Is it okay to pay yourself (and other founders) a salary when you've only raised friends and family money? If so, how much is reasonable? What's an acceptable salary to pay yourself once a non-family seed round is raised?
Hi, it is good to be back on the chat after a few months' hiatus. Great question. I absolutely think you can pay yourself a minimal salary so you can pay rent/mortgage and feed yourself and your family. Starting a company is stressful and as an investor I don't want my founders worrying about foreclosure. HOWEVER, the key word is minimal because founders need to be hungry and motivated by upside. This is something you should discuss/negotiate with your investors. You can even think about structuring in a way that any salary you receive is deducted from equity stake. That should keep incentives aligned. There isn't a magic number, but as you make hires the founders should be paid less than anyone else in the company. Save cash for rock star employees.
Hi Elana, Glad to see you back on these chats! Enjoyed your insightful China column. I am working on developing technology involving 3D printing and medical devices. Would be interested in having the product built in China because I can do it more cost-effectively, but I am scared they will see my technology and steal the IP. My friends in the legal sector say there is no IP protection at all in China. What do you recommend?
It's good to be back. This is a very valid concern given China's history with IP. However, as I mentioned in the column, things are changing. China is granting patents at a higher rate and understands that IP is paramount in developing an innovation economy. My suggestion is to consult with an IP lawyer that does work in China to understand the path forward. They can likely introduce you to trusted partners and manufacturers.
My business partner and I split the equity in our company 50/50. He now wants to give half of his stake to his girlfriend. We do not have a shareholders agreement and did not use a lawyer (we hate lawyers). He has the IP ideas and I was acting as CEO/CFO. What can we do? I don't want her as a shareholder.
Ouch -- hate is a strong word -- especially for someone who seems to desperately need a lawyer. Since you don't have any current operating agreement or documentation, you are really starting from square one in negotiating. You'll need to work with each other and documents off Legal Zoom to duke it out or get a lawyer with experience in these partnership situations. There are a lot of great firms in the area that cater to start-ups and can help you with something like this pretty inexpensively.
Hi, is there anywhere I can go on the Internet to see what forms, licenses and such I need to set up a small business in Maryland? Does the IRS have an area just for new businesses? I'm not sure what I need to do - I need some sort of a checklist, and I can't afford a CPA or attorney as I start out. Thanks.
ChooseMaryland.org is a great resource for setting up legal entities. That is actually the easiest part of starting a business!
I have a good idea for a business, but there are already lots of apps doing this. I think mine is better, but how can I get traction in a crowded marketplace and convince buyers that my solution is best-in-class? I don't have money yet for lawyers or fancy marketing people that develop brands and logos.
The real challenge is to "know" that you are better not just think it. I'm not being flip: You need to understand from customers what they see as best in class and what is missing from current offerings. Will you compete on price or do you offer a better solution? Are you going after a specific demographic that is underserved? You can get logos cheap on 99designs.com or other similar sites and with social media you can inexpensively test customer acquisition strategies. It is your job to understand how you solve a problem better, faster or cheaper. I say it in my columns almost every week -- talk to your customers so you aren't making guesses.
I sell enterprise software in a vertical where many of my customers are part of a pretty tight network, i.e., they attend the same conferences and participate in a listserv where they share war stories and best practices. I am trying to decide what to do about pricing. Each customer thinks it's special and wants the best deal. Of course, I am sure that these same customers are telling each other what software they use and what they pay for it. I am just waiting for the call from a livid Customer X, demanding to know why Customer Y got a better deal. I am thinking of making my price list non-negotiable. Is there any precedent for this in enterprise software? I don't face a ton of competition right now, but when it comes how can I compete if my pricing is set in stone? What are some best practices for dealing with pricing in the situation I have described?
Enterprise software companies typically have pricing structures that solve this exact problem. You need to be both flexible and transparent because most verticals are close knit and information is cheap. Couple things to think about: 1). Categorize in some way so that you have upper and lower tiers. Either by company size (seats, users, etc.) or by basic vs. premium services. 2.) Offer discounts across the board based on payment terms, length of contract, etc. or for making an early commitment as a pilot. 3.) Be prepared to offer any discount to any customer -- you'd likely rather have them at a discounted price than at $0. You can also be clear that you adjust prices yearly based on new features and market conditions. That might encourage a customer to lock in for a longer term deal.
I saw you speak last week at the State of Innovation event. You mentioned that education technology was the hottest market to pursue in the D.C. region. Based on the ed-tech start-ups you've already seen, what are some of the problems/issues left to solve in this industry? Similarly, who are some of the most successful ed-tech start-ups around?
Glad you could make the event. I think the biggest challenge in EdTech right now is more about finding scalable business models than finding a problem to solve. That being said -- there are some new startups around K-12 - like Allovue or Lessoncast - that are solving problems around public school general ledger accounting and teacher continuing ed that aren't as visible as some of the higher ed online learning platforms.
I saw you were recently in China. It looked like a great experience. Obviously, China is a market we as entrepreneurs cannot ignore. Two questions: what are some of the major opportunities in China? Furthermore, what are some other emerging markets entrepreneurs should visit and tap into?
I'd say the best place to start is services -- financial, telecommunications, tourism, education, logistics, distribution. Think about what both consumers and enterprises will need to scale. The opportunity in China is exciting to entrepreneurs because they lack so much of what we already have in the U.S. To me, China is much more about entrepreneurship right now than innovation. Ask any operator and they will tell you how hard it is to maintain and grow market share here. I think you should look for economies that have started to develop by U.S. outsourcing. Young people have started to make money and now want to spend.. China, India, Philippines, Brazil, Poland. More specifically, look at cities first. Bangalore, Mumbai, Shenzhen, Krakow.
I am an intern at a start-up and want to watch the soccer game today. Ok to ask for a watch party? I believe that we will win!
Of course, but assume you will stay past midnight either way. I'm just glad the game wasn't scheduled during my chat!
I believe that we will win! Go USA!
I am a female entrepreneur and look to your advice! Why are all of the companies that women are pushed to start things like hair salons and consumer products? I would like to develop software, not a new type of mani/pedi storefront. How do we change perceptions?
As we tell all entrepreneurs, start with something you know. Woman tend to start companies in area they know -- but not just nail salons -- sites like Care.com or Rent the Runway or BirchBox or Six O'Clock Scramble. We aren't dumb - we know women are making the buying decisions, have growing disposable incomes and have a lot of problems that haven't been solved by our male counterparts. That being said, there are a lot of women entrepreneurs in biotech that often don't make the front pages of Tech Crunch. In addition to nail salons (which are cash cows - stop by Cindy Nails on Rockville Pike), we are also trying to cure cancer. The statistics are improving -- I just saw this morning that the gap has narrowed in the 45-54 age range. 11% of women compared with 12% of men are starting businesses in this range. That's something!
US Postal Mail is so over. All we get is junk mail. Every day we march the contents of our mailboxes to our recycle bins. I'd like to create a mailbox-recycle bin combo. The body of this invention is a recycle bin. The top is a mailbox with no bottom. Mailman puts mail in the mailbox, and with the help of gravity the mail goes immediately into the recycle bin. People who buy my product won't need to waste time checking their mail, and the recycle bin will already be on my curb for pickup. Genius, no? The problem is that I am so busy that I don't have time to create this product and run the business. Do you have any suggestions on how I can find someone to run this project? I don't want a partner or any money from the business. I just want to see it built, and I want the business owner to promise to equip the door to the mailbox with a device that upon the door opening says "Garbage! Gobble. Gobble."
No one will be as passionate about your idea as your are. Chase your dream!
I work at a small (7-person) consultancy in the Bay Area. My boss is a wonderful person and great at what we do. But she's not the savviest business person and still has the mindset of a freelancer instead of a business with employees. As a result, she usually under-charges for our work, under-estimates how long projects will take, which means we end up losing money or just scraping by. I haven't been here quite a year, but payroll has been delayed a handful of times. I've tried to talk to her about this in a constructive way -- I have experience with other agencies and my own business -- and she has said she's open to my ideas. But then she submits low-ball proposals anyway. We recently won new business with one of the big-name Silicon Valley companies (that billions on earth use) and I didn't get to see the proposal until after it was sent, even though I'll be the one doing all work for this job. I would have charged double. But she says she's afraid we won't get hired if she asks for more money.
Any ideas to get through to her that a) we are all senior professionals who more than earn our pay, and clients should respect that; b) we risk looking like amateurs by underselling ourselves; c) we are in the money-rich Bay Area and it's there to be had! Thanks for your thoughts.
You've raised a great point that many startups often overlook. Pricing is part of your strategy and part of your product. Your team should spend time understanding what customers are willing to pay and whether you can build a viable, scalable, business at that price point. If not, this may not have the growth potential you expected and you might need part ways. Similar to my answer above, put clients in tiered categories and determine your portfolio diversification. Maybe you can afford a lower paying job with a larger client if there might be bigger jobs ahead.