Hire Yourself
Thoughts on Economic Survival
There are financial and legal challenges unique to the business owner, especially when cash flow is strained, a business is on the brink of failure, or the only way forward following job loss appears to be self-employment. Yet, sometimes, these challenges spur us on to build a business, or change careers and do something we have always dreamed of doing. Either way you go, there are unique problems to solve, and hopefully, success if we find the right answers. We turned to local attorney, Josh Barney,
Quintessential Barrington: How did your career get started?
Josh Barney: I started practicing law in Beverly Hills, California. I moved to New York for a couple of years and then I moved to Chicago where I joined a large downtown law firm. I opened my own practice in Barrington about 1996.
QB: What is your background?
JB: I have an undergraduate degree in Finance and Marketing (Bachelor of Science) from California State University, Chico. I have a Juris Doctorate degree from University of California, Davis (famous for Genentech and Pepper Spray) and a Masters in Law from Columbia University. I also have a variety of international certifications from the Hague Academy of International Law (the Netherlands), the Brussels Institute of European Community Law (Belgium) and National Cheng Chi University (China).
QB: What are your areas of law practice?
JB: My practice today is surprisingly similar to my practice in California. It is a mixture of international law (mostly clients from Japan, Korea and China), entertainment, business transactions, commercial real estate and litigation.
QB: Can you tell us about your clients?
JB: My typical client is an entrepreneur. I represent many small or early stage companies and larger foreign corporations that are starting up U.S. operations. I also represent key individuals who interact with larger companies, such as CEOs, sales reps and investors.
QB: Tell us about some large startups that you were involved in.
JB: One of my more interesting startups where I am not concerned about my confidentiality obligation is Kia Motors. I worked with Kia Motors Korea to set up Kia Motors in the United States. This startup originated in Hoffman Estates. Currently I am working with some other large Chinese and Korean companies to set up U.S. operations. These new startups create jobs. I have worked with a couple of spinouts from local technology and biotech firms and I have helped some companies roll up other companies to become larger companies.
QB: And what about smaller startups?
JB: I have been involved with hundreds of small startups including for example t-shirt companies, restaurants, construction companies, sound studios, medical practices, dog walkers, inventors, manufacturers, military contractors, movie financing, battery technology, importers and exporters, sales reps, flower arrangers and so on.
QB: Is there anything really interesting that you are working on?
JB: I am somewhat limited in what I can talk about here. Almost without exception every one of my client’s projects is interesting at some level. One such project that I can talk about relates to the liquidation and repurposing of some of NASA’s assets. I am hoping to get a souvenir from Area 51. I also do some government consulting on technology and entrepreneurs. It is surprising how many cool technologies are simply sitting on the shelf unused at large companies or under government control. It can be rewarding matching up the technology to the entrepreneur.
QB: Josh, why the strong interest in entrepreneurs?
JB: I enjoy working with smart, creative people. I would like to believe my advice is useful. I have a lot of experience, both good and bad, with growing a business. When I can, I pass that experience on to people who are just starting out or who want to grow quickly. Being an entrepreneur is hard work. It can also be very discouraging. Many people try to drag the entrepreneur down. When it makes sense, I try to inspire them to keep up the fight and I give them alternative approaches to their problems and opportunities. I also enjoy helping people network with one another.
QB: Has this economy hurt any of your clients?
JB: Most of my clients have been hurt by this economy. I found that the risk takers were the hardest hit. So when cash flow tightened up, these over-leveraged entrepreneurs were crushed. This was particularly hard on baby boomers who don’t have the time or energy to start over. They are approaching the traditional retirement age and have no savings and possibly obsolete job skills. For them, the job picture can be bleak. To make matters worse, they had friends, family and spouses who simply could not understand. Marriages fell apart and friendships ended. While some people are trying to work through their problems, many have simply given up.
QB: Has your practice changed as a result of this economy?
JB: I spend more time helping people manage their credit relationships than at any time in the past. The new startups and buyers that I deal with today tend to be conservative people who managed to remain relatively liquid. These people are in a position to take advantage of the many great opportunities that exist in the market place today. Many of the new companies that I work with today were started by women, minorities and young people. They have more freedom today because their circumstances or disciplines kept them from overextending themselves.
QB: What do you think about people who are out of work?
JB: I think this economy has hurt a lot of really good people through no fault of their own. Barrington was particularly hard hit in part because it has a lot of self-employed and entrepreneurs. Also, a lot of these people are out of work because so many employers in the area have downsized.
QB: What about creating your own job?
JB: Starting or buying a business is a great way to create a job for yourself. It is not as difficult as you might think to buy a business. Starting a business is also an option and can be great fun, too. You can also partner up or associate with an existing business to startup a new product line or go after a new market with the existing company. Often a business owner or a firm’s management will be aware of an untapped opportunity that they will allow you to pursue. With the appropriate protections such as a non-circumvent or non-disclosure agreement, you can always bring your own idea to an existing company.
QB: Is this an active part of your practice?
JB: Buying and selling businesses has always been a big part of my practice. Startups have also been a big part of my practice. In recent months I have seen a significant increase in the number of startups and in the number of businesses being bought and sold. Because I deal with so many turnaround and distressed companies, I am also involved in the liquidations and sale of these businesses. Many new companies have emerged from these troubled businesses.
QB: Who should consider starting a business?
JB: Anyone who wants to be their own boss. Anyone who has unique skills or ideas, and wants to make use of them. Anyone who wants to create something that can be passed on to their kids. Owning your own business is also a great way to give your kids a job, assuming they are willing to work for you. Anyone who has a burning desire to build something, whether it be to hold or to sell. Anyone who wants to create a lifestyle that they can more or less control. It is a great treat to go home early or take a day off whenever you want. And of course, there are a lot of financial advantages to owning your own business. Business owners can deduct a variety of expenses from their taxes. I have many clients who operate a business in Illinois and Florida. Florida is a great place to work from in the winter.
QB: What do you do once you have decided to start or buy a business?
JB: Buying or owning a business is a big commitment that falls somewhere between owning a dog and having children. Once you have done your soul searching about who you are and what you want to do with your life, you can start doing due diligence on business ideas that interest you. Often it relates to what you already know how to do. Hopefully it relates to what you enjoy doing. Sometimes it relates to an opportunity that you have already identified.
QB: How do you find these opportunities?
JB: At no time in recent history have so many opportunities existed to start or acquire a business. At any given time, I am aware of at least 20 or 30 companies for sale. In fact, almost every business that is in financial trouble represents a potential business sale and an opportunity begging for a solution. In addition to distressed companies, many companies are owned by baby boomers who are seriously considering retirement and have no succession plan in place. It is a buyer’s market. Finding these companies can be challenging. You can look for ads in the Walls Street Journal or Craigslist. You can talk to a business or real estate broker. Keep in mind who represents the seller. You can make direct inquiries to the owner of a business that interests you. You can post an ad looking for a particular business. You can contact a franchisor such as McDonalds or Subway. For a variety of reasons, it is very useful to have an intermediary between you and the seller or seller’s agent. That person can be a broker, a lawyer, an accountant or any trusted professional.
QB: How do you assess a client’s ability to take risk?
JB: I am rarely involved at that stage. Usually if someone walks into my office, they already know who they are and what they want. Generally, I am not retained unless someone has already made a commitment to start a business. I would enjoy being involved at this earlier stage and I occasionally give seminars or presentations on related themes.
QB: Where does one get the inspiration to go into business for themselves?
JB: A great source for inspiration is to read biographies of entrepreneurs. These can really get you to jump up early in the morning ready to tackle the day. Surprisingly business acquisitions and turnarounds are common movie themes. For example, “Other People’s Money”, “Cash McCall”, “Pretty Woman” and “The Company Men”. There are many more. There are also a variety of self-help and inspirational themed books on the market. Of course, nothing beats real world experience and you learn a lot by hanging around business owners and entrepreneurs. Who you are is a reflection of who you spend your time with.
A Discussion on the Entity
QB: Tell us how to secure your startup the right way – how to protect it, and yourself.
JB: The key elements to secure your business include incorporating your business and putting people’s promises and expectations down on paper, obtaining proper insurance and taking steps to protect your intellectual property. Registering your trademarks, trade names, copyrights and patents can be very expensive, so a great deal of common sense and risk balancing goes into these decisions. Basic tools such as a non-disclosure agreement or non-circumvent agreement add to your protection. Beyond that, every element of your business becomes a building block to the overall security of the business. It is not off base to view your business as a castle and the rest of the world as outside your circle of trust.
QB: What are your thoughts on buy versus build?
JB: It depends on the space and your resources. Often, is it better to buy an existing business because there are so many little pieces that have to be collected and put together to create an operating business. The time drain and learning curve can reduce the amount of time and money you have available to focus on your core business. Buying a business can be fraught with risk too, because of past problems and promises of the business. It helps to buy assets rather than the corporate entity, whether the business is running or not.
In today’s market, there are so many businesses for sale that I would hesitate before I started a business from scratch. The opportunity to buy an existing business is very tempting. Think of it like buying a new house. Unless you have the money to build a house exactly how you want it, you generally can get more house today buying an existing house and remodeling it. Of course, the cost of labor and materials for new construction is lower today as is the cost of the dirt. So either way opportunities abound.
QB: How do you put a team together?
JB: This is a lot of fun. It is a balancing act between finding people you can trust and people with the right competence. People you know and like, friends and family, may give you an element of trust and predictability. On the other hand, your business may quickly outgrow their competence for the role they play in your business. The dynamics of changing from a friendship to that of startup expectations and responsibilities can ruin a relationship. Relationships also tend to strain when companies are wildly successful or when they fail. They also tend to strain when someone does not live up to expectations. For this reason, serious consideration should be given to arm’s length relationships and putting down on paper the key promises and expectations.
QB: What’s the right mix for a team that works?
JB: Going back to the “know thyself” concept, you need to find team members that compliment you. One of the most common problems I run into is where the founder either does not see the value of the other roles – such as an engineer who doesn’t recognize the importance of sales and marketing, or is intimidated by their own lack of knowledge, or the sales guy dealing with financial issues. Building the right team is one of the most important parts of a startup. Investors tend to “bet the jockey” meaning that if the team is right, they don’t worry as much about the business concept. On the other hand, if the team is wrong, the investors either walk away or start scheming to remove the founders. This is a complex area. If big money is involved, it might make sense to get professional help to assemble the team, either through experienced associates or through a headhunter type relationship. The right team is critical to success and is often a make or break decision.
QB: How important is identifying the right
market space?
JB: I talk a lot about space. Space is not physical space, but a market vertical, a category of products or services such as food service, technology, or value-add sales. It is useful to view your business as part of a business ecosystem. Your business typically fits somewhere along a vertical that runs from, for example, raw materials to an end user, the consumer or customer. For an automobile, this might entail mining iron ore, fabricating steel, manufacturing a car, selling and delivering the car to the consumer, and scrapping the car. Supply chains may consist of many elements. In the automobile example, related elements might include businesses that design cars, market cars, finance the purchase of cars, and products and services that relate to cars such as tires, oil, gas, repairs, car washes, and so on.
QB: What about competition?
JB: One key element to a successful startup is some kind of barrier of entry. If everyone can do what you plan to do, why aren’t they already doing it? What will keep them from doing it once you are successful? You need an edge that will give you the momentum to survive. That edge can be technology, marketing, location, timing, even a name. It might be your willingness to do what no one else will do. “Mister, may I rake your leaves for food?” This rule applies across the board. Better food, better service, better product, closer to the customer, quicker delivery, higher quality, better looking … something that gives you an edge.
The Money Talk
QB: Money is a central issue. What about funding and financing?
JB: Because it is so difficult for a buyer to get a loan, financing the purchase of a new business has become very creative. Many people do not realize how easy it is to buy a business. You really can buy a business with no money down.
Funding is really a question of resources. And the question is do you have the resources to create or build a business? Most people do not. Money is the easiest tool for obtaining the resources you need to start a business. Money can be used to buy a company, pay rent and salaries, buy products, advertise, and more. Money is in short supply these days. So whether you are starting up a hot dog stand or a technology juggernaut, your first worry is usually about money. Most businesses fail because they start out without enough money. Or the founders spend their money unwisely.
Money can be borrowed from friends and family. Good choice for the founders, the guys starting the business. Might not be a good choice for the friends and family depending on the safeguards put into place when the business is started or when the business takes in new money.
QB: What about working with a bank?
JB: Money can be borrowed from a bank. This option has pretty much disappeared unless you have cash collateral on deposit with the bank for more than the amount of the loan. In general, banks are not your friend. Does that sound obvious? Banks have become more treacherous than venture capitalists and that is really saying something. You can’t assume community banks are somehow better. Unfortunately, I have witnessed over and over again the most ruthless behavior by banks against members of local communities. You do need a bank for at least a basic checking account. Midsize banks tend to be overlooked as people flee from the large banks. There are a few reasonable banks. You need to do your due diligence.
Other ways to finance a company include working with partners, joint venture partners and suppliers that can help you get off the ground. For example, you might get the butcher to give you credit for twelve hours provided you agree to pay him off from your hotdogs sales at the end of the day.
QB: Tell us about buying a company. Why do you say you might be able to buy a company with no money down?
JB: People who own a business and are buried under crushing debt are desperate to get out from under the debt and the business. They have lost the fire in their belly because every day is a question of survival, leaving little thought for the future. Typically, at least one bank has them by the throat and won’t let go. The government is almost paying the banks to crush these guys. And most banks are not thinking about your future only their ratios and profits. Vendors and suppliers have to be flexible to survive. They are often willing to work with the old owners or new buyers. The key to buying a business is to help the seller with their problems. Often the seller is considering bankruptcy but can’t afford to go bankrupt because they won’t have the business anymore and therefore no job. Sometimes you can hire the seller as an employee or consultant to help you get going. It becomes a win-win.
QB: If I want to start a high-tech or biotech company, I would need a lot of money, right?
JB: Once upon a time we viewed a technology startup as a race to market. We needed big money because without it we were going to lose the opportunity to the competition. Technology and opportunities moved fast. While that is still true to some extent, business is moving slower today. For that reason, startups can be bootstrapped, that is to say, started with less money and more creativity. One of the old rules for venture startups was the entrepreneur was required to focus 100 percent on the new idea without spending time or energy making survival money on side opportunities. Side work was viewed as a distraction. Investors were gambling on your idea not your survival. Today, if you have a new lawn mower invention, you might need to mow a few lawns with an old mower to keep yourself financially viable while you try to build and sell the new mower.
Venture, mezzanine and public money are still options for bigger early stage companies even in these times. The biggest change here is that the money is for speedups not startups. In general, you need to already be making money before you can tap into these markets.
Working with Professionals
QB: Tell me about professionals.
JB: Professionals such as accountants, lawyers and consultants have their place, but they can be very expensive for the startup on a budget. Professionals can always justify their services. If a startup allows its professionals to run loose, the startup will quickly run out of money. That is not to say professionals don’t play a key role in a startup.
You need a lawyer to help you with the business entity and to generate good documentation to guide the business operation and manage
disputes. A good lawyer will also help you steer clear of problems and perhaps make some key introductions.
You need an accountant or bookkeeper to set up the books, prepare taxes and provide general
financial advice. I tend to look for accountants that stay in their lanes. They don’t practice law, sell insurance or invest your money for you. Naturally this is a generalization. However, accountants and banks have in recent years been guilty of getting away from their core competence. A good
accountant will keep you out of trouble and can be a valuable asset to your organization.
QB: How can a consultant help the business?
JB: Consultants come in many flavors. As I mentioned earlier, headhunters can be invaluable. They can be expensive, but if you have the
resources, it is often money well spent. I would look to rely on consultants that relate to the core operation of your business, rather than consultants that focus on an area of your business that you simply don’t understand. For example, if you have a new lawn mower design, the consultant’s advice should
relate to getting the new mower to market, making it safe or getting it manufactured. You don’t need to hire a copy machine consultant to advise you on what copy machine to buy if your core business is manufacturing a state of the art lawn mower. However, you might want to hire a copy machine consultant if you are opening a nationwide mobile copying service.
Just like with doctors, not all professionals are alike. One of the problems I see with the push for efficiency in our society is that we have commoditized our professionals. I see this as a big mistake. Do you
really want to shop for a brain surgeon at Walmart?
QB: Tell us what is involved in the launch?
JB: Here you go: Due diligence. Know the market. Know your customer. Know your product or service. Know your competition. Know your barrier of entry. It is an exhaustive amount of work. If you aren’t thoroughly prepared, don’t bother starting because you will probably fail. Often, people start out thinking they want to take over the world. That was then, this is now. Today, it is OK to start small and grow slow.
QB: What about team members who transition in from corporate America?
JB: New hires and co-founders from large corporations require what I characterize as a “detox period.” Individuals who thrived in the cocoon of corporate America are fish out of water when they find themselves out of work or working for a small company. This is particularly true of hard-charging managers who thought of themselves as entrepreneurs inside a large company. Small companies don’t have the infrastructure of large corporations, so employees have to wear several hats. Small companies don’t have the financial
resources to start big or with the right equipment, tools, or even employees. They have to make do.
QB: What do you recommend for someone who doesn’t have the skills to run a company or even manage a team?
JB: If they have a great idea, I suggest they put a team together around the idea and then do whatever it is that they do well. Often, contributing an idea is enough to secure a job and maybe some equity provided the person finds someone who can carry the idea to fruition. Some people who are not leaders are great co-pilots. Co-pilots often do the heavy lifting in a company. The risk is that you might hand your idea over to a wolf and that wolf eats you.
QB: Besides money, what do you see as some of the biggest challenges for startups?
JB: Most startups have challenges externally in creating sales and dealing with competition, complying with local, state and federal government rules and regulations, and managing their suppliers, customers and independent contractors.
Internally, startups must learn about and integrate their management team, personnel, quality assurance, manufacturing, marketing and advertising, record keeping, Internet technology, and the various other aspects of a successful business. While these issues can be daunting, you can handle them with a good team or by starting small, one step at a time.
QB: What challenges do you see for the smaller startup?
JB: Probably one of the most frustrating elements of the modern world is that local communication has been lost in the noise. Everyone supports the big boxes and big corporations because these companies have great channels to get their message out. The consolidation of media (cable, newspapers, etc) has deprived local communities of the means to communicate effectively with one
another. This lack of local communication has many profound negative impacts. If you are living in a village with an ineffective government, you have little means to organize change even if the entire community wants that change. For the startup, it means that it is difficult to get the word out that you have opened up your organic clothing store in a back alley of your small town. The Internet has become so polluted with junk that communication tends to be mostly one way. A person needs to be looking for organic clothing before they have any chance of stumbling upon your wonderful website. The logical market for your product, people living within 10 miles of your store, might not hear about your shop until you have closed it up. That means you have to rely on shipping your products to consumers from afar who must try to evaluate the quality and character of your products from a website.
QB: What do you suggest be done about this problem?
JB: Well, I think your magazine has done great things for Barrington. It has given the community a positive message and regularly introduces the community to the great people who live here. I would like to see some means to get more face to face social interaction. Most networking groups tend to be focused on selling something rather than active communication. I would like to see more events where people gather to eat, talk, dance or whatever. Young people who have not effectively entered the business world have become quite adept at using social networking tools to communicate. Unfortunately, the local business world has not adapted these tools as effectively as have the big box businesses.
QB: What if after reading this interview, someone is interested in having a dialogue with you?
JB: From my end, I love to teach. I am interested in assembling a round table of entrepreneurs to meet with, and to give advice to startups and early stage companies. Our community has many successful entrepreneurs and former business executives who would love to help people get into business for themselves. I would also like to see some gatherings of future entrepreneurs to discuss their ideas. The cross-pollination of ideas is very useful.