Technology Deals: Getting Them Clinched

Is New Business Bad Business? Not Always

Taking Control of Your Health

Jumping Through the Financing Hoops

Corrections or additions?

These articles by Kathy Spring and Bart Jackson were prepared for

the February 25, 2004 issue of U.S. 1 Newspaper. All rights

reserved.

Survival Guide

Top Of Page
Technology Deals: Getting Them Clinched

You can’t blame them: Clients are gun shy about entering into deals

with high technology providers. They have been burned before by empty

promises, bad contracts, and support that evaporates faster than the

ink on the contract. This leaves smaller high tech firms facing a real

problem, and trying to winch their reputations out of the mud.

New techniques for battering down old client reluctance are the

subject of an upcoming New Jersey Technology seminar, "Best Practices

in Closing Technology Deals," on Thursday, February 26, at 4 p.m. at

the law offices of Lowenstein Sandler in Roseland. Cost: $40. Visit

www.NJTC.org or call 856-787-9700 for more information.

Panelists include David Leit, an intellectual property specialist with

Lowenstein Sandler; Tom Scott, vice president of direct sales for

Microsoft’s FRX software division; and Faye Gregory, executive vice

president of Applied Success. The seminar focuses primarily on smaller

businesses selling high technology applications to larger firms.

Leit is an attorney who has come full circle. Born and raised in

Livingston, he earned a B.A. at Stanford University, where he studied

religion and mathematics. Swinging back east, Leit earned his J.D. at

Columbia and practiced in Manhattan. He then returned to his hometown

and began litigating and handling IP contracts for Lowenstein Sandler.

As for his blend of religion, math, and law, he calls it "all part of

a lifelong journey."

"Smaller firms are not putting themselves in their clients’ moccasins,

and trying to learn what they want from you in the first place," says

Leit. In his experience, the main reason for choosing outsource over

in-house is less a question of capability than risk. The large company

is seeking to remove itself from all the bugs that can plague high

technology products. That being the case, he makes the following

suggestions for structuring any agreement.

Know when to call the lawyers. "You do not need a lawyer for every

contract," says Leit. However, he does recommend legal counsel on

issues of intellectual property rights, warranty, liability, and

indemnification. Indemnifying against damage can be tricky, he says,

because it can carry through to new clients. For example, if you

purchase a piece of intellectual property and get sued, you – and all

ensuing vendors – can be held responsible.

Avoid Frankenstein contracts. Too many owners have gone to the web and

cobbled together a contract from parts lifted from a

number of forms that appeared to address various contingencies. While

thrifty, the effect can be monstrous. The contract may state that 95

percent of all customer problems will be "addressed" within 24 hours.

But does "addressed" mean resolved? And what about the other five

percent of the questions?

Boilerplate contracts can be a great cost saver. Yet to make them

work, the business owner must be completely familiar with the intent

of each clause so he can adjust them for each individual contract.

Each term must be strictly defined, and parameters must be set. Wide

ranges in client size, service type, or staff involvement should raise

flags as to whether this contract is clear in any particular instance.

Plain English please. "Write your contract so a judge can easily

understand it," pleads Leit. This is not the place to impress a

prospective buyer with your mastery of jargon. All documents passing

between you and clients or vendors should be simply worded, even

redundant, if you want them to be easily understood.

It may be fine to toss around terms like "secure networking

environment" in discussions with the chief technical officer, but if

the contract is disputed, such undefined terms will doubtless take on

entirely different meanings by each side. It will be a judge, perhaps

with an art history background, who will decide the definition.

Step up and take risk. Leit states it simply: No risk, no sale. If

your potential client is presented with a term sheet or a contract

riddled with disclaimers, he sees you dumping back in his lap the very

risk he was hoping to hedge by outsourcing. The very act of listing

and addressing the possible problems indicates to a client that yours

is a realistic, solid firm that is both aware and responsible.

Leit warns company owners that risk costs, and should be added into

each bid. Establish an exacting warranty that you can live with and

make it inclusive in the final price. The business-specific warranty

frequently can prove to be a real clincher.

Gregory agrees that risk and responsibility are historic reasons for

outsourcing. But she argues that cost and quality must be proven now

more than ever. Gregory grew up in the Buckeye State and earned a B.A.

in political science and information technology from the University of

Ohio. Working with Laird, a Blue Cross subsidiary, she became the

chief executive of information technology. Coming to New Jersey, she

worked for Computer Horizons in Mountain Lakes. Today Applied Success,

the firm she founded six years ago, coaches and markets high tech

firms.

"For the first time technology companies actually have to fight for

deals," Gregory says.

Show your greatness. Examine your client before approaching him.

Discern his complete capabilities and develop a solid list of things

you can do better. Your business will doubtless have certain strengths

that remain absolute, regardless of client. These are best displayed

in your basic brochure and website. But in addition each client must

be given a prospective that shows where you service fills his

company’s voids.

Hit the right nail. Determine which department in your target company

is most likely to benefit from what it is that you are selling. It is

natural for a purveyor of technology to head straight for the chief

technical officer. But if a comparison of your product and their need

shows a great cost saving, you might consider an end run around the

technology department. Maybe you should go straight for the CFO.

Demonstrate the cost of indecision. The negotiations draw down to the

fine points, and you can almost taste the closing. Then your

client-to-be hesitates. The bigger the company, the more layers of

command and the more shilly shallying invariably goes on.

Gregory says this is time for you to step up and bare the facts.

Present the financial officers with a schedule that explains exactly

how much they are losing every day by not installing your technology.

Show them exactly how much money their own indecision is costing them

and there is a good chance that the deal will be sealed.

The small business trying to land a contract with a larger corporation

faces innumerable obstacles. The small player cannot hide his limited

financial resources. Both sides are aware that he has little surplus

time, cash reserve, or staff. Compensate by presenting yourself as a

business equal in expertise, responsibility, and awareness of its

needs, and the bigger player is much more likely to sign on the dotted

line.

– Bart Jackson

Top Of Page
Is New Business Bad Business? Not Always

If a typical struggling small business owner were a fisherman, he

would be standing in a leaky boat, way off shore, casting his line

toward the horizon, while his deck hands milled around aimlessly, the

fish in his hold began to rot, and his customers grew weary of

standing on the dock. Small business consultant Lisa Teach finds that

many entrepreneurs spend an inordinate amount of time and money

chasing new business. At the same time, they neglect the work of

creating solid business systems, providing direction for employees,

and mining existing customers for more business.

Teach speaks on "Small Ideas: Big Profits" on Thursday, February 26,

at a meeting of the National Association of Women Business Owners

(NAWBO) at the Grain House restaurant in Basking Ridge. Cost: $45. For

more information, visit www.ncjnawbo.org. She is also giving a free

seminar on Tuesday, March 2 at the Holiday Inn in Somerset.

Teach, who owns an Action International franchise in Somerset

(732-873-3240), grew up in an entrepreneurial atmosphere. Her father

was a produce wholesaler in New York City. "I sat up at 11 p.m. with

dad counting money on the dining room table," she recalls. From that

vantage point she saw "the ridiculous hours," and she heard stories of

poor employee performance.

Before starting her own business, just one year ago, Teach racked up a

number of work experiences. Early on, she managed a 54-employee Gap

store on West 57th Street in Manhattan. She enjoyed working for the

Gap, but got "burned out from retail." A good manager, she points out,

can’t push all late nights and week-end shifts off onto her

assistants. She ended up doing inventory at 2 a.m., supervising

contractors "at all hours of the night," and working too many

weekends.

When she became engaged to Daniel Teach, a credit underwriter for CIT,

she moved to New Jersey, and began working for Church & Dwight. There

she found an extraordinary challenge. The company had just acquired a

few international brands, and, she says, was not quite sure what to do

with them. She worked in the new international division for five

years, helping to build it from "zero to $15 million."

"It was very entrepreneurial," she says. The division was given a

great deal of freedom to find its way. "We were flexible because it

was so new," she says. The attitude was, "if we made money, good." But

when the company acquired Carter Wallace’s consumer products, which

had a large international presence, her small division’s role changed.

"There was not a lot of opportunity, unless I wanted to move

overseas," she says.

Moving back into the main stream of Church & Dwight’s operations was

"definitely a culture shock," says Teach. She was not miserable. But

she was not especially happy either. "There was no life altering

event," she says, "I just didn’t want regrets later."

She started looking at business opportunities, and her husband

suggested that she go to see a franchise broker. She chose Jack

Armstrong of FranNet (732-494-1411) in Roseland. "He looked at my

goals and objectives," she says. He also asked about her lifestyle.

With two young children, she was clear that she did not want a company

with a 24/7 work schedule. She therefore quickly ruled out any and all

restaurant franchises.

After reviewing her criteria, Armstrong came up with five franchise

possibilities. She chose Action International, a small business

consulting franchise that was founded in Australia in 1993. The

company specializes in working with companies that have been in

business for between three and five years. Clients tend to be business

owners who "are at the point where they are not getting what they

want." Typically, says Teach, they are working long hours, are unhappy

with their employees, and are "the lowest paid person in the company."

Oftentimes, business owners in this position think that pulling in

more customers will boost their profits and solve their problems. They

want to put time, money, and energy into marketing. But Teach says

that is rarely the most pressing issue. Instead, she counsels her

clients to concentrate on patching up their vessels by:

Setting the rules of the game. In the beginning, many small business

owners are all alone with their enterprises. Then, they begin to hire.

A big problem, says Teach, is that they tend to be so thrilled to have

someone take on some of the work, that they leave them to it without

laying out the parameters of the work, or providing ongoing feedback.

The result often enough is dissatisfaction with the employees.

Avoid this problem, she counsels, by being crystal clear in defining

the duties and procedures to be followed in each position.

Writing it all down. A business owner who trains an employee verbally,

but does not write down the instructions, is dooming himself to a

never-ending cycle of re-training. Create processes, says Teach, and

commit them to writing. New hires will become productive more quickly,

and training time for replacements will be cut.

Pulling back from the counter. Some business owners insist that every

task be done exactly the way that they do it. They run from the

counter to the loading dock to the drawing table, doing as much work

as they can. This approach is short sighted. "Business owners become

so overwhelmed," says Teach. "They are perpetually behind the counter

or the desk. They need to prioritize, delegate, and put systems in

place. They have to take time out to grow the business so that they

can eventually leverage themselves out."

Working at replication. "I had an antiques appraiser say to me ‘How

can I grow the business? The business is me!’" Teach recounts. Her

response: "How does a lawyer build a 100-lawyer firm?" Any number of

service businesses began with just one person’s talent. By putting

processes in place and by training associates, any business can grow.

Making the most of existing customers. There are five elements to

profit growth: lead generation, conversion rate, average dollar per

transaction, number of transactions per year, and profit margin. Teach

finds that most business owners want to talk about the first element,

but she says that this is the most difficult and the most expensive

way to build profits.

"Most business owners think that generating leads is their biggest

challenge," she says, "but most of them don’t even have the

infrastructure to handle more leads." A better, and easier, strategy

is to work on converting existing leads into customers and on

obtaining more business from current customers.

Basic steps include creating a customer database and ensuring that

current customers are satisfied.

Testing and measuring. One of Teach’s clients, asked to estimate his

lead conversion rate, estimated 70 percent. "It turned out to be 30

percent," says Teach. It is her opinion that it is impossible for a

business to move forward until its owner knows exactly where it is –

and how well it is doing. "Test and measure everything," is her

advice.

Top Of Page
Taking Control of Your Health

When it comes to your health, no man is your regent. Today,

physicians, nutritionists, physical trainers, and yoga gurus all

clamor for our bodies, promising to mold each of us into a perfectly

healthy specimen. It is so easy, and so reassuring. They are the

professionals, after all. In the face of such learned expertise it

only makes sense to place ourselves passively in their capable hands.

Doesn’t it?

A hearty "No way!" can be heard from cardiac surgeon Dr. Glenn Laub,

who outlines ways to control your health care during a free

Business/Health Connection luncheon on Thursday, February 26, at 11

a.m. at the Trenton Marriott. Call 609-599-5659 for more information.

Sponsored by St. Francis Medical Center, Laub’s talk is intended to

demonstrate how to become an aware health consumer.

Throughout his career, Laub has witnessed the growing trend of the

public valuing professional credentials over common sense in selecting

health care institutions and specialists. Born in Manhattan, Laub is a

graduate of the Lawrenceville School. He obtained a B.S. in

engineering and applied science from Yale, attended medical school at

Dartmouth School of Medicine, and returned to New York City to

complete his residency.

While performing research at the Deborah Heart and Lung Center in

Browns Mills, Laub patented his first device, a catheter that allows a

patient’s heart to be connected to a lung machine without surgery.

Prior to his invention, surgeons would have to split the patient’s

sternum to achieve such a connection. Since leaving his post at

Deborah, Laub has spent the past two years as chief of cardiac surgery

at St. Francis and associate professor of surgery at Robert Wood

Johnson University Hospital in New Brunswick.

"The real truth is that people spend more care in selecting those who

repair their cars than those who save their lives," says Laub. He

admits that the variety of choices and tomes of advice seem daunting,

But with a little analysis, he says, you can really increase your

health odds.

The wrong way. Several years ago, this writer required shoulder

surgery. I found a doctor who was very clear and friendly. We met in

his hospital, and I examined it closely. The building was spotlessly

clean, the people were quick to help, and the nurses stations near the

rooms were well staffed. (When I arrived, I was even greeted by a

porter who carried my bag!) The setting outside was bucolic, the

inside warm and well lighted. What more could a patient ask?

A lot more, says Laub. Not one of these factors gives the slightest

indication of the quality of surgery or medical treatment you will

receive. Fine manners and sweet shrubbery breed only a comfy feeling

and can mask a host of ineptitudes. Even the nursing staff, while

important for long stays, is not of primary importance, in his

opinion. Today, hospitals get you in and out ASAP. Better select the

hospital for the quality of its surgery, and leave the worry about

amenities for the place where you plan to recuperate.

The hidden persuaders. "But my doctor and insurance agent told me to

go there," comes the common cry. Your general practitioner often makes

the initial diagnosis, and he is most likely to steer you toward the

hospital where he has privileges, and to the specialist with whom he

is most familiar. This advice is not necessarily wrong, explains Laub,

but it is important that you, the patient, do some independent

research.

Of course, your checking depends on the operation to be performed.

Virtually any surgeon can perform an appendectomy or repair a hernia.

Yet when placing your heart, brain, or lungs in another person’s

hands, you had better check for yourself exhaustively.

Insurance companies are modern healthcare’s biggest stumbling blocks.

They quantify all procedures and pay out the same quantity of cash to

each doctor and hospital. They do not recognize quality and may try to

prevent you from seeking it out. Yet increasingly health policies

include a crossover clause, allowing patients to select surgeons who

are not on their approved list. Many healthcare consumers don’t know

about this option, and it is important to ask.

Research: the right way. "Even if you only have two or three days

before surgery," says Laub, "you have time to review and select your

hospital and surgeon." Internet site health grades, at www.

HealthGrades.com, provides reviews and comparisons on hospitals,

individual physicians, and nursing homes nationwide. Other online

research tools Laub recommends include www.NJ CardioReportCard.com,

www. PhysiciansReports.com, and www.ChoiceTrust.com, a site that

reviews doctors. Another valuable tool is the book America’s Top

Doctors, which is available at most local libraries.

An exhaustive review of the best places to go for many major surgeries

is available on U.S. News and World Report’s lengthy article on the

subject, which is online at

www.USNews/health/hospital/tophoslranking.htm.

On the job. "By and large, businesses are markedly more aware of the

health concerns of their employees than they were 20 years ago," says

Laub. Employees whose workplaces haven’t as yet caught on to the trend

can take several preventative steps. Fitness programs, which range

from running, bicycling, and walking clubs, can meet at lunch hour.

Nutritional counseling programs have caught on in many firms, with

employers financially rewarding those who reach target weight loss.

Stress counseling remains probably the largest cardio safety net being

cast in the workplace. Support groups for those struggling to resume

work following high risk surgery have also shown great benefits.

Employers who invest in their employees’ health, perhaps by adding a

gym or by subsidizing health club memberships, are reaping rewards of

lower absenteeism, higher productivity and morale, and fewer hours

spent training replacement employees.

The diet dilemma. Flip through a slim stack of magazines and within 15

minutes you can find four breathless articles on sure fire diets.

Diets that will melt pounds – perhaps even scores of pounds – as

quickly and easily as the April sun reduces parking lot snow piles.

Each will claim that it, and it alone, is the secret to weight loss.

It will also warn that at least one of the four basic food groups is

pure poison. Obey all these scientific claims, and you can never touch

food again – for health’s sake.

The picture grows even blearier when politicians get into the act,

claiming that the diet inventor Dr. Atkins deserved his unfortunate

fate. Or when schools ban soda, and replace it with sports drinks and

juices that have even more calories and sugar than the soda did.

For cardiac surgeon Laub, the first step is simple: lose the lard. The

Atkins diet, while not his favorite for the long term, joins several

effective diets that have helped overweight Americans get down to a

healthy target weight. Once you obtain your target weight, Laub

suggests reworking your eating regimen to a healthy style that will

keep it off, and that you can live with. But to avoid ending up on his

table, Laub prescribes doing whatever it takes right now to shed the

fat from your frame.

By nature, Americans are skeptical and selective. Yet, over the years,

many of us have been frightened into thinking that obeying our

doctor’s advice is our only choice. Laub suggests that we become more

aggressive in taking charge of our own wellness, both by taking

proactive preventative steps and by choosing carefully when we need

medical procedures.

– Bart Jackson

Top Of Page
Jumping Through the Financing Hoops

The rumors are wrong. Small business is not being neglected. The big

players are not siphoning off all the cream while us little guys wait

for the dregs to trickle down. In the Garden State alone last year

banks and commercial lenders made over 52,500 loans to small

businesses. That figure does not even include the money that flowed

out from venture capital funds, various government programs, and

private investment. Further, most of this money is earmarked for small

business so that mom and pop shops are not competing for the same pot

as are the Fortune 500 companies.

While money is available from multiple sources, each lender has its

own methods and particular set of hoops for applicants to jump. With

this in mind, the Conference Center at Mercer County Community College

has brought together many area lenders for its "Small Business

Financing Extravaganza," a one-day seminar on Thursday, March 4, at 8

a.m. Cost: $125. Call 609-890-9624 or visit www.mccc.edu/cc/events.

There are a number of speakers, including Dina Melker from Yardley

National Bank, Maria Galvez de Cerdas of the New Jersey Regional

Business Assistance Corporation (NJ RBAC), and representatives from

the U.S. Small Business Administration, the New Jersey Commerce and

Economic Growth Commission, and the Trenton Business Assistance

Corporation.

The speakers are all experienced in small business lending practices,

but each came to his expertise through a different route.

Melker has spent most of her adult life as a front line banker.

Growing up in Newark, she enrolled in William Paterson College, but

after one semester decided that the staid life of scholarship was not

for her. She joined a cousin who worked in a local bank, and has never

looked back.

"I began in clerical – at the absolute bottom," she recalls, "behind

the desk, counting out money for the various depositors." She soon

rose to her own desk, giving the nod to $4 million loans. For the last

two decades she has lived in Hamilton and worked as a loan officer for

Yardley National Bank.

RBAC’s Galvez de Cerdas is a native of Albuquerque, New Mexico who

found higher education much more to her liking, earning a B.A. in

marketing from New Mexico University and a masters in organizational

management from the University of Phoenix. For her first practical

taste of business, Galvez de Cerdas joined the Peace Corps. She was

posted to Costa Rica, where she helped women form their own companies.

Today she lives in Trenton with her husband Arturo who runs a small

painting business.

For the business owner, a loan is a tool – cash on hand for a specific

purpose, regardless of its source. But each lender views the loan as a

risk, balanced against his own set of business goals. So when you step

up before the folks with the money, it is wise to know what they are

looking for to balance out the other side of the scale.

What you won’t find. Lenders want to know that their loans can be

repaid, one way or another. Whether it’s a startup or an expansion,

lenders require full asset collateral or substantial cash flow.

Partial collateral and a much better mousetrap prototype will

virtually never get you the loan you need.

Sweat equity is valued about as much as salt water. Your intellectual

property or management expertise may put your loan over the top, but

will not be considered as collateral. You will probably have to

mortgage the house or refinance current assets and put them toward the

project.

Traditional lenders. Yardley’s Melker states emphatically that banks

are not just a resource for high price deals. "We currently make many

loans of only few thousand dollars," she says. Also, since nearly all

banks have commercial lending divisions with separate small business

centers, it is not necessary to shop only within a certain category of

bank. Better to swiftly survey all area lenders for the best terms.

To balance out the risk side of the scale, Melker always looks for

what she calls the Three Cs: cash flow, collateral, and credit. Cash

flow is prime for traditional lenders because they are more cautious

with risk, and plan on obtaining income from your steady repayment.

"We truly, truly do not want to end up holding your business," says

Melker. Borrowers who for have hidden income from the government are

tying their hands when it comes to a loan. The bank’s reviewer looks

over your last three federal returns, and cannot see that you are only

playing pauper to avoid taxes. He’ll think you indeed are poor and

stamp "reject" on your application.

Collateral assets are rated by quality, not just tagged with dollar

value. Highly liquid CDs and bonds in the bank obviously take

preference over commercial real estate. A million dollar warehouse

will not be counted as full value collateral. An exception to the real

estate rule, in many banks, are homes or home liens.

Credit is not necessarily cut and dry. Generally, banks demand that

borrowers put 20 percent of primary principle into a project, although

they may demand as much as 50 percent. The more you put in, the more

kindly they look on your past credit lapses.

Entrepreneurs seeking startup funds virtually never obtain traditional

lender funding, because even if they have a clean history, it is

seldom adequate for the size of the project they are now undertaking.

Government resources. Every program requires different specifics for

its loans, but there are a few constants in government programs. Rates

generally are higher than those charged by traditional banks, yet

lower than those charged by venture capital firms. Just like the

banks, the government requires a thorough business plan and credit and

income documentation, but the bar is set a little lower.

Government agencies often fund only very specific projects, and their

parameters are very firm. The paperwork associated with these loans

can be substantial.

Agencies such NJ RBAC are ideal for the entrepreneur who is trying to

launch a new product. The agency loans from $1,000 to $125,000 at

about 10.5 percent for any business except, interestingly, real estate

speculation or liquor stores. They are connected with, but not

regulated by, the Small Business Administration.

NJ RBAC loan officer Galvez de Cerdas says that the agency knows that

most applicants cannot point to a long cash flow track record or vast

collateral. Thus NJ RBAC demands only 10 percent primary principal

from those seeking loans. In her analysis of a loan candidate, she

focuses on experience and preparedness. If you want to open a

restaurant, how many years experience have you had in the food

industry?

In scanning the business plan, Galvez de Cerdas looks to see if assets

have been amortized and worked into the projected financial picture.

Are payroll and operating expenses complete and realistic?

In the land of angels. In this time of an uncertain stock market yet

ample cash reserves, private investment plays an increasing role in

the small business financial scene. The larger venture capital

companies may have pulled in their horns, but individual investors can

still be wooed. Just remember that bankrolling partners seldom remain

silent, and the terms of your relationship should be spelled out

exactingly before their check glides into your hand.

Melker advises offering a would-be angel the option of becoming a

guarantor for a bank loan. Instead of ponying up the full amount of

needed cash by himself, your angel could put a smaller percentage in

the project and co-sign for the remainder.

In the end, no loan is ideal – and the first is always the toughest.

But once you have obtained the first financing, you can use it as a

springboard toward a continuing relationship where trust will expand

along with your business.

– Bart Jackson

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