Tag Archives: space

The Truth About Real Estate

Posted on November 12, 2011 by Nitasha Tiku

My software company, 37signals, is nearly 11 years old. But until now, it’s never really had a place to call its own. For much of that time, we’ve been positively nomadic. Our first headquarters was in the office of one of our original partners, a Chicago-based graphic designer named Carlos Segura. Carlos’s office also housed his design firm, as well as the T26 Digital Type Foundry and Thickface Records. 37signals lived on a corner of a big desk in a room upstairs. It wasn’t glamorous, but we didn’t need much space. It kept our costs down, too. After we had been there a year, Carlos left the company, so it was time for us to move on as well. By this time, 37signals was three people — Ernest Kim, Matt Linderman, and me. We were making money and doing well and didn’t require much in the way of an office. So when some friends/clients at a company called Data Harbor invited us to sublease some of their extra space, we said, “Sure.” A year after that, Data Harbor moved, and we took over the remainder of its lease for a few months. Then we decided to finally get a place of our own. We found it across the street (we could see it from the window of the space we were still occupying). It was too big — 3,500 square feet for just three Chicago-based employees — but the location was good, the rent was fair, and the landlord was a nice guy. Still, it never really felt like home. Rather than investing in the space, we just put some cheap tables together and got DSL. We worked that way for three years. During this time, we brought on a couple more people, but they were working remotely from other cities. I suppose we were thinking about office space the way most businesses do — as a cost center. After all, between rent, furniture, technology, and the like, it adds up fast, especially for a young company. We were doing fairly well, so $2,500 a month wasn’t much of a burden. At the same time, it was $30,000 a year out the door when we could all have just worked from home, which might have explained our ambivalence. But over the course of three years in that Spartan space, we learned an important lesson: An office could make you money, not just cost you money. We had a lot of empty space. Our three desks, conference room, and personal space took up only about 25 percent of the office. Perhaps we could turn that empty space into a revenue stream. Not by subleasing it but by using it to host our own workshops and conferences. For a few years, we’d been sharing our ideas on software design, marketing, and business on our blog, Signal vs. Noise. We’d begun to build a loyal and passionate following. So why not take advantage of that and hold a workshop about the things we were writing about on the blog? We could host it in the spare space in our empty office. And charge for it. We put together a one-day agenda, charged about $300 a person, and sold about 30 seats. Suddenly, we found ourselves with $9,000 in additional revenue. Our monthly rent at the time was $2,500. In one day, we just paid more than three months’ rent. That was a light-bulb moment. An office can be free — and even a profit center — if you start thinking about your company’s byproducts. What do I mean by byproducts? Just like the lumber industry can sell its sawdust (a byproduct of milling trees), we discovered that we could sell our knowledge (a byproduct of running a business). And we could sell it in our spare space. Eventually, we packaged this knowledge in book form. All told, the combination of the book and the workshops has brought in revenue of more than $1 million. But back to our real estate saga. When our lease was up, we decided not to renew. But instead of getting another space of our own, we hooked up with another friendly company we knew: Coudal Partners. I knew Jim Coudal, owner of the advertising and design firm, through a mutual friend. Jim had some extra space, I mentioned that we were looking, and he offered it at a fair price. This was in 2003. For the past seven years, we’ve been working out of that office. It’s been a wonderful experience. The folks at Coudal Partners are wildly creative. We’ve hired them to shoot and produce some video for us, and we even started a side company together called The Deck, a targeted ad network that helps companies reach graphic designers, Web designers, and other creative professionals. However, since we’re sharing the space, it’s not ours to do whatever we want with. Holding workshops there has been a logistical challenge, because those events mean that the people at Coudal Partners can’t work at their own office for a day. That doesn’t scale well. We’d like to be able to do a workshop every six weeks. Or maybe host a spontaneous gathering of all our nearby customers. We needed more flexibility. What’s more, since we’ve expanded from just a few people to 20 (nine of whom are in Chicago), we’ve outgrown the six desks we had been renting. Privacy is another thing you don’t have much of when you share an office with another company. It wasn’t an issue early on, but it is now. Our friends at Coudal Partners have been fair and accommodating, but we decided it was time to move on. So last year, we began looking for a place of our own. From the outset, we decided to recall what we had learned years before: We weren’t just going to spend money on the space; we were actually going to make money on it. That requirement became the driving force for finding the right space. We looked at a bunch of places — houses, lofts, offices that already had been built out, raw traditional office spaces. We almost had a lease done on a large factory that had been turned into a six-bedroom residence (we’d use the bedrooms for private offices). But the deal fell through because of zoning and parking issues. Eventually, we found a beautiful raw space just six blocks from our current office. It’s a corner space with two enormous walls of windows. Natural light pours in. We hired architects to review the space and draw up plans. We negotiated the lease, paid the lawyers, paid the lawyers some more, and signed the papers. The design process took a few months, and the build-out took about four months. We finally moved in July. True to our vision, about a third of the 10,000 square feet is dedicated to teaching. We built a theater-style classroom, with 37 seats, in which we can give presentations, hold workshops, and offer training and support classes for our customers. We plan on holding the first of many regular workshops this fall. For the past few years, we’ve rented out different venues for our workshops. It cost us a few grand for the space, another few grand for the overpriced catering (we had to use each facility’s sanctioned caterer), and another few grand for audio-visual requirements and other logistical considerations. Though we were able to charge about $750 per seat for a one-day event and sell about 50 seats per workshop, renting still took a good chunk of profit out of the equation. With our own space, we’ll not only save money on the costs side; we can make more money on the profit side. We also believe we’ll be able to charge closer to $1,000 a seat. At 37 seats, that’s $37,000 in revenue. All we’ll have to pay for is catering. All the AV requirements and Internet connectivity are built into the space. And it’s much more attractive than the venues we were renting out before. Just a few of these workshops will cover our rent for the year. The lesson here is less about real estate than it is about business itself. Whenever you make something, you make something else. Your byproducts may not be as obvious as sawdust, but they’re there. Maybe it’s the knowledge you’ve acquired by running a business. Maybe it’s a piece of software you wound up making when you made another piece of software. It’s there; you just have to look for it. You may even find a business you never knew you had. Jason Fried is co-founder of 37signals, a Chicago-based software firm, and co-author of the book Rework. Coudal Partners – Business – 37signals – Real estate – Technology Continue reading →

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How to Find Willing Investors

Posted on September 11, 2011 by

Most entrepreneurs who dream big simply don’t have access to the kind of money it takes to realize their aspirations. Enter the professional investor community. But, in order to get investors to open up their checkbooks, you’ll need to convince them that your idea is worthy and also be willing to subject yourself to increased scrutiny and give up a percentage of your company. That’s why it’s a good idea to first ask yourself whether you really need a professional investor at all, says David Henkel-Wallace, a serial entrepreneur who has raised $60 million from VCs. “If you’re starting a web software or mobile software company, you might be able to bootstrap it, which has the advantage that you get to keep all the money you earn,” says Henkel-Wallace. “You could also look into borrowing from friends and family – or even take out a second mortgage – for the same reason.” Dig Deeper: How to Pitch Your Business to Family and Friends Understand What Investors Want If you decide your business can only get to the next level with the aid of a professional investor, then you need to figure out what a potential backer looks for in a budding company, says Martin Babinec, who raised six rounds of funding through the business process outsourcing firm he founded, TriNet, which now boasts annual revenues in excess of $200 million. For one, he says, many entrepreneurs mistakenly think talking to investors involves loans or debt. “It should be clear that when you talk to an equity investor, you’re trading shares of your company that an investor can later sell,” he says. To that end, you need to show how your company is on a path to a “liquidity event,” industry parlance for an IPO or acquisition where the investors get a return on their money. Since not every company will actually go down such a path, “many investors use a portfolio approach, where they hope to spread their risk among several bets,” says Babinec, who now heads up Upstate Venture Connect, an organization that connects emerging technology companies in upstate New York with investors. “An investor may, for example, invest in ten companies, knowing that more than half of those companies will fail to capitalize on their potential. But, if just two of those bets pay off, and pay off big, then everyone comes out ahead.” Babinec says an investor will evaluate a company’s potential along four key criteria: 1. Does the company’s product or service address a large and growing market need? 2. Can the company scale quickly enough to take advantage of that market opportunity? 3. Does the company have a defensible competitive advantage? 4. Can the management team execute on the potential outlined in the first three criteria? In other words, the risk of investing in your company must be offset by the potential reward that can be delivered when your company experiences a liquidity event. “If you want a lot of capital, you’ll need to demonstrate that your company has rocket-ship growth potential,” says Babinec. Dig Deeper: 9 Ways to Make Your Business More Attractive to Investors Look for the Best Fit and Make Connections If your company passes those four tests, your next assignment is to prune down the list of investors who might be interested in your company. To do so, you’ll need to understand that the private company equity markets have become very fragmented, says Healy Jones, a former venture capitalist who now heads up marketing at OfficeDrop, a start-up that offers digital document scanning and filing and raised venture capital late last year. “There used to be just venture capitalists, now there are angels, super angels, micro-VCs, VC, and growth investors,” he says. “As an entrepreneur looking for capital you need to know where on the spectrum of investors your business falls – and target the right potential investors.” VCs, for instance, typically look to invest $3 million to $5 million. Angel investors, on the other hand, may invest just a few thousand dollars. Private equity groups may have tens of millions to invest. So how do you know what the right fit for your business is? Start by networking and building relationships even before you set out to acquire funding as a way to both determine who investors in your area might be as well as to develop connections to them. “VCs highly prefer introductions to new ideas from people they trust as opposed to receiving cold calls from companies looking for money,” says Jones. “The best introductions come from successful entrepreneurs, especially ones that have worked with the VC before.” Your networking should include professionals working for companies similar to yours, says Marc Wright, a serial entrepreneur, VC investor, founder of an incubator and an advisor to early-stage companies. “Look for news in your industry about investments and acquisitions involving companies in the spaces closest to yours,” says Wright. “The goal should be to target investors and even large companies who look for opportunities in your space.” Another suggestion from Babinec of UVC is that you can research who originally backed the public companies in your space. “This is a multiple step process that works you back to the investors who have made money in the space,” he says. This is essential because investors like to invest in areas where they have developed expertise, says Eric Lefkofsky, the co-founder of Groupon who, in addition to founding two companies that went public, has now started a venture fund of his own called Lightbank. “We only look to invest in early-stage tech companies,” says Lefkofsky. “If you had the best idea for a new restaurant, I’m the wrong guy to approach about it. We focus only on the things we know.” Investors, especially in early-stage ventures, also tend to place their bets close to home, according to Don Rainey, a general partner in Grotech Ventures, a VC firm in Washington, D.C. “Being closer geographically is better, but it also differs on where you are,” says Rainey. “In Silicon Valley, you might need to be 15 miles from your investor. In Dallas, it might be 300 miles.” And don’t be bashful about using social media tools to boost your networking efforts, says Wright, who is the CEO of Martinez & Wright, a business media and market data company in Laguna Beach, Calif. “I frequently use news sources and LinkedIn to find people who are connected to an investor target and then tap them for feedback and input on the business and ask what they think investors or buyers might like and dislike,” he says. “If the chemistry is right I’ll ask them for an intro. And if it’s really good, I’ll mention the possibility of a formal role as an advisor.” Dig Deeper: An Insider’s Guide to Venture Capital Financing Share Your Vision Once you’ve finally made some connections to investors who likely understand the kind of company you’re trying to build, you then need to whittle it down to those who share your vision of what’s possible. “As an entrepreneur, you need to find investors that buy into the assumptions you have made about the future,” Rainey of Grotech Ventures says. If you don’t share the same common view of what’s possible, an investor won’t invest with you.” Resources The Internet contains many websites dedicated to helping entrepreneurs navigate the investment community. Here are a few of our favorites: Startable : A blog penned by Jones of OfficeDrop which focuses on the early stage VC and angel environment and the Internet start-up market. Venture Hacks : A good source for fund-raising advice that also includes a list of active angel investors. StartupCFO : A source of advice from a veteran CFO. VC Ready Law : A blog with good resources for entrepreneurs looking to raise capital. Angel Capital Association : A great resource for understanding what an angel investor looks for as well as for finding angels near you. The following blogs written by investors also provide worthwhile information to capital seekers: Fred Wilson : A well-known NYC-based VC. Brad Feld : A good source on angel investing, venture capital and term sheets. Mark Suster : A VC and former start-up CEO, offers advice on raising capital and pitching VCs. Venture capital – Business – Angel investor – Entrepreneur – Investment Continue reading →

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How to Break Into the Fashion Industry

Posted on August 17, 2011 by Lauren Folino

When Annmarie Scotto-Dinan quit her Manhattan public relations job to launch a women’s fashion label, she knew she’d need to invest a significant amount of time in learning the trade, but she didn’t know she’d also be investing a massive chunk of her savings. Dinan figured a small business loan would be key to financing her endeavor, but by the time she applied for loans in 2008, the economy was beginning its slide into recession. Despite being unable to secure a small business loan, she went ahead with founding her label, Chloe & Reese , digging into her significant savings to do so. Her bootstrapping worked: Chloe & Reese has grown steadily through the recession, and Scotto-Dinan is coming out of the economic downturn with her dresses sold in global department stores like Saks Fifth Avenue and Neiman Marcus, as well as small boutiques all over the world. How’d she do it? “It’s not just making a design that’s great – it’s figuring out wholesale margins, adding in the cost of packaging, shipping, taxes, tariffs, and making sure your profit margin will keep your business running,” Scotto-Dinan said. “Like many designers, I’m so much more creative than analytical. But you have to focus on the numbers to make your business actually work.” In other words, breaking into fashion requires a lot more than just a degree in design and a talent dreaming up runway styles. We’ve interviewed emerging designers who have built their businesses from scratch, as well as legal experts who filled in the finer points of financial and legal sustainability to guide you through the fashion start-up process. Breaking Into Fashion: Pin Down Your Dreams Whether you create handcrafted vegan footwear or custom ball-gowns, before you take your product to market, experts suggest you ask yourself why, precisely, you want to do so. What’s your goal? George Nemphos, the chair of the corporate practice group at Duane Morris, a law firm in New York City that works with a lot of emerging and established fashion designers, says he asks all of his clients what their goals are for the business they’re setting up. “People in the apparel industry are very creative, and some of the legal aspects can escape them,” Nemphos said. “It’s part of the business that goes unseen. It’s not what they’re thinking about when designing, or are out there with the buyers.” Nemphos suggests before even enlisting an accountant or attorney to help set up the business, that an emerging designer solidifies plans for what kind of company they want to have, and what kind of life they’d like in coming years. How big they want to be, and where they’d like to sell their designs, will determine a lot of how a company should be set up – and help guide legal issues going forward. Scotto-Dinan agrees that entrepreneurs in fashion and design should ask themselves: “Do you want something nice and easy, something that brings you joy and a bit of income without much stress? Or do you want to be a fashion empire? I really do think that goal speaks to how you’re going to work.” For designer Jiminie Hayward , starting her business small – and keeping it small – is right in line with her goals. She graduated from Boston’s School of Fashion Design in 2007 and began scoping out a target audience for her custom-made formal dresses. Her dream: to sew and sell custom-fitted hand-made dresses at an affordable price. Mass-producing was not an option. So, Hayward designed 10 dresses and launched her brand softly, selling it online through an Etsy shop, MyBlackDress . She says she started with about $500 in fabric and supplies, and now orders from individuals account for $2,000 to $4,000 of income monthly. “I get lots of requests for wholesale from boutiques and online stores. I will look into that in the future, but I can’t handle it right now. I really like doing custom work for now,” she said. The number of orders coming in online keeps her at the sewing machine from 8:30 a.m. until evening. For Sonali Singh, who met her business partner and husband, Jeet, while they were students at New York’s Fashion Institute of Technology, the greatest bulk of preparation in starting their label, San & Soni , went into market research. “We had to do a lot of market research, as far as price points, what brands we wanted to sit in with,” she said. The pair’s label doesn’t offer basics, such as a simple white blouse. Instead, it’s centered on inventive construction. “We spent a lot of time on theme and inspiration, and that’s how we came into the contemporary market – and we’re in the higher end of contemporary.” Dig Deeper: Fashion Entrepreneurs Capitalize on High-End Rentals Breaking Into Fashion: Get the Financials Straight Considering that manufacturing, importing, distribution, and sales are in your future, unless you’re particularly numbers-savvy, you’ll mostly likely want to enlist an accountant and a legal counsel to help advise on business incorporation and how to set up your financial accountability. Nemphos suggests that too many independent clothing and accessory designers don’t work with advisors, and instead end up simply setting themselves up as a sole proprietor of their company without exploring other incorporation options. “As a sole proprietor, you are on the hook for everything – so we advise them to not do that necessarily. Setting oneself up as an S-Corporation could also affect them if they are possibly going to seek financing in the future,” he said. Creating an LLC might seem more complex from the start and for tax purposes, but doing so can give business owners organizational flexibility – and doing so ensures there is a corporate entity comfortably wedged between your business and your personal liabilities. It also allows some flexibility in terms of changing your form of business incorporation later without harsh tax penalties. Scotto-Dinan said her top advice to a bootstrapping fashion entrepreneur would be to invest in a good accountant and a good attorney. “Definitely speaking to a good accountant about your goals so that you can set your business up, and to be careful about how you set it up, because while at the moment it might not feel like a crucial decision, it absolutely is a wise investment.” If you decide to keep accounting in your own hands and file for incorporation yourself, which Hayward successfully did, you might want to consider educating yourself first. And, no, Googling isn’t sufficient. “It’s really important to take some tax classes,” she said. “That’s the least fun part about running your business, doing your taxes. But the city often offers bookkeeping classes, and they can teach you how to create monthly income statements. Absolutely do those, then it makes it a lot easier at the end of the year.” From the start, you’ll also want to protect your label from trademark infringement. “If you have a service mark or trade name, you’re going to want to file with the patent and trademark logo. Once you have done that, you can use that on a label, for events, and on your website,” Nemphos said. He also warns that brands should be proactive about promoting their brand online, because simply getting your name out, and attaching it to products, protects your use of it. He suggests registering URLs with your brand name right away, and using the brand name prominently on products and labels. Doing so doesn’t hurt marketing, either. “Brand development comes from just being out there and known, and that you take the steps to show off your product and your concept.” Once you have a legal counsel and accountant in place, remember that they likely have a great deal of expertise in the industry – and can serve as valuable advisors to your business. Don’t be afraid to ask questions – doing so can open your eyes to everything from money-saving options to marketing trends. Dig Deeper: How to Incorporate Breaking Into Fashion: Build Your Production Model Today, in the era of super-simplified online sales via eBay, Etsy, and a host of other online storefront options, it’s easy to start small. You can learn how to set up an Etsy store . Inc.com also has guides on setting up shop on eBay and how to use your local market as a business incubator . Hayward could be considered model of how to make a sustainable, and truly profitable, business that exists solely through an online storefront. But she’s planning big: she’d like her own boutique, complete with sewing lab – as well as to use the space to offer educational courses in designing and sewing. She’s anticipating hiring her first employee soon: another seamstress. “You can start small – you can do custom wedding dresses or bridesmaid dresses. Start small with a very focused audience,” she said. “But I’m getting to the point where I’m working late evenings, and I’d like to create every dress myself, but I’m going to have to expand production.” Scotto-Dinan, on the other hand, knew from the beginning she’d need a production facility. She read Womens Wear Daily to learn about the industry, and found advertisements for a variety of New York factories in its pages. Once she found a handful that seemed aligned with her goals, she interviewed them, and found one “that was a good match for what I was planning. I aligned myself with one local facility – and to this day I’m with them.” Scotto-Dinan, who is based in New York, knew that she wanted to work with a local producer. However, sourcing a product abroad is a popular – and often money-saving – choice, though doing so creates myriad shipping, customs, and quality control issues. When you’re ready to sign on with a production house, mind the contract, attorneys caution. “The cutting houses and factories will throw a contract at you. There’s a standard contract that they give you, but some of them come back and say, once you’re working with them, that they own the patterns. You can’t let that happen,” Nemphos said. One way to preempt disputes is to have a legal confidentiality agreement and a development agreement ready. Also, if you’re using unique patterns or fabric designs, you might want to consider trademarking them. Yes, that’s right: patterns are considered intellectual property and fit into the trademark purview rather than being considered patentable. Then again, if you’re developing a new fabric, or chemical compound that creates a fabric, you should consider patenting that process, Nemphos says. “There’s a great deal of change in the materials that are used in apparel. A lot of it is specially designed and created – and that material has to find its way into contracts, because you have a trade secret on your hands,” he said. “That can, and should, be patented.” Nanette Heide, a corporate partner in the New York office of Duane Morris, added: “You really have to be careful who you give access to information on how your product is made. That’s handled through confidentiality agreements. You have to make sure your stuff is kept secret.” Before establishing your brand, search out others who might be using the same, or similar, names. Don’t enter the same retail space as a direct competitor with the same, or a similar, mark. That said, Heide advised that throughout your brand’s lifetime: “You want to keep a watchful eye on whether someone out there is using a similar mark or name. If someone is, at that point, you’d need to send a cease and desist letter.” In other words: call your lawyer. Dig Deeper: Creating a New Online Fashion-Buying Experience Breaking Into Fashion: Ramp up Sales, Think Big, and Address Market Desires The legal issues involved in establishing a brand only expand as your business grows. So do sales and marketing demands. At this level, both innovation and sales are your keys to success, Scotto-Dinan advises. “If you know your market, and it’s department stores, call the fashion director at Bloomingdales. You can find these people. You have to sell your product, and if you know it’s good, just do it,” she said. “Send them your look book and don’t look back.” Another part of succeeding as a designer in this economy is being innovative. But also being mindful of your audience helps. If your brand is selling well in a few boutiques, listen to their buyers, Singh said. If they’re not talking, actively solicit their advice on your last line, including what they liked, what didn’t sell well, and what they’d like to see in the future. “One thing I would share with any emerging designer is you have to be open to things your buyers are saying,” she said. “It’s true that designers can be like babies, and be very attached to what they design. But being open to what buyers have to say can really help you make a collection they want to buy.” And that can tune you into what consumers want. For instance, when Scotto-Dinan began receiving a bulk of calls requesting dresses for bridal parties, she knew the bridesmaid dress market was ripe for the picking. “We launched this January a second collection, the Ardour Collection, in bridal stores last year, to fit that demand,” she said. Now the Ardour Collection is in 25 bridal stores. Scotto-Dinan has also built on the shapewear trend, which has been firmly established with the popularity of Spanxs, by creating a line of shapewear-lined dresses called SLEEK NYC, which will be launching this year at department stores. She has a fourth label, a private label for Anthropologie stores, called Annabelle, this year. “What I love is the big question mark, how you don’t know what will happen, but that you can strive to build it. Even if it doesn’t grow to that huge point, you know you’re building it,” she said. Dig Deeper: Revamp Your Fashion Marketing Plan Business – Design – New York City – Fashion – Fashion design Continue reading →

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