Answers to everything from "Deciding When to Ditch the Steady Job" to facing challenging client requirements...a must read for all budding entrepreneurs

1. SOLUTIONS
PLAYBOOK
Top 25 Small-Business Challenges

2. CONTENTS
GETTING STARTED
4
Challenge 1: Deciding When to Ditch the Steady Job
5
Challenge 2: Finding the Time to Write a Business Plan
6
Challenge 3: Sharpening Your Elevator Pitch­ And Your Business Plan
—
7
Challenge 4: Choosing Between an Incubator and an Accelerator
8
Challenge 5: Quitting Work for the Day When You’re the Boss
9
BRANDING/MARKETING
10
Challenge 6: Marketing a Product or Service That’s Ahead of its Time
11
Challenge 7: Making Social Media Tactical
12
Challenge 8: Deciding Whether to Embrace Mobile
13
Challenge 9: Calculating the Value of Media Placements
14
MONEY MATTERS
15
Challenge 10: Securing a Line of Credit
16
Challenge 11: Working with Investors
17
Challenge 12: Using Debt Financing to Build a Business
18
Challenge 13: Making the Most of Crowdfunding
19
Challenge 14: Deciding When to Start and Stop Fundraising
20

3. CONTENTS
MANAGEMENT
21
Challenge 15: Protecting Intellectual Property
22
Challenge 16: Tackling Legal Paperwork
23
Challenge 17: Deciding Whether to Outsource IT
24
Challenge 18: Building a Product as You Build an Organization
25
STAFFING
26
Challenge 19: Choosing to Hire Employees or Contractors
27
Challenge 20: Competing for Top Talent Without Paying Top Dollar
28
Challenge 21: Creating a Culture of Excellence
29
Challenge 22: Building an Organization That People Are Excited to Join
30
Challenge 23: Weighing the Telecommuting/Team Building Tradeoffs
31
CLIENT RELATIONS
32
Challenge 24: Raising Prices Without Alienating Clients
33
Challenge 25: Sizing Up What to Invest in Client Face-Time
34

4. GETTING
STARTED
Challenge 1: Deciding When to Ditch the Steady Job
Challenge 2: Finding the Time to Write a Business Plan
Challenge 3: Sharpening Your Elevator Pitch­ And Your Business Plan
—
Challenge 4: Choosing Between an Incubator and an Accelerator
Challenge 5: Quitting Work for the Day When You’re the Boss
GETTING STARTED | 4

5. CHALLENGE 1:
Deciding When to Ditch the Steady Job
To some extent, leaving a steady job (and steady
paychecks) for the life of an entrepreneur is a leap of
faith. Though you intend to make your startup succeed,
nothing is certain.
Like any leap of faith, the process takes patience,
confidence and a positive attitude. It also requires a good
idea of how you plan to manage expenses and support
yourself (or your family) until the new gig takes off.
That last question often proves to be the hardest to
ask and answer. If you’ve got money in the bank or a
spouse who’s still working, you probably are covered. If
you recently won a jackpot in Vegas, you probably are
good. If none of these scenarios is real for you, you need
a bulletproof strategy for leveraging debt and investor
money long enough to sustain the company and your own
personal finances, too. We’re not going to lie: This process
can be hairy at times. It also can be rife with uncertainty.
“You need to weigh whether the freedom of successfully
working for yourself outweighs the short-term instability
or anxiety [you might have],” he says.
The flipside of these question marks is, of course,
the possibility of a smash hit. Yes, your current job
may be steady, cushy and familiar. But when your
startup succeeds, when you’re the one at the helm of a
multimillion-dollar business, it isn’t going to matter where
you were before the current project. All that will matter is
what you have accomplished.
SOLUTION:
Besides getting yourself mentally ready for this adventure,
consider thinking about what you need to have in place
to prevent unnecessary hardship for yourself and
your family.
Travis Ness, co-founder of Renton, Wash.-based design
agency Crossroads Creative, suggests that every foray
into entrepreneurship should be prefaced with some
serious self-reflection in which business leaders ask
themselves exactly what they’re comfortable handling on
the road to independence.
GETTING STARTED | 5

6. CHALLENGE 2:
Finding the Time to Write a Business Plan
We’ve all heard legends about entrepreneurs writing the
crux of their business plans on cocktail napkins at local
watering holes. (See Related: Five Businesses Born at a
Bar) While the backdrops and the implements may differ
in real life, the spontaneity usually doesn’t.
Once you have that critical idea, however, business plans
take lots of time and painstaking effort.
Some entrepreneurs have tackled the process solo. That
was the case for Amy Norman and Stella Ma, co-founders
of Little Passports, an educational products company
based in San Francisco. The duo wrote the bulk of their
plan while working for other companies, according to
Norman. So they churned out most of the document on
laptop computers at their respective kitchen tables, on
weekends and after everyone in their families had gone
to sleep.
the Internet, record pertinent information about similar
sports businesses, and imbue the document with context.
“His involvement was bringing the industry expertise,”
says Platt, whose company has 30 locations nationwide
and is based in Los Angeles. “We knew that if we wanted
to do this [plan] the right way, we wouldn’t have time to
tackle that ourselves.”
Even with the additional help, Platt says the plan
ultimately took about 1,500 hours to complete.
SOLUTION:
However you approach writing your business plan, be
prepared to put just about anything on hold to do it right.
“You find time to write it whenever you can,” says Norman,
looking back. “Whatever it takes.”
Other entrepreneurs, such as Jeff Platt, CEO and cofounder of the Sky Zone indoor entertainment venues,
have brought in help.
When Platt and his father, his co-founder, realized that
their business plan needed to incorporate a hefty amount
of market research, the duo hired a consultant to scour
GETTING STARTED | 6

7. CHALLENGE 3:
Sharpening Your Elevator
Pitch—And Your Business Plan
Think of an elevator pitch as your executive summary.
It’s the quick-and-dirty version of exactly what you want
potential investors (and maybe even customers) to know
about the business you’re trying to build.
O’Leary thinks most entrepreneurs spend so much time
harping on the business itself that they ignore the need to
explain and enumerate their qualifications to make that
business come to life.
With this in mind, it’s critically important to draw upon
components of the elevator pitch to inform and round out
a formal business plan.
“At some point along the way, you need to answer the
whole question of ‘Why you?’ ” he notes. “You need to
give people a very obvious reason to trust that you are the
right person to run this business over time.”
Chris O’Leary wrote the book Elevator Pitch Essentials
(The Limb Press, 2008). He says a well-honed elevator
pitch should provide a business plan with a one-sentence
summary of what the business does, followed by
statements that explain
» What the business does differently
» How it adds value for customers
» How it will make money
» How it can scale over time
To this end, O’Leary adds that developing a solid elevator
pitch usually prompts entrepreneurs to start thinking
about sales and marketing campaigns.
SOLUTION:
Try out the above exercise in brevity. It can not only lead to
a sharper and more credible business plan, but also pave
the way for overall business success.
“The point of an elevator pitch is to get conversations
started about your company,” says O’Leary, who is in St.
Louis. “While the elevator pitch provides quick hits on a
number of topics, the business plan should be designed
to go more in-depth.”
Credibility is another key part of an elevator pitch that
belongs in a business plan.
GETTING STARTED | 7

8. CHALLENGE 4:
Choosing Between an
Incubator and an Accelerator
Both incubator and accelerator models are designed to
help entrepreneurs bring ideas to market. But depending
on what kind of help you want—and at what stage your
company sits currently—one choice may make more
sense for you.
As the name suggests, incubators are more nurturing
environments, complete with advice from industry
experts, structured introductions to potential funders
and longer-term trajectories for idea development.
Accelerators, on the other hand, offer quick pushes to
help companies get over final hurdles and deliver their
products to market.
Some popular accelerators include Y Combinator and
TechStars. Some popular incubators include Idealab and
YouWeb.
“Accelerators are set up to bring companies to market,
while incubators offer entrepreneurs more room to fail,”
explains Peter Relan, CEO and co-founder of YouWeb,
which has California incubation locations. “We make
investments in entrepreneurs,[accelerators] make
investments in business plans.” (See Related Article:
Meet the Entrepreneurs Behind the Booming Business of
Games.)
Another difference between the two is that incubators
generally offer more resources.
to Carnegie Mellon University. Perks included unlimited
use of critical instrumentation that ultimately saved the
firm about $500,000.
“To build a high-tech company, you have to be able to
analyze and characterize your chemicals,” McCarthy
explains. “We could have invested the money on our
own, but as part of the incubator we were able to use the
school’s stuff and save our money for other things.”
In exchange for all of this help, incubators and
accelerators alike usually require entrepreneurs to fork
over a certain amount of equity. (In the case of ATRP, the
university’s Technology Transfer Office holds a stake in
the firm.)
Some might think these additional fees are exorbitant.
Others say they are small prices to pay for a chance to hit
it big.
SOLUTION:
Consider whether you need a nurturing environment to
better form a business idea­ or a place that will boost you
—
to the next level. If you require the former, you likely will be
more successful going with the incubator. If you need the
latter, an accelerator might be better.
Patrick McCarthy experienced this first-hand when he
co-founded ATRP Solutions, a specialty polymer company
based in Pittsburgh. McCarthy and his colleagues took the
company through the Mellon Institute, an incubator tied
GETTING STARTED | 8

9. CHALLENGE 5:
Quitting Work for the Day
When You’re the Boss
It’s dangerously easy for entrepreneurs to view their
jobs as never-ending. So much to do! So little time! With
seemingly infinite demands, you might be tempted to
work on your startup nonstop.
And while this strategy usually works for the first 72
hours, it almost always leads to burnout pretty quickly
after that.
Naturally, the key to managing your startup and your life is
finding out how the two fit together.
“You need to put up boundaries,” says Cali Yost, CEO
and founder of Work+Life Fit, a Madison, N.J.-based
leadership-consulting firm. “Take deliberate action in the
areas that sustain your health, personal relationships,
career networks, job skills and life maintenance, or they
won’t happen.”
In describing the ultimate goal, Yost is careful not to use
the word “balance,” because she says, “A 50-50 split
between work and life is never going to happen.” Instead,
she notes, entrepreneurs must realize that the interplay
between work and life is a constant ebb and flow.
interminable days. Mehta says the work was invigorating.
But after a while, he started to see it have an impact his
relationships with friends and family.
“Sooner or later, I realized something was missing,”
he remembers.
Applying structure to his days reversed this trend.
Currently, Mehta splits his days at lunch. He handles all
phone calls before the break, and all meetings after.
Another strategy, as simple as it might seem, is making
lists. No matter how diligent you are, working until you’ve
crossed off five items from your list is a great way to
quantify your efforts. It’s also a good method to get
stuff done.
SOLUTION:
As exciting as it is to start a company, adopt some rules
for yourself to prevent it from consuming your entire life.
Figure out what works best for you.
Jigar Mehta, director of operations at Matter, a fledgling
media accelerator based in San Francisco, experienced
this first-hand in 2012.
When Mehta joined the company, it was in major
bootstrap mode, and most of the executives logged
GETTING STARTED | 9

10. BRANDING/
MARKETING
Challenge 6: Marketing a Product or Service That’s Ahead of its Time
Challenge 7: Making Social Media Tactical
Challenge 8: Deciding Whether to Embrace Mobile
Challenge 9: Calculating the Value of Media Placements
BRANDING/MARKETING | 10

11. CHALLENGE 6:
Marketing a Product or
Service That’s Ahead of its Time
Entrepreneurs find this one of the most difficult
challenges in the current economic environment.
The first step in this process is to convince yourself.
It’s important to find small, achievable steps you
can take to prove the concept -- then run with them
to build momentum as you sharpen the idea, says
Matt Mickiewicz, founder of DeveloperAuction.com, a
developer-recruiting web service based in San Francisco.
“Trying to jump all the way to the final product is like
trying to build the Golden Gate Bridge from one end while
running across it,” he says. “Instead, start with a pier, then
build some pontoons out from the edges, then cobble
together some wooden bridges across parts of the river.”
Finally, there’s the art of timing.
If an idea truly is “ahead of its time,” then, by definition,
it’s not “viable” yet. What’s more, current technology and
penetration have to be in line with how your product or
service is going to be used.
“Imagine trying to launch YouTube when everyone was still
on dial-up,” Mickiewicz says. Sometimes a little context
goes a long way.
SOLUTION:
When it comes to convincing others about your idea,
consider approaching it as a four-step process: Convince
yourself. Gather proof it works. Stay flexible about the
idea. And think about the timing.
The next step is to gather proof of concept.
According to Mickiewicz, this step involves collecting realworld data from real-world users about the product (or
scaled-down versions of the product). What works? What
doesn’t work? What features reign supreme? Getting
answers to these questions will help demonstrate that the
idea has merit.
The third step in persuading others your idea is viable is to
remain flexible. Be willing to tweak product specifications
per feedback from focus-group users, or to rethink sales
and distribution models based upon changes in the
marketplace.
It also means being open-minded to failure and
recognizing that sometimes even the best ideas may
not work.
BRANDING/MARKETING | 11

12. CHALLENGE 7:
Making Social Media Tactical
Experts and entrepreneurs alike will tell you that social
media is all about the “conversation.” That means the key
to leveraging Facebook, Twitter and Instagram to your
advantage is controlling what people—customers, usually
—are saying about you in virtual-but-public forums.
Content must be at the center of this effort, according
to John Andrews, CEO and co-founder of Collective Bias,
a Bentonville, Ark.-based social shopper marketing
company.
Andrews has found that companies can use keywords to
“game” search engines into ranking certain pages higher
than others. Experts call the practice “organic” search
engine optimization (SEO).
“If you’re producing more content than anybody else, it’s
pretty straightforward: You’ll dominate the conversation
every time,” Andrews says.
to run two or three back-to-back to see which works best.
Social media involves “constant switch testing.”
When it comes to leveraging social media into a weapon
against competitors, the third and final key is to simply
stay flexible. If one particular campaign isn’t achieving
the desired number of followers or buzz, cut it off and try
something new.
Media such as Facebook, Twitter and Instagram give
businesses the opportunity to interact with customers in
real time; how businesses choose to wield that power is
entirely up to them.
SOLUTION:
To make your social media efforts more tactical, create
content regularly and run promotions but stay flexible.
Promotions are another great way to make social media
tactical (As we learned in our “Secret Sauce” exercise in
2011. See Related Articles: The Secret Sauce Project, The
Social Media Challenge: The Results). Here, the caveat is
simple: You’ve to have a plan for what you’re going to do
with all the people you gain from running a promotion.
Andrews says that because promotions in the world of
social media get instantaneous traction, it’s a good idea
BRANDING/MARKETING | 12

13. CHALLENGE 8:
Deciding Whether to Embrace Mobile
CTIA-The Wireless Association reports there are more
than 320 million mobile-phone subscribers in the U.S
alone. So just about every business on earth needs to
master and incorporate mobile technology if it is to
succeed.
“Business development is about finding ways to help
people find ways to spend time with your product
or service,” says Greg Duffy, CEO and co-founder of
Dropcam, a San Francisco-based company that makes
Wi-Fi video monitoring cameras. “If people can’t spend
time with your product or service on their phones, you’re
missing out.”
In the olden days—you know, the 1990s—the assumption
was that companies had two opportunities to get
customers to spend time with their products: at work
or at home. Duffy thinks that mobile technologies have
changed the equation because they facilitate interactions
any time.
overwhelmingly positive word-of-mouth chatter, while
those that handle mobile poorly usually suffer from
negative buzz.
This, adds Duffy, is reason enough to embrace mobile the
right way.
“People expect certain levels of service,” he notes. “It’s
not just about doing it, but instead about doing it right.”
All told, a good mobile strategy won’t come cheap.
Some entrepreneurs say it’s hard to build a good user
experience with design and programming for less than
$100,000. Ultimately, such investments should pay huge
returns, especially if the mobile market continues to grow.
SOLUTION:
Pursue a mobile strategy, when you can afford to do
it right.
And in the world of mobile technology, quality trumps
quantity—every time.
Regardless of whether mobile technology companies
specialize in software (read: apps) or hardware,
businesses that excel in the field usually experience
BRANDING/MARKETING | 13

14. CHALLENGE 9:
Calculating the Value of Media Placements
When applied tactically, media placements—
advertisements, advertorials and feature articles—can be
successful components of a startup’s marketing strategy.
But it’s often difficult to quantify value and return on
investment of these efforts.
One strategy is to survey customers on how they heard
about you. If customers are willing to respond to brief
questions after conducting business, they might reveal
that they spotted your ad on their favorite website, or read
about your product or service in a magazine.
Another strategy is to offer special promotions available
only in local media. At the end of each promotion, you
should be able to get a sense of revenue driven through
each specific channel.
“The first thing is to be as small as you can until you find
what works for you,” says Jim McCarthy, CEO of Goldstar,
a ticket service based in Altadena, Calif. “The second thing
is to do everything you can to get results, even when it’s
difficult to find out what happens.“
that a handful of newspaper and magazine articles
played a “critical” role in Seattle-based A la Mode Pies’s
successful launch. Without them, he notes, the four-yearold company likely would have stumbled disastrously out
of the gate.
Overall, Porter warns that whichever media placements
entrepreneurs decide to adopt, the process of gaining
value from these efforts usually takes time.
“It starts slowly,” he says, noting that a little patience
goes a long way. “Every placement gets you more
visibility until you become established and [the collective
coverage] legitimizes your business.”
SOLUTION:
Startups should consider more unique strategies when
it comes to media placements. Survey customers to find
out what’s working, perhaps stick to local, and maybe
even avoid paid advertising.
Some entrepreneurs have opted to eschew paid
advertisements almost completely, instead focusing their
efforts on public relations.
Take pie bake shop founder Chris Porter as an example.
Porter thinks “advertising is a ripoff.” Instead, he found
BRANDING/MARKETING | 14

15. MONEY
MATTERS
Challenge 10: Securing a Line of Credit
Challenge 11: Working with Investors
Challenge 12: Using Debt Financing to Build a Business
Challenge 13: Making the Most of Crowdfunding
Challenge 14: Deciding When to Start and Stop Fundraising
MONEY MATTERS | 15

16. CHALLENGE 10:
Securing a Line of Credit
Different types of banks dole out different lines of
credit to different kinds of companies for a host of
different reasons.
Among big banks, the name of the game is
minimizing risk.
and try to flesh out specifics of their company’s financial
story. Some of the questions they might ask include:
» How did you get to where you are?
» What struggles did you have to overcome?
»What are you going to do with the money?
This means bankers generally shy away from early-stage
companies that haven’t yet tested ideas, and gravitate
more toward middle- and later-stage companies that
have been toiling for years to make a profit.
“Smaller banks might know the people you’re doing
business with,” says Ross. In rare cases, these banks may
even volunteer to act as liaisons or provide other services
to help out.
Corey Ross, co-founder of BBC Easy, a Seattle-based
company that automates borrowing, says a bank will
usually consider lending to a company if it is at least three
years old.
Whichever approach you take, note that all banks that
dispense credit require extensive applications, as well as
financial statements and tax returns for the duration of
the company’s history. Consider this due diligence.
It’s the least you can do for a little money to help get
things rolling.
“If you have three years of losses but can present a clear
path to success and how you’re going to accomplish it,
that’s the kind of situation a big bank will take,” says Ross,
who also spent part of his career working inside a bank.
“You need to demonstrate financial awareness.”
Among smaller banks, there’s more leeway for
interpretation.
SOLUTION:
No matter what, be prepared to demonstrate a business
track record—as well as a persuasive case that the money
you’re seeking will allow you to produce profits to pay the
bank back.
Ross notes that bankers at many smaller and community
banks will take the time to sit down with entrepreneurs
MONEY MATTERS | 16

17. CHALLENGE 11:
Working with Investors
Building a company with the help of investors can be a
double-edged sword.
On one hand, a broad and diverse investment group
can act as a brain trust that can help you and your cofounders navigate critical junctures (or even day-to-day
hurdles). Their passion, input and expertise can be just as
valuable as their money.
On the other hand corralling investors can be a bit like
herding cats -- especially if the investors are frustrated
or aren’t clear about the company’s direction and want
answers, stat.
With this in mind, perhaps communication is the best
secret to working with investment teams.
“If your investors feel like you’re giving them information
on the progress of the business—the good progress and
the not-so-good progress—then they find themselves in
a position where they can help,” says Jeff Miller, CEO of
Wheelz, a San Francisco-based peer-to-peer car-sharing
company. “Money is money. Your relationships with these
people are the things that are going to translate into a
competitive advantage down the road.”
Still, there is such a thing as too much communicating.
Miller, whose company has worked with about 25 different
investors over the years, says that when entrepreneurs
look to investors for input on every move, problems
usually arise.
One definite no-no: kowtowing to investors who want
status reports once or twice a month.
“You have to make sure that the cart is not driving the
horse,” Miller says. “As CEO, it’s your responsibility to
take inputs and decide which course of action is best for
the business.”
SOLUTION:
Agree on ground rules upfront about the frequency and
content of communications.
MONEY MATTERS | 17

18. CHALLENGE 12:
Using Debt Financing to Build a Business
Growing debt to build a business, also known as “debt
financing,” is a valid counterpoint to the more traditional
route of funding a startup with angel investors or venture
capital. Entrepreneurs who go this route say they do so as
a way to retain equity and minimize new personalities on
the management team.
When you borrow on credit, you don’t have to worry about
giving up portions of the company.
That said, playing with debt is always a risky proposition,
especially when you’ve got to put up personal assets as
security for the loan.
If you must grow debt to build the business, shy away
from credit cards (which often charge exorbitant rates
after one year) and target banks that work with the Small
Business Administration. That’s because large portions of
SBA loans are guaranteed.
Here’s another alternative: Seek debt financing from
current investors.
“This guy who ended up lending to us already had a vested
interest in our success and had bought into the promise
of the company,” explains Meader. “For him, it was lowrisk. For us, it was an infusion that enabled us not to dilute
the interests of other shareholders.”
Meader offered some other general tips for growing
debt wisely:
» Don’t take out more money than you’ll need to
finance the company
» Don’t take on more debt than the available equity
in the company; aim for a ratio of somewhere
between half and 1-to-1 of equity to debt
» Don’t stray from fixed-interest loans
SOLUTION:
When financing growth with debt, look to minimize risks
when it comes to your lenders and loan terms to the
greatest extent possible.
This was the right strategy for Dan Meader, CEO and cofounder of San Diego-based Allowance Manager, which
makes allowance-tracking software for parents. In 2011,
almost two years after the company launched, Meader
saw cash flow sagging. He went to certain investors for a
little boost.
MONEY MATTERS | 18

19. CHALLENGE 13:
Making the Most of Crowdfunding
President Barack Obama formally welcomed in
crowdfunding as a startup-company revenue source
when he signed the Jumpstart Our Business Startups Act
in 2012.
This means it’s now legal for entrepreneurs to finance
endeavors by pulling together donations from a multitude
of customers. The U.S. Securities and Exchange
Commission is cautioning companies not to offer equity in
return for cash to the general public, but upcoming rules
from the agency will open the door for companies to seek
investments from just about anyone. At the time of this
writing, rules were expected to be issued some time
in 2013.
Leveraging this platform to your advantage, however,
takes gumption.
For starters, it’s important to take advantage of the speed
with which crowdfunding can deliver cash.
While traditional fundraising avenues such as angel
investment and venture capital can take months,
crowdfunding can work in a matter of weeks, says Zach
DeAngelo, vice president of sales at Little Duck Organics,
a New York-based company that got most of its first
round of funding through the San Francisco-based
crowdfunding platform CircleUp.
“You need money to survive,” DeAngelo says. “If that
means taking money from friends and family and here
and there, [you] do what it takes to allow your company to
not die.”
Entrepreneurs can leverage crowdfunding platforms for
other benefits, too.
First on the list is validation. If an entrepreneur isn’t sure
how big or popular his or her particular market might
be, gauging the market size by interactions through
crowdfunding could provide some valuable insight.
Next, there’s the virtual focus group effect. In many cases,
entrepreneurs will leverage a crowdfunding platform as a
way to test product design and marketing campaigns.
“People spend thousands of dollars to go and get people’s
opinions in focus groups. You can do that for free with
crowdfunding,” says Danae Ringelmann, co-founder of
Indiegogo, a crowdfunding platform also based in San
Francisco.
“Opinions shared during a focus group are just that—
opinions,” Ringelmann says. Crowdfunding offers a
window to understanding actual behaviors.
SOLUTION:
To do crowdfunding right, entrepreneurs must spend
time crafting a pitch and selling to their potential donor
base. It isn’t a perfect product-testing ground but, in an
environment where options previously were limited, this
new approach is a welcome addition.
MONEY MATTERS | 19

20. CHALLENGE 14:
Deciding When to Start and Stop Fundraising
Considering the open-ended nature of entrepreneurship,
it’s perfectly normal to view fundraising as a
Sisyphean task.
“Obviously there’s a risk that you’ll get nobody to give you
a term sheet by that date, but if you’ve set your timeframe
realistically, chances are you’ll do well,” Budman says.
Still, it pays to be specific when you’re raising money to
finance a company with specific goals.
One last piece of advice: When it comes to fund raising,
more isn’t always better.
“You need to go into VCs and say, ‘With this amount of
money, we will build a product,’” says Gleb Budman, CEO
of Backblaze, a data -backup service based in San Mateo,
Calif. Or maybe the money is needed to secure a first
customer—or prove customer acquisition.
Some entrepreneurs often think if the money is “cheap”—
that is, if investors are falling over themselves to fork it
over—the smart play is taking whatever you can get. Don’t
get caught in this trap. The more money you raise from
outside sources, the more you dilute ownership of the
concept. Yes, you want to make your vision a reality. But
you also want to keep it yours.
“There’s something wonderful about setting goals,
meeting them and coming back with specific data on why
they should give you more,” Budman says.
It also means being realistic about timetables. Budman
thinks it generally takes entrepreneurs an average of
three months from the time they start seeking funding
until an idea is funded.
SOLUTION:
The best strategy involves establishing a very modest
series of funding goals, recognizing when you have
achieved those goals to the best of your ability, and then
pulling back on fundraising efforts to execute the plan.
To maintain control of the fundraising process, most
entrepreneurs first nurture relationships with venture
capitalists and other investors. Then they give the suitors
a deadline for submitting term sheets.
MONEY MATTERS | 20

21. MANAGEMENT
Challenge 15: Protecting Intellectual Property
Challenge 16: Tackling Legal Paperwork
Challenge 17: Deciding Whether to Outsource IT
Challenge 18: Building a Product as You Build an Organization
MANAGEMENT | 21

22. CHALLENGE 15:
Protecting Intellectual Property
Technically speaking, there are three main ways to protect
intellectual property (IP) in today’s business environment:
trademarks, copyrights and patents.
in front of the European Union parliament on IP and
has written extensively about the subject over the past
few years.
The first two are important but not overwhelmingly so.
Common law in most states affords entrepreneurs a
certain degree of trademark and copyright protection just
from using their brands. (Entrepreneurs, though, cannot
recoup money beyond damages under case law.)
Masnick offers an alternative approach to protecting IP:
building something successful.
Patents, on the other hand, can be critical -- especially
in industries where products are based on proprietary
research. Patents legally protect you from competitors
swooping in and stealing ideas.
In order to get a patent, you must register specific
ideas with the U.S. Patent Office. The process is tedious,
involves many hours of lawyer time and can often stretch
out over four or five years, says Mike Masnick, CEO and
founder of Floor64, a Sunnyvale, Calif.-based media and
consulting company.
“Entrepreneurs need to ask themselves if the protection
offered by patents is worth all of the time and money you
need to protect them,” says Masnick, who has presented
His advice: Even if you’re not protecting IP under the law,
being first or being best in the market is often the best
protection entrepreneurs have against copycats.
“If you offer the best solution in the marketplace, even if
someone copies you, people will recognize that you led
the way and follow you for that,” he says. “In this way,
the business world operates no differently from the way
individuals do. Leaders, not followers, are the ones who
drive everything.”
SOLUTION:
If you lack the time and money to apply for patents, as
most startups do, your best protection against IP theft is
to stay ahead of the competition.
MANAGEMENT | 22

23. CHALLENGE 16:
Tackling Legal Paperwork
Depending on whom you ask, there are literally dozens of
legal documents that entrepreneurs should line up before
they jump head-first into a new venture. Some, however,
are more important than others.
First, it’s critical to consult a lawyer about properly
documenting the business’s formation. This process
involves choosing an optimal corporate entity, then
forming and registering that entity. It also requires
drafting an operating agreement and constitutional
documents to clarify the structure, function and operation
of the venture.
Next, lawyers can help startups protect intellectual
property with customized licensing and technology
transfer agreements for third parties and vendors.
It’s also necessary to have an airtight nondisclosure
agreement to ensure protection when disclosing ideas to
angel investors, venture capital funds, employees—and
even programmers and vendors.
Then, of course, there’s the issue of equity structure. Sai
Pidatala, a corporate-law attorney in Washington, D.C.,
notes that companies usually need lawyers to
draft vesting clauses to ensure that company stock is
vested only after a certain amount of time or after
certain benchmarks.
“This ensures that a founder doesn’t leave immediately—
and can’t retain ownership in a company for which he is
no longer toiling,” Pidatala says.
If you think you can’t afford all of this legal work,
think again.
The law firm Orrick offers a set of templates for startups
to follow to tackle some of these forms on their own.
(Though, it’s generally a good idea to retain the services
of an attorney to make sure the forms are filled out
properly.)
What’s more, a number of business law firms, including
Orrick and Gunderson Dettmer, are open to compensation
models through which startups can postpone payment for
up to one year.
SOLUTION:
Time and money may be tight, but skip your getting your
legal documents in order only at your own risk.
MANAGEMENT | 23

24. CHALLENGE 17:
Deciding Whether to Outsource IT
Fighting simply to survive, many startup owners find
it daunting to manage hardware, software and other
aspects of information technology.
Sure, small companies can tackle these issues in-house,
but finding the right person for the job can be both
time-consuming and expensive, especially in competitive
markets such as Silicon Valley.
For this reason, entrepreneurs may want to outsource
their IT needs.
We’re not talking here about farming work overseas.
Instead, we’re talking about hiring a technology services
company to come in and manage certain aspects of a
startup’s computing environment. Depending on the
business segment—and the size of the company itself—
this approach generally is less expensive than hiring a
dedicated IT pro.
The strategy usually works best for companies with less
than 50 employees, says Bill Cox, president of Sonoma
Computer Products, a Santa Rosa, Calif.-based ITconsulting company. When a company surpasses
50 workers, the scenario typically requires too much
desktop support.
Cox also notes that most outsourcing arrangements
deliver a broader range of expertise than in-house hires.
“Startups may rely on an in-house programmer or
engineer to manage their network part time while also
juggling the skills they were actually hired for,” he says.
“Outside firms often have multiple engineers on staff to
supply experienced support across a range of IT skills:
server management, networking equipment, mobile
device integration and things like this.”
Of course there are exceptions to this approach. If a
business uses specialized equipment to interface with
the network, or employs unique applications, or operates
in high-security computing environments, “insourcing”
might be a better option long-term.
Whichever option you select, remember this: It’s easier to
move from in-house to outsourced, than the other way
around.
SOLUTION:
Most business owners may want to consider hiring
a technology-services company once they meet the
50-employee mark.
MANAGEMENT | 24

25. CHALLENGE 18:
Building a Product as You Build
an Organization
Even the most skilled entrepreneurs can juggle only a
finite number of responsibilities at one time. That’s why
the ability to delegate is critical when grappling with the
Herculean tasks of building a product and organization
simultaneously.
Put differently, you need to know what you’re bad at.
“Maybe you’re technically excellent but you’re not a
marketer, or [you’re] a showman and a visionary but
commercially lacking. Maybe your product marketing
instincts are great, but your people management skills
aren’t that strong,” says Dave Slutzkin, founding CEO of
San Francisco-based website-auction service Flippa.com.
“You need to know yourself honestly so you can best
shape the organization to fill the gaps,” Slutzkin says.
The way Slutzkin sees it, a product always is shaped by
the organization that creates it.
“You need to get the right balance across the team,”
Slutzkin says. “This balance is the key to everything.”
There’s one responsibility that entrepreneurs never should
delegate when starting out: product quality. Because
every product your organization puts out will bear your
name, it’s important that you single-handedly make sure
quality stays consistent throughout the process.
Ultimately, you can delegate quality control to the team—
but only after your company has leveraged product
success to establish a reputation. Until then, consider it
one of your most critical tasks—both for the company’s
immediate success and for continued success down
the road.
SOLUTION:
The overall goal here is use organization-building to
create a better product—as well as a better entrepreneur.
So if you’ve hired 15 developers but no user experts,
you’re going to end up with something technically genius
that users dislike. On the other hand, if you’ve got a strong
designer but weak developers, you’ll end up with a pretty
product that fails to work consistently.
MANAGEMENT | 25

26. STAFFING
Challenge 19: Choosing to Hire Employees or Contractors
Challenge 20: Competing for Top Talent Without Paying Top Dollar
Challenge 21: Creating a Culture of Excellence
Challenge 22: Building an Organization That People Are Excited to Join
Challenge 23: Weighing the Telecommuting/Team Building Tradeoffs
STAFFING | 26

27. CHALLENGE 19:
Choosing to Hire Employees or Contractors
Building a business of independent contractors—aka
“1099s,” after the IRS form you send them—certainly has
its benefits. The 1099 tax form reports the amount paid
for services to noncorporate independent contractors.
For starters, hiring these workers translates into lower
overhead, since freelancers don’t require office space,
benefit packages or other perks associated with fulltime employment.
Employers who hire these workers also aren’t required
to withhold income taxes, Medicare and Social Security
on the workers’ behalf—realities that translate into
operational savings across the board.
When it comes to 1099s, they’re even are more scalable:
You hire more of them during a high tide of work and hire
fewer of them when business is slow.
But there are downsides to hiring these types of
workers, too.
Kevin Hartz, CEO and co-founder of San Francisco-based
event-promotion service Eventbrite, says that many
entrepreneurs are looking to develop a corporate culture
at their startups, and this culture starts with employees
who are invested emotionally and financially in the
company’s success.
“To 1099 people means you don’t value them as owners
and partners in the business. You just seem them as
hired guns,” he says. “You 1099 a service provider like a
consulting shop, not the team members you want to work
hard for you and help you build the next great thing.”
Another downside to independent contractors is that they
put their own interests above those of the company as a
whole. It’s their very nature.
Finally, of course, there’s the risk of misclassification in
the eyes of the IRS.
Ward Ozaeta, president and CEO at San Diego-based
6 Degrees Realty Capital, suspects companies could
be on the hook if they erroneously label independent
contractors as employees. The contractor might seek
unemployment insurance after his or her contract ends.
This would open up the company to scrutiny from the tax
court, including “unnecessary investigations, tax audits
and even lawsuits,” Ozaeta said.
SOLUTION:
The bottom line is: when opting to staff your startup,
choose wisely.
STAFFING | 27

28. CHALLENGE 20:
Competing for Top Talent
Without Paying Top Dollar
Dollar-for-dollar, there’s almost no way small startups
can compete with huge companies for talent in the
nation’s hottest job markets.
Finally, a number of startups across the U.S. have been
known to sweeten job offers with peripheral perks that
larger companies simply can’t match.
For this reason, it’s important to supplement competitive
salaries with a host of other perks.
For instance, crowdsourcing design service 99designs in
San Francisco gives most employees the opportunity to
spend time in the company’s Australia office. Employees
receive four weeks of vacation time annually as opposed
to the standard going rate of two.
Stock compensation usually is a huge part of these
packages, giving employees more and more equity in
the company the longer they work. It’s an additional
nonmonetary benefit that can truly provide one-of-a-kind
opportunities for employees.
“If you go to a smaller company you’re much more likely
to be working on a critical product or key campaign,”
says Andy Kurtzig, CEO and founder of San Franciscobased online professional-services company Pearl.com.
“Knowing that you’re really making a huge impact on your
employer and its ability to be successful makes it fun to
come to work every day.”
Many smaller companies also compete against the big
boys for talent by offering flexibility.
“We are trying to keep parity between the perks for our
Australian and European employees and the perks for our
employees here,” says CEO Patrick Llewellyn. “Add these
perks to a good salary, fun culture, and coffee and beer in
the office at all times, and this is a pretty great place
to work.”
SOLUTION:
Consider stock compensation, flexible schedules and work
environments and unique perks as you try to hire hard-tosecure talent.
Kurtzig notes that one of the senior execs at Pearl.com
is a single mom with two young children and says the
company has worked with her to create a flexible schedule
in which she drives in early and leaves early enough to
skip most of the evening traffic and be home in time
for dinner.
STAFFING | 28

29. CHALLENGE 21:
Creating a Culture of Excellence
It’s one thing for your business to be successful. It’s
entirely different to approach day-to-day operations with
a culture of excellence.
In the former scenario, satisfaction is achieved through
profitability and growth. In the latter one, satisfaction
is more of an elusive ideal, something you (and your
employees) are chasing inexorably.
Laura DePasquale knows all about the commitment
required to achieve excellence. She’s one of only 18
female master sommeliers in North America. She’s vice
president and general manager for the Florida division
of Stacole Fine Wines -- a wine wholesaler and importer
that’s part of Ashland, Virginia-based The Vintner Group.
DePasquale spent the better part of a decade studying
to become an expert in her craft. Over the years she has
tried to instill in employees an appreciation for the work.
“I’m never satisfied,” DePasquale says. She notes that
after every big project, “it’s important to have a postmortem to discuss what we did well and what the
opportunities for improvement are which includes the
goal setting, direction and execution of the project.”
They even make an effort to educate customers.
“By providing the highest level of wine education, we
ultimately shine a spotlight on the excellence of our wine
and spirits portfolio,” DePasquale says.
In general, other strategies for creating a culture of
excellence include regular powwows to share best
practices, intermittent performance exams, regular job
reviews (with suggestions for the future) and clear career
trajectories so employees have promotions for which
to strive.
Amid all of this intense focus, it’s also a good idea to
institutionalize levity. Group retreats, free meals and
seasonal parties help employees stay motivated. They
also guarantee fun.
SOLUTION:
Consider asking yourself how driven you are with your
business, and whether you are promoting a culture of
excellence.
What’s more, DePasquale notes that she and her team
continue to push education, requiring all salespeople to
bone up on fine wines and wine regions of opportunity.
STAFFING | 29

30. CHALLENGE 22:
Building an Organization
That People Are Excited to Join
Great places to work are built on a triumvirate of
challenging work, generous benefits and day-to-day
relationships that employees experience while on the job.
Assuming that the all-hands-on-deck approach to
work at a startup is inherently challenging, this means
entrepreneurs must focus on the latter two if they wish to
create an organization that people are excited to join.
Engineering extraordinary programs is relatively
straightforward. Anything that goes beyond the baseline
in a company’s home market will stand out. While most
startups don’t have money for free meal programs like
those at Google, they might be able to afford one free
meal a week, or similar perks such as good coffee and
free beer.
Stellar benefit packages also go above and beyond the
current norms. Medical, dental and vision coverage is
standard. Additional days off and on-site childcare are an
obvious upgrade.
Arguably the toughest of these tasks involves fostering
fulfilling day-to-day relationships.
“Short communication channels that enable issues to
be addressed quickly are a must,” she says. “The less
bureaucratic an organization is, the more excited people
are to work there.”
Of course there are other ways to create an organization
people are excited to join.
Curran notes that a pleasant visual workspace is
important, since employees spend anywhere from eight to
12 hours working each day.
Another key factor is salary. While employees may
prioritize non-monetary benefits as important reasons for
taking a new job, competitive compensation is important
from a practical perspective, and should not
be overlooked.
SOLUTION:
Consider asking yourself whether your own business is a
place you would want to work at—even if you didn’t own
it—and improve the workplace perks and communication
environment accordingly.
Such a “perk” pertains to employees feeling that they
are being treated fairly and that they own responsibility
at work, says Barbara Curran, chief financial officer at
Seattle-based online furniture retailer Curran Online.
STAFFING | 30

31. CHALLENGE 23:
Weighing the Telecommuting/Team
Building Tradeoffs
There’s no question that a work force of remote workers
translates into lower overhead for the mother ship.
the place could become a bugaboo when it’s time to
crunch numbers.
Nearly a third of roughly 7.4 million businesses across
the U.S. already allow telecommuting, according to the
nonprofit Connected Nation. And a study sponsored by
online meetings company Citrix Online suggests nearly
half of the jobs in the U.S. could be suitable for full-time
or part-time telecommuting.
Jay Levy, a founding partner of New York-based Zelkova
Ventures, says acquiring companies typically want
acquisition targets to have employees in one place
because it makes it easier to absorb them.
Still, just because working remotely is an economical
option in general doesn’t mean it’s a strategy worth
implementing across the board.
For startups, the challenges with this approach are
twofold.
First, having workers spread across disparate work sites
can impact creativity in a bad way. While technologies
such as Google Hangout and Skype have helped bridge
these gaps, there’s no substitute for the creativity that
emerges spontaneously from face-to-face brainstorming
sessions and other physical get-togethers.
(Some allege that body language is a big part of that
creativity, and this kind of nonverbal communication is
lost when peering through a webcam.)
“Some firms won’t do a deal until all of the employees
for the acquisition company are centralized,” says Levy,
who also co-founded a Napa, Calif.-based startup named
Uproot Wine.
Levy adds that perhaps the best approach is a hybrid,
with a bulk of workers in a headquarters location and a
handful of contractors who work remotely and come in for
meetings from time to time.
“Above all else,” he notes, “flexibility is key.”
SOLUTION:
While telecommuting has advantages, it also makes
sense to have many of your workers operating out of the
same location -- at least some of the time.
Second, if you’re looking to build a company that is
viable for acquisition, having workers spread all over
STAFFING | 31

32. CLIENT
RELATIONS
Challenge 24: Raising Prices Without Alienating Clients
Challenge 25: Sizing Up What to Invest in Client Face-Time
CLIENT RELATIONS | 32

33. CHALLENGE 24:
Raising Prices Without Alienating Clients
There’s no way to sugarcoat it: Raising rates is one of the
biggest challenges for a business owner. You don’t want
to cut off the proverbial hand that’s feeding you. At the
same time, you need to maintain a positive cash flow and
grow for the future.
“That’s a key part of delivery—no surprises,” says Morse.
For Mark Morse, CEO of Minneapolis-based branding
agency Morsekode, the best strategy is to communicate
about impending changes, and be as transparent as
possible.
“As there is a need to elevate prices, you go to key
customers and let them know,” he says.
Some companies do this with regular newsletters
that subtly (and sometimes not so subtly) explain the
overhead and processes that drive the retail price of
products and services. Others utilize social media to let
customers know why the company is growing, how the
company is doing it, and what rate increases truly mean
for them.
Transparency could mean explaining to the client that
health premiums are creating heavy cost pressures.
Or maybe the price of video equipment the company
uses is going up. “So many people forget that financial
discussions are normal part of a relationship,” Morse says.
Customers don’t have to be happy about price bump-ups.
They just have to accept them. Openness and honesty can
make this process easier for everyone involved.
Another strategy for communicating with clients about
pricing is to show them what’s “under the hood” of
current pricing structure at every step of the way.
SOLUTION:
One of the ways that Morse communicates with
his customers is by inviting them to individual and
independent quarterly review sessions. During these
meetings, Morse and his colleagues share information
about everything from new technologies and new hires to
potential price increases on the horizon.
Morsekode usually gives clients ample warning about
these price hikes, if for no other reason than to make sure
they’re in the know.
CLIENT RELATIONS | 33

34. CHALLENGE 25:
Sizing Up What to Invest in Client Face-Time
Face-to-face meetings aren’t mission-critical, but they
certainly can make a big difference in client relations.
Just ask Heather Stouffer, founder of Alexandria, Va.based organic-foods company Mom Made Foods. Stouffer
once flew 10 hours round trip to have eight minutes in
front of a prospective client -- the very same client who
agreed to sign with Mom Made because she trusted them.
“I think [success is] just about really being sincere,
trying to be yourself and telling your story,” she says.
“Storytelling in person is really important. We are
passionate and sincere [about our story] and we [tell] it
best when we are face-to-face.”
According to Stouffer, in-person meetings are even more
important early in the relationship with a new client.
Because your clients have no experience working with you,
she says, the face-to-face becomes an important part of
making those clients comfortable. “Even though you’re
selling a product, they’re really buying you,” Stouffer says.
The key is to choose your client meetings wisely. When
deciding, always weigh the potential monetary and nonmonetary expenses of engineering a face-to-face visit
with the potential monetary and non-monetary rewards.
On those occasions when you figure it isn’t important
to meet clients in person, embrace technology-driven
options such as videoconferencing, Google Hangouts
and Skype.
“Anything that makes the experience more personal is
going to end up benefiting you in the end,” says Jay Levy,
a founding partner of New York-based Zelkova Ventures.
“Convenience is important, but business relationships are
still about personal connections.”
SOLUTION:
Figure out a way to get at least some kind of face-toface interaction with clients, especially when you’re just
starting to work with them.
Of course in-person get-togethers aren’t always practical.
Especially when money is tight, investing hundreds of
dollars for every eight minute meeting isn’t sustainable
over time.
CLIENT RELATIONS | 34

35. M
att Villano is a freelance writer
and editor in Healdsburg, Calif.
He is a regular contributor to
Entrepreneur, and has covered startups and
entrepreneurship for The New York Times, TIME
and CIO. He also covers a variety of other topics,
including travel, parenting, education and—
seriously— gambling. He can be found on his
personal website, Whalehead.com, and on
Twitter @mattvillano.
GETTING STARTED | 35