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Thursday, April 30, 2009

Lessons from The Office

On a recent series of The Office episodes, Michael Scott, the main character, decides to quit the Dunder Mifflin Paper Company and start his own company, the Michael Scott Paper Company. In a Jerry McGuire-esque scene, he asks who's going with him... and Pam, the really cute administrative assistant, goes with him. This plotline lasts for maybe 2-3 episodes, and of course it's pretty ridiculous. But there are a few tidbits we can get from these episodes...

One small step for man...

The day after Michael and Pam quit, they gather at Michael's apartment. He has a nervous breakdown. So unsung hero Pam tries to help him:

"When I feel overwhelmed, I like to make a list of things to do, and then start with the easy stuff. We need to come up with one realistic thing we can do today."

Pam is employing our "one small step for man" approach, which I blogged about here.

Benefits: The supposed holy grail

A little later, it's Pam's turn to have a nervous breakdown:

"I had a job. I had benefits!"

I've always thought benefits were overrated. Then again I've never had to be without them. But can't you convert "benefits" to a monetary figure? Health insurance can be bought. It probably isn't cheap, but it can be bought. So put in a number. $1000 a month? That just means you add $1000 a month to your opportunity cost hurdle. I actually tried to get some quotes, and I found health insurance for $100 a month. It probably only covers a horrible disaster, but isn't that what insurance is for anyway?

The folly of not including your time as a cost

So Michael and company deliver their first orders of paper in a van that used to be owned by a Korean church. They get up at 4 AM to get their deliveries in on time. When they're done, they sit around the office tired but happy about their first orders. Michael then suggests they add a loft to the office. Pam suggest hiring a delivery service so she doesn't hafta wake up at 4 AM to do this work. Michael keeps on fantasizing about adding a loft.

The point here is you hafta account for your own time as a cost. Working long hours, working hard, being the hero isn't sustainable because there's only a certain number of hours in a day. Michael and Pam basically are getting paid to be delivery people instead of being business owners. If you can't afford to hire a delivery person and you hafta do it yourself, you're working in your business instead of on your business. This concept is explained really well in the book The E-Myth Revisited: Why Most Small Businesses Don't Work and What to Do About It.

Better have a good idea of cost structure before lowering prices

Michael ends up getting a lot of clients because he undercuts his old employer's prices. But his accountant tells him that as his company grows, he won't be profitable. Michael ends up calling his clients back and asking for more money to stay afloat. Obviously, he doesn't have much luck with it.

Michael just offered paper at really low prices... which can be a good strategy, but your cost structure has to support it. You can't just cut prices and take lower profits, because your costs will continue to grow as your sales do. Wal Mart can have lower prices because of their cost structure. They are so huge that they have all kinds of economies of scale, like being able to ship full trucks and having the power to get lower prices from their suppliers. They don't just lower prices without these things.

"Jobs are safer"

So, in a plot twist worthy of a sitcom, Dunder Mifflin wants to buy out Michael's paper company because they're losing clients. They offer him $60,000... after much celebrating Michael changes his mind and asks for their jobs back instead because "jobs are safer."

Well, jobs are safer when you aren't a true entrepreneur. Michael and Pam proved that, quitting on an impulse because they didn't like their new boss and trying to start their own paper company without testing it out first (Corporatepreneurship?) nor thinking about their business model.

Not bad content for a funny sitcom, eh?


Saturday, April 25, 2009

DRTV and Thank God I'm a Corporatepreneur

Dale's SEEF3M is going to be awesome. Who wouldn't want to work for yourself full time even for just 3 months. But I thought I'd offer my perspective. For those who don't know Dale and I don't run any businesses together (at least not yet) but we are friends and routinely meet to share what we are up to and in general how to better be Entrepreneurs. We also try to keep each other motivated and of course - share code if we've solved a specific issue before.

So I am really glad to be a Corporatepreneur this year... here's why.

For the past 8 years I have made money from a somewhat popular gaming website from banner ads. And I have to say while it took a few years to really take off - when it did things were way better than I ever expected. In fact for the past 3-4 years I could have lived off of that income alone - but didn't. People who know always thought I was crazy, and in a way I was. I guess I figured I could run a business part time and work full tie - why not do it. At the minimum I'd be taking years off my retirement income.

Also over that time I got married, bought a house, etc etc and long story short - people count on me now.

So over the past year my Entrepreneurial income has been drastically lower - and it wouldn't be enough for me to live on at my current lifestyle (see my blog The Paradox of Replacement Income).

Anyways - since the last year has been so rough for making money from advertising - my partners and I decided to take advantage of the low ad rates and think of a business model that could capitalize on these low rates. We've decided to try and sell a product on TV (as seen on TV type).

If you have seen the Snuggie - know that they have sold millions of them. Some people see this and think the Snuggie is dumb, I see it as a brilliant DRTV product. So stay tuned because I'll keep you posted on the DRTV journey. We are working out what out product could be, then we'll shoot a commercial.

In the meantime - be sure to catch Pitchmen on Discovery as it give you some great behind the scenes of the DRTV world.

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Thursday, April 23, 2009

One person is seriously derailing my entrepreneurial drive

It's my boss. And it's not what you think...

Last week I had a regular meeting with him. Before I had a chance to start updating him on all of the projects I was working on, he said one sec... and pulled out a sheet of paper with my raise for this year. I wasn't expecting much with this economy, but it was more than I expected. He told me that he thought highly of me and I was doing great work. Now typically you write that off as hot air, but he put his money where his mouth was.

I've worked with this person before. About 5 years ago, I was struggling with the company. When I was called into my previous boss's office, I actually thought that this could be it. But instead they came to talk to me to offer me a "change in scenery" role, with this guy as my new boss. He basically told me from the beginning that he believed in me and didn't care about the previous stuff. In a twist of fate, fast forward 5 years and he became my boss again.

So now I'm thinking, with a boss like that, why can't I just stick around, collect a nice paycheck, and be happy???


Monday, April 20, 2009

The bigger they are... the harder they fall

Jason Cohen's post in his Smart Bear blog (check out fear #6 and his answer to #6 later in the blog) gave me this idea for a post that I think we at the Corporatepreneur know a thing or two about... inefficiencies at big companies. Let me tell you some things about big companies that an entrepreneur can exploit.

Overhead: Big companies hafta pay pensions, bonuses, cushy office chairs, and salaries of people who are not quite ready to retire yet but have stopped working.

How to exploit: If you can find a better cost structure (i.e. selling something online instead of through big warehouses), you can not only beat big companies but they will run away from you because they don't want to dilute their margins (the books Innovator's Dilemma and Innovator's Solution talk about this)

Functional Silos: Big companies have lots of functions (R&D, Marketing, production, Finance) and with each function there are numerous managers. Each function feels like they need to carve out their influence and create their empire. A lot of times products are sub-optimized because each function is trying to serve their best interests, not the best interests of the company as a whole.

How to exploit: Since you have a more holistic view, you can create a product that's good on all fronts. Plus, you can tweak things on a whim to improve them for a particular customer, or adjust prices as you see fit, or even name a product something you dreamed up last night. Any one of these things at a large company requires meetings and pre-meetings about these meetings. You can change things on a whim to delight your customer. Or make more money.

Risk Averse: At big companies, people are always trying to CYA (Cover Your Ass). You don't take risks, because failure gets you fired. You hafta test things a million times, document all the stuff you learn and why you made a certain decision, and get all kinds of approvals from people. Sometimes something as simple as the color of a package needs to get VP sign off.

How to exploit: An entrepreneur can take calculated risks and beat a big company at it any time. Want to try to sell something online? Google it, maybe read a few blogs like Adam McFarland's, get on Yahoo small business, and do it. At a big company, you'd probably hire consultants and have numerous team meetings. Want to try a new ad slogan? Go for it. At a big company, you hafta go through legal, who's on vacation this week, then marketing will get mad at you because you've stepped on their toes.

I could go on forever, but it's good to keep blog entries short and sweet. Jason, hopefully this helps illustrate #6 for you.


Most Small-Business Owners Don't Plan to "Fully" Retire

Here's a relatively recent article I found from Gallup that goes back to my point that if you are doing what you love, you won't WANT to retire!

Source: http://www.gallup.com/poll/104866/Four-SmallBusiness-Owners-Dont-Plan-Retire.aspx

PRINCETON, NJ -- Only 11% of small-business owners say they plan to retire and stop working in their businesses in the long run, according to the Wells Fargo/Gallup Small Business Index survey.

Declining and Delaying Retirement

Nine in 10 small-business owners say they are satisfied with being small-business owners -- 21% are extremely satisfied, 37% very satisfied, and 31% somewhat satisfied. Perhaps most indicative of their contentment, 83% say they would do it again and become small-business owners instead of doing something else. In other words, small-business owners overwhelmingly like what they do.

Because small-business owners like their work and have the option to continue working past retirement, it may not be surprising that 40% say they will continue to work as long as their health allows them to do so -- essentially the same as the 38% who felt this way in 2005. Another 47% say they eventually plan to cut back on the work they do but maintain their involvement in their businesses -- up from 42% in 2005. The percentage of small-business owners actually planning to retire and stop working in their businesses fell from 19% in 2005 to 11% in the most recent survey.

Thirty-eight percent of small-business owners say they will retire or cut back on their work at a different time than they had originally planned. Six in 10 of these owners say they will retire later than planned and many of those delaying retirement will do so for financial reasons. Sixty-two percent of small-business owners say they expect their small businesses to keep going after they stop working, while one in three feel their businesses will stop -- essentially the same as in 2005.

A Good Time to Have Retirement Flexibility

An April 2007 Gallup Poll showed that only 53% of Americans thought they would have enough money to live comfortably when they retire. Obviously, current economic conditions are even less conducive to retirement than they were last year, given declining housing prices, a weak stock market, low interest rates on most safe forms of savings and investment, and surging food and energy prices. As a result, it is not surprising that earlier this year, 45% of Americans said they were worried that they would have to retire at a later age than they had originally planned.

In the Wells Fargo/Gallup Small Business Index survey of last October, a much higher 79% of small-business owners said they thought they would have enough money to live comfortably in retirement. In part, this may be because small-business owners tend to have higher incomes than the average American. More importantly, however, small-business owners also have more flexibility than the average American in deciding whether and when they will retire.

This ability to time one's retirement may be of even more importance in the months ahead. Last Friday's Bureau of Labor Statistics report showing another drop in U.S. jobs makes it obvious that the U.S. economy is now experiencing a recession. During such an economic downturn, many companies lay off employees and encourage early retirement as their business slows. As a result, many Americans may soon be more worried -- not that they will have to work to a later age than they had hoped, but that they will have to retire earlier than they desire and with far fewer resources than they had hoped.

Survey Methods

Results for the total dataset are based on telephone interviews with 600 small-business owners, conducted Oct. 4-14, 2007. For results based on the total sample of small-business owners, one can say with 95% confidence that the maximum margin of sampling error is ± 4 percentage points. The margins of error for subgroups will be slightly larger.

Other results are based on telephone interviews with 1,008 national adults, conducted April 2-5, 2007. For results based on this sample, the maximum margin of sampling error is ±3 percentage points.

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.


Thursday, April 16, 2009

Places to SEEFAD

So where's a good place to do a SEEFAD? We've tried a number of places, and here are some of our favorites:

Panera Bread - Free wi-fi, plenty of tables and booths available, nice touch with fireplaces and high backs on seats to give a little privacy. Decent number of plugs. It's large enough to not be crowded, and has a nice ambience. In all but one of the Panera's I've gone to, I've felt welcome to hang out for a while.* Avoid the lunch rush, but other than that a great place to go.

Starbucks - I don't even drink coffee, but when Starbucks offered free Wi-fi when you use a Starbucks gift card, I was hooked. The nice thing about Starbucks is there are so many of them around, and so far about 80% of the ones I went to had the free Wi-fi. It feels a little more crowded than Panera, but they have better selection of drinks. I usually get an iced tea or a hot chocolate (their hot chocolate is actually really good).

Caribou Coffee - All the ones I've been to have free Wi-fi, some with purchase some without. A nice alternative to Starbucks, I'm still trying to find a good non-coffee drink. The ones I've gone to were a little more crowded, but not a bad place to hang out.

Bruegger's Bagels - I know one I went to has free wi-fi for sure, the other one I believe has it too. I don't go too often because there aren't that many, and bagels don't do it for me. But they have a decent ambience and I like a smoked salmon bagel.

I always thought some place should have free wi-fi, charge a few bucks and give you all you can drink and all you can eat snacks during non-lunch hours. I mean how much can you eat between 1:30 and 5 anyway? Maybe charge $3-5, which would be more than the drink I ordered here at Starbucks (albeit not much more).

Any good places you've tried out? Feel free to comment!

*There was one Panera in West Chester, OH where the manager was being really obvious that he didn't want our type there... he was overly fakey cheerful in nudging us out, eventually the wifi turned off because it was near lunchtime. So on the way out I confronted him, and he said it was a "business decision" and wouldn't budge when I brought up that the restaurant was like 40% full and we had bought a few drinks... even told him I was a shareholder and therefore really interested in them making money, but he kept his fake smile and even said have a nice day in an exaggerated tone of voice on the way out. I hope he realizes how much incremental profit he lost by me never going there again.


Tuesday, April 14, 2009

Someone else tries a SEEFAD...

So regular follower Brad Allmendinger gave SEEFAD a try for himself... had some really good insights! Check out his post about it here...


Thursday, April 9, 2009

What is Corporatepreneurship

This blog has been going for about three months now... Figured it be a good time to reflect a bit on "Corporatepreneurship" and why we started this blog. We got the term "Corporatepreneur" by adding "corporate" and "entrepreneur." We all work at a very large, Fortune 50 company as our "day job" and are or aspire to be entrepreneurs at all other times.

So why are we both? Speaking for myself, there's a few reasons... From the corporation side, I don't know enough about entrepreneurship to make enough money to do it full time. I get a nice steady paycheck from my current job. I enjoy the camaraderie with my co-workers. I'm scared to leave my job to be an entrepreneur. All the role models, education, and messages I ever got was for the corporate world.

The fun part is from the entrepreneur side. Why? I'll never live up to my potential in the corporate world. I can make a much bigger difference as an entrepreneur. There are so many ideas I want to try that the corporate world will never try. I believe my strengths fit an entrepreneur very well. I can make a lot more money and reach my dreams as an entrepreneur.

There's a lot of unique pros and cons to this double life. Pros: You don't hafta worry about putting food on the table and paying the bills. You can learn a lot in the corporate world that you can reapply to the entrepreneur world. You can fund your own ventures.

Cons: By the time you get home from your 9-5, you're tired and all you feel like doing is sitting down and watching TV. Sometimes you hafta work longer hours and run out of time at night. You can't do any ventures that require you to be available during the day. You can't sink all of your passion into your venture because you've got a day job to worry about that's first priority. Your employer may get paranoid about you doing something on the side.

We've come up with a bunch of ways to live this double life. SEEFADs make you take time out to work on your stuff and allow you to feel the life of being a entrepreneur. We try to find business models that don't require constant involvement. I'm looking to take a personal leave of abscence, which kinda gives me the best of both worlds.

Hopefully this blog will touch people out there in the corporate world who've always had the itch, and show them that it is possible. We've also gotten great contributions from people who've done it and can share experiences. And maybe I'll be in the position where I'll hafta think up a new name for this blog someday...


Wednesday, April 8, 2009

Institutions vs. collaboration (Why the corporate world is too slow)

I found this video and although it's a bit dated (2005) the examples really hit home with me because it discusses how the web has changed collaboration and how businesses can't compete with the speed and scale of collaboration. A point that stuck out to me as well was how corporations (in addition to having to centrally organize the work) needs to hire managers just to make people do what they want! Collaborators are already self-selected to do the things they are interested in - so they don't need "bossing" and the work is better. The challenge here is to pull the various work together - and that's what the wed does best!

In this prescient 2005 talk, Clay Shirky shows how closed groups and companies will give way to looser networks where small contributors have big roles and fluid cooperation replaces rigid planning.


Sunday, April 5, 2009

Other's responses to my SEEF3M

So I've had a chance to tell a few co-workers and friends about my upcoming leave of absence. Of course they ask "What are you planning to do with it?" And I test the waters out by saying:

"Make enough money so I don't hafta come back."

I usually use this one as a gauge on what conversation to have with the person. There are two responses:

1. Ha ha. Better go buy a lottery ticket!
2. Awesome... what ideas do you have?

People who answer #1, I say "Yup, I plan on buying a lottery ticket my first day off!" And then I have the "I'm gonna go on a roadtrip, enjoy life, and it's something to do when I'm still single" conversation.

People who answer #2, I tell them about notthebookstore.com, and my thinking that you hafta fail 10 times before you hit something, so I want to get 2-3 failures out of the way during the 3 months.

It's been really interesting talking to people type #2. There are more people than I imagine who Corporateprenuer... i.e. have some sort of business on the side, or have the desire to. One guy told me all about the stuff that his entrepreneur wife does, owning franchises and stuff. He also made a point to tell me that it was great that I was doing this.

One really interesting response was from my dad. I brought up the idea to him a month ago (I haven't even told him I've already discussed this with my boss). In a "why are you doing this to me" tone of voice, he said "Why would you want to do that in this economy? I don't think it's a good move." He was almost hurting for me, which is pretty frustrating because when I'm hurting, the only person that needs to be hurting is me. And I'm not even hurting. Guess that's parents for you. Well, I haven't brought up the subject since... I probably won't until everything's official.

So, in a nutshell, everyone has been supportive except for one person... and he'll live, I'm sure my sister and I have done worse things to him in the past. The most meaningful support and encouragement I've gotten (other than my co-horts in this blog) has been from Jason Cohen of A Smart Bear blog and Adam McFarland (his blog here), because the vision is to be in their shoes someday... and it's nice to know there are people out there who get it.


Wednesday, April 1, 2009

Early Retirement or Freedom?

It can be a long path from deciding to start your own business to the day when you start to make some steady profits. But once that day comes, it can be very empowering. You will find you have less stress at work, you won't worry as much about being late or having to get brownie points from the boss you can't stand.

That doesn't mean the hard decisions are behind you, that is another reason we started this blog. In fact, it is often once you start to see the fruits of your labor that the really tough decisions need to be made.
As tax season starts to roll around, you can be faced with one of those decisions.

Is my Business a path to freedom from a corporate job, or an early retirement vehicle to retire before 50?

You may start and stop several businesses over the years while working full time. But once you start to have a very serious business, you have to decide if this is the idea to give you true freedom or you path to an early retirement. Answering that question can have a huge impact on how you structure your business, especially from a tax standpoint. But, it may also have a bigger impact on how you want to approach your life and what your true ultimate goals will be for your efforts.

Early Retirement

If you choose to use your business income as a retiement vehicle, you have some really good options. The Simplified Employee Pension Individual Retirement Account (SEP IRA Wikipedia) is a great option for you. Unlike your company 401k that caps our around $16,000, the SEP IRA allows you to contribute 25% of your business income (up to $46,000 in 2008) into a retirement account.

Match that up with any retirement plan in the corporate world and it will be very hard to beat. I see this alone as reason enough to start your own business, especially in the face of this economy where large companies like Motorola and FedEx are stopping 401k contributions.

However, just like normal IRA's you won't be able to access that money until 59 1/2. If your goal is to eventually leave your job to work for yourself full time, we would highly advise you to make sure you have a significant amount of emergency savings (up to 2 years expenses) available in case you run into hard times like we are experiencing now. That may make the SEP IRA not the right choice for you or your company.

Path to Freedom

If you want to build up a cash reserve before heading out on your own, then you may want to have access to your business income before the age of 60. Especially if you think it will require an investment to grow your business to the point where it can support you and your family.

In this case you can hedge your bets by placing some business income into taxable savings accounts like CD's, index funds or bonds to grow the money while you wait to build up enough to make your move. You may not be able to take advantage of all of the tax benefits available to you, but you can give yourself the flexibility to delay this decision until you have more confidence in your business or in your ultimate goals for your life.

It is very important for you to discuss these options with your accountant and in some cases your lawyer. We are big fans of Legal and Tax advice and paying well for good advice. But paying for good advice is not the end of the hard work. It is also very important for you to take control of your business direction. It is very likely that your accountant will advise you to start an SEP IRA because on paper it is a great tax benefit. However, if this benefit does not help you reach your ultimate goal, then you need to be honest with your advisers and they can help you meet your needs as best they can.

To date, none of us have chosen to start SEP IRAs. We have instead chosen to reinvest the income or place it into taxable accounts that give us flexibility to make future decisions. This is another reason why I am such a fan of Canada's version of the 401k, the Registered Retirement Savings Plan (that is for another blog). Despite not starting an SEP IRA, the business income has allowed us to maximize our corporate 401ks and other options available to us.

We would love to hear from anyone who has faced this decision. As you start your path to being a Corporatepreneur, you will learn that no one can tell you the exact right way to run your business or make the best decisions for you. You need to gather as much info as you can about your options and find out which is the right pat for you.


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