Tag: startups

The 40 People Who Can Change Your Life

The 40 people who can change your life are, after your family and friends, the most important people in your life.

I first learned about the 40 important people who can change your life from Roy Elkins, the found of Broadjam.com and member of my MERLIN Mentor Team here in Madison.  The concept is simple, but very powerful.  Make a list of the 40 people who are likely to be able to change your life, either through business connections, investment, job opportunities or simply being there for you to help you get past a road block in your business plan.  Once every 4 months, email your 40 important people who can change your life and let them know what you are up to.  The goal is to keep the 40 people who can change your life up to date on what you are doing so that when you do need to ask for advice, money or other help, they will not only remember you, but know what you are doing.  Its much more likely that someone will be willing to respond to your request when you need it if they are familiar with you.

I just started doing this a few months ago and have already seen the results.  I set up a rotation so that I am always emailing 10 different people each month so that I always have someone different to connect with.  Its been a great way to stay connected with the people who might be able to help me out down the road and its been fun.  Many of these people have responded with articles or suggestions relating to my businesses that have been incredibly helpful.

I like the concept so much that I just started my own list of family and friends who I want to stay in contact with on a more regular basis.  I want to make sure that I stay up to date with friends from college who have moved away and my extended family who I probably only see a few times a year.

Try both of these ideas and see how it works for you.  I think both the 40 people who can change your life and a friends and family list are a great idea for anyone, but especially people who are interested in business.  Do you already do anything similar to this?  Do you think you will try it out?

How to Get Taken Seriously Running A Startup When You’re Under 25

Of all the lessons I learned running a startup, figuring out how to deal with people who did not take us seriously solely because of our age might have been the most important.  Many times, I could tell that the person on the other end of the telephone or across the desk was thinking “who are these kids and why are they talking to me?”  It was obvious that being young hurt our credibility before we even said a word.  We were confident in our idea and business plan and were  usually able to get past any initial credibility issues, but it was a definite obstacle.  In general, other entrepreneurs, VCs and angels were more likely to take us seriously from the start, compared to professionals or employees of other companies.  After a few shaky meetings and calls, we asked for advice from our lawyer and other successful entrepreneurs who had been through the same process.

We realized that many people who were older than us had an image of young people in their heads that was hard to break.  Many older people thought that young people were lazy, lacked direction and would not follow through on a project.  From the beginning, we always were professional, well dressed, on time and prepared, but we realized we had to overcompensate if we wanted to get through to people more quickly. Here’s what worked for us:

  • Do Your Research – We spent hours researching any possible question someone might have so that we would never be surprised.
  • Cut the Humor – In most cases, older people equate younger people with fooling around and not being serious.  Many times, jokes hurt your credibility
  • Schedule Morning Meetings – Many people were surprised when we would ask for meetings from 7-9am, as it shattered the mold of young people sleeping in.
  • Be Persistent – If you want a meeting, keep calling and leave professional messages.  You will be rewarded for your efforts.
  • Articulate Your Goals – We sent short lists of what we wanted to cover during meetings or calls the day before, as it put the person in a serious frame of mind.
  • Talk Less, Listen More – Young people are stereotyped as know-it-alls.  Talk less and listen more and people will take you more seriously.

While most of these are common sense and can be used with any audience whether they are younger or older, its important to remember your audience.  We used these strategies and success followed.  Have you ever not been taken seriously because of your age?  Do you agree that its necessary to overcompensate for youth for specific audiences?   What other strategies have you used?

FICA Tax Holiday Will Allow More Businesses To Succeed

Note: This is the second in a series of posts about policy changes that make starting a business easier.  The first post on heath care is here.

According to the US Department of Labor, there are a little over 1 million new businesses created in the US each year.   The popular misconception is that 90% fail within five years.  Although real data only show that at least 25% fail within the first year and at least 44% fail within the first three, that percentage is still very high.  Looking at real numbers, over 250,000 firms go out of business within one year.

Businesses fail for many reasons.  The market may change or a competitor could enter the market.  It could be a bad business idea.  The founder might decide to do something else or not have the time or make the necessary committment.  The business may have poor access to credit or funding.  Margins could be too small or the owner cannot make enough to live comfortably. 

Most startups are taxed by FICA (Social Security and Medicade) at a 15% rate on any net profit they earn.  FICA taxes cost small businesses and startups over 15% of net profits, as business owners have to pay both the employer and employee sides of the contribution.  Unlike the progressive income tax, FICA taxes start at $400 of income and end at a little over $100,000, making FICA a very regressive tax.

The 15% FICA contribution is a huge obstacle for new businesses.  For example, take a person who starts a dry cleaning business that makes $30,000 in net profits in year 1.  The founder has to make enough money to reinvest in the business and pay themselves a salary in order for them to stay in business.   The founder owes around $4,500 in FICA taxes.  Instead of taking home $30,000, less income taxes, the owner takes home $25,500.  For many people, $4,500 can be the difference between keeping the business open for year 2 or closing the business.  The same thing can happen to tech startups, too.  Many small businesses and startups need that little extra push to get them over the hump in the first three years.

I propose a FICA tax holiday for new businesses.  Here’s how it would work:

For the first two years, new businesses do not have to pay FICA taxes.  Instead, their FICA tax liability is “banked” and becomes due in year three, assuming the business is still around.  If the business fails, the founder would not have to pay FICA, but if the business succeeded, the founder would have to pay the FICA taxes from years 1 and 2.  Going forward, the business would pay their taxes normally.  

This plan is very similar to what many professionals like lawyers, accountants and others do with startups that they work with.  For example, its common (at least in Madison) for lawyers to agree to withhold bills for a year or two, or until the company is profitable or raises money.  It allows the startup to worry about business operations and not drown under expenses during the startup period.  If the business becomes profitable, the lawyers get their fees in full, plus more fees in the future.  

FICA taxes would work the same way.  Imagine if instead of 25% of businesses failing in year 1, only 24% failed.  Considering Americans start over 1 million new businesses per year, a 1% drop in the failure rate would lead to 10,000 new businesses making it into year 2.  These businesses would continue to generate profits and create jobs, thereby strengthening the economy.  If more business succeed, the FICA taxes that the government could collect in year three would be greater than the current solution.

I think a plan like this is politically feasible, as it helps both tech startups and small businesses alike, especially with the need to for stimulus during the current recession.  I think it could have broad support from both sides of the aisle nationally, but it may be too big for Congress to act nationally.  It would be interesting if a state would offer a plan like this that offered rebates on FICA taxes for businesses located in the state.  It would be another incentive to get business to stay or move to the state that would not cost much.  I am hopeful that government will think about incentives like this plan to help entrepreneurs of all types succeed.

Healthcare is a Roadblock to Startups

Note: This is the first in a series of posts about policy changes that make starting a business easier

It was the winter of 2005, and I was sophomore at the University of Wisconsin.  My business, ExchangeHut, was humming along smoothly and I decided that I wanted to focus on building ExchangeHut sites at additional college  campuses.  I figured the best way to do it was to drop some of my classes and become a part time student.  I had it all worked out, until it was time to tell my parents.  Since ExchangeHut was going well, they did not have a problem with me taking fewer classes, but they were very worried about my health insurance.

Most students are covered under their parents’ health plans, as long as they are classified as full time students.  Since I was going to take fewer than the magic 12 credits that spring semester, I was going to be dropped from coverage.  My parents’ biggest objection to me taking fewer classes to work on the business was that I would not have health insurance.  They were worried that something might happen to me and I would be saddled with a huge debt from having to pay medical bills.

I did some research and found out that I since I was a student, I could use University Health services for most of my routine care.  I still needed some form of insurance to protect me in case I got hit by a car, got cancer or fell of my bike.  After a few weeks, I settled on a plan with a $5,000 deductible from WPS.  Since I am young, healthy and willing to have a high deductible, my plan only cost about $40 per month.  Most other student founders of startups that I talked to either went without insurance or paid much higher rates for more comprehensive plans.  Luckily, I did not get sick and have never had to file a claim, but if something were to have happened, it may have crippled my ability to continue to run ExchangeHut effectively.

Health insurance is always a high priority when I talk with other young founders of startups.  Many students that I talked to were reluctant to go below 12 credits because they would lose their health insurance.  Some were not willing to try to start a company because they knew that they needed to maintain full course loads and that they would not have time to be both a student and a business owner.   Other recent grads took jobs rather than start a business partly because of health care worries. Easier, more affordable access to decent health care would make it easier for people (not just students) to make the jump to starting their own companies.  More startups lead to more successful companies, more jobs and more tax revenue.

So, how do we fix this problem?  There are many solutions, ranging from lifting the full time student requirement to national health care.

  1. National Health care – If we had national health care, we would not have to worry about health insurance, but might have to worry about quality of care and other issues.
  2. “Small Business” or “Entrepreneur” Insurance Pools – Allow entrepreneurs to buy into pools that act as buyers, similar to large corporations.
  3. State government funded “Entrepreneur” policies – State governments could allow entrepreneurs to buy state health care policies.
  4. Allow young entrepreneurs to stay on parents health care longer – Allow insurance companies to either allow young people to stay on longer for free, or give young people (and their parents) to charge more.

I personally think that options 2 and 3 are the most promising.  I would think that insurance companies would want young startup owners as customers, as they are less likely to get sick than older people.  I think that insurance companies that offered an “Entrepreneur Plan” would not only make money, but they would also be able to tout their support of business and entrepreneurship.  I think it would be a good way to get customers, too.  They could even sell the introductory policy as a loss leader to get potentially successful people into the company early.  Then, when businesses succeed, entrepreneurs might continue to use the insurance company for their growing insurance needs.  I am working with a few business owners in Madison to try to organize a form of this, but it has been harder than I expected.

I think states would also be wise to create entrepreneur policies as incentives for startups to move to or stay in states.  Wisconsin, along with many other states, have already created incentives for startups and investing, but as far as I know, no state has done anything like this with health care.  Since many startups, especially tech startups, are mobile and can be run from anywhere, incentives like affordable health care would be effective ways to attract and keep startups.  I would also like to see policies like these opened up to young people who are working in non-profits.

These changes would help people who are thinking of starting businesses, but are scared off by health care expenses.  They would also help entrepreneurs who do not have health insurance, are paying for inadequate coverage or paying too much for good coverage.  Health care is only a small part of the solution, but it is an important one.  Do you agree that health care is a problem?  What solutions would you propose?