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2009 Small Business Week Awards Nomination

November 19, 2008

The Illinois District Office of The U.S. Small Business Administration is seeking nominations for for the 2009 Small Business Week Awards.  Some of the categories include Small Business Person of the Year, SBA Young Entrepreneur of the Year, and Entrepreneurial Success.  Self nominations are welcome.  But hurry, the  deadline to submit your nominations is November 23, 2008.

Year End Bussines Tax Planning- A Couple of Things to Consider Befor The End of The Year

November 19, 2008

Year end tax planning for your business is kind of like computer maintenance in a couple of ways. The first is that most people fall into one of two groups, those that are religious about it and those that don’t worry about it until something breaks. The second way is that a failure to do it can be very expensive in the long run. Fortunately there are tax saving items that can be of help to anyone, but those that plan ahead are more likely to experience the full benefit of the effort.

Let’s define the term year end tax planning. Year end tax planning is any action taken to reduce the tax impact on a business in the current year. You might guess that there would be a lot of things that could fall inside such a broad definition and you would be correct. However an article that would cover all those possibilities would be immense and provide the perfect cure for insomnia, so I will focus on a few items that should be helpful to the greatest number of people.

I would like to point out the one cardinal rule to remember relating to tax planning “Never spend a dollar to save 35 cents”. In other words it is never a good idea to give up income to avoid the tax on that income.

For the “regularly scheduled maintenance” people the easiest way to reduce tax liability is to accelerate expenses. Prime examples are paying state tax estimates prior to year end or buying a needed piece of equipment this year instead of next year. Now is a good time to consider the fact that this strategy tends to be a “rob Peter to pay Paul” situation; you save taxes this year but next year there are reduced expenses and most likely increased tax liability. The cardinal rule applies here in that you should not purchase something you don’t really need just to get a tax deduction.

Both groups can avail themselves of the section 179 expensing election which allows a write off of the full purchase price of qualifying assets. Furniture, equipment and even most computer software qualify for section 179. Write that down, ask for it by name and impress your accountant. The expensing election is limited to $250,000 for 2008. Obviously this would compound the benefit of buying that equipment mentioned earlier. If filing an election seems like too much work, any new assets you purchase during 2008 also most likely qualify for “bonus” depreciation. This allows a current year deduction of fifty percent of the assets value.

Ok, so now you have dealt with all that taxable income and you are safe from the dreaded tax man, right? Maybe not. What about that check you wrote yourself to pay for that new super gaming rig or the money you took out of the company account to buy that big screen to watch the Cubs/Sox win the World Series? Those are distributions and may or may not be taxable income to you. It all comes down to what kind of company you own and whether or not you have basis in it. This is a tricky area that stumps even some professionals. The short story is that if your losses plus your distribution cumulatively exceed what you put in plus the earnings you have paid tax on the excess may be treated as income to you. If you even think this is an issue for you, consult your tax advisor prior to year end. Now may be a good time to consult a tax professional to try to prevent that tax return balance due that could crash your economic hard drive.

TECH cocktail Community Contributed Knowledge

Jerry Murdick, CPA is a tax manger at Frost, Ruttenberg & Rothblatt, P.C. of Chicago. Jerry specializes in tax consulting with closely held businesses and is the go to person for the tax department’s technology initiatives. Jerry can be reached at jmurdick@frronline.com

Guide To Working Paperless

November 3, 2008

I think my simplest self-imposed challenge was to: go entirely paperless at the office this month. It was so simple it’s almost laughable. I’m so confident that I met my own goal I’ve posted this a week before the end of the month. So how did I do it and how did it spill over into my personal life?

I got the right (portable) tools in place

These days we all have laptops: they’re light, portable, and can go anywhere. I’m fortunate enough to have one for both work and play. My laptop (MacBook Air, my primary and only computer) goes with me everywhere (so all the tips will be for Mac users).

• Office to home office
• Conference room to conferences
• Couch to bed
• Bus and train

Not to mention the fact I carry a web-enabled device (iPhone) at all times (send tasks with an e-mail dropbox). In school, we took notes on paper because: it was portable. But now, the same can be said around the office with a laptop (and in school of course). I can plop down at someone else’s desk, I can get on a call, I can go in the hall, etc. I can conduct business anywhere. Sure, all you need is a computer, but a ’satellite’ is key.

The downside to technology

When you interact with humans, face-to-face, laptops and phones become a barrier. Its best to take notes on paper when sitting with co-workers or clients, but certainly not necessary. Being aware of the distraction and visible wall placed between you will help you navigate this problem.

Luckily I deal with most people online (phone or internet) and this makes it easy for me.

Technologies I work with

On day one I removed all paper and writing utensils from my work area to prevent any temptation. Sure, I still have a stack of business cards on my desk but I’ll tackle that later. These are the four simple technologies I require to go completely paperless:

• Plain text editor: Anything from TextMate to Coda will suffice. You simply need a tool to take notes. When you talk to someone, take notes. When you have a meeting, take notes. When you draft a proposal or write a report write everything in markdown so you can convert it (PDF, HTML), keep track of revisions (subversion, git), and edit it with any other text editor. That’s right Microsoft Word, I’m looking at you. Bonus: a tool like SubEthaEdit allows collaborative editing which means you can take notes with everyone else on the call in the same room.
• Web-based calendaring: I use Google Calendar so I can access my calendar anywhere. Plus, there are tools like BusySync and SpanningSync that allow me to go from Google Calendar to iCal to iPhone and back. Adding events from my phone or computer mean one less thing I need to scribble down.
• Web-based tasks: Again, having my tasks accessible from any computer, anywhere is key. Since we eat our own dogfood at Crowd Favorite I use our tasks suite for both a work and personal to-do list. E-mail dropboxes (I always have my iPhone) allow a quick thought to turn into an actionable item and I never need to jot anything down.
• Communication tools: My RescueTime dashboard says I spend nearly 70% of my time in applications and on websites I’ve tagged ‘communication’. It’s important to my job and so I’m glad I have reliable e-mail at GMail, cheap calls on Skype, instant messages with Adium (Google Talk, AIM) and a phone on my desk. When’s the last time you used paper to communicate in a day-to-day setting?
• Paperless faxes: Most people have a scanner/printer (it’s hard to find the two separated these days) so they don’t need to fax anything. Just e-mail me the high-quality image. But, some things never change. Go spend the $9.99 and buy an e-fax number for the rest of the John McCain’s out there.
• Digital Signatures: I say nay to faxes in the first place, you don’t need them to sign a document. Adobe has come out with perfectly acceptable digital signature technology. It’s really straight forward and allows for near-instant turn-around on contracts, NDAs, etc. Plus, hand-written signatures can be forged, right?

We’re all familiar with the 80/20 concept, right? These simple technologies catch far more than the majority (probably 90%) of paper that could possibly enter my work life.

But, some things cant be avoided

Little things come up every day and we pay little attention to them. Business cards are handed out at dinners, conferences and other events. Going to lunch or drinks after work mean you’ll be handed a receipt. So what do you do with the unavoidable?

• Receipts: If I can see that the credit card printer has already spit out a second customer receipt I’ll be sure to ask for it. Why? So I can make sure I take it back and recycle it. Odds are when you decline it’s tossed straight into the trash.
• Business Cards: I will gladly accept a card from someone if its seems appropriate (and offer them mine). Like receipts I will always put them in my phone and recycle the card. But, if the situation is right, I will then offer them to use my contxts account (simply SMS ‘devin’ to 50500). There are plenty of other services out there: TextMarks, MyDropCard.
• Shipping Labels: Welp, some things can’t be avoided. I had to ship a book to a friend the other day and realized it was one of my few ‘non-digital’ exchanges this month.
• Checks: Cash is king and if you want to do business you’ll accept checks. Online services are becoming more popular but there are things like fees involved. Free checking is far too easy right now.
• Account Statements: If you can, obviously have them sent to you online (banking, bills, etc.). I have a few accounts that still don’t offer it and that kills me. Again, I have to suck it up, shred, and recycle, that’s the best I can do.
• Periodicals: They’re mostly there, newspapers, magazines*, etc. They all syndicate online. The hardest part is when you’re faced with ‘offline’ time. NetNewsWire is my app of choice but that still leaves me high and dry with partial feeds and those that don’t push to RSS.
• Books: With services like Audible and Audio-Tech business book summaries I haven’t read from a tangible book in a while. I have plenty that I will read (on planes, on the bus, etc.) because, well, they’re books. But taking steps like re-selling them on Amazon (reduce, reuse, recycle?) and subscribing to podcasts will certainly help you become paperless.

As you can see, there are some things that are hard to avoid. But you’re certainly not helpless.

So how did I do?

I feel pretty good about my new habits and I’m sure I’m not alone in my quest to work and live paperless. Is there something I’ve missed? Or is there something you’ve found that works better? Share your thoughts in the comments.

* I’ve collected nearly ten years of WIRED magazines and use them as a night stand. I love that magazine.

TECH cocktail Community Contributed Knowledge

Devin manages cool projects at Crowd Favorite, skis for Colorado Snow, and writes about business and technology at Mind Averse.

Guide for Online Businesses Who Want to Accept Credit Cards (and not get ripped off)

October 29, 2008

Most software and ecommerce businesses need to accept credit cards.  Over the past four years, as the owner of an ecommerce business TSS Raido, I have learned the hard way how expensive credit card processing can be.  There aren’t a lot of resources on the net to help business owners negotiate on an even playing field, this is part of my attempt to fill the void.

Four Simple Rules to Getting Good Pricing

1. Don’t Accept Cancellation Charges

The fine print of many credit card processing contracts include a cancellation charge of at least $250 and as much as several thousand dollars.   There is no reason for a cancel fee and most salespeople have the authority to waive this fee.  Make certain that the fee is waived in writing, either in the contract or as an amendment.  If you have a big cancel fee your service provider has no incentive to give you good service.

2. Use Interchange-Plus Pricing

Credit card processors’ largest expenses are the payments they make to Visa and Mastercard.  Those payments are set by a complicated formula called Interchange and vary for each transaction (for example, the fee is higher when a rewards card is used).  It is set by Visa and Mastercard and cannot be negotiated (Mastercard interchange rates, Visa Interchange Rates).

When you use interchange-plus pricing, you agree to pay the processor their costs (interchange) plus a constant markup.  Since the markup never changes you ensure that you avoid any tricky fees.

Most smaller businesses do not have interchange-plus pricing, rather they have tiered pricing, where the processor groups the transactions into groups (with names like “Qualified” and “MidQualified”) and sets a fixed price for that group of transactions.

Large businesses such as Wal-Mart and American Airlines have always negotiated on an interchange plus basis because it results in a better deal.   Every credit card processor can provide interchange plus pricing and smaller businesses can benefit from this kind of pricing as much as big ones.

In this article, called Interchange Plus Pricing, a Beneficial Package?, a VP at Global Payments, a big processor, explains how processors use tiered pricing to take advantage of their customers:

“Traditionally, smaller merchants had pricing blended into three or four categories… This simplified the entire process. In addition, common practice was for acquirers to mark up and charge significantly more for ‘downgraded’ transactions (those that did not qualify for the best rate applicable). These ‘downgrades’ often comprised the majority of the profit acquirers received on merchants, as business owners focused mainly on the ‘qualified’ or best rate. Interchange-Plus does not allow acquirers to increase profit on ‘downgraded’ transactions… I would argue that acquirers only take money out of their own hands by accelerating the practice of Interchange-Plus pricing.”

3. Comparison Shop

Best results are achieved by businesses that comparison-shop between at least 5 credit card processors.

Make sure that you compare the offers on an apples-to-apples basis (interchange-plus pricing makes this easier) and make sure to let each of the prospective service providers know that you are comparison shopping.

Gateway (negotiable)

If you use an independent gateway, such as Authorize.net, you can expect a per transaction fee of less than $0.10.  If you use a gateway owned by your processing network, such as Orbital from Chase Paymentech or Linkpoint from First Data, then the per transaction fee should be less.

Interchange (NOT negotiable)

For a business that accepts credit cards over the net, does address verification and whose customers use a typical mix of cards, the average interchange rate should be about $0.12 per transaction plus 1.93% of volume.  So, if your business has $500K in credit card receipts each year and your average transaction size is $50, you will pay $10,850 in interchange fees each year.

You can get a more accurate estimate of what your interchange fees will be using this free credit card processing calculator (disclaimer, it belongs to TransFS, a business that I own).

Processor Markup (negotiable)

The amount that your processor marks up the interchange rate (remember, if you are not on interchange-plus billing this markup will be hidden) varies dramatically.  On average, businesses with $500K in credit card processing volume / year pay their processor about 0.90% on their volume, or $4,500 / year, on top of the $10,850 in interchange fees.
Unfortunately for us, the average pricing is lousy!

Without even trying very hard a business that size could negotiate the fees down to $0.10 per transaction and 0.15% (which would save you $2,750 / year in our hypothetical example).  If you are an informed and tough negotiator you can get it even lower.  Disclaimer- my other business TransFS makes money by automating this negotiation, allowing you to shop for credit card processing with an online interface similar to Orbitz or Priceline.

Total

In total, you should be paying no more than 0.10 (gateway) + 0.12 (interchange) + 1.93% (interchange) + 0.10 (processor) + 0.15% (processor) = 0.32 + 2.08%.  If you are paying more than that, you should consider shopping around or renegotiating with your current provider.

Other useful links:
http://www.informed-merchant.com
http://discerning.com/topics/services/paymentprocessing.html (very detailed but old)
http://www.politico.com/news/stories/0307/3115.html
http://waytoohigh.wordpress.com/
http://transfs.com/blog (disclaimer - my blog)

TECH cocktail Community Contributed Knowledge

Sean Harper is the co-founder of TSS-Radio, an online seller of satellite radios and accessories and
TransFS, an online comparison-shopping website for small business financial services, including credit card processing. Before starting those businesses he worked in venture capital at Longworth Venture Partners and William Blair Capital Partners. He is also a student at the University of Chicago GSB.

Twitter Tools for Community and Communications Professionals

October 27, 2008

Redefining the Echo Chamber to Excel in an Economic Crisis

October 14, 2008

The point of this article is to redefine how startups (not solely tech companies) view and define early adopters and the “echo chamber” in order to gain momentum in order to “cross the chasm” to the next tier of evolution, adoption, and monetization. This is about uncovering the very people who can benefit from what they’re introducing and in turn, evolve the product/service based on real world feedback.

We can not assume that early adopters and innovators are relegated simply to tech, silicon valley, .0 startups, or fanboys and girls of shiny new objects and features.

There are early adopters (aka savvy consumers) in every market segment, and that’s an irrefutable point. They create highly influential echo chambers with their own associated bell curve’s around the globe that stimulate and inspire their dedicate ecosystems.

We ALL need to rethink how to dissect and define “the echo chamber” because in the process, we’ll uncover that consumers, not just geeks, are also early adopters in their own right and they need to be treated as the a-list in their own communities. Thus, we must expand the traditional view of the echo chamber to include the “new” influencers across multiple markets, where they reside, as well as discover, share, and compel those around them. This broader, yet focused approach removes our “tech” blinders and frees us from solely focusing on “one” audience or demographic in order to build a global and pivotal groundswell.

The echo chamber, by default, is perceived as it is defined, by the people, not by a dictionary. This doesn’t advocate living in the echo chamber, only leveraging it, across multiple markets, to excel in the mainstream, thus bridging the chasms between them.

Refining the Echo Chamber to Excel in an Economic Crisis

Source: Albireo2006

“I would tell (entrepreneurs) to keep their day job until they got one year of funding, and if they couldn’t get that, then they’re not meant to start that company right now…. My advice to (start ups that don’t have a year’s worth of money in the bank) would be to raise money by reducing your own spending. If you can’t raise more money, you have to cut costs. And that’s what I’m harping on to my companies.”
- Ron Conway

We are witnessing an epic financial meltdown or long overdue resetting of existing business practices and the hollow markets they create. Or, perhaps we’re experiencing both of these phenomena. Either way, it has the nation gripped with fear, uncertainty, and an unsettling eruption of questionable advice confusing everyone, everywhere.

While the floor is crumbling for many industries much in the same way it did for Silicon Valley during the dotbomb years, the sky isn’t necessarily falling on the startup industry – at least not for those with marketable technology or products, dedicated and capable teams, an executable business plan, and access to the resources necessary to help it reach users and customers. To put it another way, we will not witness a great startup depression. There is only opportunity to grow your business, mind share, and market share. And, that time is now.

The U.S. financial market will always mimic a yoyo on an escalator. It goes up and down, but it’s always going up.

For those startups that are building and marketing usable solutions for consumers or businesses, there is much work to do. If you’re seeking angel, Series A, or even Series B funding, seek partners who are insulated from affected markets so that they can support you and your growth organically, without unnecessary pressure from external forces that are outside of your control. The money is still out there for worthy entrepreneurs.

Usually, when the economy slides, the first natural reaction is to cut expenses, conserve cash, and hunker-down to weather the storm. Any savvy and seasoned marketing and business veteran will advise you to do the opposite. This is your time to shine, albeit, strategically and intelligently.

“Great entrepreneurs build value and market-share in down markets. They go to work seven days a week and the(y) breakout when other folks check out.”
- Jason Calacanis

Now’s the time to get your head in the game and focus on what it is you do, and go do it better than anyone else. You’re either on the field or you’re on the sidelines.

Any company that intentionally pulls itself from the radar screen of their customers will be absent from customer decisions and referrals. In the process, you create a frictionless opportunity for your competitors to swoop in and fill the void.

Marketing, PR, service, and product development are now more important than ever. They will not only help you stay alive, but also fuel growth – even in a down economy.

There are always customers making decisions, so make sure that you’re part of the equation and process, wherever they go for information and insight.

Your business can grow with the groundswell and doesn’t necessarily require the instant adoption by the masses in order to succeed in the short term.

While there is always a need to attract mainstream users, this isn’t the time to stretch or over-commit resources to hit everyone all at once. Branding is an expensive proposition, one that requires time, capital, diligence, passionate teams and customers, and patience. As counter intuitive as it may seem, this is exactly the right time to market in and to the echo chamber to earn the influential support that will create significant, concentrated brand visibility and momentum, gaining strength and girth as it travels.

Influence and adoption historically have migrated from the edge to the center. Or using a more common example, users and word of mouth referrals travel from left to right along a bell curve that starts with Innovators and Early Adopters, peaks with the Early Majority and the Late Majority, and finally permeates with reaction from Laggards.

If you dissect the art and science of technology marketing using a car as a simple metaphor, your product serves as the chassis, your cash as the fuel, Social Media, Interactive/Web, Sales, SEO, and PR as the accelerator, marketing strategy and execution as the gears, RPMs as a market indicator for listening and responding, the speedometer to convey inertia, and you, as founding executive, sitting in the driver’s seat, steering and controlling the entire operation.

Marketing to the echo chamber, believe it or not, is how you get that car rolling, starting everything in first gear. Appealing to those who can help spark word of mouth is how you can accelerate, gain enough speed to shift into second, and subsequent higher gears, and attract new users and evangelists along the way, growing in distance and reach at every turn. It is the echo chamber that can help you efficiently gain velocity in order to progressively reach greater audiences and command additional financing and also revenue in the process. With its support and assistance, it is almost like starting with a colossal push.

Some of you are building valuable, independent businesses, while many are also creating innovative features and capabilities that can seamlessly fold into existing entities and products. Either way, you have to start by engaging those who’ll get it, and in turn, share it with their peers. It’s an ongoing process that strengthens with each cycle.

“Hopefully you are building your business in a way that is independent of the stock market.”
- Kevin Ryan

The world doesn’t flock to new things en masse. It takes a focused and progressive strategy that evolves and matures over time. In a down economy, this is non-negotiable.

Digg and Twitter are among some of the best examples of how alpha users can help promote a company or service by embracing these new solutions and religiously demonstrating why they are pervasive and useful. And, emphatic users also contribute to the community building process, assisting in the translation of the value proposition for different markets as well as enticing and compelling their peers to join them, which offsets and relieves the company from carrying the bulk of the responsibility for promotion and guerrilla marketing.

But, where are Digg and Twitter in respect to the adoption cycle? They’re not as far along as you think judging by the buzz and permeation of your social graph. These companies still have oceans to swim until they become household brands. But, that’s OK. They’re building a business, cultivating legions of dedicated user communities, evolving and improving their product, and still conserving cash. Remember, it took brands such as ebay, Youtube, Google, and Amazon millions of dollars and armies of enthusiasts and partners to achieve saturation – and many would argue that there’s still much work to be done.

I would bet on any company that earned the support of innovators and early adopters and took the time to listen to feedback in order to iterate based on real world needs, preferences, pains, and new ideas.

Remember, your story and corresponding benefits, as well as the product itself is going to be different at each step of the way. Different groups of people have different needs and also unique ways of hearing about something and making the decision to try it, let alone refer it. Without influence, you’re going to spend precious resources, more than you can afford, convincing people that they should pay attention. Peer-to-peer marketing is priceless and still your best bet for having a shot, and more importantly, making a long-term impact.

But you first need a spark, something to start that avalanche that grows as it races downhill.

The echo chamber is bigger than we think or give it credit for. In fact, think of the echo chamber as its own bell curve. Most of the blogs and users that naturally come to mind, may reside on the left side, leaving a wide array of technology enthusiasts to uncover and pursue.

Innovators and early adopters are global citizens and do not solely reside in Silicon Valley. Your marketing and PR should identify the voices and their channels of connecting peers to create and develop active, thriving, and vocal communities. Figure out who your market is today, tomorrow, next month, and set goals for user acquisition so that you can tweak your product and tailor your messages to those very people, as they’ll uniquely connect to your story, and also share it differently among their peers, as it traverses across the bell curve.

Remember, reporters, bloggers and online tastemakers aka trendsetters who spotlight innovation can send tens of thousands of new and loyal users to you almost instantly. I’m not just referring to unique visits of those who sign up, test things out, and then leave to try the next shiny service. When done right, the echo chamber can generate real world interest and support. It is these very users who tell you everything about what works, what doesn’t, and how to improve. These same individuals and networks also augment and complement your marketing efforts by legitimizing you’re products, associating credibility and providing pseudo endorsements, and in turn, giving you unprecedented access to their invaluable and highly connected networks of early adopters.

This is the time to focus on user acquisition. In the realm of new technology, education and the demonstration of practical and meaningful integration into the daily workflow or personal routine sets the stage for effectively connecting people to your story and value. This is edgework and in conjunction with innovators and early adopters, you’re pioneering influence and adoption.

Everything starts with an intimate understanding of the markets you’re trying to reach and an even deeper connection to the peers, voices, and other channels that influence them. You’re not marketing iPhones, gaming consoles, premium spirits, or new music artists. At the very least, you are redefining how people communicate, collaborate, connect, and ultimately work.

There’s a prevailing necessity to educate your markets and introduce not just new products and services, but also real world solutions that change the daily routine of everyday people.

Therefore the goal to race from zero to 60 and hit mass penetration immediately is not the primary goal. If we look at business development and communications as a series of strategic stages, we realize that there are focused activities that we must pursue and smaller, reachable voices we must reach and convince to help us carry and adapt our story from stage to stage – each time, addressing the needs and pain points of the individual, respective groups.

Each step requires a dedicated, concerted approach in order to bolster the support of the individual ecosystems that contribute to user acquisition and the recruitment of passionate and energized believers, who will extend our efforts as a surrogate sales and marketing team.

Of course, as you learn, internalize feedback, change, adapt, and engage with your markets, the foundation for your business solidifies and begins to afford and beget expansion. It is at this point in time, when you can continue to expand your focus and reach to attract and inspire users residing outside of the echo chamber.

“It’s much better, in my opinion, to go with the freemium model, give a version of the service away for free to all comers, get a lot of users, get good market feedback, then develop a premium version of the product/service for sale to enterprise customers. If your free version is popular with a lot of users, your customer base is the target for the upsell and you might be able to live without an expensive sales force initially. And, of course, keep your costs really low until you start to get revenues.”
- Fred Wilson

Nothing beats a killer product idea and an impressive, objective, and focused team to carry it forward. Expectations count and will determine how you channel information and progress. Think too big and you’ll miss your target and burn through resources before you can ever earn any significant market traction. Aim too low and the market will pass you by.

In this volatile economic climate, the echo chamber can be your direct connection to success, or at the very least, notable and awardable momentum. It is a global incubator designed to help you grow, gain momentum, and ultimately propel your business across the bell curve to appeal to and attract a wider, active, and segmented user base – strategically, incrementally, and efficiently.

We live in interesting times and it’s up to us, and only us, to define our future.

TECH cocktail Community Contributed Knowledge

Brian Solis is Principal of FutureWorks, an award-winning PR and New Media agency in Silicon Valley. Solis blogs at PR2.0, bub.blicio.us, and regularly contributes PR & tech insight to industry publications

Don’t Forget to Pay Your Uncle - Uncle Sam that is!

October 2, 2008

By Harriet Jacobs, CPA, MST

Here’s a sad story about an entrepreneur with cash flow problems.  We’ll call her Ursula Undercap.

Ursula was a technological wiz.  She was always coming up with ideas which were usable, useful, and on the cutting edge.  She worked for a tech firm for a number of years, but decided that other people were making more money from her ideas than she was.  So, Ursula decided to strike out on her own.  She opened a corporation named Undercap Tech, Inc., and started out on a shoestring budget.

Prospects were good.  There were several small successes in the first year, and Ursula was surprised to find that she was quite good at marketing her ideas.  She knew that she ought to have more cash on hand as a cushion, but assumed that she could borrow funds if necessary and as long as cash flow from current operations covered all of her monthly expenses, it wasn’t a pressing issue.

While driving to the office one morning, Ursula thought of an amazing, new concept.  The concept was huge, and so was the project.  Ursula analyzed her needs, and set out to hire about twenty more employees, including people who could work with her to flesh out her ideas, the assistants they would need, two marketing people, and an in-house bookkeeper/office assistant to keep up with the day to day running of Undercap Tech, Inc.  She hoped that her cash flow would sustain all of the new staff she needed to complete the project, but she also knew that this was her big chance to succeed.  She had to make it work, no matter what!

The new bookkeeper began paying the bills, under Ursula’s supervision.  Each week, they would look at how much money they had in the bank, and Ursula would tell the bookkeeper which bills to pay and which ones could wait.  Obviously, the staff had to be paid, or they would leave.  There was too much at stake to allow the new project to be understaffed.

Ursula saw that her resources were being stretched too thin, so she went to the bank to ask for a loan.  Actually, she went to five banks.  Unfortunately, each of them told her that they still considered Undercap Tech, Inc. to be a start up business, and therefore, they couldn’t lend her money at this time.  Two banks, however, did promise to lend her money as soon as she had signed contracts with at least three businesses for her new project.  She knew that she could hang on until then if she was very careful.  So, she started paying her suppliers in 60 days, rather than 30.  And she stopped making her payroll tax deposits.  She figured that the contracts would come in and that she would at least have her bank loans by the time the IRS came around.

Well, you know the rest of the story.  The project took much longer to perfect than anticipated.  Businesses would not sign contracts until they saw the finished product.  As a result, Ursula couldn’t get a bank loan.

Fast forward eight or ten months.  Somehow, Undercap Tech, Inc. has stayed in business.  The employees have all been paid, usually on time.  The vendors grumble, but take their money in 60 or 90 days.  Only the payroll taxes are owed.  The corporation now owes all of the taxes for three calendar quarters, plus substantial penalties and interest.

Then one day Rudy Revenue Officer arrives from the IRS.  He tells Ursula that Undercap Tech, Inc. owes a large sum of money, and that he is there to collect it.  She is very apologetic, explaining that she had expected to have the money available by now, but the new project took longer to develop than expected, and the corporation won’t be able to pay the liability until the project is brought to market.

So Rudy starts asking Ursula about her personal finances.

“Why do you want to know?” she asks him.  “This is a corporation, and I am not personally liable for the corporation’s debts.”

“That is generally true,” Rudy replies, “but you can be charged personally for any Trust Fund taxes which you were responsible to pay over to the government on behalf of the corporation.  Every penny of the withholding taxes you took from your employees’ pay checks, as well as the employees’ withholding for Social Security and Medicare can be collected from you personally, regardless of whether the corporation stays in business or goes under.  Now, I understand that you have substantial equity in your house and that you don’t owe any money on your late model luxury car.  You also have a large balance in your 401(k) plan from your former employer.  We’re going to have to analyze all of your personal financial information to determine if you can pay the liability through monthly installments or if you’re going to have to take out personal loans to pay the entire amount right now.”

This sounds pretty scary – and it is.  Many owners of corporations believe that they are personally protected from all corporate creditors.  The truth is that a “responsible person” who “willfully neglects or refuses to pay” Trust Fund taxes to the government can be held personally liable for those taxes.  In addition to the types of federal payroll taxes mentioned above, Trust Fund taxes can also include such things as state withholding or sales taxes.

Ursula Undercap has learned her lesson, and she would like you to learn it, too.  Make sure that your business is adequately capitalized, and never neglect to pay your payroll taxes.  It’s just bad business.

TECH cocktail Community Contributed Knowledge

Harriet Jacobs, CPA, CVA, ABV, MST is a tax manger at Frost, Ruttenberg & Rothblatt, P.C. of Chicago and a former IRS Collection Division Employee. She has published articles in technical journals on various tax topics, has presented numerous tax seminars to groups around the Chicago area, and has taught income tax courses at a community college. She has also been invited by the IRS to address a high level training course in California, and to be a panelist on an IRS sponsored web cast originating in Washington, DC. Harriet can be reached at hjacobs@frronline.com

More Than Cheap Labor: 7 Things to Know When Looking for an Offshore Team

September 29, 2008

Maybe you’re working with an offshore team, or maybe you’re thinking about it. Or worse yet, you’ve been burned by an offshore "software sweatshop". We’ve all heard offshore outsourcing horror stories. There are obvious advantages (and disadvantages) to outsourcing. Here are 7 tips to help you choose the right offshore partner.

High value, not low cost — Sounds simple, but you get what you pay for. Avoid vendors promising high level technical skills at ‘bargain basement’ rates. Look for a team that loves what they do and that compensates their employees generously. Low price does not provide value, proficient programmers who work for a company they love does.

Do you see what I see? — If your development team doesn’t see the vision, you’re doomed; doubly so if they’re half way around the world. If you’re building a product that you plan on taking to market, you need to find a team that has a vested interest in your success. The real value in offshore development is in nurturing a team that matches your corporate culture and who understands the subtleties of your business.

Culture Shock — Are you focused on immediate results, organic growth and impeccable quality? Find a vendor who feels the same way. A cultural mismatch will definitely end the relationship. Ask lots of questions to unearth the underlying culture that governs how they do business.

Most Vendors are the Same — Outsourcing is more about trust and reliability than cheap technical skills. Companies that flaunt their technical competency are no different than their competitors. Look for business acumen and not tech skills. Throw them a project and see how well they meet incremental milestones, the types of questions they ask, and how responsive they are.

Fanatical Commitment — Technical skills are easy to find, reliable people are not. Most offshore vendors don’t understand the concept of a deadline. As a business, you can work around technical limitations, but you can’t work around people who aren’t committed. Find someone who does what they say. Unexpected problems are bound to occur, but at the moment of truth your vendor should be mature enough to roll with the punches and get the job done.

Ask You Tough Questions — People who are good at what they do aren’t afraid to ask tough questions. Questions show that they know who they are and what kinds of problems they can solve. In an industry saturated with ‘yes men’, an inquisitive partner forces you to re-think how you do business.

Maturity to Say "No" — Finally, it’s extremely rare to find a vendor that will tell you like it is. We’ve heard countless stories of offshore firms over-promising and under-delivering. You need to look for a partner that can be honest with you from day one, even if it means that they lose your business. A company that sets up realistic expectations is a company you can rely on, even if it’s not the answer you wanted to hear.

TECH cocktail Community Contributed Knowledge

Raza Imam is Managing Partner of Chicago-based global software engineering firm, Adaptive Solutions, Inc. With a keen understanding of offshore development, ASI is focused on providing world-class service, enabling our clients to focus on innovation and growth.

He is also author of the outsourcing blog Software Sweatshop

How to Turn Website Visitors into Sales

September 24, 2008

These days, most of us are pretty good about monitoring our website activity. We know our “hits” from our “page views” from our “visitors” and many of us track those numbers religiously. Unfortunately, though, those numbers only show you who reaches the virtual door. What happens after a potential buyer steps inside your website? Too many companies, even those spending hundreds or thousands of dollars on online marketing, focus so much on driving website traffic that they fail to convert that traffic into sales.

Fortunately, it’s getting easier and easier to measure your online sales and track potential customers. Here are a few tips for finding the gaps potential customers fall through and patching them up.

Know Your Conversion Rate

In the industry, “conversion” is just a fancy term for turning visitors into customers. Conversion rate is the percentage of visitors that reach a specific business goal, whether that’s a sale, lead, or download. It sounds simple enough, but the first step to improving your conversion is to track it and establish your baseline. Industry experts suggest that average conversion rates run 2-3%, but real numbers can vary wildly – honestly assess where you’re at now and work to improve it. Fortunately, many analytics tools (including free tools such as Google Analytics) now make online conversion tracking easy.

Find Your Gaps

Once you’re tracking your conversions, map out your online sales process. A typical process (sometimes called a “conversion funnel”, since it’s wide at the top and narrow at the bottom) may look something like this:

1. Home Page
2. Search Results
3. Product Page
4. Shopping Cart
5. Order Form

Of course, the path any given visitor follows could be very different, but once you have a sense of the ideal path, you can start to review your website analytics for gaps. For example, does traffic fall off a lot between your shopping cart and your order form? Once you isolate these gaps, filling them becomes much easier.

Make Actions Clear

In any online sales process there are multiple calls to action, decision points that you want customers to follow. One of the easiest ways to improve conversion is to make your calls to action clearer. For example:

• Make links look like links (i.e. blue and/or underlined)
• Make buttons look “clickable”
• Make buttons visually distinct (large, a bold color, etc.)
• Use action-oriented copy (“Buy it now!”)

Test, Test and Test Again

Don’t leave website changes to chance - test them, and let the data guide your decisions. This can be as simple as a basic “split” or “A/B” test, where you serve up two versions (A and B) of a page, copy, or image (split 50/50) and measure which one generates more conversions. These days, website testing is easier than ever, thanks to free tools like Google Website Optimizer. Testing is not only incredibly effective, but it can go a long way towards ending arguments over opinion, especially in larger organizations.

Make Improvement A Habit

Hopefully, this gives you a few ideas for how to get moving on the path to increasing conversion. Ultimately, understanding your website data and improving your online sales process should be a long-term habit. Honestly assess where you’re at today, listen to your data (and your customers), and start testing improvements methodically, and you’ll be off to a great start.

TECH cocktail Community Contributed Knowledge

Dr. Peter J. Meyers is the President of User Effect, a former start-up executive, cognitive psychologist, and lifelong programmer. User Effect specializes in helping online businesses understand their customers and convert visitors into buyers. Pete can be reached directly at peter@usereffect.com

From Idea To Startup

September 18, 2008

Do you have a great idea? So what are you going to do about it?

Many of us that love technology always have those little ideas that pop into our head.  You know the ones that say “Man I wish there was something that did insert idea here”.  Did you ever stop and think that you could actually take that idea and make it a reality?  In today’s technology landscape, the barriers to entry are so low, you should seriously look at taking the next step.  Once you do, you never know what can happen.

About 18 months ago, Amazon had recently released their new cloud storage platform, S3 (Simple Storage Service).  I thought it was way cool, but seemed to be lacking something, an easy interface to manage your data in their cloud.  Around the same time I started using an app on the Mac called Yojimbo.  It is a really cool app that lets you aggregate data, web pages, documents, etc into folders and tag them with metadata.  This was great except for the fact that all that data resided on my laptop.  I could not get to it while at work, on travel, or just away from my computer.  Then one night I had THAT question pop into my head.  “I wish there was a app like Yojimbo but on the web.”  That was my spark.

I thought about it for a while, as many do.  I wondered if I should do anything, but in the end I decided I was going to do something, anything and at least I could say I tried.  I had read books like Founders at Work and gleaned a lot of great insight and saw a direction I wanted to go.  I decided from the beginning I was going to do as much as I could on my own and control as much of it as I could.  I began with small scribblings in a moleskin of design concepts and notes here and there on business plan stuff.  Eventually a purpose, direction, and design came out of all of this.

The next step was to figure out how to take those ideas on paper and make them into a functioning app.  I knew form the beginning that I was not the person to do this.  I could have noodled my way through, but the time it took for me to do that would have been counterproductive.  So I decided to place a posting on Elance and let developers bid on my project.  Eventually I chose a provider and the work began.  I think the most important advice I can give you about this part of the process is to maintain a strong communication channel to make sure your wants and being implemented how you want them to be.  You are paying the bills, so make sure it is done properly.

It was a long process but in the end I got an application called MyDropBin, which is a user front end to your very own Amazon storage space that allows to save and share content, static and dynamic, and pay only for the amount of storage space you use.  It has been a great feeling just taking the step.  I did not spend a lot of money, and any that I did, I considered in investment in myself.

What has been so great about the process is the journey it has put me on.  I have tried to use social media to leverage PR for the product with virtually no PR budget.  It has afforded me the opportunity to meet great people and do a lot of really cool things.  It seems doors open and other doors and opportunities present themselves, ones that never would have had I not taken the first step.  The product has been running along.  Sure it could use some tweaking here and there and I do what I can where I can.  I have a full time job and kids, so time is sometimes hard to come by, but I do my best.

Recently I was listed in the Amazon Web Services Solution catalog and got a lot of registrations every day of people stopping by to check out my product.  I try to interact with all of them and find out what they think about the application and what can be done to make it better.  Eventually I will be able to start another development iteration and take the product to the next level.

What have I learned?  You never know what can happen, so take a chance and see.

TECH cocktail Community Contributed Knowledge

Jimmy Gardner is the founder of MyDropBin and 2Plus11 Technology. He works in the technology field as a government contractor. He also blogs at East Cost Blogging. He can be reached at jimmy@eastcoastblogging.com. Or add Jimmy as a friend in the TECH cocktail COMMUNITY.

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