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Contrary to popular belief, business startups are almost never financed by venture capitalists. It is only a very tiny minority who get such funding, and then they are probably either hi-tech or likely to grow to a value of tens of millions of dollars or more in 3-5 years—or both. The vast majority of entrepreneurs starts their business with their savings and help from their family and friends. Unwise ones use their credit cards and rack up high interest costs.
This book is about the process of raising loans and equity capital from the people you know. Actually it is mostly about the former. Sadly many people, both borrowers and lenders do not take an organized approach to the transaction and risk ending up in all kinds of disputes and relationship breakdowns. The author of the book, Asheesh Advani takes the reader through the process step by step—from fundraising to signing the check. Even though you may be borrowing from a close relative, or particularly when you are doing so, you are well advised to document the deal.
At the very least, Advani points out, the parties should sign a promissory note that records the amount, conditions and repayment schedule for the loan. But before you get that far, it is important to decide what business structure you want to adopt, given the special circumstances of your enterprise. Then you need to be clear about the differences between a gift, a loan and equity, because very often one of the parties may be thinking that the money they provided was one of these and the borrower may have assumed something different.
When you seek business finance from a source other than an institution, you may not necessarily produce a full-blown business plan, but it would be a grave mistake not to have a plan of some sort and to be able to make a presentation of it, whether it is what Advani calls a "Kitchen Table Pitch" or something more elaborate. Even Aunt Ada should have an understanding of what your business is about and where it is going.
If it was a gift, then there are some serious tax implications; if it was a loan, then there are repayments; if equity is involved, then part of the business will be changing hands. In any of the three cases and however close you are to the family member or friend, it is as well for the mutual expectations to be crystal clear. "Investors in Your Backyard" is a practical book that deals with a very cloudy, but frequent business transaction. It is amazing that it has only just been published.
Legal or accountancy advice is often recommended for loan and equity deals with family and friends, but it is by no means necessary, especially where the deals are straightforward. The advantage of this book is that it has basic forms for all the necessary paperwork, both in printed and CD-ROM format. Given that Advani is the founder of circlelending.com, he really knows what he is talking about. His company can play the role of independent manager of loans between relatives, friends and business associates, if you prefer to increase the arms-length nature of a deal.
I am in the business of providing such loans within my community and I believe that "Investors in Your Backyard" is required reading for anyone seeking a loan of this type, anywhere. Even for those who are just thinking about setting up in business, rather than necessarily taking the leap, this book will be of enormous help in structuring their thinking about entrepreneurial finance. At $24.99, WorkSavvy rates this as probably the wisest investment they can make.
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(2 of 3 readers found this comment helpful)
This book concerns established businesses, but its message is vital for young enterprises, even startups. Her argument is that successful socially responsible businesses do not have to make a choice between staying small, selling out to bigger enterprises or going for an IPO.
Jill Bamburg is rightly outraged by Milton Friedman's idea that the "social responsibility of business is to increase profits" and she argues that there are other ways to prosper. She describes them in terms of keeping faith with the business mission, making growth organic, bootstrapping financial policies, building values into brands, making sure that change is appropriate and being clear about what sort of scale is appropriate.
The appeal of the book lies in its own easy-to-read style, notwithstanding the fact that Jill is an academic (Dean of the MBA Program at the Bainbridge Graduate Institute)! The fact that it is based on interview/case-studies of a variety of innovative companies means that it is full of very useful and usable material.
What becomes clear as you read the book, is that there is absolutely no need for entrepreneurs to follow 'given management wisdom'. Each of the leaders described in the book creates a destiny uniquely their own. Their business philosophies grow out of the special nature of each enterprise. Not only do they go down a path less traveled, but many innovate in ways which are not in any textbooks.
The stories recounted in the book are frequently inspiring because the businesses break new ground. Traditional management wisdom frequently speaks of trade-offs: trade-offs between cost and quality, or between performance and environment. We now hear less of a clamor for maximizing shareholder value, because people like those in the book have shown that success is not necessarily inimical to meeting the needs for profit, the aspirations of people and the survival of the planet - all at the same time. Indeed the book invites the reader to think very carefully about the definition of success, not in general, but in terms of the specifics of the business in question.
This accessible book makes rewarding reading for anyone contemplating setting up in business, those facing critical questions at the early stage of a business, as well as people in more mature entreprises who question how to get to the next stage of development. If there were a list of five essential texts for business startup, Getting to Scale, would, in my opinion, definitely be one of them.
Was this comment helpful? | Yes | No
(5 of 9 readers found this comment helpful)
This book about business startup and avoiding potential pitfalls, by two entrepreneur-academics may have a negative in the title, but is far from negative in content. The authors describe how to embrace the correct frame of mind and ensure that the right decisions are made for business success. "Never Bet the Farm" takes a bootstrapping approach to setting up in business. It is about ambitious caution.
Anthony Iaquinto and Stephen Spinelli have produced a belt-and-suspenders guide for intending entrepreneurs. To launch a business without being prepared for the inevitable setbacks, is to be blind. Commentators often suggest that entrepreneurs are risk-takers, but in my experience the successful ones are not; they are calculated, or managed, risk-takers. They know in advance how they will proceed if money is tight, sales do not reach forecast, production is delayed, or they face other unplanned outcomes.
The authors do a great job because, while most books on business startup are written with the assumption that business plans will work out, they assume the reverse. This is much nearer reality. They set out fifteen 'principles' to help the reader determine wise courses of action. These principles include setting reasonable goals with achievable milestones; going for life as well as business goals; starting small and being financially responsible; being prudent, not foolhardy; having a backup plan in place; using and contributing to a network; clearing partnership roles at the outset; being clear about an eventual exit.
"Never Bet the Farm" is intellectually honest and based on the practical business experience of both authors, who know business, quite as much as business school. Nearly a third of the book is in the form of "An Entrepreneur's Guidebook" with listings of helpful university resources, websites and books.
This is another title on my list of essential reading for would-be entrepreneurs.
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(1 of 1 readers found this comment helpful)
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Investors in Your Backyard: How to Raise Business Capital from the People You Know
William Keyser, February 21, 2007
Contrary to popular belief, business startups are almost never financed by venture capitalists. It is only a very tiny minority who get such funding, and then they are probably either hi-tech or likely to grow to a value of tens of millions of dollars or more in 3-5 years—or both. The vast majority of entrepreneurs starts their business with their savings and help from their family and friends. Unwise ones use their credit cards and rack up high interest costs.This book is about the process of raising loans and equity capital from the people you know. Actually it is mostly about the former. Sadly many people, both borrowers and lenders do not take an organized approach to the transaction and risk ending up in all kinds of disputes and relationship breakdowns. The author of the book, Asheesh Advani takes the reader through the process step by step—from fundraising to signing the check. Even though you may be borrowing from a close relative, or particularly when you are doing so, you are well advised to document the deal.
At the very least, Advani points out, the parties should sign a promissory note that records the amount, conditions and repayment schedule for the loan. But before you get that far, it is important to decide what business structure you want to adopt, given the special circumstances of your enterprise. Then you need to be clear about the differences between a gift, a loan and equity, because very often one of the parties may be thinking that the money they provided was one of these and the borrower may have assumed something different.
When you seek business finance from a source other than an institution, you may not necessarily produce a full-blown business plan, but it would be a grave mistake not to have a plan of some sort and to be able to make a presentation of it, whether it is what Advani calls a "Kitchen Table Pitch" or something more elaborate. Even Aunt Ada should have an understanding of what your business is about and where it is going.
If it was a gift, then there are some serious tax implications; if it was a loan, then there are repayments; if equity is involved, then part of the business will be changing hands. In any of the three cases and however close you are to the family member or friend, it is as well for the mutual expectations to be crystal clear. "Investors in Your Backyard" is a practical book that deals with a very cloudy, but frequent business transaction. It is amazing that it has only just been published.
Legal or accountancy advice is often recommended for loan and equity deals with family and friends, but it is by no means necessary, especially where the deals are straightforward. The advantage of this book is that it has basic forms for all the necessary paperwork, both in printed and CD-ROM format. Given that Advani is the founder of circlelending.com, he really knows what he is talking about. His company can play the role of independent manager of loans between relatives, friends and business associates, if you prefer to increase the arms-length nature of a deal.
I am in the business of providing such loans within my community and I believe that "Investors in Your Backyard" is required reading for anyone seeking a loan of this type, anywhere. Even for those who are just thinking about setting up in business, rather than necessarily taking the leap, this book will be of enormous help in structuring their thinking about entrepreneurial finance. At $24.99, WorkSavvy rates this as probably the wisest investment they can make.
(2 of 3 readers found this comment helpful)
Getting to Scale: Growing Your Business Without Selling Out by Jill Bamburg
William Keyser, February 21, 2007
This book concerns established businesses, but its message is vital for young enterprises, even startups. Her argument is that successful socially responsible businesses do not have to make a choice between staying small, selling out to bigger enterprises or going for an IPO.Jill Bamburg is rightly outraged by Milton Friedman's idea that the "social responsibility of business is to increase profits" and she argues that there are other ways to prosper. She describes them in terms of keeping faith with the business mission, making growth organic, bootstrapping financial policies, building values into brands, making sure that change is appropriate and being clear about what sort of scale is appropriate.
The appeal of the book lies in its own easy-to-read style, notwithstanding the fact that Jill is an academic (Dean of the MBA Program at the Bainbridge Graduate Institute)! The fact that it is based on interview/case-studies of a variety of innovative companies means that it is full of very useful and usable material.
What becomes clear as you read the book, is that there is absolutely no need for entrepreneurs to follow 'given management wisdom'. Each of the leaders described in the book creates a destiny uniquely their own. Their business philosophies grow out of the special nature of each enterprise. Not only do they go down a path less traveled, but many innovate in ways which are not in any textbooks.
The stories recounted in the book are frequently inspiring because the businesses break new ground. Traditional management wisdom frequently speaks of trade-offs: trade-offs between cost and quality, or between performance and environment. We now hear less of a clamor for maximizing shareholder value, because people like those in the book have shown that success is not necessarily inimical to meeting the needs for profit, the aspirations of people and the survival of the planet - all at the same time. Indeed the book invites the reader to think very carefully about the definition of success, not in general, but in terms of the specifics of the business in question.
This accessible book makes rewarding reading for anyone contemplating setting up in business, those facing critical questions at the early stage of a business, as well as people in more mature entreprises who question how to get to the next stage of development. If there were a list of five essential texts for business startup, Getting to Scale, would, in my opinion, definitely be one of them.
(5 of 9 readers found this comment helpful)
Never Bet the Farm: How Entrepreneurs Take Risks, Make Decisions-And How You Can, Too by Anthony L. Iaquinto
William Keyser, February 21, 2007
This book about business startup and avoiding potential pitfalls, by two entrepreneur-academics may have a negative in the title, but is far from negative in content. The authors describe how to embrace the correct frame of mind and ensure that the right decisions are made for business success. "Never Bet the Farm" takes a bootstrapping approach to setting up in business. It is about ambitious caution.Anthony Iaquinto and Stephen Spinelli have produced a belt-and-suspenders guide for intending entrepreneurs. To launch a business without being prepared for the inevitable setbacks, is to be blind. Commentators often suggest that entrepreneurs are risk-takers, but in my experience the successful ones are not; they are calculated, or managed, risk-takers. They know in advance how they will proceed if money is tight, sales do not reach forecast, production is delayed, or they face other unplanned outcomes.
The authors do a great job because, while most books on business startup are written with the assumption that business plans will work out, they assume the reverse. This is much nearer reality. They set out fifteen 'principles' to help the reader determine wise courses of action. These principles include setting reasonable goals with achievable milestones; going for life as well as business goals; starting small and being financially responsible; being prudent, not foolhardy; having a backup plan in place; using and contributing to a network; clearing partnership roles at the outset; being clear about an eventual exit.
"Never Bet the Farm" is intellectually honest and based on the practical business experience of both authors, who know business, quite as much as business school. Nearly a third of the book is in the form of "An Entrepreneur's Guidebook" with listings of helpful university resources, websites and books.
This is another title on my list of essential reading for would-be entrepreneurs.
(1 of 1 readers found this comment helpful)