Alternative Funding Sources for Businesses

I had the good fortune in my current business plan course to be exposed to a number of alternative business funding sources. These include a mixture of government, private, and community based enterprises where like-missioned institutions form coalitions designed to bring economic opportunity to underserved entrepreneurs and underinvested markets in low-income communities. These coalitions provide credit, capital, and financial services that are often unavailable from mainstream financial institutions. 

Once such coalition is CDFI or Coalition of Community Development Financial Institutions. The CDFI Fund is administered by the Department of the Treasury and has three components that consist of financial, technical, and Native American assistance and the fund supports development of other CDFI’s. Through these components, the fund provides loans, equity investments, and grants to support capitalization and capacity building. The requirements for the CDFI’s to receive funding include the ability to provide matching private and non-federal funds. Other information on this site includes the history and mission of CDFI Coalition, Members, an explanation of what CDFI’s are, Fund statute, types and programs, policy and advocacy information and tools, Coalition Institute information and reports. 

Another alternative funding source is CFED or Corporation for Enterprise Development. They work on the local, state, and federal levels and their main purpose is to alleviate poverty by creating economic opportunity. CFED does not give loans, grants, or equity investments directly to entrepreneurs; rather they fund a small number of organizations that help with critical training and development of small businesses. This is through an initiative called the Microbusiness Solutions Learning Cluster, and it’s, “…designed to help organizations design more powerful, user-focused products and services to enhance microbusiness owners’ financial capability.” The participating organizations each get $25,000 to do this. Businesses cannot apply directly to CFED for funding. CFED acts more as a resource to help entrepreneurs find financing and training and development opportunities. Other information includes Programs, Policy, Knowledge Center, CFED in the news, and a blog. 

For the most part, the obvious advantage of going through these sites to seek funding is that you will learn where to find money outside of the traditional lending and investing institutions and the likelihood of getting funding is probably much greater depending on your situation. There is much more money available than you could possibly take advantage of. That’s the good news. The downside to going this route is that these sites are difficult to navigate and often aren’t the organizations lending, granting or investing – they serve more as a resource to point you in the direction of the alternative institutions and programs. The coalition structure can be very convoluted and therefore confusing and frustrating to navigate because it takes a fair amount of time to just understand what they are and what they actually do. That’s all before you even get to the financial programs or resources. Personally, I feel like I need a consultant to distill all the options so I can get right to the source.

The Business Plan Debate - Are They Always Necessary?

Before researching experts in the field of business plan writing and reviewing, I had not considered that any business concept could be brought to market without one. Everything I’ve learned along my journey has reinforced that having a plan is a must. No expert would say a plan guarantees success, not even the best plan, but they might go so far as to say that a business is doomed without one. It’s intriguing to consider another point of view though; that a business plan is not critical and that it could even be a hindrance. Inc. magazine interviewed business plan development experts, David F. McShea and Will Hsu to discuss their opposing views.

David McShea is a partner in the Seattle based Perkins Coie Law Firm. He specializes in initial public offerings, mergers and acquisitions ranging into the billions of dollars, public equity and debt financings, venture capital financings, and leading companies through high-growth stages. His clients include Amazon, Zillow, and Microsoft, among others (Perkins Coie, 2014).

McShea’s position is that you absolutely must have a business plan. They are essential to clarifying and strengthening the concept and act as a map and compass for when circumstances change, thus forcing the plan to be reevaluated. He argues that all the research, analysis, and thinking that go into writing a plan will help you to make wiser and more efficiently executed business decisions. A plan builds credibility as it enables you to more accurately convey your vision and persuade investors, business partners, customers and employees. It’s best to keep the plan clear and simple, avoid jargon and inflated hype. Use language that helps the average reader clearly understand the overall concept, value, use, and market opportunity (Zetlin, 2013).

Will Hsu is the co-founder and managing partner at MuckerLab, a Los Angeles based start-up accelerator. He served as SVP and Chief Product Officer for AT&T Interactive where, in three years, he doubled revenue to over $1 billion and helped establish them as the 9th largest digital media company (ahead of Facebook)(ecorner, 2014).

Hsu’s positions is that entrepreneurs would be better off skipping the plan and working directly on solving the biggest start-up risk; “product market fit risk.” Instead of spending all the time and energy researching and writing the plan, spend the time dealing directly with the problem. Go talk to as many customers as possible and keep refining the product and pricing. This will get your product/service to market faster, which also creates a competitive strategy as it helps identify customer needs faster. This increases the probability of success sooner. Use a few large whiteboards and jot down all the typical business plan components and rank them according to risk. Start building and selling to your presumed customers and use customer feedback for data on the risks. Go back to the whiteboards, evaluate, and adjust strategies accordingly. The whiteboard becomes a living road map (Zetlin, 2013).

One thing they both agree on is that you must have something in writing if you want investors to take you seriously. This need only be a 10-15 page summary of the business opportunity, including data showing product-market risk mitigation.

I can see the benefits of both approaches but for my concept, I am leaning more towards Will Hsu’s advice. It feels more organic and tangible to me. I would rather spend my time interacting with potential customers and business partners, gathering important data that way, than spending time on industry analysis and writing. It has been much easier for me to convey my concept in conversation than it has in writing. It’s extremely important to excel at both though, and it is what I came to grad school to develop, so I am likely to do a hybrid approach.

Resources:

Eorner. (2014). Stanford's Entrepreneurship Corner: William Hsu, MuckerLab. Retrieved February 6, 2014, from http://ecorner.stanford.edu/author/william_hsu

Perkins Coie. (2014). Perkins Coie - David F. McShea. Retrieved January 6, 2014, from http://www.perkinscoie.com/en/professionals/david-f-mcshea.html

Zetlin, M. (2013, January 21). Write a Business Plan or Not? 2 Experts Debate | Inc.com. Retrieved February 6, 2014, from http://www.inc.com/minda-zetlin/should-you-write-a-business-plan-2-experts-debate.htm

The Dark Net - A Unique Marketing Challenge

Since I’m currently studying digital marketing for the master’s degree I mentioned in an earlier post, I thought it would be highly useful to start researching how digital marketing works in relationship to the “deep Web.” Unless it’s part of your job description to know what the deep Web is and what’s available there, most people have likely never even heard of it. We think the Web where we can easily access anything via Google is the only one that exists, but this portion, known as the “surface Web” is just the tip of the iceberg. According to How the Deep Web Works, about 40 percent of the world’s population uses the Web this way and we are none the wiser.

Image courtesy of http://projectpdr.com/deep-web-myth-reality/

The surface Web is the indexed portion of the entire Web where a search engine’s “crawlers” are programed to return results for our somewhat generic keyword queries. However, because of this programming, these queries only return about .04% of the entire Internet (source, OEDb). The remaining portion, that which is invisible to us because they cannot be indexed by search engines, is called the “deep Web.” Although impossible to accurately measure, it is estimated to be at least 500 times bigger than the surface.

This is a massively untapped resource. The deep Web’s data is not purposely unavailable, it’s just very difficult to access. That’s why businesses determined to maintain a competitive edge outsource the data mining portion of their marketing efforts to companies that specialize in deep Web information extraction and analysis.

A portion of this deep Web is the illicit and much more elusive, “dark Web” or “dark Net.” This is the underground of the Internet and most closely associated with illegal activity. Although there is plenty of that, it is also a place for people to flee to as the growing reach of government surveillance becomes an increasing concern. From a digital marketing perspective, I’m most curious about the dark Web portion, which is accessible only via a special network (The Onion Router Project or TOR) that removes encryption layers so users and communications remain anonymous and essentially untraceable.

Aside from the benefits of avoiding surveillance, I imagine some of the appeal in using this dark Web is finding freedom from the increasingly intrusive and mostly inescapable ads and corporate marketing that fill our lives. So, if not a single site is indexed and there’s no way to track user data of any kind, how will businesses handle the challenge of this marketing black hole as more and more people dive into the dark for an experience specifically free of this presence?
For anyone wanting to learn more about the deep Web and how you can access and search invisible content as well as optimize the chances of your content being found, check out The Ultimate Guide to the Invisible Web.

Opportunity Abounds For Your Creative Content To Find An Audience

Perhaps the greatest benefit of the Internet is that it essentially levels the access-to-information playing field for all. Anyone with the desire to educate themselves can now easily tap into this vast resource universe if they simply have the means to do so. As connected mobile devices become cheaper and more widely available by the day, virtually anyone, regardless of their geographic location, education, or socio-economic status, can gain authority on any subject they wish. This creates a world of opportunity where none existed before. Throughout history, access to information has been available mainly only to those who already enjoyed a certain level of education, status, power or money so anyone who wasn’t born into these blessings was out of luck, regardless of their desire to better their lot in life. This situation is no longer the case.

It’s clear that for the common person, the Internet gives them access to a world of opportunity where none existed before. I make that point to illustrate in comparison the huge impact self-publishing and the ever-expanding world of distribution have on creative content producers. It used to be that, regardless of your talent or initiative, if your book, music, film, etc., was going to be read, heard or seen, you were at the mercy of those who ruled the channels of distribution. At the same time, those channels were narrow and therefore significantly limited your reach and audience. Now, self-publishing and distribution have leveled that playing field and anyone with a creative spark and some elbow grease can share their art across the globe without having to rely on already being famous. Without this breakthrough, it’s likely that many unknown creators would quit before they even started. If you are not already well established in your industry, you have no access to your audience so why bother putting your blood, sweat, and tears into a project? Now, it’s possible anyone can become someone in his or her creative field.

A Look at Recent Lawsuits in the Entertainment Industry

One thing I’m quickly learning is that litigation is rife throughout the entertainment industry. It’s a way of doing business that people and companies must just get used to as an everyday, common occurrence. You probably aren’t successful until you’ve been sued. That is not true of course, but the impression is that, if you are doing anything worth noticing, and especially if you are making any money at it, someone will find a way to take you to court over it. I’m picturing a New Yorker cartoon showing an artist grinning and proudly holding legal papers with the caption, “I’ve finally made it.” Legitimate intellectual property theft is a big problem though, as well are issues like wage fixing, for which guilty people and companies deserve to be held accountable.

Judge Rejects Bid of Robin Thicke, Pharrell Williams to Win 'Blurred Lines' Lawsuit
In 2013, upon threat of a lawsuit from the Marvin Gaye family over similarities between the Grammy winning song, “Blurred Lines” and Marvin Gaye’s track, “Got To Give It Up,” singer/producer, Robin Thicke and Pharrell Williams, sued the family in a pre-emptive strike. The suit asks for a summary judgment to deny any similarities between the tracks. The Gaye family has since filed a countersuit, which also alleges similarity between Thicke’s, “Love After War” and Gaye’s, “After the Dance.” In the first case, a judge has recently denied summary judgment and determined that there is indeed enough evidence of similarity between the two tracks to go forth with a trial. The tracks have been dissected and experts from both sides have given their opinions. I took a listen to both and immediately heard the similarities, so I can understand why the case should proceed to trial. However, what will make this case more interesting and difficult to determine is that, according to the Hollywood Reporter Esquire article, there is, “controversy between the two sides as to whether Gaye's copyrights are limited to sheet music compositions or whether they extend to features heard on the "Got to Give It Up" sound recording.” Regardless of how similar the tracks sound, the Gaye family could lose out on some portion of the suit because of the Copyright issue.

Frank Sivero Sues The Simpsons: A Perfectly Cromulent Case?
Frank Sivero, a character actor who’s played mobsters in the films, “Goodfellas” and “The Godfather Part II,” recently filed a $250 million dollar suit against Fox Television Studios alleging that The Simpsons’ Springfield Mafia cartoon character, Louis, is based on him. There are five different counts but it comes down to Sivero claiming misappropriation of his name/likeness and his character development ideas for these mobster roles and, of course, “interference with prospective economic advantage.” The Louis character first appeared on The Simpsons in 1991 and has since appeared sixteen more times. Sivero claims that in 1989, he lived in the same apartment complex as some of the writers and that they saw each other, “almost every day.” He also claims he had prospective business dealings with the Simpsons’ producer but they never materialized; rather the producer was just studying him for the Louis character development. It is odd that it’s been over twenty-three years since Louis first appeared and Sivero is just now filing suit. I can see the similarities between his mobster roles and The Simpsons’ character, but the $250 million suit seems like a bit of a stretch. Since he never got anything in writing from the producer, well, I’d just be embarrassed to even mention that part.

Walt Disney And DreamWorks Animation Sued By Employees
Finally, there is the lawsuit brought by Robert A. Nitsch Jr., former Senior Character Effects Artist at DreamWorks, against animation industry giants; Disney (including their subsidiaries, Pixar and LucasFilm), Sony Corporation, DreamWorks Animation, Digital Domain 3.0, and ImageMovers Digital LLC. The suit asserts that these companies conspired to deliberately suppress wages of millions of, “industry technicians, software engineers, digital artists,” etc., and kept them from, “wage increases and growth in their careers.” It also claims a “no-poaching scheme” between Pixar and DreamWorks where they agreed not to hire employees away from each other. The evidence in the case is pretty damning – there are emails from executives of these companies that show agreement to participate in these practices. The suit is valid. Considering how hard these people work in the industry (I know employees that basically live on campus at Pixar), these practices are shameful and the companies involved should be penalized to the full extent of the law. Those employees who lost out should be given every penny in back compensation. These practices are not only illegal and morally wrong; they are especially unforgiveable given the vast profits these companies rake in year after year. 

References:

Cramer, B. (2014, September 9). The Walt Disney Company (NYSE:DIS), DreamWorks Animation Skg Inc (NASDAQ:DWA) News Analysis: Walt Disney And DreamWorks Animation Sued By Employees. Retrieved November 2, 2014, from http://www.bidnessetc.com/25326-walt-disney-and-dreamworks-animation-sued-by-employees/

Gardner, E. (2014, October 30). Judge Rejects Bid of Robin Thicke, Pharrell Williams to Win 'Blurred Lines' Lawsuit - Hollywood Reporter. Retrieved November 2, 2014, from http://www.hollywoodreporter.com/thr-esq/judge-rejects-bid-robin-thicke-745106

Ryan, D. (2014, October 28). Frank Sivero Sues The Simpsons: A Perfectly Cromulent Case? -IPLJ. Retrieved November 2, 2014, from http://iplj.net/blog/archives/7189

Principled Negotiation Techniques

This post discusses three different negotiating techniques of the Principled Negotiation method. The seminal book, Getting to Yes - Negotiating An Agreement Without Giving In by Roger Fisher and William Ury describes the method is used, …”to decide issues on their merits rather than through a haggling process focused on what each side says it will and won't do.” It is focused on mutual gain, resolving conflict by employing objective criteria, avoiding posturing and tricks, and obtaining what you’re asking for in a fair and decent way.

One of these techniques is separating the people from the problem. The way to do this is discussed in the video interview with Cyril Ramaphosa and Roelf Meyer, the chief negotiators in South Africa’s transition from apartheid to a peaceful Democracy. These negotiators came from adversarial and completely different backgrounds, histories, and strategic objectives but they were able to overcome these seemingly insurmountable obstacles by focusing on a common vision, opening lines of communication and finding common interests. When tensions became high, they were able to stay on track by using this technique and by continuously doing so, they built trust in each other. This eventually enabled them to negotiate this historic agreement.

Another negotiation technique is to use independent standards, also known as objective criteria, to solve conflicting interests. This is discussed in the video, Getting to Yes Negotiation 2nd half. Basically, it’s difficult to convince the other party it should agree to your request just because you say that’s the way it should be, but you have no real evidence to back it up. It’s much easier to get buy in for your request by using objective criteria such as statistics, industry standards, maket values, precedents, etc. This lends instant credibility to your request and shows you’ve prepared well, which also makes you a much stronger negotiator in the eyes of the other party. As the video states, independent standards can act as sword to persuade the other side or as a shield to protect yourself by explaining why or why not the proposal would be fair.

A third principled technique is negotiating for mutual benefit such that both parties come away feeling satisfied with the same aspects of the agreement. In the video, Margaret Neale: Negotiation: Getting What You Want, she talks about the importance of solving a problem in a way that gets both parties what they want. This means knowing what your alternatives are should the negotiation fail, what your reservation price is, and what your aspirations are. In other words, it’s important to know exactly what you want and why you are going into negotiations and if you want to have a mutually beneficial agreement, you should also know what the preferences and interests are of our counterparts. This preparation enables us to show the other party that our proposal will meet the objectives of both parties and therefore makes a mutually beneficial agreement more likely.

All of these techniques will help me in my entertainment business. I have a tendency to acquiesce when people get emotional so learning how to separate the people from the problem will enable me to stay focused on solving the issue at hand. Using objective criteria will have me prepare well with the fact and figures I need to make my case and negotiating for mutual benefit just seems like the proper thing to do. I don’t think I could negotiate a different outcome and feel good about it.

References:

Getting to Yes. Negotiating an agreement without giving in. Retrieved Septermber 7, 2014 from: http://6thfloor.pp.fi/fgv/gettingtoyes.pdf
Getting to Yes in Negotiation Book. Negotiating an agreement without giving in, skills by William Ury and Roger Fisher. Interview with Cyril Ramaphosa and Roelf Meyer. Retrieved Septermber 7, 2014 from: https://www.youtube.com/watch?v=RDBlFaf9rB0
Getting to Yes Negotiation 2nd half. Retrieved Septermber 7, 2014 from: https://www.youtube.com/watch?v=hOtwE3PBUlk
Margaret Neale: Negotiation: Getting What You Want. Retrieved Septermber 7, 2014 from: https://www.youtube.com/watch?v=MXFpOWDAhvM