KPIs, or Key Performance Indicators, are something every business has. An example of a KPI for a fast food restaurant chain might be the number of beverage cups sold per customer. Beverage cups sold would be a more accurate KPI to restaurants, on the whole, than say gallons of soda consumed, given that refills are free. So if one was to look at the total number of gallons of soda consumed on a particular day, you might see 67 gallons downed total. However, the amount of profit you’ve made may differ slightly because you’ve had someone trying to get into Guinness World Records for “amount of soda consumed in one sitting” practicing in your restaurant. Now you have a single person who purchased one cup and drank 43 gallons of soda, and you’ve sold only 17 cups total to account for the 67 gallons of soda drank. If this is the case, it may be time to raise the price of cups.

I'll show YOU to use gallons of soda as your KPI!

Finding out what your business’s KPIs are, is important. If you are able to accurately track your KPIs, then everything else should fall in place. This is why it is important to learn what numbers in your company are imperative to success in your field. It is especially vital in times like these, when the economy has struggled so mightily and things can often be lost in stagnation. While sales overall might be down, tracking your KPIs can offer ways to bolster hope and prosperity.

It isn’t breaking news that China, India, Vietnam, and Malaysia, along with a slew of other countries in Eastern and Southern Asia, are important players in the global economy. In fact, it isn’t news at all. What is potential news, is that breweries are becoming a larger part of what is a shift in the global market in regard to consumer goods as a whole.

It would be a stretch to claim that beer is popular in China. But it doesn’t change the fact that China is the world’s number one consumer of the bubbly libation we hold so dear to our hearts. Jørgen Buhl Rasmussen, CEO of Carlsberg Group(the world’s 4^th largest brewing group), reported on Carslberg Group’s growth, “You are probably looking somewhere between 60% to 80% of the global volume growth will come from Asia and a big part of that will come from China”.

"Ignorance is the night of the mind, but a night without moon and an iPhone" -Confucius (probably)

The sheer volume of beer consumed in China outweighs countries like the United States, Japan, and Germany who consume beer at a much higher rate per capita but simply don’t have as many consumers. However, brewing groups like Carlsberg who already produce their beer in China, have yet to see outstanding profit margins due to consumers’ unwillingness to pay top dollar for beer. So far. Nevertheless companies are still willing to invest large sums of money to the beer in China, as they feel this attitude is slowly but surely to change in the near future.

China, doing its best impersonation of the United States in the 1950s, has a middle class obsessed with status. This means cars, iPhones, fancy high rise apartments, foreign cigarettes, and possibly beer in the future, can all be bought at premium prices for no reason other than to show that the person who has them, can indeed afford them.

Companies like Carlsberg Group are well aware of China’s love for the gaudy and they know that beer is simply the next Christian Dior handbag (metaphorically, of course). Companies who market their products as semi-luxury items understand full well that raising the price of an item, can make it a lot more attractive to a consumer who wants to buy a product simply to show off the size of their wallet.

It may be a sad state of affairs when working class people save up money for months so that when their friends and relatives come to visit their home, they can greet them in their Nike sneakers and serve them Carlsberg. But who is to blame? If a consumer is unwilling to purchase a particular item because it’s associated with peasantry, the company adjusts. They change their ad campaigns. They turn coal dust to diamond dust, and suddenly they can’t keep the product on the shelves. The Chinese have money and want to spend it. Who are we to deny them?

Being an entrepreneur is an exciting and challenging undertaking.  You have great ideas, lots of enthusiasm, but sometimes you don’t know what you don’t know. Therefore, it’s important to seek good financial and legal advice.

When seeking financial advice, remember there is a difference between finance and accounting. CPAs and accountants are more focused on what has been done in the past.  A finance expert is more focused on where you are going.  For example, let’s say that you want to create a Private Placement Memorandum (PPM).  You’ll want to seek financial and legal advice to guide you through the best way to create a PPM for your company.

Legal advice is also necessary to help you determine the company structure for your new venture. There are a variety of legal entities you can establish, but you should first think through your long-term objectives.  If, for example, you plan on funding your new business solely with friends and family, they you may want to create a Limited Liability Company (LLC) or a sole proprietorship.

On the other hand, if you plan on raising venture capital, then you’ll want to create a C corporation.  Investors are most interested in C corps., which have board of directors and stock.  If you have a subchapter S corporation, you probably will need to convert it to a C corp. when investors get involved.  However, don’t worry too much about the details; your funding source will help dictate how to structure the company, stock, etc.

The following is a brief description of the various company structures available.  You also can find online sources that can provide more details and guidance.

Sole Proprietorship
A Sole Proprietorship is the simplest business form, and does not even involve a separate legal entity. You may easily file a DBA (doing business as) with the state for a small filing fee.  In addition, no complex administrative issues are involved, and there is no double taxation. It can be the best form for a small business where it is unlikely that the business will incur any significant debt or could be sued for a business related matter. This is an important point because a separate entity is not being formed, and thus the owner is liable for all of the business’s actions.

General Partnership
In many ways, a General Partnership is quite similar to a Sole Proprietorship, except that there may be more than one owner. Like the Sole Proprietorship, it is fairly easy to administer, there is no double taxation; however, there is the risk of unlimited liability to the owners. It is also more complicated in that the arrangements between the owners (the partners) must be defined, usually in a partnership agreement. The partnership agreement usually specifies, among other things, how income is allocated, and what happens if one of the partners wants to leave the business or dies.

Limited Partnership
Closely related to a General Partnership is a Limited Partnership. A Limited Partnership is composed of one or more general partners and one or more limited partners. Although the general partners still have unlimited liability, the limited partners do not, so long as they are passive investors and do not have an active role in the operations of the business. Their liability is generally limited to the amount of their original investment. Many times a separate Corporation is formed to act as the general partner to further reduce the unlimited liability risk. As you can see, a Limited Partnership can quickly become more complicated from an administrative standpoint, but has many benefits, including no double taxation, and elimination of the unlimited liability risk for limited partners.

Corporation
Establishing a corporation involves the formation of a separate legal entity under the laws of a particular state. A certificate of formation (formally articles of incorporation) is normally filed with the Secretary of State’s office. In addition, annual reports and other technical requirements are generally needed. There are corporate service firms, which can help with these filings. Additional corporate formalities include the need for a board of directors, corporate officers and an annual meeting of stockholders and directors. The corporate form also faces the possibility of double taxation if corporate income is distributed to business owners as dividends, which are considered personal income.

In addition, all owners have limited liability so long as the appropriate corporate formalities are observed. In general, it is easier to have many owners in a corporation than other business forms.

S Corporation
An S Corporation is very similar to a regular corporation, except it has elected to be treated under the rules of Subchapter S of the Internal Revenue Code. So long as the technical requirements of the Code are met, an S corporation is not taxed at the entity level, and thus does not suffer from double taxation. Adhering to all of the requirements of the Code can, among other things, limit the types and number of owners of an S corporation.  Your company is limited to less than 35 shareholders, and no corporation can be a shareholder, only individuals.  Each shareholder receives a K1, like a partnership, and may take his/her prorated share of the profits or losses against his/her personal taxes. An s corp. may change to a c corp., which is often the case when a corporation transitions from a startup to a profitable company, even though it may not be a cash-positive business.

Limited Liability Company (LLC)
In 1995, a new form of business ownership has come into being, which for the most part, takes the best of all worlds. The Limited Liability Company (LLC) provides all of its owners with limited liability, and avoids double taxation. In addition, unlike an S corp. there are few, if any, restrictions on ownership. Usually, a document must be filed with the state of formation, but other administrative formalities are generally less involved than with a corporation. The biggest reservation some advisors have about an LLC is that since it is a new business form, some states are still in the process of developing their regulations, and the IRS may still have further pronouncements in the area.  Although LLCs have been around for some time, investors are still uncertain about this corporate structure.

For more information about business structures, visit the IRS.

Last week, the city of Richardson along with our clients and partners helped us celebrate our new building by participating in the official ribbon cutting ceremony.  We thank Mayor Gary Slagel, City Manager Bill Keffler and President/CEO of MTBC Bill Sproull for their warm welcome.  I’ve known all three men for years, and their kind words are very much appreciated.

After the ribbon cutting, we hosted our first open house in our new building.   This was a very special event for Sandy and I, for we have put a lot of sweat and tears over the last year to make this night a reality.   I also want to thank the Paragon team for hanging in there through the move, as well as all the bumps along the way.  I am very proud of everyone who works here at Paragon, and the contributions they make on a daily basis.

We’ll be posting some of the photos up on our Facebook page, so please make sure you “Like” us, so you can take a peek at the who’s who that attended.

Paragon is coming up on its 20th anniversary.  We are extremely thankful for the wonderful clients and partners we’ve had a long the way.  We have a number of exciting opportunities in front of us, and innovative products yet to be developed.  So, stay tuned!

Last month, Microsoft Corp. co-founder Paul Allen filed a suit against 11 companies, including Google Inc., Facebook Inc., and eBay Inc., with patent infringement.  The suit, filed in federal court in Seattle, claims those companies are using technology developed a decade ago.  So this begs the question on the importance of how to protect your intellectual property (IP).

All entrepreneurs wrestle with the question of how to protect their IP — property that can be protected under federal law, including copyrightable works, ideas, discoveries, and inventions.  It’s important to first determine if you are borrowing someone’s idea, or if you have created something worth protecting.  Assuming you have IP, and venture capitalists are hoping you do, the information below may be useful.

Tips for Protecting Your IP

1.     File for protection. One way to safeguard your invention or idea is to file for protection under U.S. patent, trademark, and copyright laws.

• Patents may be available to any person who “invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” Patent protection must be sought by application with the U.S. Patent and Trademark Office (USPTO).
• Trademarks protect words, names, symbols, sounds, or colors that distinguish goods and services from those manufactured or sold by others and to indicate the source of the goods. Registration with the USPTO is not required, but does provide certain advantages.
• Copyrights protect original works of authorship, including literary, dramatic, musical, artistic and certain other works, both published and unpublished. In the United States, the U.S. Copyright Office handles copyright registration that, although not required for protection, does confer advantages.
• The U.S. Patent and Trademark Office (USPTO) reviews patent applications and determines whether an application meets the requirements for federal registration.  For more information on filing for a patent in the United States contact: (800) 786-9199 or (703) 308-4357 or http://www.uspto.gov/patents/index.jsp. To file electronically with the USPTO visit: http://www.uspto.gov/patents/ebc/index.jsp.

2.     Invest in legal counsel. It’s worth the investment to engage the services of an experienced small business or intellectual property (IP) attorney. He or she can help you to make the proper distinction regarding whether or not to file for a patent, a trademark and/or copyright.

3.     Be realistic. Don’t convince yourself that just because you’ve had an idea trademarked or filed for a patent, it is protected.  You will have to defend your patent in a civil court at your expense.  The reality is if you do not have an arsenal of attorneys on your side, you may not be able to protect yourself against an infringement.

4.     Do your research. Even though you have protected your own rights, make sure you are not stepping on the rights of others. Don’t “borrow” someone else’s idea or imitate a specific product or service.  Take the time to fully develop your idea before launching it into the universe. When you come to the table with an idea that has been well research, is trademarked or has a patent pending, you greatly increase your odds of attracting investors or getting lending institutions on your side.

5.     Use nondisclosure agreements. Many entrepreneurs are afraid that someone will steal their idea while they are seeking help.  A common approach is to make sure that anyone you share the information with signs a “nondisclosure agreement” (NDA) prior to your disclosure. Typical NDAs contractually obligate signatories to refrain from disclosing confidential information without the disclosing party’s expressed consent.

6.     Be patient. Realize that it takes time to license a patent or obtain a copyright or trademark. In the meantime, you can continue to build and grow your idea under the radar.

We have the opportunity to talk with entrepreneurs every day.  Some are eager to learn and take advice; others seek affirmation that what they are doing is correct.  I believe if we can help educate people by providing them with what we’ve learned over the years, then they will have a better chance of achieving their goals.

One necessary element in starting a business is a business plan.  A business plan should be short and sweet, under 20 pages.  Most people, especially potential investors, do want to read a 50-page business plan.

Executive Summary
The most important section of your business plan is the executive summary.  In less than five pages, the executive summary provides investors with an overall view of your entire plan.  You should include the most important points from each section of the plan. Ideally, a one-page executive summary can demonstrate your ability to communicate clearly, effectively and concisely to the investment community – a true bonus if done right.

Your executive summary should include the following sections.  You may want to change the order as you decide the best way to frame the problem/solution.

• Business Summary – Provide a clear explanation of what the product does and who benefits from it.  This is a concise statement of your unique solution to a big problem.
• Management – Why is your team uniquely qualified to win?  Explain why the background of your team members fits what the company needs.  Use brand name company experience if it’s relevant to what the company is doing.  Discuss key hires if they are critical to you plan.
• Customer Problem – Describe the significant problem your product is going to solve.  You are defining your value proposition– you are going to increase revenues, reduce costs, increase speed, eliminate, inefficiency, increase effectiveness. And so on.  Don’t confuse your statement of the problem with the size of the opportunity (that’s below)
• Solution – What specifically are you offering and who is going to buy it?  Avoid jargon, rely on commonly used terms to say what you have, or what you do, that solves the problem you’re identified.  Clarify the value chain or distribution channels.  If you have customers and revenues, make it clear.  If not, tell when you will.
• Target Market – What is the market segment, size, and growth rate?  How many customers are there and what is driving the segment.  Target a reasonable percentage of a well-defined growing market.
• Customers – Describe the typical customer.  Make it clear who is in the target market.
• Sales/Marketing Strategy – How will you generate revenue?  How will you create your message and reach your target market?  What is your sales model?  Is it scalable and can it be leveraged?  What are the planned sales and marketing expense levels?
• Business Model – How will your company be structured?  Will all key activities be done in-house?  Will you use contractors or outsourcing?  Who are your key partners, what role will they play, and why are they the right choice?
• Competitors – You have competition.  Your prospects are dealing with this problem in some way.  There may be competition about to emerge.  It’s important to be realistic and not understate the competitive landscape.
• Competitive Advantage – The key here is to state your sustainable competitive advantages clearly and concisely.  Articulate your unique benefits and advantages.
• Management Team – Identify your management team and whom you will need to hire.  Accurately state your experience and don’t be afraid to identify roles you need to fill.
• Board of Advisors – Do you have a board of advisors?  This is a group of industry experts, which is separate from your board of directors and does not have a legal say in the daily operations of your company.
• Financials – State how much money you are looking for and how that money will be used over a specific timeframe.  Explain how the company has been funded so far, and identify the skills and experience of the types of investors you would like to invest. Provide projections, which are based on detailed financials calculated on sales price and units sold.
• Contact Information – List the name of the company and primary contact information including phone, email and URL.

Backup Material
The remaining sections of your business plan provide the backup material and references to the information in your executive summary.  For example, when you describe your market and competition, the business should include all references you used to derive that information.  The more you can rely on industry data, the more credible your offering.

Key Points to Keep in Mind
As you are writing your business plan, be clear who you audience is and what is important:

• Investors are not really interested in how much sweat equity and money you have spent so far on your idea.
• When calculating salaries, you should think about creative ways to show you have an on-going financial stake in the business.  You can defer a portion of your salary, which you can help justify why you should have majority control.
• The further along in product development process and marketing testing your products, the better you are positioned to retaining more of the company.

Online Resources
There are lots of online resources available to you.  The Small Business Administration site has guidelines and templates for creating a plan. Berry’s site features more than 500 industry-specific plans so you can find your sector and start writing. SCORE is a good resource for growing companies that need to expand their plans. Right-Brain Business Plan helps creative companies brainstorm the left side of their business.

One-Page Executive Summary Template
We’ve provided a sample you may want to use as a starting point when working on your one-page executive summary.  To access the template, click here.

Technology and beer can go hand-in-hand, as some of the cool beer apps for iPhone demonstrate. Even conscientious objectors of iPhones can admire the novelty of these apps. Here are a few of our favorites.

Beer Battery – $0.99

Beer Battery offers a clever way of incorporating your love for beer while monitoring the battery charge in your iPhone or iPod touch. As your battery life depletes, so does the brew in the glass.  Just like other battery apps, you can easily see how much talk time, etc. you have left.  You even have lifelike bubbles floating in your glass.

iBeer Pro - $3.99

iBeers Pro lists more than 2,700 varieties of beer. Each beer lists the country of origin, brewer, type of beer and bottle size, as well as user ratings and an ability to add it to your favorites list. This is a great app for those who enjoy trying new beers, especially from unknown breweries. This app also comes in a Lite version for $1.99 and the regular iBeers version for $2.99.

BeerCloud – Free

By GreatBrewers.com, “BeerCloud is a revolutionary mobile app that helps you pair beer with food, track down your favorite beers in your neighborhood, discover the world of beer styles, and pull up a full description of nearly any beer in seconds. Whether you’re a beer consumer who could use some guidance in making a well-educated purchase, a food lover looking to discover new ways to enhance a meal with a complementary beer pairing, or a traveling beer enthusiast who wants to instantly map the closest stores, bars, and restaurants carrying your favorite beers, BeerCloud is an essential iPhone app.”

iBeer – $0.99

iBeer is one of the first beer apps that has gained popularity. The latest version touts celebrity voices. After starting iBeer you’re given a choice of several different beers and other liquids with which to fill your glass. After choosing your favorite drink, the iPhone itself is turned into a representation of a mug of that drink. When you tilt the phone to the side, some beer will be removed, as though you are drinking it right from your phone. Not overly useful, but definitely fun. And if you would like something to eat while drinking your iBeer, try iMunchies.

These are only a few of the cool beer apps available. Let us know if you find any that you would recommend!

Since 1990, when I first started Paragon Innovations, I have talked with hundred of entrepreneurs. Many of them come to us with an idea, looking for advice and assistance on how to make their idea a viable product and company.   I also have been involved for years in the Center for New Ventures and Entrepreneurship (CNVE), which is part of the Mays Business School at Texas A&M.   CNVE sponsors the Aggie 100, Tech Transfer and Ideas Challenge, which all promote entrepreneurship and recognize successful ideas and businesses.

The one common theme I’ve observed from my experience is that all entrepreneurs are looking for guidance on how to be successful.  For some of these entrepreneurs, Paragon has assisted them through the funding stage, and we have come to understand what an investor is looking for in a potential startup.

Over the next few weeks, I will share some of my business insights and advice on how an entrepreneur can prepare for the journey of starting a company and raising capital.  I hope to provide a framework of what you will need and questions you will want to think through as you move forward.  There are lots of resources available for startups, so I’d suggest learning as much as you can early on.

The following are the major topics I will cover in my Entrepreneurship posts:

• Business plan essentials
• Intellectual property
• Company structure
• Types of funding
• Investor presentations
• Incubators

If you have read any of my earlier posts, you know that I have a passion for innovation and entrepreneurship. Having a great idea is only the beginning of the journey.   Hopefully you will learn something new over the next few weeks that will help you achieve your goals.

If there are any topics you would like me to discuss, please leave a comment.

From time to time, you may have thought of ideas to make drinking beer more enjoyable.  If you are an engineer, you may have taken that a step further and created a robot to perform simple tasks for you.  It appears that the focus of most beer robots is to serve beer — an important task without a doubt.

PR2 Robot Fetches Beer From the Refrigerator

However, a few have gone a little further.  The engineers at Willow Garage modified one of their robots — PR2 — to fetch beer from the refrigerator and deliver it.  You can place your beer order via, the Internet, from a menu selection. Handy for sure — I don’t want to be presented with any of that lawnmower beer!  A good solid beer is what I like.  The robot also is programmed to ID a person’s face and will release the bottle once someone tugs on it.

All of the robots we know of are retrieving beer or dispensing beer, or both. But it’s time to look forward. Fetching and carrying are all passé. Vending machines have been dispensing things for years. So, to me, having a beer robot means it needs to look beyond the old boundaries to see what value could be added.

Here are a couple of thoughts that come to mind.

• Let you know if there are new selections available in the frig.
• Determine if your beer has been sitting around too long and is warm (you’re talking too much).
• ID the beer and go get a fresh cold one.
• Politely and discretely, let you know when you are approaching your limit.
• Removes your keys and finds you a place to stay for the night if you have exceeded your drinking limit. Could be handy when your parties are lively and there are more people there than you can keep track.  Sort of a Robot bouncer at the door for guests that are trying to leave and drive drunk.

In the meantime, it would be great to have the PS2 for Tuesday beer nights.  We could simply put is our order for the beer of the night, and the robot could deliver us in style.

Let us know what new values a beer robot could add that would make it more than just an expensive vending machine.

Disruptive or Evolutionary?

Over the years, there has been a lot of discussion around disruptive technology.  Clayton M. Christiansen first introduced the term in his 1995 article Disruptive Technologies:  Catching the Wave. Today, the investment community is still focused on disruptive products.

So what does it really mean to you and me?  Wikipedia defines disruptive innovation as “innovations that improve a product or service in ways that the market does not expect, typically lowering the price or designing for a different set of consumers.”   The innovation changes the way people or businesses are currently doing something.

More often than not, true disruption occurs when two or more technologies are combined.  Take the iPhone, for example.  My friends and associates know that I am an Apple fan.  However, the iPhone doesn’t really represent disruptive technology, even though many are claiming it does.  Apple combined features existing in PDAs, touch screens, and cell phones and developed an innovative design which is now displacing many phones.  The iPhone represents a evolutionary innovation that has improved upon the design and development of the cell phones before it.

Skype is another company heralded as a disruptive innovation.  Today, Skype owns about 12% of the market for international calls being made worldwide.  It combines VoIP and cell phones to create a viable alternative for traditional calling.  I bet the major telecom companies are scrabbling to figure out how they will address this fierce competitor.

In my last post, I discussed the state of the investment community and its continued desire for disruptive technology.  The Texas Emerging Technology Fund typically will invest up to $1 million in disruptive technology companies. However, for a technology to be truly disruptive, investors will have to put up more than $1 million to be successful.

I read a post a few months back titled “An argument against disruptive technologies” by Jason Cohen, and I agree with his perspective.  In his post, he states the “disruption is rare and expensive.  It’s hard to think of disruptive technologies or products that didn’t take millions of dollars to implement.  Most of us don’t have access to those resources. . . . There’s nothing wrong with incremental improvement.  What’s wrong with taking a known problem with a known market and just doing it better or with a fresh perspective or with a modern approach?  Do you have to create a new market and turn everyone’s assumptions upside down to be successful?”

Few of us will be involved in truly disruptive technologies.  In the end, it is better to create and grow sustainable revenue with a product and company in which you are passionate. If you have an idea that you think it exciting and new, then take the time to develop the idea.  Identify your market, build your plan, and be ready to fund the beginning with your own money.  Set your expectations to be successful, one step at a time.