How to Validate Your New Business Idea

At Arzo Enterprises, we deal with many clients who hire us to build a website for their business idea–based solely on their gut feeling that idea will be successful. They skip the step of figuring out first if they’re solving a real problem in the world.

Big mistake.

Before investing any time and money in a business, you need to validate your idea. Here are some ideas to help you:

Use smoke tests.

An easy way to gauge interest in an idea is to run some basic tests fist. Run a basic Craigslist ad to gauge interest. For example, perhaps you want to start a business around hiring babysitters online. First, place an ad that offers the services. Do people contact you? This is a cheap and effective way to glean feedback on start-up or related ideas.

Create a “Launching Soon” page. Then invest in Facebook ads and watches click-through rates. If a good number of people sign up, it means there’s real interest, and it’s time to take the next step.

Assess yourself.

This one sounds basic but it’s worth remembering. Instead of focusing on building products that are simply “cool” or “innovative,” ask yourself if the product is something you would use. The easiest way to validate an idea is to first “survey a market of one: yourself.”

Find a mentor or industry advisor.

There are always going to be people who have expertise or experience you lack. Don’t shy away from them–introduce yourself and make a connection. That way, you have a valuable contact in the industry of your choice to determine where the needs are, and how you can address them.

Conduct a survey.

Sites like SurveyMonkey.com can help you gather feedback on your ideas. Create one and share it on your Facebook page, Twitter feed, and LinkedIn profile, or send it out to trusted professionals, friends, former co-workers, students, and family in email blasts. This is another great way to gauge needs, interest, and gaps in specific industries.

Trust your gut.

It will lead somewhere. Maybe it results in a successful product, maybe it won’t. Either way, you get a valuable education in what works that will help you later on.

 

Top 5 Most Common Networking Mistakes

Everyone tries to network, but few people do it well, often making the same basic mistakes.

Here’s what not to do when you’re trying to expand or leverage your network:

1. Try to take before you give. The goal of networking is to connect with people who can help you make a sale, get a referral, establish a contact, etc. When we network, we want something.

But at first, never ask for what you want. In fact you may never ask for what you want. Forget about what you can get and focus on what you can provide. Giving is the only way to establish a real connection and relationship. Focus solely on what you can get out of the connection and you will never make meaningful, mutually beneficial connections.

When you network, it’s all about them, not you.

2. Assume others should care about your needs.  Maybe you’re desperate. Maybe partnering with a major player in your industry could instantly transform red ink into black. No one cares. No one should care. Those are your problems and your needs.

Never expect others to respond to your needs. People may sympathize but helping you is not their responsibility. The only way to make connections is to care about the needs of others first. Ask how they’re doing. Ask what could help them.

Care about others first; then, and only then, will they truly care back.

3. Take the shotgun approach. Some people network with anyone, tossing out business cards like confetti. Networking isn’t a numbers game. Find someone you can help, determine whether they might (someday) be able to help you, and then approach them on your own terms.

Always select the people you want to network with. And keep your list relatively small, because there is no way to build meaningful connections with dozens or hundreds of people.

4. Assume tools create connections. Twitter followers, Facebook friends, and LinkedIn connections are great—if you do something with those connections. In all likelihood your Twitter followers aren’t reading your tweets. Your Facebook friends rarely visit your page. Your LinkedIn connections aren’t checking your updates.

Tools provide a convenient way to establish connections, but to maintain those connections you still have to put in the work. Any tool that is easy or automated won’t establish the connections you really need.

5. Reach too high. If your company provides financial services, establishing a connection with Warren Buffett would be great. Or say you need seed capital; hooking up with Mark Cuban would be awesome. Awesome and almost impossible.

The best connections are mutually beneficial. What can you offer Buffett or Cuban? Not much. You may desperately want to connect with the top people in your industry, but the right to connect is not based on want or need. You must earn the right to connect. Find people who can benefit from your knowledge and insight or your connections.

The “status” level of your connections is irrelevant. All that matters is whether you can help each other reach your goals.

When You Need a Trademark or Copyright

When you’re setting up your small business, you’re naturally concerned about getting your name out there to make sure your brand succeeds. An integral part of that brand is what you call yourself, and what designs or logos accompany your company’s name.

To that end, small business owners need to be sure to protect their trademarks and copyrights as they try to get their endeavor off the ground by marketing and advertising their product or service.

Trademarks protect words, names, symbols, sounds, or colors that distinguish goods and services from those manufactured or sold by others and to indicate the source of the goods. You don’t necessarily have to register your trademark with the U.S. Patent and Trademark Office (USPTO), but you can benefit from it. U.S. trademarks can last forever, as long as the trademark is used in commerce and defended against infringement.

“In the United States, you get automatic trademark rights in your brand just by virtue of using it. There’s nothing special you have to do,” explained Michael Atkins, founder of Atkins Intellectual Property in Seattle.

A small business owner typically does not have to register his or her trademark if operating in a small geographic area. But with the proliferation of e-commerce, if one is selling their product over the Internet to other states or regions, the trademark protection becomes more important.

“These days, everybody’s on the Internet, which, in my opinion, makes getting a federal registration more important,” Atkins said. “Probably the neatest benefit of getting a registration is it expands the geographic area throughout the state or the country, depending on what kind of registration you get.”

It typically costs between $275 and $325 to register each mark with the USPTO, plus lawyer fees if you retain counsel to help with the process. If you have to choose between registering your company’s name or your trademark because of a tight budget, Atkins recommends registering the name since you receive broader rights.

Trademark protection from the USPTO, however, does not mean your trademark is protected overseas. You have to register your trademark in the countries in which you desire to do business to be protected there.

Copyright

According to the U.S. Copyright office, copyrights protect original works of authorship including literary, dramatic, musical, and artistic works, such as poetry, novels, movies, songs, computer software and architecture. This can include things like HTML or other code that programs specific Web sites. Copyright does not protect facts, ideas, systems, or methods of operation, although it may protect the way these things are expressed. For small business’ Web sites, copyright protects all original authorship on the Web site – writings, artwork, pictures, and other elements. Although registering your copyright is not required, it is recommended. It’s particularly important for you to register your copyright if you’re in a business that is creative.

“Like trademark law, you get automatic copyright protection. Meaning, if you write it down and it’s original enough, nobody can copy it without your permission,” Atkins said. “Copyright protects against copying of original expression but the expression has got to be at least minimally original.”

But you do need to register your copyright with the U.S. Copyright Office in order to enforce it in court. It costs about $35 to register and you can do it online. It often takes about one year to issue the registration, but you can get registered faster by paying a higher fee.

“When you launch your Web site, get it registered. Not only can you immediately enforce your rights against copycats but the copyright law gives you two other things: That is the rights to seek attorney fees and statutory damages,” Atkins explained. That way, you don’t have to prove out-of-pocket loss if infringement occurred after registration was issued.

According to the USPTO, copyright protection is for a limited term. For works created after January 1, 1978, copyrights last for 70 years after the death of their owner. For works made for hire -covering the usual type of work owned by a small business – the copyright lasts for 95 years from the year of its first publication, or a term of 120 years from the year of its creation, whichever expires first.

Keep Watch

Don’t have time to scour the Web or elsewhere making sure no one is infringing on your copyright or trademark and making money off your creations or ideas? Relax, there are intellectual property watch services that do just that.

“If you spent thousands and thousands of dollars developing a product … you don’t want someone to rip it off,” said Dan Zendel, the partner in charge of the watch service at Ladas & Parryintellectual property law firm in New York City. A watch service is “actually an important option for small and big business owners,” he added.

“The purpose of this is to police the client’s trademark and advise them of potential infringements or, at least, conflicts. …We look at it as an insurance policy or a policing policy,” he said.

Should Your Business form an LLC?

Accountants and attorneys love limited liability companies. But do limited liability companies–LLCs for short–really make sense for small business owners. Probably. And for two almost unknown reasons.

The Big Legal Benefit of an LLC: Limited Liability…

The big legal benefit of an LLC is that limited liability companies provide all the same liability protection as a corporation–but with much less red tape. A regular corporation, for example, requires regular stockholders meetings, a board of directors, regular board meetings, and of course records of all these activities and bodies. But a limited liability company doesn’t.

This legal liability protection provided by an LLC can be extremely valuable.  An LLC protects business owners from the worst case scenario–kind of like a “slip and fall” accident on the business property.

With an LLC as the business owner, so says my attorney friend, the “worst case scenario” is liquidation of the LLC. That liquidation means the people who own the LLC wind up with nothing–which isn’t good. But all the owners lose is what they’ve invested in the LLC.

In comparison, without an LLC, the business owner’s “worst case scenario” if there’s a “slip and fall” accident is that the owner can lose almost everything they own. In other words, the business owners could lose not only their investment in the business but many other assets as well.

You may not get as much legal liability protection from an LLC as you want or hope. Say, for example, that you’re repairing the roof at the business location and that, unfortunately, you happen to drop a hammer onto a customer’s head during the roofing project. Your LLC probably won’t protect you from that sort of tort liability. In other words, the customer can probably look not only to your LLC for payment of damages related to the dropped hammer but also to you personally.

And here’s another example, which unfortunately makes things even murkier. What happens if someone working for you, one of your employees or subcontractors, drops a hammer on the customer’s? The LLC may offer you some protection in this case. But you may still be personally responsible. The customer might reasonably argue that you should have done a better job managing the employee or subcontractor, for example.

If you’re extremely concerned about the asset protection features of setting up and operating an LLC, get an attorney involved in your business planning. An attorney knowledgeable in LLC and business law can help you increase the liability protection that you gain from using an LLC for your business. And this consultation doesn’t need to be particularly expensive. You may be able to buy an hour or two of time from a good local attorney and get all your LLC- and liability-related questions answers.

The Big Tax Benefit: Enormous Tax Flexibility…

A second benefit of LLCs relates to the income taxes that business owners pay on profits and capital gains. A limited liability company can be almost whatever tax entity it wants to be for income tax purposes. A limited liability company that is owned by one person can be a sole proprietorship, a C corporation, or an S corporation. A limited liability company that is owned by two or more persons can be a partnership, a C corporation, or even an S corporation (if the LLC meets the S corporation eligibility requirements). This second benefit of the limited liability company means that an LLC can choose to be taxed in whatever way is most favorable to the business.

For example, a very small real estate business with a single member (LLC owners are called “members”), might decide to be treated as a sole proprietorship for federal income tax purposes. This decision to be treated as sole proprietorship would keep the business’s accounting very simple–and it would also mean that unique tax planning opportunities available to sole proprietorships can be used.

A larger business operation–perhaps one with several partners–might decide to operate as a C corporation or as an S corporation in order to take advantage of some of the unique tax planning advantages of these entity choices. A C corporation, for example, often lets businesses provide rich tax-free fringe benefits to employees including shareholder-employees. And an S corporation often lets a business dramatically reduce the self-employment, social security and Medicare taxes paid on the owner’s profits.

While a limited liability company is not difficult to set up by yourself–you can have the paperwork done less than a quarter hour from now–you should be aware that paying a few hundred dollars to an accountant to pick the right taxation for your new LLC might be the best investment you ever make. It’s common that the right taxation choice for a new LLC can save the owner or owners of a small business $10,000 to $20,000 annually.

The Drawbacks of the Limited Liability Company Choice

When you consider the two big benefits of a limited liability company–limited liability but with less red tape and tremendous tax flexibility–you have almost the perfect business entity choice. So an obvious question is “Why wouldn’t every business use an LLC or limited liability company?”

Perhaps predictably, there are some costs and headaches associated with operating as an LLC.

An LLC may increase your banking, accounting and insurance costs. For example, while the bank account for a sole proprietorship or informal partnership may be free if you keep a large-enough balance, the bank account for a limited liability company probably won’t be free. The bank may charge $10, $20, even more each month.

While a sole proprietorship can keep its bookkeeping and income tax return preparation very simple, an LLC probably needs to file its own tax return if the LLC operates as a partnership, a C corporation or an S corporation. And this LLC tax return may cost anywhere from a few hundred dollars to a few thousand dollars annually.

Finally, it’s worthwhile to note that an LLC may involve several hundred or even a few thousand dollars of startup expense. For example, you may spend money on publications. You may buy the services of accountants and attorneys. You will need to print new letterhead, business cards, and envelopes (if you use these) that use the new LLC’s name in order to show the world that you’re now operating as a limited liability company.

 

Arzo Enterprises