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Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

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by Beth Ewen
December 2014-January 2015

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Upsize Primer: Building a solid foundation-Brick by brick

She and four other experts from disparate fields shared tips to help any business owner get off on the right foot, and Upsize offers edited excerpts from the discussion as a handy guide.

Rick Brimacomb, moderator, Brimacomb & Associates: What is the smartest move you’ve seen a business make, in its early stages?

Terri Krivosha, Maslon Edelman Borman & Brand: The smartest thing is to hire teams. People invest in teams.

Chip Myers, Franklin Partners: Choosing the right market to serve. I’ve seen companies come in and say, it’s a $20 billion market, and if we can just get 2 percent we’ll be successful. But the better move is those who will look at something on the side that’s too small for the big players to enter. Picking a narrow, well-defined market is the best bet.

John Ammann, John A. Knutson & Co.: With startups a lot of times a bunch of buddies will get together and they have a great idea. Things are going well and all of a sudden you have a partner who wants to get out. Know that going in—how you’re going to value the company when it’s time for shares to be redeemed.

Chris Albrecht, Sunrise Banks: The team is important, and the succession planning of the business. Also, the businesses that don’t rest when things are looking good, that continue to be willing to recreate themselves and morph.

Dan Moshe, TechGuru: As an entrepreneur myself, the smartest thing is to get out of my own head and learn from others, especially industries far away from mine.

Brimacomb: What about the dumbest thing, or some common obstacles to success?
Albrecht: Not planning for your growth financially. Not planning for what you really need. Entrepreneurs try to keep things in house and do it on a shoestring, but you have to be realistic.

Krivosha: The failure of founders to know what they’re good at and when to step down. If you have that self awareness, the company will be more successful.

Ammann: Cash flow management is a significant hurdle for small businesses. If the market gets tight, you start looking for funds, and I see people raiding sales tax dollars for payroll, which you should never dip into. You can get in trouble.

Brimacomb: Real big trouble. Like the Big House trouble.

Moshe: Not thinking big enough. It’s easy to get narrow-minded, and not see what the market opportunity really is.

Myers: I’ve seen not a strong enough management team. You end up focusing on problems instead of opportunities. To try to turn around companies is darn hard. It’s quite surprising to me that people don’t understand what it takes to get a product to market. One of the roots is not investing enough into getting the right information. But the best managed companies have outstanding information.

Brimacomb: What about when a company is growing? What are some common missteps to avoid?

Moshe: We have a shared vision across the management team. Even if I envision the future, having that in place for everyone to see is a key factor .
Krivosha: A failure to focus. It’s two sides of the same coin, though. It’s the ADD, attention deficit disorder, that causes the entrepreneur to succeed, but also what causes the lack of focus.

Myers: Most often they’ll present us with a plan but they tucked it away and don’t use it as a tool. It can be used as a real time idea of how the business is doing. Ignoring the plan is the biggest mistake.

From the audience: One thing I see is a lack of clarity as to the exit strategy. Don’t you have to have that at the start?

Krivosha: The first thing to do is start at the end. Are you looking to give your business to your kids? To build it and scale it? To have a lifestyle business? You can change this over time, but that’s important to state the final outcome you desire.

Moshe: I’ve changed my exit strategy three times because I hear about a new one and say, I want that one. I always take the meeting from people who are interested in my company. Ask them: What is it they look for? One of the exit strategies is selling to a key person in the company. I have started those conversations early.

Myers: Sometimes our client is prepared for the process but sometimes not. I subscribe to the view that it’s hard to tell if the time is right to sell your company because there are so many saying they want to buy you. You’re better off keeping your head down and then when you’re ready, set out on a campaign.

Krivosha: To Dan Moshe’s point, my experience has been if they identify someone in the business to buy the company, that person may not have the capital.

Brimacomb: On the front end, talk about the entity types that business owners could choose.

Ammann: There are four basic entity types: 1, C corps, with a double level of taxation. 2, S corps and 3, LLCs, with pass-through taxation. 4, General partnerships or limited partnership. Most small businesses will be S corps or LLCS. The biggest difference between S corps and LLCS is, they both flow through the income to the individuals, but the nice thing about LLCs is you may not want to share profits equally. S corp profits have to be shared pro rata.

Brimacomb: Terri Krivosha, you wrote a book called “Founding a Startup.” Share some highlights.

Krivosha: You start with the goal in mind. For example, if you’re going to attract investors who would want pass-through income, I’d recommend an LLC. The S corp works well for consulting firms.

Brimacomb: Chris Albrecht, talk about cash flow and why it’s so important.

Albrecht: Cash flow is the lifeblood of any business. Talk to your bankers early on. Even if you think you’re going to self fund the business, include your accountant, your lawyer and your banker. There are a lot of good banks out there, but everybody’s needs are different. It’s important to take a look and see who it’s going to make sense for you to align with.

Entrepreneurs are good at networking. Ask other entrepreneurs or your advisers who they work with and who they trust. If they know who you are and anticipate your needs, they can connect you.

Brimacomb: Dan Moshe, when business owners are deciding on software applications, in the cloud or something else, what should they consider?

Moshe: We start with the vision of what the entrepreneur wants to accomplish, and we look at how they want to work and where their employees are. There are some really cool things to allow collaboration. These platforms allow you and colleagues to make changes in real time.

Brimacomb: Sharing is great but talk about security needs.

Moshe: Gone are the days when your data was sitting in a closet on a server. One click and you’ve made this document available to the world. It takes a little time to understand this. The stakes are higher because these files can be accessed from anywhere.
Think about putting a lock code on your mobile devices. Encryption on your hard drive is really important now.

From the audience: It’s easy to slide into complacency and resistance to change, particularly with technology. How do you conquer that?

Myers: I’ve observed that too many companies have the same employees for a long time and they just don’t get it any more. It’s the loneliest job in town, being the owner. You have to have a strong enough management team so you can get out and get the insights. All kinds of people get out and meet people and find a new edge. That’s the founder’s challenge.

Krivosha: you have to create a sense of urgency and everybody has to buy into it.

From the audience: Once you’ve started and you’re going to the next stage how do you structure you business to attract capital?

Brimacomb: The golden rule is the person who has the gold makes the rules. Structure your company to appeal to your investors.
I’d like each of you to leave the audience today with something to avoid and something to do, when building their business.

Moshe: I have a few tips. I meet with my CPA quarterly and I find that’s valuable. Lawyers generally don’t bill for lunchtime, so I take attorneys out for lunch or coffee from time to time. From a cash standpoint, it’s much better to have it and not need it. I got that line of credit set up far before I had a need, and years later that’s come in very, very handy.

Albrecht: Avoid putting things off. Owners will have that growing list of things they’re trying to avoid, but they will just get worse. Do put your head up and see where the business is going. Be willing to be nimble.

Krivosha: Don’t wait to get out into the market. Sometimes you have to go for it.

Ammann: Don’t be penny-wise and pound-foolish. It gets a lot more costly to fix a mistake than to plan it.

Myers: I used to say keep the end in mind, but I’ve changed my mind. If you focus on providing the best product or service you can to your customer, and bring your people along and love them, the rest of it works out.

[contact]
Chris Albrecht, Sunrise Banks:
651.523.7893; chris.albrecht@sunrisebanks.com; www.sunrisebanks.com
John Ammann, John A. Knutson & Co.: 651.379.5733; jammann@knutson-cpa.com; www.knutson-cpa.com
Rick Brimacomb, Brimacomb + Associates and Club E: 612.803.3169;
rick@brimacomb.com;
www.brimacomb.com.
Terri Krivosha, Maslon Edelman Borman & Brand: 612.672.8340; terri.krivosha@maslon.com; www.maslon.com
Dan Moshe, TechGuru: 612.235.4895;
www.techguruit.com
Chip Myers, founder, Franklin Partners: 612.436.0891;
cmyers@franklinpartnersinc.com;
www.franklinpartnersinc.com