Category: clients

The Lean Startup

the-lean-startup-summary

Last week a client asked me about the Lean Startup. As a small independent baker, the Learn Startup methodology didn’t really meet his needs. Actually for many small businesses, they’re already utilizing some of the Lean Startup’s principles: split testing (e.g. which new cupcake idea is selling better), pivoting (e.g. advertise better selling new cupcake), build-measure-learn (e.g. ask customers what they like about each cupcake, why, etc. then adjust the recipe if needed).

The Learn Startup is more applicable to large/new & complex products and/or services. When you have hundreds of ideas, tweaks, iterations, it can very easy to get caught-up in the labyrinth of product/service development. Essentially, it comes down to starting with a minimum viable product (MVP), have users play around with it, gather data on (i.e. with actionable metrics, interviews, use studies, etc.), decide on which steps to go next. This measured, calculated, and insightful process prevents over-developed products/services that do not necessarily have a market/meed a need.

As mentioned, the Learn Startup method might not be useful for all entrepreneurs but if you are in the processes of developing a large/complex product or even a brand new/novel product, it might be worth your time to check out this book and install some informational gathering and pivoting processes to make sure that it closely meets a market need.

Community Center Accounting

Avalon Carver Community Center

Avalon Carver Community Center came to us for help with its accounting and tax filing needs.

About Avalon Carver

Avalon Carver works to care for the physical, mental, and spiritual needs of individuals and families through education, community outreach, and empowerment.

Since 1940, Avalon Carver in South Los Angeles has been a place for people from diverse backgrounds to join together in one space and work to make their community thrive. Built on the vision of community leader Mary B. Henry, it has strived to become a place of growth, unity, family, and positive change for South Los Angeles. It has grown to become a centerpiece of the diverse community fabric of the neighborhood.

Launch and Grow Your Business

Contact us today for your bookkeeping needs.

What is Strategy Consulting?

Strategy

One of the services we offer is strategy consulting.  However, the name is quite vague so what is strategy consulting?  It is a lot of things.  It varies by the needs of the client.  Some clients need help developing an overall strategy for the business.

Say they have a product but not much else.  So they need everything from naming of their product, research on where to sell their product, team building, etc.  Naming might require a psychographic analysis of branding.

If they are a little farther along, it can be an audit of what they’re already doing, or analysis of where to go next.  A business might be looking at weighing the pros and cons of expanding to a new market, introducing a new product, do a product overhaul, etc.  Product overhaul might require a net present value calculation of multiple alternatives.

Every situation is unique so contact us and let’s figure out what you need.

Another happy client!

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I recently completed financial projections for Clear Wave Air. The Clear Wave Air Purifier is a revolutionary microbe killing system. Unlike other purifiers that depend on filtration to block out harmful microbes and molds, the Clear Wave Air destroys these harmful micro antagonist and it does it continuously, quietly, and efficiently.

 

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The Importance of Bootstrapping

The importance of bootstrapping cannot be emphasized. Most businesses fail because of a lack of cash and bootstrapping’s main objective is to do the most with the least amount of cash.

Bootstrap – adjective

A situation in which an entrepreneur starts a company with little capital. An individual is said to be bootstrapping when he or she attempts to find and build a company from personal finances and/or from the operating revenues of the new company.

“The business was a bootstrap operation for the first ten years.”

The importance of bootstrapping

Most startups do not have a bunch of cash lying around.  The importance of bootstrapping is all the more critical for them. Businesses have to make do with what little they have.  We often tell our clients that as the CEO/Founder, they are also the janitor. One potential client wanted to hire a marketing manager for her startup. Hiring a marketing manager was vastly beyond her revenue allowance. She should have allowed us to consult on how to manage her own marketing campaign. She then could’ve saved a fortune by being her own marketing manager.

The temptation to abandon bootstrapping is strong, especially when investors come knocking.  One of my clients attracted large investors with a business plan I had prepared for him.  Initially, I budgeted a modest salary for him in the financial projection.  He saw that there was a good amount of retained earnings (something investors want to see) and had since budgeted a larger salary for himself.  I had to tell him to reduce his salary.  I am not alone in emphasizing this sentiment:

  • A red flag goes up for Mark [Cuban] when a Shark Tank contestant says that he’d be comfortable with a six-figure salary.  Ultimately, Mark and all the other sharks walk away from the deal.
  • Serial entrepreneur Neil Patel, founder of Crazy Egg and KISSmetrics, reflects on how glad he was keeping a $5,000/mo. salary even after raising $4,000,000 in seed and series A rounds for KISSmetrics.

Your Startup Guru advised a client to pay himself less and take in dividend income instead because it is taxed at a lower rate.  In business, cash is king, and the CEO doesn’t want to be the kingdom’s worst drain.

Launch and Grow Your Business

Contact us today to learn how to bootstrap your business.

Another happy customer

Video production and advertising company Myaa needed my help to create an executive summary and pitch deck for investors.

You might have seen some of their work for Cupcake Vineyards.

If you need some videos produced for your business please consider Myaa.

Calculating what equity percentage to give

2000px-Cake_quarters.svgMy clients are often in the position of having to offer equity in their company to potential investors.  However, how does one know what percentage to give?

Well, one way is just by gut.  You got a person willing to invest $20,000 into your company but you don’t know want to give up too control so you offer 25%.  Conversely, on Shark Tank we see entrepreneurs be given very little money while giving up a large portion of ownership in their company.

There are other more quantitative methods such as asset-based, comparable, option-based, etc.  However for a start-up without much in assets or earnings per share data, these methods are difficult because there aren’t enough figures to go by.  Also, if the business is truly unique, then comparisons of “similar” companies don’t exist.

One of the more common measurement for valuing public and private companies used by investment bankers is the Discounted Cash Flows Method.  This is useful because with every business plan and financial projection I create for my clients, I create a cash flow statement.  With this I take the total projected cash flows from each year and adjust their future value into their present value.  This is to adjust for interest (i.e. $100 today doesn’t the same as $100 in ten years).  Then I take the discount rate (risk-free U.S. treasury rate is most common) to calculate the present day equity value of the company in X years using this formula:

dcf formula

The amount of investment capital received is the percentage of equity given.  There is obviously room for negotiation because forecasted cash flows is debatable and the amount of involvement (i.e. sweat equity) the investor wants to put in is also a factor.  Nonetheless, it is a gauge one can use to make sure they’re not giving up too much.

 

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