Porter’s Points: Boring!

Friday 3 April 2009 @ 2:43 pm

Beyond sole proprietorships, entrepreneurs can also choose to operate their businesses as general partnership, limited liability partnerships, limited liability companies, or corporations.

It is common for a person to start her or his business as a sole proprietor and at some achieved objective transition it into another business vehicle. Some of those other vehicles are described below.

General Partnership

Definition
This structure has a lot in common with a sole proprietorship, except that it allows for more than one person to share profits and liabilities. General partnerships accommodate individuals, corporations, trusts, other partnerships, or any combination of the above to unite.

Advantages
General partnerships are easy to establish, and to exploit (in a positive way) the skills, knowledge, and talents of all the partners. Additionally, profits are not directly taxed.

Disadvantages
Unlimited personal liability exists for all partners for all of the partnership’s debts and liabilities, not just for that partner’s “share.” As with a sole proprietorship, a general partnership terminates upon the death of a partner, so make sure you think this one through and do some advanced planning! Additionally, any partner can commit the firm to obligations. General partnerships do not protect participating partners against personal liability with regard to claims against the partnership.

Don’t make the mistake of failing to enter into a written agreement as you put in place this business vehicle. Ensure that all parties understand the terms and conditions and that all parties execute the agreement. Do not rely on an informal verbal agreement. Witnessed signatures are highly advisable in a general partnership.

Limited Liability Partnership (LLP)

Definition
LLPs are legal entities formed with your State’s secretary of state. These arrangements provide liability protection for all partners. In addition, all partners get management rights in the partnership. This entity is popular among professional practices and offers, for the most part, the same limited liability as does a corporation.

Just like a partnership, an LLP acts as a flow-through entity for federal and state tax purposes. Note that this entity type is different from a Limited Partnership (LP) which has one or more general partners who bear the operational and financial risks of the company and one or more limited partners who do not have operational or financial risks.

Advantages
Limited partners are liable only for the amount of their capital invested. In turn, each partner’s respective share of the partnership income and losses is reported on the partners’ personal income tax returns.

A required element of any partnership is the agreement itself. This agreement governs the operations of the business. Ensure the terms and conditions of this agreement are understood by all parties. We are huge advocates of clear and honest communication between partners, and the signed agreement is a cardinal element in keeping with this philosophy.

A nice advantage of the LLP is that there is not a requirement to include a termination date for the partnership in the agreement in some states. Also, LLPs are an independent legal entity and as such may own property, sue, or be sued.

Disadvantages
Because an LLP is an independent legal entity, its formation requires a bit more paperwork (legal documentation) than do general partnerships.

Note that in some states, if one of the partners in this type of entity leaves for whatever reason, the LLP automatically dissolves.

Limited Liability Company (LLC)

Definition
LLCs are a cross between partnerships and corporations. They unite the limited liability advantages of corporations with the tax status of a sole proprietor or partnership. (As a note, LLC owners are referred to as members.)

Advantages
Like partnership entities, LLCs are guided by an “operating agreement.” If such an agreement does not exist, the LLC is governed by the applicable State Limited Liability Company Act. LLCs may be formed by one or more owners or members but may own property, sue, and be sued in the LLC’s name.

LLC managers are elected by the members of the LLC and may be individuals or other entities. Managers do not have to be members of the LLC.

In some states, if the LLC’s Articles of Organization do not specify otherwise, the LLC are perpetual—similar to corporations.

Disadvantages
While not a big deal here, legal documentation figures in more prominently in an LLC than in a proprietorship or partnership, given that LLCs are legal entities. But like those business models, taxes flow directly to the individual members’ tax returns. This can be either an advantage or disadvantage. Note that the IRS does allow LLCs to elect to be taxed as corporations, but a discussion of the impact of that election is beyond the scope of this chapter.

Corporation

Definition
These are state-chartered organizations and are considered and act as separate legal entities. Corporations are the most structured of the business entities.

The corporate charter—a sort of operating agreement for the corporation—specifies business activities, and the business of a corporation must be in keeping with that specification.

Corporations may elect for tax purposes to file as a C-Corporation or an S-Corporation. The differences are defined by the tax filing status as determined by the chapters in the Internal Revenue Service Code.

C-corporations:
These pay federal and state income taxes on earnings.
Earnings are distributed to the shareholders as dividends, and earnings are thus taxed again. This double taxation is a huge drawback to this type of entity.

S-corporations:
These entities have the same legal attributes as C-corporations; however, S-corporations do not pay income taxes on earnings. Rather, the shareholders pay income tax on dividends, using their personal income tax return.

Advantages
Corporations continue to exist unaffected by the death or transfer of shares by any of the owners; also, owners’ liability is limited to the amount they have paid into their share of stock.

The Certificate of Incorporation may specify the corporation’s continuity; otherwise, they exist in perpetuity. As a separate legal entity, corporations may own property, sue, and be sued in the corporation’s name.

Disadvantages
These entities are closely regulated, including the double taxation for the C-Corporation.

In order for a corporation to maintain the liability protection, certain formalities must be followed to avoid “having the corporate veil pierced.” These formalities include holding annual shareholder and director meetings and having minutes of those meetings.

Porters Points—Boring!

• Carefully review your rules, your gas, your market analysis, and every other step you have taken so far. Where does you idea stand in relation to these legal frameworks? Decide and get to work. But to be sure—
• Talk to your attorney. If you don’t have one, get one.
• Talk to your accountant. If you don’t have one, get one.

That does it for Chapter 6: Boring! I told you I would be brief and to the point in this section of the book!

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The Currency of Toil

Thursday 13 November 2008 @ 2:11 pm
Ed Viesturs

In preparation for submitting the book (Bootstrapped: A No Bull Solution For Business Success) to our publisher, I have been calling all of the individuals I have quoted or told stories about. Today I was able to have a great discussion with Ed Viesturs. One of the chapters in the book is titled Climb High Sleep Low. In this chapter I contrast parallels between mountain climbing and what it takes to succeed in starting a business. (See excerpt from the actual chapter of what I said about Ed in this chapter.)

As we were comparing notes, Ed made a statement relating to mountain climbing that I had to write down and share. He used the term The Currency of Toil. If that does not describe the GRIT or tenacity to succeed in a start up business I do not know what does. I love that phrase Currency of Toil.

….

Ed Viesturs, one of my personal heroes, was the first American to climb all 14 of the world’s 8,000-meter summits. He accomplished this remarkable success without the use of supplemental oxygen. Only those who have confronted high altitudes understand the super-human ability required to accomplish this task.

I identify with Ed for two primary reasons:

1) His work ethic and attitude on the mountain.

Countless times he sacrificed his own summit bid in order to rescue others. How Ed climbs the mountain is as important to him as climbing it. Ed was a member of the IMAX team and one of the major heroes in the rescue attempt that occurred in the infamous 1996 Everest disaster.

2) His climbing philosophy.

When Ed is acclimatized and the conditions are right, he goes for it. When the conditions are not right or he considers the venture an unacceptable risk, he has the courage to back off and go back to the tent. Sometimes this frustrates others around him, but he does not let peer pressure push him to climb a mountain when it does not feel right.

In an article about his third attempt to summit Annapurna, Veisters said:

Veikka and I will approach this attempt the same way we have all our other climbs. I’m quite prepared to just turn around and come home if conditions are as dicey as they were on previous attempts. I admit to being pretty motivated to reach my goal of climbing all 14 peaks, but I’m not going to take unreasonable risks to do so. No mountain, no summit, is worth dying for. I do this for fun, not because I have to. I do this for me, and I do it my way.

Now, you have to keep in mind that Ed had already attempted this climb twice, and backed off both times. This was the last 8,000-meter peak he had left to conquer before attaining his goal of summiting all 14 peaks. Annapurna is arguably the most dangerous and most difficult of all of the 8,000 meter peaks, with the possible exception of K2. He had already tried and backed off twice. Ed’s team chose a route that required them to be above 26,000 feet, the death zone, for an extended period of time. However, taking this route allowed them to avoid the huge avalanche-prone faces of the foreboding mountain. Well into their summit bid they came to a corniced face that “just did not feel right.” Ed and Veikka chose to go back down the mountain, but two other climbing partners decided to press forward. In an amazing climb these two reached the summit successfully. Some people watching called Ed and Veikka weak-kneed, and they received an enormous amount of criticism. However, they did not waver and offered no regrets. They had the courage and fortitude to “go to the tent” despite peer pressure, despite it being the final summit, and despite the world watching.

Ed said: “For me and the people I care about, my style of climbing is the right style. Getting to the top is optional, but getting back down is mandatory.” In mountain climbing, it is not enough just to get to the top of the mountain. The goal must be to get to the top and return home safely. In business you must plan for the difficult times. As you reap the rewards of your hard work, build a financial buffer for your future.

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11 Year Old Managing Engineers In India

Saturday 17 November 2007 @ 10:15 am
2TieaTie.com

The beginning of this past summer I committed to myself to begin teaching my three oldest sons fundamental business principles. I decided the best way to do this would to actually build a businesses together. Each Saturday and Sunday afternoon my three sons and I would go down in my office and have a “board meeting”.

The first few meetings began as a brainstorm where we would discuss potential businesses. Nothing was off the table. We had some real interesting ideas pop up (particularly from my 11 year old Nathan). After several weeks we narrowed down the business options and informally discussed the pro’s and con’s using the Porter Model. What did we settle on? A website focusing on How To Tie a Tie. Why you ask? Well in our research we discovered that the 4th most searched “How To” phrase on the internet is How to tie a tie. There are over 2,000 searched a day on this term. Once decided we were off and running to the races. It has been a rather slow moving project, but one that has simply been life changing for my boys.

How To Tie A Tie Diagram

I am thrilled today to announce that last week we formally launched our website www.2tieatie.com. So why was this so important to me? The primary reason I wanted to do this with my sons was to give them a feel early in their life of what it took to create a business. I also wanted them to live the process not just talk about it. I also wanted them to take some ownership in saving and preparing for college in a manner different than just getting a job. Not that I don’t want them to also have a job and work hard, I do. But I want them in the mindset of creating assets rather than working a job. There has been one huge side benefit from this project that I had not pre-mediated. It has been the process of exposing my sons to the global economy. As we were discussing the project last night it was pointed out that:

    The project plan and specification had been put together by us in Utah.

    The initial site design was done in Ahmedabad India. With over 10 back and forth iterations of the design.

    The witting of the step by step instructions done initially by a writer in Eastern Europe (and failed).

    We then engaged a professional witter in the USA that I had previously worked with

    The picture diagrams were done by a talented diagrammer in in Pakistan

    The Assembly of the Pictures and Steps were then returned to India for build out and engineering

    The Quality assurance and debug of the site done by my sons back in Utah

    The online store is being done using Amazon.com which is located in New York

    The Video diagrams is being outsourced to my oldest sons 17 year old friends Scott and Wyatt

    The ties that we will eventually sell on the website will come from Thailand and Korea

    We engaged several link building efforts with two different firms, one in Southern India and the other in Romania

    We also did a press announcement which was distributed out of Washington State

Wow, that is quite the world tour for a eleven year old. The reality is, we live in a global economy and the only way our children will thrive is to learn to dance in this world. I am so proud of how my sons have interacted and embraced this experience. All said, I think the experience interacting and coordinating the efforts all around the world proved to be of more value than the business experience.

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Dogs And Logs

Saturday 29 September 2007 @ 2:54 pm

Well, the Dog Sign Saga continues in our neighborhood. What high brow entertainment this is becoming.

A few weeks ago, I blogged about several “Dog signs” that have been posted in our neighborhood. One neighbor posted 2 professionally built signs in his yard that stated:

“Keep Dog’s Off The Grass”
“This Yard is NOT a Toilet For Your Dogs”
“Keep Dog’s Off The Grass”

A sign was promptly posted across the street responding:

Dog’s Can’t Read!

Well I thought we had seen the end of it, but no, one for our dog loving neighbors who is not only eccentric but also simply a character has now posted a professionally designed sign reading

“Welcome All Dogs ……. Please Pick up Your Logs”

Dogs and Logs Sign

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Battle Of Bands – All Wet

Saturday 29 September 2007 @ 2:48 pm

My oldest son John Christiansen is a 16 year old Junior in High School. Each day I observe as he gets himself up at 5:30 am and heads down to the high school, trumpet in tow and practices with the marching band. I have simply been amazed at his level of commitment and how seriously he has taken this extra circular activity.

Today they held the Battle of the Bands at Payson High. One major problem was it was freezing cold and raining freezing bullets. My family and I huddled in our coats, ran into the bleachers covered with blankets and watched in amazement as these kids held in formation, soaking as they prepared the field. Each band had prepared 3 numbers and nothing was going to deny them from completing these numbers. Amazingly the band really sounded good, but I knew that it could not be pleasant as the flag twirlers slipped and slided and their flags drooped around the pole due to being saturated with water.

I could not help but feel a very strong sense of pride in my son as he stepped forward, held his trumpet high and bellowed out a solo he had been assigned. I knew how cold his fingers had to be but he lifted his horn acting as if the sun was shining and blew like the entire city had come to hear him play. I must admit I had a few tears come to my eyes knowing the sacrifices he had made and his willingness to do the hard things.

Often times in life and business we do get rained on. It makes it difficult to stand up and deliver. We have several choices. 1. Quit or 2. Stand up and deliver under the circumstances.

Very seldom is it about the song. It is more about the character with how you deliver …. Win or lose

I choose to follow the example of my son … once committed stand-up and blow like the sun is shinning. .

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Wobbly Keys and Breaking Your Business

Sunday 16 September 2007 @ 9:30 pm

This past week I have been helping my daughter prepare for a trip back to her home in Nepal. As part of this trip we plan on sending back a laptop to her younger brothers for use in their school.

I love a deal and could not resist the 1/2 price special on a HP laptop I found in a store near my office. The only problem is the laptop had one missing key. The ; key.

No problem, being a “perfectly good engineer that went bad” I figure I can fix that key and score a new laptop at cut rate prices. I called HP and found the part number and prepared to order the key. Luck would have it that I happen to own a brand new very similar HP laptop that I purchased for myself. My great engineering mind at work determined that if I popped the key off on my laptop I would then be able to place my key on the new laptop in time to send it with my daughter. Plop…. off went the key. I carefully examined it and placed it back on. It went on OK, but it had a horrific side to side wobble and was not firm and taunt like the other keys. I decided to try again. I watched closely and I said to myself as I put my nose right down to the keys and plop off went the 2nd key. Regretfully despite two hours of painstaking reassembly effort I now had two wobbly keys. My logic kicked in and I thought, “well it is under warranty and I will call and confess to HP the evils of engineering and they will send me a RA tag for my new laptop”. I then had one last brilliant idea. “Hey the wobble is just not that bad and the ; key is just not used that much. I will buy that cut rate laptop and send it around the world.” Pop off went the key and I raced to the store to purchase my new gift for my Nepalese friends. When I arrived at the store there was no laptop with a missing key. As I inquired about the laptop, the sales clerk stated “the strangest thing, it sat here for two months, and this morning a guy walked in and purchased it. ……..

Lesson learned, when it is fully functioning and you are guessing at what you are doing, don’t pop new parts off your laptop or your business. Both have a tendency to be very temperamental.

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Dog’s Can’t Read

Sunday 16 September 2007 @ 7:57 pm

This past week there has been quite the stir in our neighborhood. Through the block we have some neighbors that have a beautiful yard. This yard is meticulously groomed and each fall planters full of Canna lily flowers make a magnificent showing. This yard truly is amazing and there is with out question significant effort that takes place to keep this yard a show piece. this being said, my gardening neighbors really lost sign of reality.

I do not know the specific dog(s) that promoted the infamous “Signs” to be posted, but this past week 3 professionally created signs appeared in the front of their yard. The signs read:

Yard Is Not A Toilet

“KEEP DOG(S) OFF GRASS”

“THIS YARD IS NOT A TOILET FOR YOUR DOG(S)”

“KEEP DOG(S) OFF GRASS”

The following day in the neighbors yard directly across the street a poster board sign with lettering in magic marker placed in the gourd with a shovel appeared. Keep in mind that this neighbor does not own a dog. The sign reads:

“DOG’S CAN’T READ”

Dog's Can't Read

There are so many management metaphors associated with this little story I don’t even know where begin so in spirit of allowing you to simply have a really good belly laugh like I did, we will simply leave it with this. Next time you feel inclined to do something really absurd in your business, remember

“DOG’S CANT READ!

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A Full Red Moon

Sunday 2 September 2007 @ 7:19 pm
Full Red Moon

On the 28th of August a full lunar eclipse of the moon occurred. A lunar eclipse occurs whenever the moon passes through some part of the earth’s shadow. This can happen when the Sun, Moon, and Earth are closely aligned with the Earth in the middle. This particular eclipse only occurs once in seven years and was supposed to be highly visible in the Western United States.

I have several sons who are quite excited about astronomy and were interested in seeing this eclipse. Against my better judgment, I found myself waking all of my older sons up at 4:00 AM on a school night to experience a “Red Moon”. The moon did indeed turn red as well as my eyes the entire next day. My third son who was the strongest advocate of wanting to awake was moody the entire next day. But we survived the experience and in hind site I am thrilled we made the effort to awake and experience this rare occurrence.

The next day at the office, I told this story to several of our team members. I drew the parallel that in entrepreneurship there are also lunar eclipses that are rare and if you plan on seeing them and benefiting from them, you have to be willing to make extreme sacrifices. This often involves waking up at 4 o’clock in the morning more than once. I call these business opportunities “waves”. When you experience one, it is hard to forget. That is what makes entrepreneurship exciting and fun. And you know what? Very few individuals are willing to make the sacrifice to “get up at 4:00 AM” and go for the ride.

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Parable of The Peach Tree

Sunday 2 September 2007 @ 6:45 pm
Parable of The Peach

This weekend my wife and I had to make a quick day trip to a meeting which was several hours away. Before leaving I gathered my sons and gave them a series of chores to complete for the day. These included mowing and trimming the lawn, weeding part of the garden, hauling off some branches and most importantly picking the ripe peaches from our overflowing peach tree. I gave the kids very specific instructions to throw away all bad peaches that had fallen on the grounds as a first step. The second step was to then gather all the peaches from the ground that had fallen but still had good flesh. Then the final step was to pick the lush ripe remaining peaches placing them carefully in a cooler I had prepared. With these instructions given, off we raced to our meeting.

In my mind there is nothing better for breakfast than a fresh peach hand picked and drowned in milk and sugar. I salivated on this image the entire trip down and back.

Upon returning the first thing I did was go and inspect the peach picking job. I was delighted to see neat well organized boxes and coolers and a tree well picked. I congratulated my sons and went to pick a few of the nice ripe grade A picked peaches. I was shocked that they all were smashed on one side or another. Every one of them was bruised. Confused, I thought I had the wrong box but upon inspection discovered that all the peaches were less than desirable.

A bit chagrin I went to my oldest son John and asked what had happened. He then explained to me that they had indeed thrown the bad peaches away, gathered the usable peaches, and began to pick the tree. They realized how time consuming this picking project was going to be and were eager to get back to their friends, so he came up with the brilliant idea to shake the tree really hard, then simply go gather up the newly fallen fruit.

My first reaction was horror, but I could not help but laugh as I thought about it.

So it is in our businesses efforts. There has been more than one time that I have outlined a plan to my team but failed to communicate the desired end result and the necessity for thinking regarding the business processes outlined. It is easy enough to outline the tasks at hand for our teams, it is quite enough to get them bought into that end vision or desired result.

Upon reflection, maybe I should have prepared a fresh bowl of nice peaches for each of my sons and discussed the project over breakfast as they experience in a very personal manner what we were striving for.

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4th of July Wild Flower Parade

Friday 6 July 2007 @ 6:58 am
Wild Flower On Loafer

In life, the only thing more miserable for me than watching a parade is going to Disneyland. As a result on the 4th of July, my wife and two of my sons set out at 5 AM and climbed a local mountain called Mt. Loafer. Loafer is a relatively small mountain at 10,685 feet, but it is absolutely beautiful hike meandering through meadows of countless wild flowers mixed with pine trees.

We all grumbled about such an early start, but we knew that we did not want to be in the heat of the day with the sun beating us to death as we were still grabbing altitude.

As we made our way through the first several miles of the forest my sons came nose to nose with a small bear. The encounter caused both bear and boys to run the opposite direction. Soon after the “bear incident” we made our way up the steep switchbacks to the top of the first ridge line where we had a beautiful view of both sides of the valley. As the early morning light hit the peaks and as we strode through the flower covered meadows my son commented. This is my kind of parade a wild flower parade.

Cirque Final Ridge Loafer

Why do I like to climb mountains? If is the same reason I am attracted to starting businesses. There is no lying to yourself. You can’t fake the market (at least not long term) and you have to put real deliberate often painful effort into reach your goals. There is no buffer and the pains and joys in both ventures are compounded.

As we got to the top of the mountain we looked down on the valley below knowing a parade was now in session and we all commented.

The people down there just don’t know what they have missed. While they were sleeping and sitting in lawn chairs, we were smelling wild flowers.

Dead Tree Mountain

The pain, sacrifice, determination, and will to get to the peak is what makes it enjoyable. Anything worth having in life is difficult. Whether a building a business, or grinding up a mountain peak one step at a time, it is the challenge and having to face what you have inside yourself that keeps us coming back for more.

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Rich Christiansen