People become freelancers for all sorts of reasons. Very few do it to get into business – that’s just a side effect. To be successful freelancers, we need to be savvy business people.

Understanding business takes work – some light reading, some heavy ploughing though your government’s forms and requirements, maybe some serious study, and keeping up with business news and events. Material for small businesses and entrepreneurs will be especially helpful.

Here is a reading list for you to pick and choose from: 40 Places Where Freelancers Can Learn More About Business. This list is a starting point. Please add to it in the comments.

Websites and Blogs

We freelancers seem to spend a great amount of time online, so that’s where we’ll start our reading list.

1. If you want to get straight to the main points without too much reading,Sitepoint.com has two very helpful articles which summarize business for freelancers: Best Practices for Freelance Business Part 1 and Best Practices for Freelance Business Part 2.
2. If you prefer the “encyclopedic” version, Wikipedia’s business article has many subtopics, and links to useful external resources.
3. Business Pundit is full of tips and articles covering a wide range of business topics. Some are especially useful to freelancers, including Freelancers Make More Money by Firing Clients.
4. Businessballs.com contains “free career help, business training, organizational development – inspirational, innovative ideas, materials, exercises, tools, templates – free and fun.”
5. Freelanceuk.com has a useful section on running your business.
6. Newbusiness.co.uk also contains business advice from a UK perspective.

Many news sites have great business information, including:

1. Fox Business is a great source of business news, and has a Small Business section.
2. The BBC News business section is a similar news source from the UK.

Your government has probably published some useful information about running a business. For example:

1. US: Business.gov is the official business link to the US Government.
2. Australia: Businesslink.gov.au is a practical guide to business from the Australian Federal Government.

Magazines

If you prefer to read from paper, a great place to start is with business magazines – though many of them can be read online too.

1. Businessweek.com contains top business news stories, and has a Small Biz section.
2. Inc. is a daily resource for entrepreneurs.
3. Entrepreneur is another magazine and online resource for entrepreneurs.
4. America’s Best is a magazine for small business owners.
5. Family Business Magazine is a guide for starting and running family businesses.
6. Home Business Magazine is aimed at “home-based entrepreneurs and business owners; people who work from home; and telecommuters”. It is an online magazine.
7. In Business Magazine is helpful, and humorously includes a section calledSuck it Up! – “Business days from heck: If they can prevail, so can you!”
8. My Business is “the leading magazine for small-to-medium enterprises, the dominant sector – 92 per cent – of all business in Australia. Its credible, information packed and easy-to-read format speaks directly to the key business decision makers.”
9. Opportunity World & Money ‘N Profits is “the magazine for small business opportunities.”

Newspapers

And while newspapers are still around, make the most of the business section – in print or online.

1. The New York Times business section
2. The Chicago Tribune business section
3. Los Angeles Times business section
4. The Sydney Morning Herald BusinessDay
5. The Age BusinessDay
6. NZ Herald business section
7. Business Report contains many business articles published in South African newspapers.

Books

Books – paperback, hardback and electronic – teach you about business in a more linear fashion. Here are some books and lists of books to get you started.

1. Small Business Kit for Dummies is a “reference for the rest of us.”
2. The Bootstrappers Bible by Seth Godin is a free ebook for “…entrepreneurs who are working their butts off to start a great business from scratch with no (or almost no) money.”
3. Getting Rich In Your Underwear: How To Start And Run A Profitable Home-Based Business
   by Peter I. Hupalo is primarily written for those just starting a home business.
4. Rich Dad Poor Dad by Robert T. Kiyosaki – “What the Rich Teach Their Kids about Money – That the Poor and Middle Class Do Not!” This book explains how to make your money work hard for you instead of you working hard for money.
5. Wikibooks have a detailed ebook called Getting Started as an Entrepeneur.
6. Smallbizbooks.com have published Startup Guides for Businesses. Each book focuses on a different type of business, including books on Consulting Service, Freelance Writing Business, Graphic Design Business, Online Business, Coaching Business and Personal Trainer Business.
7. Amazon.com’s Must Read List for Small Business Owners contains a list of 39 recommended books relevant to business.
8. Bainvestor.com have a long list of recommended books called “Entrepreneur Books: Entrepreneurship and Small Business Books”, with an emphasis on what is important to know when starting your business.
9. DailyLit email good books to you in daily digestible chunks. They have 43 books in their Business category, many of which are free.

Courses

There are plenty of business courses you can do online. Here are some that will cost you your time, but not your money.

1. My Own Business.org has a free online course which is presented by successful business owners who point out the common, avoidable mistakes.
2. SBA (US Small Business Administration) offer free online business courses including Starting a Business, Business Management, Business Planning, and Marketing & Advertising, and more.
3. Suite101.com provide free online business courses, including Business Planning, Business Law and Business Management, and more.
4. About.com’s Small Business Startup Course is a free Canadian course covering a wide range of topics.
5. About.com’s: Online Small Business Success Course is designed to teach you how to market yourself and your business more effectively

via: FreelanceSwitch

In part three of our Super Angel v. VC SMACKDOWN Dave McClure says “I am all about the flip. GREED IS GOOD. I am Gordon Gekko in Silicon Valley.” But is he? Wouldn’t greed be going after the big win not the tiny flip?

In this clip we come to one of the core distinctions between Super Angels and VCs: Are sub-$50 million exits the desired goal in Silicon Valley or are small acquisitions what you settle for when your company doesn’t hit it big?

McClure argues that small flips are more sustainable for the Valley, despite the fact that small flips don’t create the next Googles and Facebooks to acquire future generations of Super Angels’ companies. McClure says he’s counting on non-technology companies to start buying hundreds of technology companies, but do entrepreneurs want to sell to someone even stodgier than a Microsoft or a Yahoo?

David Hornik counters that Sand Hill Road is about changing the world and that’s the business he wants to be in. (For the record, that’s the business I moved to Silicon Valley ten years ago to cover.)

For part one of our series, “Why the Hate?” go here; for part two “Are Super Angels Just a Phase?” go here. And to catch the live debate at Orrick’s offices this Friday go here.

via:TechCrunch

Why do so many freelancers fail while others who face even greater obstacles succeed? Is it natural talent? Is it hard work? Is it sheer persistence?

I find these questions absolutely fascinating. That’s why I’ve spent a great part of my adult life studying freelance success.

But it wasn’t until I recently read Malcolm Gladwell’s book Outliers that much of what I had learned came together into one unifying principle:

Success only happens at the intersection of preparation and opportunity!

To better explain this, let’s take this discussion outside of freelancing for a minute because there’s a fascinating lesson here.

Talent Is Overrated

Did you know that in Canada, arguably the most hockey-crazed nation in the world, nearly ALL top players are born (get this) in the first three months of the year?

Why is that?

Gladwell explains that it has nothing to do with astrology or magic. Quite simply, the eligibility cutoff for junior hockey leagues in that country is January 1. That means that a boy who turns 10 on January 2, for example, will be playing with kids who won’t turn 10 until November or December.

Why does that matter? Well, as you probably know if you have kids that age, in terms of physical maturity, a 12-month difference in age is huge. In sports, it means you have a great advantage over the younger kids.

Now here’s where things start to get interesting. Canadian coaches begin selecting players for their all-star teams around the age of 9 or 10. And guess which ones they tend to pick? That’s right, the older kids, who, when compared to those just a few months younger, appear to be bigger and more coordinated.

Once a kid is picked for the all-star team, he gets better coaching. He has twice the number of practice sessions. He also plays in more games. And his teammates are better, which pushes him to improve continually.

By the age of 14, what started out as a small advantage (mainly in size and coordination due to his age) is now a huge advantage over the younger kids he left behind 4 years before. And now this young man’s chances of making it to the Junior League and into the big leagues are very high.

Gladwell found the same patterns in American baseball, where the cutoff date for almost all nonschool baseball leagues is July 31. As a result, more major league players have birthdays in August than in any other month.

Opportunity Is Only Half of the Equation

Is it luck? Call it what you want, but I say it all boils down to the intersection of preparation and opportunity.

These older kids were all given a chance (opportunity). But had they not prepared — or, more important, had their parents not signed them up for the junior hockey league — they would NOT have succeeded.

Once selected to the all-star teams, had they not worked hard, practiced day and night and loved what they were doing, they would not have made it to the majors.

I don’t know where you are today in your freelance career. I don’t know if you’re just getting started or if you’ve been at it awhile. But regardless of your current situation, if you want to succeed, you must continually practice, upgrade your knowledge base and work hard to become better.

In other words, you must constantly prepare.

That means refining your craft. Developing smarter prospecting approaches. Experimenting with better pricing strategies. Learning basic negotiation skills. Sharing best practices with some of your peers (especially those who are more successful that you). Adopting a healthier mindset. And much more.

Only then will you be able to take full advantage of the opportunities when they come your way. (And they WILL come. They always do!).

Earl Nightingale once said that if a person does not prepare for his success, when his opportunity comes, it will only make him look foolish.

Pay the price. Prepare today. Success is worth it.

via:FreelanceSwitch

On FreelanceSwitch, you’ll meet a lot of boss-shunning, solo-working rebels. But there may come a time when the freest of freelancers will need to hire employees. Or subcontractors.

Or you might want to sell your freelancing business, and the buyer will want to know how you’ve been handling things.

In short, these are the times when you will need to explain what you do to others. Or you may need to tell others what you want them to do. At first, these tasks may leave you at a loss for words. This article will help you get your words back.

The first task in your explaining project will be to figure out exactly what it is you’ll need to explain. Here’s an outline of the three basic functions of a business, with questions to guide your thinking:

1. DO

This is everyone’s favorite. Here you’re describing what you DO for money.

Let’s say that you’re a website designer. You don’t just pull those marvelous designs out of your head and dazzle the clients with them. You probably have some sort of prototyping process. How does it work? Do you create your layout ideas in Photoshop, then save them as JPEGs and post them in your server space for the clients to review? Or do you go straight into the coding and post rough drafts of your ideas?

Then, once you’re past the idea stage, how do you build websites? Are you building them out of HTML pages or are you using a content management system like WordPress or Drupal? Do you have subcontractors working with you on site buildouts? What kind of subcontractors? How do you instruct them?

Then, once the site is done, how do you hand the files off to the client? What sort of client training do you offer? How about service after the sale? Do you maintain websites? Do you offer related services like search engine optimization and website hosting?

Now, I just threw a whole bunch of questions at you, and you’re probably scratching your head, trying to figure out the answers. The good news is that you’ve answered them already. Here’s where you can find the answers:

1. On your website. You may have a page devoted to describing your production process. Or you may have written a client’s guide to working with a WordPress-based website.
2. In your proposals to prospective clients. Proposals are good places to find descriptions of production processes and the service you’ll offer after the sale.
3. In your e-mail and texting exchanges with prospective and actual clients. Those question-and-answer fests are good places to find details on everything I’ve covered above.

2. GET

How do you acquire new clients or drum up repeat business from existing clients?

This is the marketing and sales part of your business. For the purpose of this article, let’s define marketing as what you do to get people to come into your freelancing store. Sales? That’s persuading people to buy what’s on your shelves.

I’ve previously written about what can happen if you pay too much attention to marketing and not enough attention to sales. (Hint: your freelancing business suffers.) So, I’m going to devote most of this section to sales.

Sales consists of two activities:

1. Defining your Ideal Client Profile and figuring out where you can find people who fit this profile.
2. Reaching out to them.

As you may have guessed, a lot of people really enjoy the first activity, because it doesn’t require talking to strangers and asking them for their business. Heck, it’s kind of fun to write a little essay on who your Ideal Client is. And searching online and offline for leads lists? That can add up to hours of not talking to the people who might hire you.

Then there’s that second activity. Reaching out to people. Talk about scary. But using a script will make it a lot less scary. In my own business, I use scripts for making cold calls. Scripts for making warm calls. And I’ve created templates for cold and warm e-mails. I even have a scripted method for answering my telephone.

Scripts come in handy if Introverted You hires a vivacious employee to help you prospect for business. After all, you don’t want Vivacious Vincent to get on the phone and not know what to say. Or when the phone rings and Vincent is closest to it. What would you want him to say in that case?

So, what do you want your business scripts to say?

Now, a word (or two) about marketing:

It can consist of everything from placing advertisements to sending a monthly e-mail newsletter. Any marketing activity provokes a flurry of questions. For example, let’s look at advertising. You can place your ads in media ranging from printed publications to websites. What will those ads say? What will they look like? What do you want people to do after they’ve seen or heard them?

Same goes for your e-mail newsletter. Who will be on your list? What are you going to say? Will you use an HTML newsletter, or are you going to stick with tried-and-true plain text. (One of my friends still uses plain text for her newsletter. And she says it works just fine.)

3. RUN

Now this is a word that gets no respect. Some people even call it “administrivia.” But let the following things go, and watch your business run into the ground.

Accounting: Do you use accounting software? If so, what kind do you use? What sort of functions does it perform for you? Invoicing? If so, what information do you include on your invoices? What do your invoices look like? Can your software generate checks? What do your checks look like? Who do you order them from? What kind of financial reports can you generate with your accounting software? And how do you use those reports?

And, since I mentioned financial reports, I guess I don’t have to tell you that they’re needed for filing taxes. How do you handle that fun-filled task? Are you a DIY kind of tax filer? Or do you use a tax accountant? How do you communicate with your accountant?Do you consult with your accountant at times other than tax season? (I hope you do!)

Administration: That’s right. You the Administrator. That was probably the last thing you aspired to be during your job days. But, take heart. In your freelancing business, there isn’t a lot of administering to do. Unless you need to do some long-range planning. Like writing a business plan so you can get a bank loan or investor capital. Or developing a professional development plan. The word “plan” leads naturally to the next question: What will go into those plans?

Legal: This isn’t the part where you’re going to sue someone. Or (heaven forbid!) be sued.

But even the freest spirited of freelance business has some legalities to comply with. For example, do you live in a city that requires that businesses be licensed? If so, how did you apply for your business license? And how often does it need to be renewed? What’s the fee? And what about professional licensure? Are there certifications and licenses that you need in order to enter or continue in your field? How is this done? What about security clearances? Do you need those? If so, how do you apply and keep them current?

Office and Business Management: Okay, you don’t work in an office anymore. Which means that you’re now your very own office manager. Ever had to purchase equipment for your studio? A telephone or a computer? Or how about office supplies? As Internet-savvy as we like to be, there are times when we still need to send a letter to a client. What does the business stationery (letterhead, envelopes, and business cards) look like? And where do you order it from? And how do you manage all those projects that your business gets involved with? How do you supervise the work of your employees? Or, if you don’t have employees, your subcontractors?

Okay, that’s enough. I’ve asked you quite a few questions. And you’ll probably think of others. It will take time to answer them, but here’s what could happen if you do:

Years ago, I did business with a small accounting firm on the east side of Tucson. This firm documented everything that it did, and I do mean everything. They had quite a thick procedures manual, but no one felt overwhelmed by it. Rather, they regarded it as The Book. They turned to it many times a day.

The Book allowed this firm to run so smoothly that the boss and employees didn’t have to work through the weekend before April 15. (In the United States, April 15 is Tax Day, the federal tax deadline. A lot of accounting firms go flat-out during the last week or two before this date.) Matter of fact, Tax Day at this firm was so relaxed that the boss and her employees came to work in pajamas. And TV cameras would show up to document the occasion.

Now, you may be wondering why I’m referring to this accounting firm in the past tense. It’s because it no longer exists. Boss sold it to a larger firm, and, I’m told, the completeness of The Book helped to increase the sale price. That’s where documenting your business processes can get you.

(A VC) — There was a great conversation Thursday at Y Combinator‘s AngelConf in Silicon Valley. Anthony Ha of Venturebeat had a couple posts on it that I just read, one on Paul Graham’s comments, and another onRon Conway and Mike Arrington’s comments. I would have enjoyed being part of that discussion, so I’ll join in now.

I second Ron Conway’s hope that “any entrepreneur that has ‘the guts’ to start a company gets funded.” That is my kind of thinking. We need more entrepreneurship, not less.

So I’m with Ron 100% on this. Of course, getting funded does not means tens of millions of dollars of funding for every entrepreneur. It means enough funding to actually build something and see if the idea works and the team has the right stuff to build a company. Then market forces should take over and determine what ideas and teams get more funding, and which ones should close the doors and think about what is next for them.

Mike Arrington expressed the contrary opinion, apparently held by many VCs (not me), that this mini explosion in angel investing is creating a bunch of “dipshit companies.”

I don’t know what a dipshit company is. I haven’t seen one. If you listen to the chatter on Techcrunch’s comment threads, you will see that people think Twitter and Foursquare are dipshit companies. Fine. Many great companies have been built on a wall of derision, and I personally think those two are going to join that list of laughed-at great companies (and maybe already have).

My point is you just don’t know what is a crazy idea and what is a brilliant idea. And you don’t know what is a great team and what is a weak team.

Read more of Fred Wilson’s blog, A VC
Of course, we have our opinions on that. We make those judgment calls every day. But we are often wrong. Venture capitalists are wrong more often than they are right. It is good for VCs if 10x or 100x companies get angel funding. That is more opportunity for us.

Paul Graham rightly points out that that there is a “larger trend where founders have more power than investors.” I’ve been saying that on this blog for a long time. And I also agree that founders are determining the financing structures that make the most sense for them. But I do not agree with Paul’s opinion that the notion of a “lead investor” is going away and that is good for entrepreneurs.

This may just be me being defensive and protective of my chosen role. I am a lead investor. It is what I do. I don’t follow very well. I like to get behind an entrepreneur and company and help them raise capital, hire a team, and build the business.

And I think the entrepreneur needs a lead investor to play this role. Obviously they should pick a lead investor that will not “screw them over” — and sadly, too many times lead investors do just that. But there are many high quality VCs out there. Thanks to the power of blogging and social media and the Web, you can find out who they are and who to avoid.

Roger Ehrenberg had a great post on this yesterday. He says: “Coming to the table as a two- or three-headed syndicate beast without a clear leader is a big, big mistake. How many VCs like investing into situations where there is ‘management by committee?’ Answer: zero. Why should syndicate-building be any different?”

Just like the entrepreneur needs to run the business, he or she should find an investor to run the investor group. If you don’t want a lead investor, then don’t knock on my door, because I don’t know any other way to be.

via: CNN

Google announced on Thursday that it is acquiring flight information software company ITA for $700 million in cash. Based in Cambridge, ITA mines flight data and presents it in a polished form suitable for online viewing. Google will add to its repertoire of services by integrating this flight data into its online search engine. Google also states that it will honor all service agreements with ITA’s current customers which include Kayak, Orbitz, and Bing. Despite this assurance of openness, Google now owns a big chunk of the online travel business, so expect the deal to get a close look from regulators.

Read

New research shows the economic importance of home-based businesses: They account for more than half of all U.S. businesses and employ more people than venture-backed companies.

Stephen Labuda, 35, is planning to hire a fifth employee for the Web development firm he runs from his home in Cambridge, Mass. CARBONARO PHOTOGRAPHY

More than half of all U.S. businesses are based at home. These companies often are dismissed as quaint hobbyist ventures, but new research suggests that’s a mistake. An estimated 6.6 million home-based enterprises provide at least half of their owners’ household income. Together these “homepreneurs” employ one in 10 private-sector workers, and by many measures they’re just as competitive as their counterparts in commercial spaces.

Ask Stephen Labuda, the 35-year-old president of Agency3, a Web development firm he runs from his home in Cambridge, Mass. A former programmer at Deutsche Bank (DB), Labuda started building Web sites as a side job in 2003 and took the venture full time three years later. Agency3′s revenue is in the millions, and Labuda is about to hire his fifth employee, who will work remotely, like the rest of the staff and the slew of contractors he taps. “I’m not intending to go rent office space,” he says.

You can trace the rise of home-based businesses to the early days of telecommuting in the 1980s and the mass adoption of the Internet in the 1990s. Cloud computing, online collaboration, and smartphones have accelerated the trend, and recent research clarifies the economic significance of companies like Labuda’s. “We’re seeing more and more home-based businesses that are real businesses,” says Steve King, who coauthored the new report with his wife, Carolyn Ockels. (The couple runs Emergent Research, a small research and consulting shop, from their home in Lafayette, Calif.) The pair analyzed U.S. Census data and Small Business Administration research, along with data from the Small Business Success Index, a survey of 1,500 companies sponsored by Network Solutions and the University of Maryland’s Robert H. Smith School of Business.

WIDE ACCEPTANCE AND LEGITIMACY
Here’s more of what they found: The 43% of home-based businesses that provide at least half of the owners’ household income are, on the whole, smaller than non-home-based companies. Only about 35% have revenue above $125,000, compared to 75% for non-home based businesses. But they measure up to other small companies on key aspects of doing business, including access to capital, benefits to workers, marketing, and innovation. On average they have two employees, including the owners, and together they employ more than 13 million people—more, King notes, than venture-backed companies. (Venture-backed companies employed 12.1 million people in 2008, according to the National Venture Capital Association.)

In some of these companies, the operations are concentrated in the owner’s home. Others use their residence as a headquarters but do most of their work at clients’ homes or offices. The variety of home-based businesses cuts across industries, but the top sectors are business and professional services, construction, retail, and personal services.

A few trends are driving the growth of sophisticated home businesses. First, technology has made it easier to start and run a business from anywhere. But just as important, there has been a change of consciousness in the business world to recognize home-based enterprises as legitimate.

Labuda has seen that shift at Agency3. “When I first started, I really felt compelled to go rent an office. I felt like in order for me to be taken seriously as a business, I had to have an office that my clients could come to,” he says. It didn’t matter—clients didn’t want to visit him. Labuda meets most of them at their businesses or at coffee shops. He also uses on-demand office space, where he can rent a conference room by the hour, if needed.

LOWER COSTS ARE A COMPETITIVE EDGE
Now, Labuda never feels that his working from home damages Agency3′s credibility. Instead, it’s a selling point. “It’s reflected in our pricing that we don’t have the same kind of infrastructure costs and fixed costs that some of our competitors do,” he says.

Indeed, the most obvious financial benefit for home-based entrepreneurs is lower operating costs. A 2006 SBA study compared tax returns of sole proprietors who deducted home-office expenses with those who deducted commercial rent. That analysis found that home businesses, on average, had lower sales and net profits than companies in commercial spaces. But profitable home-based ventures retained a greater share of their total receipts as net income: 36%, vs. 21% for non-home-based businesses.

King predicts that as large companies try to reduce their fixed costs by outsourcing business functions, small home-based enterprises will play an even larger role in the economy. “Over the next 20 to 30 years, you could see the percentage of people who are self-employed and home-based double, potentially,” he says.

[Via: BusinessWeek]

Justin Gagnon quit a secure IT job, moved in with his parents, and turned their catering business into a $4 million provider of healthy school lunches.

Entrepreneur: Justin Gagnon, 31

Background: After graduating from the University of Notre Dame in 2000 with a bachelor’s degree in business administration, Gagnon worked for Level 3 Communications (LVLT) in Broomfield, Colo., building order-entry systems. During a short visit home to Danville, Calif., in 2003, to help his father build a Web site for the family catering business, Gagnon came up with the idea of transforming it into a full-time provider of healthy lunches delivered to local schools. He quit his job, moved home, and recruited two college buddies to help him build the business.

The Company: Gagnon and his friends, Ryan Mariotti and Keith Cosbey, each invested $6,250 into launching Children’s Choice; Gagnon’s parents put in an additional $6,250 and took a 25% ownership stake. In 2003, its first year, the fledgling business served about 550 lunches a day to eight schools in the San Francisco Bay Area and took in $400,000 in revenue. Today, its 90 employees prepare an average of 10,000 lunches a day for 122 schools throughout California.

Revenue: $3.9 million in 2008

His journal: If it wasn’t for my dad continually pestering me to come to California with a couple of friends and “build a Web site” for his school lunch business, I might have never taken the leap. But it was his pushing that made me curious about what was going on in his industry. I found that there was no one really focusing on school lunch. Everyone in foodservice did something else first—a restaurant, a deli, a caterer—and none of them had the resources or the dedication to truly focus on school lunch the way I thought it needed to be done.

When it comes to school lunches there are three distinct stakeholders: schools, parents, and kids. Schools want hands-off administration, no capital investment, and happy parents. Parents want convenient ordering, nutritional meals at a relative value, and happy kids. Kids are happy when they are given a say in what they’re eating and when what they’re eating flat-out tastes good. I knew that building a company positioned to exceed all of these expectations would be a huge undertaking. I also knew I couldn’t do it by myself.

I asked Ryan Mariotti and Keith Cosbey, two of my best friends from college, to help me refine the idea. In 2003 we flew to California and pitched my parents on spinning off the school lunch portion of their small catering company into an enterprise focused on serving healthful, kid-friendly lunches to schools that lacked the infrastructure and expertise to do it themselves. After sitting speechless for two straight hours during our pitch, my parents eventually realized we were serious about leaving our secure jobs as IT professionals to learn kid catering from the ground up. They agreed to teach us everything they knew.

We started off with eight schools that my parents already serviced but the cash flow didn’t even come close to sustaining three new partners, let alone retaining earnings for future growth. We all moved in with my parents and spent the first couple of years barely paying ourselves enough to warrant the paper the checks were printed on. We would drag ourselves into the kitchen at 5 a.m. to prep and cook food, visit school sites during the lunch hour, and eventually end our days in our “office” [a room that adjoined Keith's bedroom]. There we built our IT systems and discussed every aspect of the business until midnight or later. The next day we got up and did it all over again.

As a startup, we experienced one of our most deflating lessons after discovering that no matter how hard we tried to build accurate assumptions into our business model, the truth always seemed to be far from our speculations. For starters, we thought that with greater volume came more purchasing power, and with more purchasing power came lower prices.

What we failed to factor in, however, was that my parents were procuring many of their ingredients from Costco (COST) and similar restaurant supply houses that already offered rock-bottom prices. As our volume grew, the daily task of going to Costco together to buy product for the following day became unsustainable, and we knew we had to look to food-service distributors. We were shocked to find out how much more our products cost through these channels—and how well Costco and others had negotiated their pricing. Not only did we not save any money, we spent quite a bit more through these distribution channels. It took years of substantial growth to even come close to big-box pricing.

One advantage we did have was that our collective expertise was in IT and we were able to realize efficiencies by streamlining many manual processes in the business. We built an IT system that would scale and grow with our business; it was far more sophisticated than would be expected of a company our size. That was the easy part. The hard part was figuring out how to scale the operation to match the sophistication of our technology.

When we first came on board, the distribution model for the meals was based on parents from our schools working for us part-time. They would pick up the lunches from our central kitchen and deliver them to the schools in thermal bags. As we added more schools, we realized there were a whole host of issues around scaling with this delivery model—not least, finding replacement drivers to accommodate the field trip schedules of our employees and finding a place to park all of those SUVs. Developing a model to distribute our meals in customized, heated transport ovens and utilizing truck distribution was costly. As sophisticated as our systems are, we haven’t yet found a way to automate our trucks to drive themselves.

Our business plan also had major flaws in our growth projections. While we were lucky to have some level of historical financials from the years my parents ran their program, we were too inexperienced as entrepreneurs to understand that profitability does not scale linearly. We knew that we would have to take on additional overhead as we grew, but we vastly underestimated just how much the timing of the overhead would impact profitability at different stages of the business. It turns out that the profitability of an independent operator is actually quite good if the individual keeps busy, as the business rests almost solely on his or her shoulders. But eventually, it’s not just you in your business. It’s you managing people. And then you are managing people who manage people. And then you are directing people who manage people who manage people.

At each stage of the game, you are most profitable the moment before your volume pushes you into needing the next rung of management—at which time your profitability dips yet again. The key is deciding how large you really want your business to become, and how to maximize all of your resources at that stage without overburdening them. We haven’t targeted a revenue figure for our optimal size yet, but we envision this being the point at which we all can focus on the job functions we love most, day in and day out. I would strategize on new ways to engage kids in their relationship with food, Keith would assess new markets for our services and roll our program out, and Ryan would spend his days focusing on building IT systems that better support our customers and the company’s daily work. We would leave the rest to everyone else. Until that day comes, what keeps us going is the fact that we all love our jobs, we’re used to wearing many hats, and we have a fairly high threshold for pain.

As I think back on our story, I almost wonder how in the heck we survived with so little experience in the industry and with a business plan that, quite frankly, was fundamentally flawed in so many ways. A smarter person than I might have foreseen all of these shortcomings on paper and pulled the plug on the idea before it even got off the ground. And that would have been a tragic mistake. Don’t misunderstand me on this point—business plans have value in helping you work through your ideas in the concept stage and keeping you on track toward your goals once you’re up and going. But while a business plan may win you a competition, it’s not going to run your business for you, and it certainly won’t be the final determining factor in your success. That, ladies and gentlemen, is up to you.

—Edited by Stacy Perman

[via: BusinessWeek]

Rick Metcalf grew up skiing Mount Waterman, an 8,000-foot-high mountain about 45 miles northeast of Los Angeles. Opened in 1942, Mount Waterman eventually ran into trouble and closed in 2002. When Metcalf, a San Diego mortgage broker, learned the resort was up for grabs, he purchased it in 2006, then spent $1 million on renovations over the next 18 months to repair and upgrade the mountain’s three chairlifts and its lodge. Waterman reopened in February 2008, but now, after two seasons, Metcalf has decided the mountain needs an owner willing to make additional improvements.

Last year, the first full season under Metcalf’s control, the mountain operated only on weekends, a total of 23 days, attracting an average of 125 customers per day and pulling in about $143,000 in ticket sales and concessions. This summer, the chairlifts also opened for hikers and mountain bikers. Day passes cost $10 for hikers and $25 for bikers.

With a vertical drop of more than 1,000 feet, the mountain has 27 trails with terrain ranging from beginner to expert. The mountain has three double chairlifts and a 2,200-square-foot lodge that includes a snack-bar-style restaurant with a bar and fireplace. A ski rental shop is housed in an adjoining building. Metcalf has mixed emotions about selling. “It’s not a real difficult business model to operate,” he says. “But it’s definitely not a get-rich kind of thing.”

PRICE RATIONALE: The price is based on improvements plus potential for growth. Ski facilities historically sell for six to 10 times EBITDA (earnings before interest, taxes, depreciation, and amortization), says Michael Berry, president of the National Ski Areas Association. That makes Mount Waterman’s price, at 18 times operating profit, seem high.

THE PROS: Mount Waterman is about an hour’s drive from Los Angeles County and its 10 million people. Stepped-up marketing could attract many more skiers. The mountain can handle 1,500 skiers a day.

THE CONS: It would cost several million dollars to install snowmaking equipment, considered a must in today’s industry. The ski resort has yet to prove its potential, says Steve Rice, managing director at CNL, a real estate investment trust based in Orlando that owns 14 ski resorts.

THE BOTTOM LINE: Mount Waterman is a turnkey ski mountain at an affordable price. To tap its full potential, though, a new owner should be prepared to invest in snowmaking and marketing.

Inc. has no stake in the sale of the business featured. The magazine does not certify the accuracy of financial or other information provided by the seller. Inquiries should be directed to Robert Rodriguez at robertr@theveldgroup.com or 310-652-8353.

A 1.7 oz bottle will cost $50.50 while the set with after shave cost $68.50. Any one got a chance to smell it yet?