement is so important. It answers these questions from the outset – before they fester. A business partner may need to leave the business for any number of reasons – they could die, become disabled, feel a calling to do different work, or hate your guts. When they leave, it’s not as simple (legally or financially) as, say, chopping down a tree. You have to uproot the tree. The partnership agreement will outline exactly how you can do that.

5. Doing business online

Doing business online is not as different from doing business face-to-face as people think. You still have a purchaser and a seller. You still have a good or service to be offered/provided. And, if something goes awry in the relationship, you still need to have a method and a place for resolving disputes.

That’s why having privacy policies (“what CAN we do with the email addresses we collect?”) and terms and conditions (“where will we go if we have a disagreement?”) are so important. If you don’t have those on your website, you leave yourself vulnerable. For example, if your business is in Maine and your dissatisfied purchaser in is California, you leave yourself open to having to schlep to California for the lawsuit . . . unless you indicate in advance that all disputes will be resolved in Maine. For ideas for what to include in your privacy policies and terms and conditions, take a look at what others in your industry have included. And then run them by an attorney to make sure there’s nothing else that should be included that hasn’t been.

6. Finding an attorney who’s right for my needs

Sometimes, it feels as elusive as trying to find the Holy Grail. Or the perfect boyfriend/girlfriend. How can you find the right attorney for your business needs? What should you ask? Here are a few guidelines:
· Ask for referrals from other business owners. Not all attorneys have the right match of skills for you. An attorney specializing in anti-trust litigation for Fortune 500 publicly-traded companies is not likely to also be dealing with brand-new start-ups, or conversant with the issues they face (like business formation). An accountant who works primarily filing tax returns for W-2 employees may not be as savvy about the ins and outs of small business taxation as you need – or have the mindset to work proactively with you. If you ask other business owners who they use or know of, at least you have a fighting chance (over the Yellow Pages) of reaching one with the experience you need.
· Consultation Fees. Before setting up an appointment with an attorney (or any professional) ask first whether you will be charged for the consultation and if so, how much. [I actually made that mistake once – I was billed for a 20-minute telephone consultation – because I assumed that my own willingness to assist a fellow/sister lawyer gratis was something others would abide by, too. Guess there’s no professional courtesy among sharks. ]. Also ask if the consultation fee is eventually deducted from any retainer payments, should you choose to work with that attorney going forward). Do not assume that the attorney will give his/her time for free.
· Rates and payments. Assuming you’ve found an attorney with the area of specialty you need, make sure you’re clear about how he/she charges for services. Hourly rate? Project basis/flat fee? Monthly retainer? Payments in advance? Asking these questions may be awkward, but a lot less awkward than being surprised by a bill you didn’t anticipate.
· Listen to your gut. Attorneys and other professionals are a crucial part of your advisory team. You want to feel good about having them on board. You want to feel that they respect the efforts you are making to create something new; but you also need to respect them for their expertise and (sometimes) be willing to set your own headstrong ideas aside and liken to expert advice. What does your gut tell you about the attorney you’re meeting? Would you enjoy working with them? Would you feel comfortable asking them seemingly simple questions (if not, you may deprive yourself of an opportunity to glean valuable information)?

Nina L. Kaufman, Esq.
AskTheBusinessLawyer.com

Dear Readers,

I hope your week has been as exciting and engaging as mine has been. I just returned from the Internet Retailer conference in Chicago where I had the opportunity to meet with hundreds of colleagues and entrepreneurs from around the world. The topic of the week was growth; both for new start-ups and existing businesses that are looking to go to the next level.

As my team and I work with Dana and Tamar of Dapple I become more and more impressed with their commitment to growing a great company. I am proud that my company was able to play a part in what will become a significant milestone for them: The re-launch of their website.

The team here at Exclusive Concepts conducted an extensive review of the old Dapple website and built a plan for taking it to the next level. The newly launched DappleBaby.com website, which is built on the Yahoo! Merchant Solutions platform, allows people to buy products directly and showcases the products more effectively. The new website also establishes Dana and Tamar as the visionary founders of the company and taps into social media by allowing fans to join the Dapple Facebook group. The group has over 300 members so far and over a dozen posts from their fan base. The Dapple community is emerging in real-time and Dana and Tamar are communicating with their customers directly as ideas are shared back and forth.

If you are a mother or father that faces the daunting challenge of cleaning your baby’s dirty bottles, or if you know someone that fits that description, be sure to join the Dapple group on Facebook, sign-up for the Dapple newsletter at DappleBaby.com, and most importantly – place an order on the website!

Sincerely,

Scott Smigler

President

Exclusive Concepts, Inc Website / Blog)

I sat down with Dana Rubinstein and her partner Tamar Rosenthal of Dapple, to review their company to-date, and to share my ideas and insight for moving forward.

First things first: I believe they have a great story, a great product, and solid market potential. I can’t stress enough how important these things are to building something successful. All the money and mentoring in the world can’t save a failed concept.

But this concept appears to be quite strong. And the timing is right. “Organic” and “green” are hot topics. Dapple has few solid competitors. And the market of new moms is always sizeable, and always willing to spend money on products that are good for their children.

The real issues facing Dapple at this point are marketing and distribution: how to GET their product to that market, on a large scale.

Dana and Tamar shared with me that they were approached recently by a gentlemen who is connected to a distribution company. He offered to get their product distributed, (possibly nationwide) in exchange for a percentage of their company.

We discussed this, the three of us. One of the questions I posed to them is: “What percentage of your projected expenses are slated for distribution?” Without that number, it’s futile to consider the offer.

And this is a good point to stress for all entrepreneurs.

This is not unlike building a house. Without a budget, clearly defined, you have no idea whether or not you can afford full granite in the kitchen. Likewise, when you start and run your own business, it’s critical to have a solid handle on dollars: what you have, what you can expect, and what they are to be used for. Only then can you truly start making key decisions.

And so, Dana and Tamar are well on their way, currently tackling the tasks of marketing and distribution. My advice to them in the immediate is to take advantage of the Yahoo! services readily available to them, to incorporate ecommerce capabilities on their site, as well as to begin coordinating virally with other complementary companies, products and services.

From there, tackle the other options one at a time, with solid dollars in mind.

Carolyn Kepcher

www.findingwhatmatters.com

American consumers desire options and variety in the things they buy. The choice of a particular color, flavor, style, size, power, configuration, and just about any and every aspect of a product, reflects on the consumer’s identity. My preference, for example, is a sugar-free, tall, cinnamon, dolce latte, with no whip and extra cinnamon! We like to choose!

For Supply Chain professionals, variety makes our job incredibly difficult. When products are not manufactured to standard sizes and shapes, then provisions must be made for the endless possible configurations of sizes and weight of shipments.

Abby Port at Red Koala Canvas addresses consumer desire for options by offering flexibility in combinations as well as customization of sizes, shapes, images and colors in custom produced artwork. We love this idea! But…it creates significant complexity in logistics and shipping. Shipping boxes and freight rates are unique for each custom-made piece.

Abby’s artwork is relatively light weight and large (as compared with dense products like ball bearings for example). Therefore, shipping rates will be calculated on the dimensions of the package, not the actual weight. UPS, FedEx, USPS and all other shipping companies use a formula to calculate “dimensional weight” for light and bulky items. Check out www.ups.com and search on “dimensional weight” for detailed calculations. Dimensional freight charges are based on the calculated dimensional weight, and can be 3 or 4 times the ordinary rate.

Armed with this information, Abby still wants to give her customers lots of options. She can handle calculating shipping costs using the dimensional weight rules. The problem will be the variability in shipping costs and significant additional charges passed on to her customers. At what point will Abby’s customers say, “no thanks, the shipping charges are too expensive” ?

Additionally, because sizes will vary based on customer orders, Abby will need many different sizes of shipping cartons. This will make it difficult to negotiate volume discounts on packaging supplies.

I encouraged Abby to research the shipping and packaging costs prior to the launch of her new web site, so that she can provide appropriate shipping estimates at the time a customer places an
order.

Size constraints and logistics costs will be an important factor in the production decisions that Red Koala Canvas makes as the company grows.

Rosemary Coates, Managing Director, Supply Chain
The AKA Group