Real-Life Lessons in Using Google AdWords (NYT)

Real-Life Lessons in Using Google AdWords

By DARREN DAHL

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Quick Tips:

• Set a budget, a daily or monthly amount you’re willing to spend.

• Begin by casting a narrow net, advertising in your local market and then expanding to additional markets like Google’s AdSense network.

• Try to choose keyword terms that your competition has overlooked to keep per-word costs low.

• Remember that good campaigns require constant adjustment.

Suggested Readings and Resources:

• Google’s step-by-step guide to getting started.

• Google’s blog about AdWords.

• AdWords for Dummies

It used to be that business owners often struggled to afford advertising for their products or services. Google AdWords has changed that by offering an inexpensive way to spread the word. But if you don’t do some careful planning, you can easily find yourself spending thousands of dollars with little to show for it.

Here are the basics: Google AdWords are keyword-driven ads that show up along the right-hand side of a Google search page under the rubric “sponsored links.” People who search for terms related to those you select — say, “widgets for sale” — will see your ad alongside the results of their search. How high up your ad appears on the list of sponsored links will depend, in part, on how much you’re willing to spend on your campaign. The more you spend and the more relevant your ad, the higher it will rank. Because AdWords is a pay-per-click service, you pay Google only when someone clicks on your ad.

When you begin your campaign, you create a text-only ad that includes a link to your Web site. Then you select the keywords that will determine which searchers see your ad. You can — and should — specify how much you want to spend, what language(s) your ad will appear in and even the geographical reach of your ad. Google also gives you the opportunity to post ads through its content network, AdSense, which will place your ad on Web sites that offer content that relates to your keywords.

Googling the term AdWords will return dozens of pages of links to experts of all kinds promising to help you construct and optimize an AdWords campaign of your own. What follows are lessons learned the hard way by business owners who’ve actually taken the plunge:

Be Sure AdWords Is the Right Choice

Brent Hollowell and Jesse Travis, co-founders of a travel accessory retailer in Baltimore called Zen Class, had high hopes when they began using AdWords to promote their Nirvana Seat Back Organizer, which slips over an airplane’s seatback tray. While they knew they might get clicks if they paid for words like “travel accessories,” they feared the cost of close to $1.50 a click would be prohibitive because not every visitor would be looking for their product. They decided to be more specific and set up an AdWords campaign using the keywords “airline seat back organizer,” which cost about 5 cents a click; anyone who searched on that phrase would see their ad along the right-hand side of their screen. The problem was that the campaign, after running for several weeks, produced very few clicks on their site. They realized that most people were unaware that seatback organizers existed and thus were unlikely to search for one.

“Given the challenge of having a product that hasn’t existed before, AdWords may not be the best tool for generating interest and sales,” Mr. Hollowell said. He and Mr. Travis have found they get better results advertising through more traditional product-placement ads and using search engine optimization (S.E.O.) techniques to improve their site’s performance on organic Google searches.

Set a Realistic Budget

About a year ago, Georgette Blau, who runs On Location Tours in New York City, set up an AdWords campaign to promote tours that were timed for the release of the “Sex in the City” movie. In doing so, she says she made a mistake: She ran the ad on the Google AdSense network but failed to understand how quickly she could run through the money she had budgeted for her campaign. An ad placed on the Google network can quickly appear on hundreds of Web sites and generate thousands of clicks. While this can be a good thing, it can also run up quite a tab. “Our ads were showing up everywhere, and we spent $600 before I could shut it off,” she said. Ms. Blau now sets realistic monthly and daily budgets for her campaigns to promote a “Sopranos” or “Gossip Girl” tour.

Focus on Local Markets

When Apple first introduced the iPhone, Matt McCormick, who runs a phone-repair business called Jet City Devices, saw an opportunity. Knowing that the iPhone’s screen was prone to damage, Mr. McCormick began bidding on keywords like “iphone repairs” and waited for business to flood in. A problem soon became apparent: while his site was swamped with traffic, very few people were actually mailing in their phones to get them repaired. But, after changing his campaign to run only on searches initiated within 50 miles of Chicago and Seattle — cities where he had physical shops where customers could drop their phones off in person — Mr. McCormick says his conversion rate jumped to 10 percent: “If you’re in business in only one or two cities, then Google’s localization feature can save you a ton of money, reduce AdWords competition, and bring great traffic.”

Narrow Your Keyword Net

Just as you might use quotation marks to limit the scope of a Google search, you can use brackets and quotes to focus your AdWords campaign. In fact, this is critical. If, for example, you select “widgets for sale” in quotes, your ad will show up anytime people search for those words — even if they search for, say, “blue or red widgets for sale.” If you use brackets to select [widgets for sale], on the other hand, only those people who search on the exact phrase will see the ad.

Catherine Wood, who runs an online designer clothing site called LaGrandeDame.com, suggests being selective about the keywords you place within those brackets or quotes. Ms. Wood said she followed Google’s guidelines when she set up her first campaigns this past April. “They tell you to try to choose the terms that will collect the most clicks,” she said. Ms. Wood began with 20 or so keywords such as “plus sized dresses” and “designer plus sized clothing” — somewhat general terms that she put in quotes. The result was that she received lots of traffic and quite a few customers. But, for the first four months she ran the campaign, she spent more than $5,000 a month, which meant she was spending more than $200 a new customer.

After learning her expensive lesson, Ms. Wood narrowed her keywords and used brackets to focus tightly on product names like [David Meister black dress] and [Anna Scholz Peacock Neru jacket] to drive very specific traffic to her site. She also learned the value of negative keywords — words you can specify (at no cost) so that people who search for them are blocked from seeing your ad. Ms. Wood, for example, stopped paying for clicks for anyone who searched for Halloween costumes.

Create Landing Pages

Ed Scanlan credits AdWords with helping build his company, Total Attorneys, a firm based in Chicago that provides outsource support to small legal practices. He suggests creating specific landing pages tied directly to the ad you’re running to maximize your chances of turning visitors into customers. Sending a visitor to your all-purpose home page can leave them feeling lost or aggravated. By contrast, if Mr. Scanlan runs a campaign based on a term like “legal case support,” people who click on the ad attached to those words land on a specific page designed just for them. These pages should ask users to take an action, like signing up for a mailing list or filling out a survey, to capture the visitor’s contact information.

Stay on Top of Your Campaign ...

David Metcalfe has used AdWords to promote XNet, a data center in Chicago. About a year ago, he noticed something strange was happening — his click-through rates were going through the roof. That sounds promising, but he was getting traffic steered to his site from a Web site in Spain — even though he had set his campaign for the Chicago area only. Mr. Metcalfe eventually got his money back from Google, but it took him six months of daily contact to do so. While this was clearly a fluke — and possibly criminal on the part of the offending site — it demonstrates two things: Pay-per-click campaigns carry risks, and the burden of monitoring them falls upon the owner of the campaign. “When you’re an entrepreneur dealing with a major corporation like Google, it can be hard to get someone to have a conversation with you,” Mr. Metcalfe said. “I was grateful I caught it when I did.”

... or Consider Outsourcing It

Monitoring an AdWords campaign requires a lot of effort. That’s why some entrepreneurs, like Rick Smith, prefer to outsource the management of their campaigns. Mr. Smith, who sells kitchen supplies online at chefsresource.com, says he originally set his AdWords campaign on autopilot. But he realized that while he was spending a good chunk of money each month, he didn’t know what kind of a return on investment he was getting. After attending an S.E.O. trade show near his home in Laguna Hills, Calif., about two years ago, Mr. Smith hired a firm to run his campaigns for him. The firm now tries new keyword combinations or ad text based on Smith’s latest inventory of cookware or knives. They update or change the ads on pretty much a weekly basis, adding in seasonal or holiday hooks when appropriate, and they monitor the results. In return for a percentage of his monthly budget, the firm sends him a weekly spreadsheet showing how much he has spent and how much revenue has been generated. “I’m spending less than I did when I did it myself,” said Mr. Smith, “and I’m getting more sales as a result.”

This article has been revised to reflect the following correction:

Correction: October 16, 2009
An earlier version of this article referred incompletely to the basis for ad placement through Google AdWords. The relevance of an ad is a factor, not just the amount spent on a campaign. In addition, the article misstated the circumstances in which one AdWords client, Georgette Blau, said she had erred in her advertising planning. She ran through the money she budgeted for a campaign more quickly than expected; she did not fail to set a budget.

Obama Announces Small-Business Lending Push (NYT)

Obama Announces Small-Business Lending Push

By ROBB MANDELBAUM

After enduring months of criticism that his administration had done too little to help small businesses weather the recession, President Obama said Wednesday that “there’s still too little credit flowing to our small businesses” and unveiled initiatives he said would open the spigot.

The measures, announced by Mr. Obama at a small records storage company in Maryland, would allow smaller community banks to borrow at low rates from the Treasury Department’s Troubled Asset Relief Program. It would also raise the loan caps on several popular Small Business Administration programs.

Under the administration plan, banks with less than $1 billion in assets could borrow from the program at a lower interest rate than financial institutions are required to pay.

In exchange, banks must demonstrate how they would increase lending to small businesses and follow up with quarterly reports. According to the White House, most business loans by the community banks that are eligible for the new rules are made to small businesses.

In addition, community groups that lend to small businesses in low-income areas under a Treasury Department program will be able to borrow relief money at just 2 percent annually for eight years. In the past, banks have been leery of the such loans because the program allows the government to buy warrants for the banks’ common stock and because it requires the institutions to limit executive compensation. But the small banks probably will not have to issue warrants in that program rules contain an exception for infusions of less than $100 million. The proposal as described Wednesday caps the infusions at $20 million.

The small institutions would be subject to the same compensation rules as any other relief recipient, said Gene Sperling, senior counselor to Treasury Secretary Timothy F. Geithner, in an interview. But, he added, “for these smaller community banks, the executive bonus restrictions will usually affect only their single most highly compensated employee.”

But some community bankers remain concerned. “I think that could be a damper on community bank involvement in this program, said Cam Fine, president and chief executive of the Independent Community Bankers of America, a trade association. “Those family-owned banks are not going to want to subject themselves to compensation restrictions imposed by TARP, because it is their own personal money that is the capital of the bank.”

Changing the S.B.A. loan limits will require approval from Congress. The administration’s plans, which would raise the limit on the most popular loan to $5 million from $2 million, are identical to provisions of a bill introduced by Senator Olympia J. Snowe of Maine. She is the ranking Republican on the Senate Small Business Committee and is seen as perhaps the only Republican who may vote for a Democratic-led health care bill.

In a statement, Ms. Snowe indicated she appreciated the gesture. “These actions will help satisfy the capital needs of small businesses looking to start or expand their operations,” she said.

Unlike the S.B.A. proposals, the bailout plan can take effect at the administration’s direction.

“Our goal is to conduct a wide spread consultation with the small business and small bank community for a few weeks, and get this operational as quickly as is practical,” Mr. Sperling said.

A Guide to Assessing Franchising Opportunities (NYT)

A Guide to Assessing Franchising Opportunities

By KERMIT PATTISON

Jim Denney faced a common choice: buy a franchise or start an independent company?

He was an experienced business owner in Scotia, N.Y., near Albany, who had spent a year investigating a promising franchising opportunity — a business that raised sunken concrete slabs by pumping cement slurry beneath them, a technique sometimes known as mudjacking.

The franchise brought many advantages: brand recognition, a 60-year history as a successful company, a proven business model and systems already in place for operations, training, equipment and safety — all of which would allow Mr. Denney to shorten the learning curve and grow faster.

But he and his partner had reason to be wary. They already owned another franchise business and had grown frustrated by the lack of support they received from their franchisor. How could they be sure their new franchisor would do better?

Buying a franchise demands caution — especially in the current economy. At best, franchising can ease the path to self-employment by allowing a franchisee to buy a packaged concept with a proven business model and brand recognition. At worst, it can turn the dream of business ownership into a nightmare and saddle franchisees with debt and exploitative relationships with their franchisors.

The credit crunch has made it more difficult for would-be franchisees to obtain financing. On the bright side, franchisees have more leverage in bargaining — but only if they follow proper due diligence and ask the right questions.

“In this current economic situation, be extra careful, because franchisors are even more hungry to sell franchises,” said Don Sniegowski, editor of Blue MauMau, a franchise news site. “Once they’ve got you in their sights, they’re under a lot of pressure to sell that franchise. It’s a buyer’s market, and if you’ve got money right now, you can pick and choose what you want. And you better be very choosy.”

Here are nine questions every would-be franchisee should ask:

Who Are You?

Buying a franchise requires considerable due diligence — more on that below — but before analyzing the business, aspiring franchisees should scrutinize themselves. Nick Bibby, a franchise consultant in Shreveport, La., said his first advice to clients comes from an ancient Greek aphorism: “Know thyself. Decide first if you’re made for entrepreneurship.”

Unfortunately, many people become enamored with the dream of business ownership and fail to ask simple questions that determine whether franchising is a good fit. “People don’t want their dreams shattered,” Mr. Bibby said. “People don’t want to know the truth.”

He compares this step to marriage counseling. By asking hard questions in advance, people can minimize the danger of being blinded by passion and entering a relationship doomed to failure.

What are your interests? Where can you leverage your existing skills? Are you the sort of person who likes to follow a system, or do you prefer to do things your own way? Do you want to manage people or work independently? Are you ready to pull 16-hour days, or do you need a part-time gig that allows you to keep your day job?

And of course: What kind of business is right for you? Franchise opportunities run the gamut, including retail, business-to-business services, in-home businesses, child care, education, home improvement, construction, real estate, wedding planning and fast food.

Should You Hire Experts?

Now hear this: You need help. Franchising is full of sad stories of people who sign agreements without fully understanding the implications. Often, these people lose their savings, homes and happiness. Even experienced businesspeople need to hire experts.

“A prudent businessman will start this process with a franchise dream team — a financial adviser you trust, a legal adviser you have confidence in and a business broker who’s working for you,” said Robert Purvin, chief executive of the American Association of Franchisees and Dealers. “You also need to start with a psychological adviser to identify what type of business makes sense for you.”

Mr. Sniegowski of Blue MauMau recommends that would-be franchisees hire experts in three areas: marketing, accounting and legal. Make sure you hire experts who specialize in franchising, not generalists. Many franchises, he adds, aim at people from outside the industry like recently laid-off corporate employees who might not know much about coffee or doughnuts or whatever the franchise sells.

“Don’t go to the neighborhood attorney, your brother-in-law attorney or your sister who’s an accountant,” said Mr. Sniegowski. “Go to someone who really understands franchising.”

A franchise broker may help steer you to a franchise that fits your needs. But be aware that brokers often receive commissions from franchise chains for signing up new franchisees and thus may have an incentive to steer you to certain companies.

What Is the Best Business Opportunity?

Even if you are buying a franchise, you need a business plan. Franchisors often provide information that can be inserted into your plan, but you should not rely on the franchisor to do your homework for you. You need to analyze your own market and consider enlisting professional help.

Does your business satisfy a need or a trend? How many potential customers live in your area? What is the competition? By the end of this process, you should have a business plan that is supported by hard data. This plan also is essential for obtaining financing.

Mr. Denney, the businessman in Scotia, spent six months investigating his market before satisfying himself that he had a viable business opportunity for his concrete-raising franchise. He looked at census data, information on the housing stock and talked to people throughout the industry. Mr. Denney is an investor who felt confident doing his own research; he suggests that people who lack such experience hire market research professionals.

“People spend more time evaluating whether they want a Wii or a PlayStation than buying a franchise,” Mr. Denney said. “It really is kind of scary.”

Who Is your Franchisor?

There are more than 3,000 franchises in the United States, and a vast majority are unknown to the average consumer. Mr. Bibby, the franchise consultant, puts it bluntly: “Most — I’ll say a minimum of 70 percent of all franchises — are not worth the powder it would take to blow them up.”

Investigate your potential franchisor thoroughly. This may be one of the most important business decisions you ever make, and you should treat it accordingly.

What is the business model? Is the product or service unique? Is the brand established? How is this franchise different from competitors? How will it provide lasting value? Is the business model based on royalties or does it rely on signing up more franchisees and collecting fees? Does it have hidden profit centers, like rents or annual meetings?

Does the franchisor provide support like marketing and training? Does the company have a history of litigation? How many franchisees are there and what is their failure rate? What is the background of top management? How long have they been in the business? What is their reputation, and have they had any personal bankruptcies or litigation?

“Not all franchises are created equal,” said Jim Coen, president of the Dunkin’ Donuts Independent Franchise Owners. “It’s incumbent on the franchisee to really drill down and figure out the potential to make money. Sometimes potential franchisees fall in love with the concept and find out too late the business model is not sustainable”

What Do Other Franchisees Say?

In addition to crunching numbers and enlisting professionals, you need to investigate with your eyes, ears and gut. Talk to other franchisees. Hang out in their businesses and observe. Get a job or volunteer in another franchise.

Treat these visits like an ethnographic study; you want to immerse yourself in the culture of the business. For example, you may discover that franchisees all work 16-hour days, seven days a week. If you can’t imagine yourself racking up such hours, that franchise probably is not a good fit.

Track down franchisees who have left the system and ask about their experiences. If you are fortunate enough to find a chain with a franchisee association — there are only a few hundred in the United States — make it a resource. Visit the company headquarters and meet with the people you will work with.

Use the Web. In a world of social networking, it’s not hard to find out what other people are saying about a franchise.

Can You Afford It?

By law, the franchisor should provide you with a disclosure document that specifies the initial investment. But take these estimates with a grain of salt: they may be averages, and may vary by region. Ask other franchisees how their costs compare to the franchisor’s estimates.

Reporting earnings is optional and only a fraction of franchisors do so. Again, you and your business advisors must do your own analysis.

Many first-time franchisees make the mistake of underestimating working capital requirements and buy a franchise at the upper range of their affordability. One old adage bears repeating: It will cost twice as much and take twice as long.

“It’s not uncommon at all for a store to open and still be struggling a year or two later,” said Peter Birkeland, a small-business consultant in Chicago and author of “Franchising Dreams” (University of Chicago Press, 2004). “You have to have a lot of working capital.”

The credit crunch makes financing harder to obtain. Lenders have become more wary, and home prices and investment accounts have sunk in value. Some franchise chains have come up with creative financing packages to help franchisees. Scrutinize these packages carefully with your financial advisers.

One other thought: You can sometimes buy an existing franchise for less than it would cost to open a new one. And banks are more likely to give you financing for a location that already has cash flow. Of course, an existing franchise that’s up for sale can be a nice opportunity — or a red flag.

What Are the Legal Terms?

Federal and state laws require franchisors to provide prospective franchisees with two crucial legal documents: the franchise agreement and the disclosure document, often known as the Uniform Franchise Offering Circular.

By law, you must receive the disclosure at least 14 days before signing any contract or making any payment to the franchisor. Take these documents to the lawyer — again, one who works for you and specializes in franchisees — and review them in detail.

Could You Do Better as an Independent?

Before you sign an agreement, stop to consider whether you’d be happier as an independent.

Franchising can offer many advantages, but the quality of support varies widely. Moreover, franchisees must follow procedures and pay fees and royalties. Will the franchise provide continuing value for the life of the franchise agreement? If not, consider starting an independent business.

In the 1990s, Timothy Bates, a professor at Wayne State University, studied a sample of more than 20,000 new businesses that started between 1984 and 1987; by 1991, 35 percent of franchise units had gone out of business compared with 28 percent of independents.

Can You Negotiate?

Mr. Birkeland, the small-business consultant, said that in the current economy, franchisees should be emboldened to negotiate on items like franchise fees, larger territories or deals on multiple units. “I would push hard for the bargain,” he said. “A franchisor may put on a stern face and say, ‘Take this deal or we’ll find someone else’ — I wouldn’t believe it before, and I definitely wouldn’t believe it now.”

Terms may be less negotiable with strong franchises, especially on items that might dilute the integrity of the brand and or create inequalities among franchisees. Some franchisors flatly refuse to budge from the standard template.

But it never hurts to ask. Mr. Denney suggests that aspiring franchisees ask their franchisor a simple question: Are you willing to negotiate the franchise agreement?

“If the answer is no, walk away,” he said. “No franchise agreement that I’ve ever seen is ever going to be acceptable on the first go-around. There has to be some back and forth. If it’s not negotiable, they’re going to own you.”

Mr. Denney and his partner eventually signed their agreement — but only after negotiating numerous changes and almost going independent. In the end, he believes it was a good deal for both sides, and in the first three months his franchise with Concrete Raising of America has generated substantially more business than he would have as an independent.

“Yes, franchising does offer some turn-key aspects, but there is still a huge amount of work that goes into it,” he said. “You’ve got to do that due diligence.”

How to Start a Business (NYT)

How to Start a Business

By TOM TAULLI

You’ve made the huge decision to start a business. As you probably know, most efforts to start a business end in failure. Fortunately, there are things you can do to guard against wasting time and money and improve your odds. While every business is unique and comes with its own set of problems and opportunities, there are some basic steps — writing a business plan, proving the concept, raising capital, choosing a legal structure — to consider when getting started. Let’s take a look:

The Business Plan

Writing a business plan seems like a chore, but it’s critical. It doesn’t have to be formal or long — just a few pages is fine. But try to cover the basic sections, especially if you expect to make a pitch to investors or lenders. These sections should include an overview of the business, industry background, the product or service, the business model (how will you make money?), the strategy and the team. For guidance, take a look at Score’s business plan template.

Think of the process as a way to better understand the opportunity and the risks. It may even show you that the business is too tough. If that’s the case, you want to know it as soon as possible.

Try to answer the following in the business plan:

1) Who is the customer?

Try to focus on a defined market segment. In some cases, it should be easy. Perhaps you are aiming at lawyers. But if your product applies to virtually anybody, you need to narrow things. Look at Amazon. At first, the Web company focused on books. Once it built a strong business there, it moved into other categories.

So, where to start? Try to find the customer segment that is experiencing the most pain or is willing to bet on new ideas.

2) What’s happening with your market?

Immerse yourself in the market. What are the major trends? How will they help or hurt your venture? Along with doing Google searches, you should also check out trade publications and association Web sites.

If your business is in retail, look at ZoomProspector, which provides helpful information on local economic trends (population, income and demographics). Visit Yelp.com and see how many competing retail outlets you’ll be facing. Is the market too crowded?

Finally, make a list of your competitors and update it regularly.

3) What are the start-up costs?

Be realistic. Entrepreneurs often underestimate the time and expense of starting and operating a company. Put together a detailed start-up budget as well as a forecast (Score’s template offers a worksheet).

As you put things together, look for ways to minimize costs. Some ideas: shopping for used equipment on Craigslist, bartering your services, using free or inexpensive online applications like Skype (for free calling), Web.com (to setup a Web site) and VistaPrint (for printing business cards and brochures). Always ask for discounts.

At the same time, think of creative ways to increase revenue. Maybe you can mount an online marketing campaign through Google Adwords or use VerticalResponse for an e-mail newsletter.

O.K., you’ve got a plan.

Prove the Concept

Once you’re satisfied with the business plan, the next step is to test it. This means answering the question: Do customers really want to buy what you intend to sell?

It’s a brutal question, but you need to be realistic.

One idea is to talk to potential customers, but avoid your friends; instead, identify a list of likely customers and call them. The good news is that there are many free lists on the Internet. They include sites like CPAdirectory.com, Lawyers.com, Dentists.com and so on.

While the calling is not glamorous, you’ll eventually get a sense of whether there’s demand. You will also get new ideas to refine your product, and you will build valuable sales skills, which is critical for anyone starting a business.

Next, you can conduct a survey using an online service like Zoomerang, which has a panel of about two million people. You can designate groups with up to 500 attributes (industry, age, gender, income and so on). This is a quick way to get feedback on your business idea.

Or, you can set up a free Web site and try selling your product. This was the approach for Sneaky’s BBQ, which set up a blog at sneakysbbq.blogspot.com. Believing that there were few good places for authentic barbecue in San Francisco, Patrick Wachter started to cook up his recipes in his backyard and put out free ads on Craigslist. It was a hit as word-of-mouth spread, helped along by review sites like Yelp. “We can’t even eat our own barbecue anymore,” Mr. Wachter said. “It’s already spoken for by the time we pull it off the smoker.”

Here’s another example: Megan Calhoun saw that it was difficult to use online services to find other mothers. Deciding she wanted to “be fast, be cheap and see where it takes you,” she registered TwitterMoms.com, and instead of building a Web site, she used the free service Ning.com, which allows you to build your own social network. On the first night, four mothers joined, and from there, it grew and grew. Now she has 15,000 members and has attracted advertisers like Lands’ End, Children’s Place and even José Cuervo. The total cost to launch? Only $50.

Raising Capital

This is time-consuming and can distract your attention from the business. It can easily take six months to get your first investment. Investors are naturally hesitant and want to see proof that the business is viable.

That means you will probably need to bootstrap. This is not easy but it does have the advantage of allowing you to keep more control and a larger equity stake.

You can do things like: borrow against your 401(k), life insurance and house; use credit cards; and even do consulting projects.

Next, you can reach out to your friends, family and colleagues. Even though they may trust you, it’s important that you have a convincing business plan and investor contracts. To this end, check out Virgin Money. This online service provides the necessary legal documents, administers the loan payments and makes reports to credit agencies (which will help build a credit history for the business).

It’s tempting to seek financing from banks, angel groups and venture capitalists, but those sources usually look at more established businesses.

Choosing a Legal Structure

If you are bringing on investors or partners or signing contracts, it’s a good idea to set up a legal structure for your venture. Here are the main alternatives:

Sole Proprietorship: You are the sole owner. There is little red tape or expense. But there is a big downside: unlimited liability. If the business is the target of a lawsuit or owes a large debt, the owner’s personal assets are exposed to seizure.

A sole proprietorship is known as a “pass through” entity. This means that the income is taxed on your personal return.

Partnership: There is more than one owner. And as with the sole proprietorship, there is little paperwork involved and it is a pass-through entity for tax purposes. Unfortunately, partnerships also have unlimited liability exposure.

Corporation: The fees can easily range from $200 to $1,000. Even though you can use cost-effective online services to help out, such as LegalZoom, it’s still a good idea to have a lawyer review the documents and filings. You can find a qualified attorney by visiting sites like Avvo.

The main benefit is limited liability protection. This means that the business owner risks only the investment in the company.

Keep in mind that there are different flavors of corporations, which are often based on how taxes are paid. For example, a limited liability company (L.L.C.) and S-Corp are pass-through entities. On the other hand, a C-Corp is taxed — and so are the dividends. Before making a decision, consult a certified public accountant. It can be a big money saver.

Regardless of the legal structure, business owners should also think about the legal issues of the company name. It’s a good idea to find a name that is memorable and distinctive, but that is no easy task. Anders Heie, the founder of KaDonk said: “When thinking of a name, I hit my head against the wall and the sound it made was kadonk, kadonk, kadonk. Our lawyers loved it. It was unique, and had nothing to do with our product, so we grabbed all the domains and went with it.”

A lawyer can help with the process.

On to Plan B: Starting a Business (NYT)

On to Plan B: Starting a Business

By MICKEY MEECE

CALL them accidental entrepreneurs, unintended entrepreneurs or forced entrepreneurs. A year and a half into the Great Recession, with the jobless rate hovering near double digits, corporate refugees like Lisa Marie Grillos of San Francisco are trying to fend for themselves.

Along with her brother Hernan Barangan, Mrs. Grillos started Hambone Designs, after her full-time contract position with Williams-Sonoma as a production manager wasn’t renewed in January. The new company makes bicycle bags that hold things like keys, wallets and cellphones.

“You have the time — why not focus your energy on something, rather than just trolling Craigslist and sitting and watching TV?” Mrs. Grillos says. “It’s really taking matters in my own hands.”

Mrs. Grillos, 34, built a Web site called hambonedesigns.com, opened a virtual shop on Etsy.com, an online marketplace, and hit San Francisco street fairs. So far, between the online marketing and the street fairs, she and her brother have sold 70 bags, which retail for $20 to $40. Each sale results in a profit.

“We have been talking about mass producing, but we’re not there yet,” Mrs. Grillos says. “It is a whole other thing, approaching stores and having the inventory.”

To help make ends meet, Mrs. Grillos also does textile design and photography projects, and it helps that her husband has a full-time job.

Others among the unemployed are taking the entrepreneurial route. The most recent Index of Entrepreneurial Activity by the Kauffman Foundation showed a slight uptick of new businesses in 2008 — a full recessionary year — over 2007. An average of 320 Americans out of 100,000 formed a business each month, Kauffman said. What’s more, it found, the patterns “provide some early evidence that ‘necessity’ entrepreneurship is increasing and ‘opportunity’ entrepreneurship is decreasing.”

Accidental or by design, entrepreneurship is on the rise again this year. LegalZoom, the online legal document service, says the number of new businesses it helped to form was up 10 percent in the first half of the year, compared with the period a year earlier.

“We were surprised,” says Brian Liu, co-founder and chairman of LegalZoom. “We expected there to be a drastic downtick.”

LegalZoom’s top five areas of incorporation, he says, are real estate, consulting, Internet (including electronic commerce), retail, and construction and contractors.

To be sure, a vast majority of corporate workers who have been laid off since December 2007 have sought another corporate job. After all, starting a business in the worst downturn in decades seems especially risky. Only two-thirds of new small businesses survive at least two years, according to the Small Business Administration. That survival rate falls to 44 percent at four years, and to 31 percent at seven.

The silver lining may be that the survival rate is about the same in expansions and recessions, says Dane Stangler, senior analyst at Kauffman.

WHILE the Internet has made the formation process quick and inexpensive — papers can be filed with LegalZoom, for example, for $149 in addition to state filing fees — the costs of owning a business add up quickly. There are state and local taxes and fees, insurance, salaries and contract pay, overhead, inventory and the like. And these days, lenders are none too generous when it comes to forking over money to new businesses.

These factors, combined with the lack of a steady paycheck, often-inadequate health insurance and the sheer emotional stress of being unemployed, may prevent many people from setting out on their own.

But research on what is known as post-traumatic growth has found that some people become more resilient when faced with adversity, says Shawn Achor, a Harvard researcher. Creativity surges, he says, as they adapt to a new situation.

“Their brain is actually learning at a faster pace than when they are not challenged,” Mr. Achor says. “As a result of this, some individuals, the accidental entrepreneurs, they are the ones who in the midst of crisis actually respond with growth.”

In a report this summer on innovation, Ernst & Young wrote, “Experience shows that entrepreneurs should not give up on start-ups in a down economy.”

Many companies with billion-dollar market capitalizations were started during a recession, the report said, including Starbucks, Intuit and PetSmart.

Research from Kauffman in June found that more than half of the companies on the Fortune 500 list in 2009 and nearly half of the companies on the Inc. magazine 2008 list were founded during a recession or bear market.

Lynn Zuckerman Gray, 60, hopes to be one of the success stories of this recession. She lost her job at Lehman Brothers almost a year ago, when the firm collapsed. A former chief administrative officer of its global real estate group, she found herself competing with a rising number of job seekers for a dwindling pool of jobs.

Ms. Gray ended up participating in a New York City program, offered in conjunction with the Kauffman Foundation, called FastTrac NewVenture. The program, for employees displaced by the financial crisis, sent Ms. Gray in a direction she never thought she would go: starting an on-campus recruiting company called Campus Scout.

“I guess I had an entrepreneur simmering inside me because I’ve always been very creative,” she says.

The cost has been hundreds of dollars here and there, she says. Still, the reality of her financial situation is daunting. Her severance pay from Lehman ended this month, and she is now eating into her savings. So far, her new venture, Campus Scout, is in start-up mode and does not have any clients.

She says she is going to try to get part-time work, teach university classes and do some freelance writing to generate cash flow so she can keep her business going for at least two years.

IT’S not just ex-corporate workers who have started businesses out of necessity. In February, Jackie Burke, 68, a retired schoolteacher, and her daughter, Jackie McAlister, 38, a schoolteacher on maternity leave, formed the Cup and Saucer Cookie Company in Ocean City, N.J.

“I never in my lifetime thought of owning a business,” Ms. McAlister said, “the economy has forced us to be creative.” And fast-acting. Stocks nosedived in the fall, and so did her mother’s retirement account.

“Mom was crying, and she said, ‘Maybe I can go to Borders to see if they are hiring.’ I said, I’m not going to watch my retired 68-year-old mom, with two knee replacements, go work at Borders. This is not going to happen.”

Instead, Ms. McAlister and her mother brainstormed about starting an Internet business. A claim to fame they both had was making cookies, she said. She did research in January, filed incorporation papers on LegalZoom in February, started a Web site using GoDaddy.com, and by March sold their first cookies.

“It sounds like a crazy idea, but it was out of total necessity,” Ms. McAlister said. “We had to do something.”

Their Internet business is slow, helped mainly through her Facebook friends and local news coverage, she said. They sell about $200 worth on the Internet each month and about $100 at a local cafe each month. They are near to breaking even, Ms. McAlister said.

Even when she returns to school in the fall, she said, they will keep it going. “The experience has been totally worth it,” she said, and has had the added benefit of distracting them from things out of their control, like the stock market.

Entrepreneurs like the McAlisters, Ms. Gray and Mrs. Grillos have been helped by a growing number of companies that cater to the needs of new businesses.

Recently, Mrs. Grillos attended a networking event in San Francisco organized by Outright.com, which offers bookkeeping software, and Network Solutions, a company that helps small businesses start and market on the Web. The companies had specialists on hand to talk about accounting, tax, legal and other issues facing new business owners.

Kevin Reeth, chief executive of Outright, says, “We realized these people, who have had careers and worked for other people most of their professional life, are not at all prepared to go out and become a business owner.”

The companies jointly started a Web site, unintentionalentrepreneur.com, as a resource and embarked on a five-city tour in partnership with local chambers of commerce and Score, the national group of volunteer mentors. Last week, the tour ended in Manhattan, but the hope is that the networking will continue, Mr. Reeth says.

ANOTHER company that is tailoring its services to very small and new businesses is InfoStreet, a maker of Web-based small-business management software. Michael Hart, 53, of Nashville, says InfoStreet recently had the backbone of NewTerraLiving.com, his new online marketplace for eco-friendly goods, up and running very quickly, and at a very affordable cost.

Mr. Hart started his business after he left an electronic publishing company a year ago. He has been living off his savings and now has booked sales on his site. “The significantly lower costs associated with building the technology infrastructure as well as the phenomenon of social network marketing allowed me to jump in,” he says.

So, will all of these new ventures become viable entities, or are they simply résumé builders and time fillers for people temporarily out of work? For Mr. Hart, it is definitely not a path to a cubicle. “If successful, I don’t see myself returning to corporate America,” he says. “If I’m not successful, I would definitely start another company — if my wife doesn’t kill me.”

Mrs. Grillos acknowledges that she is still job-hunting. “It would be great if this became my full-time job and grew that big,” she says of Hambone Designs. “Even if I found one, I would still have this on the side.”

Martha E. Mangelsdorf, author of “Strategies for Successful Career Change,” says job seekers should be careful about spreading their energy too thinly. “Starting an ambitious business is such a consuming endeavor, I think it would be hard to do that and look for a job at the same time,” Ms. Mangelsdorf says.

“You should try to be clear if you’re starting a business that that’s really what you want to do, as opposed to you’re only doing it because you can’t find work elsewhere,” she says.

No matter what, those who become accidental entrepreneurs have a leg up on the competition, according to Mr. Reeth of Outright. “The process of going into business is going to make anybody who tried it better, smarter and more capable,” he says.

“Whether it ultimately ends a successful journey in terms of staying in business and this is what you do or you go back and get another job,” he adds, “the skills they will have to develop are going to serve them very well.”

Wipe Out Shopping Cart Abandonment (Entrepreneur.com)

Wipe Out Shopping Cart Abandonment

These tips will help you turn clicks into cash.

By Eddie Davis | August 07, 2009

URL: http://www.entrepreneur.com/ebusiness/buildingawebsite/article202928.html

Imagine you owned a store where half your customers left their purchases on the checkout counter. That, in effect, is happening all too often to online merchants. Potential customers go shopping on their site, like what they see, and put merchandise in the shopping cart. But somewhere during the checkout process, they "abandon" their cart and depart the site, sometimes never to return.

What went wrong? As an online merchant, knowing the answers can make a big difference in how well you convert a customer's clicks into an actual sale.

Studies have demonstrated that the single biggest cause of cart abandonment is an unexpectedly high transaction cost--typically a high shipping cost--that is only revealed at checkout. A customer believes a transaction is going to be about $75, steps up to the virtual counter, arranges payment, only to learn that the actual total is $100. We shouldn't be surprised if that shopper "walks off" in a huff. Indeed, shopping cart abandonment is often a sign of deeper troubles for the merchant. It's not just an indicator of a lost sale, but also of a troubled relationship. If customers have a sense of being baited and switched, their overall confidence in the merchant gets undermined.

The problem is aggravated by the high variability of shipping costs. During a recent online shopping excursion for a stationary bicycle, I found that shipping fees ranged from "free" to $150. That's a huge difference. And yet in many cases, the total "out-the-door" cost wasn't apparent until deep in the checkout process.

What can merchants do? First of all, you should keep shipping costs in line with customer expectations. A small, lightweight item like a pair of socks, a garden trowel or camera battery shouldn't cost $17 to ship. And adding one of these items to an existing purchase shouldn't cost $17 more. Some merchants have taken the mystery out of checkout by offering free shipping across their product lines. But if you can't afford that, at least give shoppers an early, clear indication of the actual cost. And while this might sound obvious, the same advice also applies to good news: Tell customers about special discounts, coupons and other incentives up front, not at checkout. The guiding principle: When it comes to payment, online shoppers don't like surprises.

Security and comparison shopping
Cart abandonment happens for other reasons as well. Sometimes customers are uneasy about handing over their personal information, including credit card numbers, to an unknown merchant. You can remove that concern by offering multiple options for electronic payment, including services that allow payment without disclosing financial information to the merchant.

Some customers don't click on the purchase button because, at the last minute, they want to assure themselves they are getting the best possible deal. The temptation is understandable. E-commerce has matured since its early days, and customers are the beneficiaries. More sites are competing for their business, and customers can use "shopping engines" to compare price and merchant reputations at a glance. The obvious advice: Keep your prices competitive and your service exemplary so that new customers keep coming back. In looking for the ultimate bargain, some customers depart to seek out discount coupons. If your competition is trumping you with this tactic, perhaps you should follow suit.

Sometimes, the barrier to purchase is not cost, but an unanswered question. "How long do I have for a return?" "Can I see the manual?" "Do you have it in green?" "Can I include a Valentine's card?" No merchant can anticipate every question, nor will every customer locate every snippet of information on your site. So don't hide behind your website. Provide a telephone number, an e-mail address, or both--and respond to queries promptly and personally, taking the time to hear the actual question.

Finally, some shoppers abandon their carts simply because they cannot figure out how the checkout process works. If your customers are hunting for the "purchase" button, it's time for a site redesign--preferably with something simpler.

I don't want to paint too grim a picture. Most people who enter checkout hit the purchase button. Your goal with these measures is simply to increase that percentage. Moreover, an abandoned cart is not the same as abandoned hope--a surprising number of shoppers will return and make a purchase later on. You should welcome them back like lost friends. Keep their merchandise in their cart. Offer them discounts. If they do make a purchase, take extra care to make sure they are happy. In other words, you'll make the most sales when everything clicks.

Eddie Davis is the senior director of merchant services at PayPal and is responsible for providing PayPal's payment processing services to thousands of small and medium-sized online retailers. Davis joined PayPal in 2005 with a background in merchant sales and acquisitions.

These tips will help you turn clicks into cash.

By Eddie Davis | August 07, 2009

URL: http://www.entrepreneur.com/ebusiness/buildingawebsite/article202928.html

Imagine you owned a store where half your customers left their purchases on the checkout counter. That, in effect, is happening all too often to online merchants. Potential customers go shopping on their site, like what they see, and put merchandise in the shopping cart. But somewhere during the checkout process, they "abandon" their cart and depart the site, sometimes never to return.

What went wrong? As an online merchant, knowing the answers can make a big difference in how well you convert a customer's clicks into an actual sale.

Studies have demonstrated that the single biggest cause of cart abandonment is an unexpectedly high transaction cost--typically a high shipping cost--that is only revealed at checkout. A customer believes a transaction is going to be about $75, steps up to the virtual counter, arranges payment, only to learn that the actual total is $100. We shouldn't be surprised if that shopper "walks off" in a huff. Indeed, shopping cart abandonment is often a sign of deeper troubles for the merchant. It's not just an indicator of a lost sale, but also of a troubled relationship. If customers have a sense of being baited and switched, their overall confidence in the merchant gets undermined.

The problem is aggravated by the high variability of shipping costs. During a recent online shopping excursion for a stationary bicycle, I found that shipping fees ranged from "free" to $150. That's a huge difference. And yet in many cases, the total "out-the-door" cost wasn't apparent until deep in the checkout process.

What can merchants do? First of all, you should keep shipping costs in line with customer expectations. A small, lightweight item like a pair of socks, a garden trowel or camera battery shouldn't cost $17 to ship. And adding one of these items to an existing purchase shouldn't cost $17 more. Some merchants have taken the mystery out of checkout by offering free shipping across their product lines. But if you can't afford that, at least give shoppers an early, clear indication of the actual cost. And while this might sound obvious, the same advice also applies to good news: Tell customers about special discounts, coupons and other incentives up front, not at checkout. The guiding principle: When it comes to payment, online shoppers don't like surprises.

Security and comparison shopping
Cart abandonment happens for other reasons as well. Sometimes customers are uneasy about handing over their personal information, including credit card numbers, to an unknown merchant. You can remove that concern by offering multiple options for electronic payment, including services that allow payment without disclosing financial information to the merchant.

Some customers don't click on the purchase button because, at the last minute, they want to assure themselves they are getting the best possible deal. The temptation is understandable. E-commerce has matured since its early days, and customers are the beneficiaries. More sites are competing for their business, and customers can use "shopping engines" to compare price and merchant reputations at a glance. The obvious advice: Keep your prices competitive and your service exemplary so that new customers keep coming back. In looking for the ultimate bargain, some customers depart to seek out discount coupons. If your competition is trumping you with this tactic, perhaps you should follow suit.

Sometimes, the barrier to purchase is not cost, but an unanswered question. "How long do I have for a return?" "Can I see the manual?" "Do you have it in green?" "Can I include a Valentine's card?" No merchant can anticipate every question, nor will every customer locate every snippet of information on your site. So don't hide behind your website. Provide a telephone number, an e-mail address, or both--and respond to queries promptly and personally, taking the time to hear the actual question.

Finally, some shoppers abandon their carts simply because they cannot figure out how the checkout process works. If your customers are hunting for the "purchase" button, it's time for a site redesign--preferably with something simpler.

I don't want to paint too grim a picture. Most people who enter checkout hit the purchase button. Your goal with these measures is simply to increase that percentage. Moreover, an abandoned cart is not the same as abandoned hope--a surprising number of shoppers will return and make a purchase later on. You should welcome them back like lost friends. Keep their merchandise in their cart. Offer them discounts. If they do make a purchase, take extra care to make sure they are happy. In other words, you'll make the most sales when everything clicks.

Eddie Davis is the senior director of merchant services at PayPal and is responsible for providing PayPal's payment processing services to thousands of small and medium-sized online retailers. Davis joined PayPal in 2005 with a background in merchant sales and acquisitions.

4 Ways to Gain Customer Loyalty (Entrepreneur.com)

4 Ways to Gain Customer Loyalty

Stand out on the cheap with superior customer service.

By Ray Silverstein | August 10, 2009

URL: http://www.entrepreneur.com/management/leadership/leadershipcolumnistraysilverstein/article202956.html

I recently dined at a very old, very famous restaurant in Chicago. I’ve been pondering the subject of customer service ever since.

This restaurant--let’s call it The Old Gray Mare--was once the gold standard of American seafood restaurants. It was celebrated for its outstanding menu, classic decor and responsive service. When you made a reservation there, you could count on having an exceptional evening.

This time around, it was anything but. Thank goodness I had a lively dining companion; otherwise the evening would have been a total disaster. The decor was outdated, the food was average and the wait service was slow and unresponsive. The Old Gray Mare--she ain’t what she used to be.

This is a perfect example of what not to do in business. Don’t take your customer or market position for granted. Don’t let your service capabilities slide. Don’t coast on your reputation while allowing your brand to deteriorate. Inevitably, it will catch up with you.

Evaluate Your Business
What is your customer experience like? Are you “wowing” key customers with personalized service? With so much business occurring online, wows aren’t easy to come by these days. To make your company top of mind, you must find ways to build vibrant personal customer relationships, even in the digital age.

It’s not enough to provide decent service--that’s expected. Poor service certainly will get you noticed--but with negative results. Case in point: you won’t find me at The Old Gray Mare ever again.

Your brand is only as good as your last touch with the customer. While small businesses don’t have the marketing dollars to create major brand awareness, they do have the ability to craft a brand in their target market by providing service excellence. That’s how you achieve top of mind. That’s how you earn last look on proposals.

4 Ways to Gain Customer Loyalty

1. Ensure you have the right people. If you’ve been tolerating an unenthusiastic service representative, get them out of that role ASAP. They’re hurting your business. Remember, there is plenty of talent to choose from right now.
2. Offer a customer service refresher course. Get your employees focused on your customers. Put incentives in place and recognize above-and-beyond service.
3. Review your workflow. Look at your processes from your customers’ point of view. Are you inconveniencing customers because of systems limitations?
4. Listen to customer complaints. Fix problems fast and bend over backwards to make things right. Customers can do you a huge favor when they offer valid, eye-opening feedback, even if it’s not what you want to hear.

The current business environment is difficult, but now is the time to enhance your customer relationships. When things improve, you’ll reap the harvest. Providing great customer service is not expensive, in fact, it’s cheaper since it spares you the labor of making corrections, issuing credits, mending fences, etc. But, most importantly, you’ll keep your customers coming back.

We are always eager to land new business, but now’s the time to focus on retaining existing customers, too.

Ray Silverstein is the president of PRO: President’s Resource Organization,a network of advisory boards for small business owners. He recently took his own advice and expanded his business to include The PRO Alliance, the peer group experience, minus the peer group. Silverstein is also the author of The Best Secrets of Great Small Businesses.