A New Series on Business Startups — Part 9

Many people dream of quitting their day job and starting their own business on the internet. It seems simple enough, doesn’t it : working from home, low costs and boss of your own time?

But what about the technical side, the long lead-in to a decent income, and the flakiness of many internet projects?

John Evans, boss of Syntagma Media, has given an interview about the trials of creating an online content business to Gerry Reynolds, business consultant and retail analyst.

Here’s a preview :

Gerry : What are the economics of an online income stream? […]

John : If you set no upper limits, you’re really at the mercy of events. It’s no good having a $10m business if your costs are $11m. Mr Micawber defined that problem 150 years ago.

The trick is to set an upper boundary that gives you the best split between receipts and obligations, building in the vagaries of the tax system, of course, and depending on the amount of effort you can comfortably provide. Everyone will reach a different conclusion, but it has to be within your comfort zone. You are, after all, in this for the long haul.

Gerry : So you’ll not be selling the business?

John : I’ve personalized the business so much, it’s hard to see who would buy it now. But the idea of creating an empty shell of a company, with no branding, so that anyone can buy it, just isn’t how I do things. I’ve always preferred chocolates to boxes.

Read both posts here : #

A New Series on Business Startups — Part 8

If you’re looking for new business ideas, you can receive a useful free email service from lateral thinking guru, Edward de Bono, and Robert Heller, a best-selling business writer.

The emphasis is on small ideas leading to bigger ideas. Get the small ones right and much else follows.

When pursued, these new ideas may not turn out to be at all valuable: nevertheless, they are new directions. The habit of seeking for small ideas can develop just this confidence. There is no fundamental difference in the mental processes involved in small ideas from those involved in major ideas. Therefore, as you build up confidence in your ability to direct creative effort at small ideas, so you build up the confidence needed for big ideas.

To find out more, go to the website.

If a venture capitalist offers you a certain sum of money in exchange for a shareholding in your startup, what are the rules governing these deals and how much of your business should you part with?

Paul Graham has done a pretty good analysis of this perennial teaser for new business owners. The answer apparently is :

1/(1 - n)

Whenever you’re trading stock in your company for anything … the test for whether to do it is the same. You should give up n percent of your company if what you trade it for improves your average outcome enough that the (100 - n) percent you have left is worth more than the whole company was before. For example, if an investor wants to buy half your company, how much does that investment have to improve your average outcome for you to break even? Obviously it has to double: if you trade half your company for something that more than doubles the company’s average outcome, you’re net ahead. You have half as big a share of something worth more than twice as much. In the general case, if n is the fraction of the company you’re giving up, the deal is a good one if it makes the company worth more than 1/(1 - n).

If you were in this scenario, you would already have gone through a lot of hoops to get there. You should bear in mind from the outset that a VC company like Sequoia gets about 6000 business plans a year and funds around 20 of them.

Face it, you’re going to have to be good to get the cash, so you are entitled to drive a hard bargain. According to Graham, Sequoia will allow you to do so.

Read Paul Graham’s account of VC funding options in full.

It’s reported that few small business owners turn to the internet to find contacts or for networking.

Social networking sites, such as Facebook and LinkedIn, have little attraction for the business bosses.

New research from Barclays Local Business indicates that 60 percent prefer traditional network events when looking for support and advice. Only 8 percent consider going online to discuss their business.

John Davis, Business Marketing Director of the Barclays outfit, says, “Many small businesses are sole traders and organized events allow you to meet others and discuss issues face to face, something a chat room will never do.”

Small Business Booster wonders, though, whether putting effort into the business itself might not be a more productive exercise?