Terminating a Dealer Requires Careful Deliberation

At some point, most suppliers must confront
the decision of whether to sever a relationship
with a wholesale distributor, retail dealer or
commissioned sales representative. Since decisions
of this nature can be disruptive and frequently lead
to costly litigation, it’s important that a careful and
methodical process be followed…

Before finalizing a decision to sever a dealer relationship,
there should be a thorough consideration of potential
alternatives. One option may be to attempt to rehabilitate
the dealer and allow more time to cure problems
which are of concern. Termination decisions are sometimes
postponed simply to give the dealer another chance
or because counsel believes it is necessary for the company
to build a better record to support termination. If the
relationship is non-exclusive, it may be possible to appoint
a new dealer in the territory to compete with the problem
dealer.

If the dealer simply can’t handle all of its responsibilities, perhaps the dealer’s territory may be
reduced or the products it is allowed to sell may be limited.
If the dealer is given an opportunity to cure deficiencies,
the supplier may seek to negotiate a probationary or
conditional agreement with specific performance criteria.
If the supplier is firm in its decision to sever the dealer
relationship but is concerned about the risks and/or costs
of litigation, thought should be given to negotiating a buyout.
Sometimes, after all of the analysis has been completed,
the best decision is to take no action.”

From a Poley and Lardner article.

HSR Filing Thresholds Amended

On January 25, 2005, the Federal Trade Commission (“FTC”)
announced new thresholds under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (15 U.S.C. §18a) (“HSR”). The new
thresholds will become effective 30 days after publication of notice
in the Federal Register – which publication may take place in the
next few days. The revised thresholds apply to transactions that
close on or after the effective date. The threshold adjustments are
a result of major HSR amendments in 2000 which substantially
increased the HSR thresholds. The 2000 HSR amendments require
annual indexing of the thresholds based on changes in gross
national product for each fiscal year beginning after September 30,
2004. Accordingly, the HSR thresholds will continue to change
each year going forward”

From a Foley and Lardner article.

Employee Benefits in Bankruptcy

“The downturn in our economy in recent years has resulted in the frequent intersection of important federal laws, including the Bankruptcy Code, ERISA1, the Internal Revenue Code and COBRA.2 This article will discuss the interplay of these laws as they relate to employee benefit issues that typically arise in a Chapter 11 bankruptcy of the employer who sponsors a benefit plan, and in a bankruptcy filing by the employee who participates in a retirement plan.”

Via this post from Benefitsblog.

Are You Ready to Go Global?

“Don’t think of offshoring as just reducing expenses -it’s a great way to generate new revenue. This Harvard Business Review excerpt helps you determine if your company is ready for a global reach.”

Release Early and Often

From a post by Ed Sim reporting on a panel discussion in which he participated that was focused on helping entrepreneurs build a winning technology company:

“1. Release early and often – It is better to release an imperfect product, get feedback, and continue evolving than trying to release the perfect product because you may never get there and run out of cash before doing so.

2. Filling the product management/marketing role early is key. Having a person who can shape the product and prioritize features by gathering the data in terms of what customers need near-term and what the market may need longer term is imperative. More often than not I find early stage companies that are engineer-driven that spend too much time on features that the market may not need. Avoid this problem early on and focus your limited resources on the right priorities.

3. Sales ramp – Do more with less and be careful of ramping up sales until you have a repeatable selling model. In other words do not hire too many sales people and send them on a wild goose chase until you have built the right product, honed the value proposition, identified a few target markets with pain, and can easily replicate the sales process and model from some of your customer wins.”

Space Entrepreneurs

The International Association of Space Entrepreneurs mission is to promote ‘”lobal entrepreneurship in the space industry through concerted efforts in business, public policy, and education.”

From a Common Knowledge post.

IP Strategy Can be Key to Attracting Venture Capital

In an excellent and comprehensive article, Steven C. Furlong of Altera Law Group, explains that clearly connecting a company’s intellectual property strategy with its business plan can secure a vital link to venture capital funding. The article focuses on Newco, a hypothetical medical device company, but has broader application. Among the many useful nuggets of information and takeaways are the following:

“Most medtech companies seeking funding know that a solid strategic plan is vital, but many do not appreciate the important, and sometimes pivotal, role that the development of a comprehensive and defensible IP position plays in that plan. Most realize that they need protections for their IP, but many don’t understand that all protections are not equally important or necessary. In fact, appropriate choices regarding how and what to protect can be a valuable asset that enables a company’s market strategy to play out successfully. Conversely, a poor strategy can be fatal to the chances of attracting capital, thus dashing hopes of building a successful business…

Companies often view the formulation and deployment of an IP strategy as a necessary evil, giving this function only minimal attention and resources. This ignores the reality that companies get to reap their rewards only if they have managed IP right. Investors know this, so they pay particular attention to it…

Venture investors will always look for the strategy behind the IP portfolio and the choices that are implied in the strategic plan. They’ll want to see what IP protections are being deployed (trademarks, utility patents, business method patents, copyrights, and so on) and what they cover. They’ll also need to know whether the inventions covered are the right ones to protect. Perhaps some aren’t worth protecting. Patents may properly be used offensively, defensively, or both ways. The company should determine up front if they are constructed to accomplish the right mission. When the correct approach is established, the patents should be deployed accordingly…

Newco should make deliberate choices regarding the use of IP to implement the business strategy, including what to patent, trademark, or copyright, and how to craft each type of protection. Broad patents are valuable and often necessary, but narrowly framed patents might also be required. Neither is better than the other; they just serve different ends. All patents create obstacles for competitors to overcome. The main thing is that each patent in a portfolio should be an essential element in a comprehensive plan to enter and defend a market space…

Attracting a venture capitalist is mainly a matter of instilling confidence that the start-up will fulfill its promise in four key areas. First, the investor must be confident that Newco’s management team competently plans its business, assesses realities, and makes choices… Second, the investor has to have confidence that Newco has a great invention that will succeed in an attractive market…

Third, of prime importance to the investor is confidence that Newco will get its invention to market effectively and efficiently. IP protections should be sufficient to ensure that the invention enters the market without undue and costly dispute over who owns the space it claims….Fourth, and as critical as any of these concerns, the investor has to be confident that what is now Newco’s will stay Newco’s; that is, that Newco’s invention, which makes the whole enterprise possible, is adequately protected, and that the nature of the protection serves the company’s business strategies.”

It’s a Great Time to Sell a Business

“It’s A Great Time to Sell a Business” and “We invest in people” were the two themes that emerged from the recently held 11th Annual Conference of the Pittsburgh Chapter of the Association for Corporate Growth. As explained by Michael E. Gibbons, Senior Managing Director of Brown Gibbons Lang & Co., buyout funds are flush with cash and aggressively seeking to invest it and pricing multiples are “going through the roof.”

Glen B. Kaufman, Managing Director of American Securities Capital Partners, LLC confirmed the positive sentiment by stating that the M&A market was the strongest he had seen in years, highlighted by aggressive buying activity from private investment funds. He stated that EBITDA pricing multiples from recent transactions were more than double the level of two years ago.

In percentage terms, more equity is being invested in acquisition deals. Senior debt, from bank and non-bank sources is more readily available. Consequently, as explained by Albert M. Ricchio, Managing Director of Dymas Capital Management, LLC, subordinated debt providers are being squeezed. In fact, some deals are being structured very simply with a layer of equity, a layer of senior debt and options for management.

As to early stage investing, the message was more mixed. Panelists indicated that deal flow was steady and that capital is plentiful with regard to larger transactions and more mature startups. Joel Adams, Managing Partner of Adams Capital Management wondered, however, whether there is too much capital chasing too few quality transactions. He also noted that valuations for early stage investments were not uniformly increasing, that valuations were being more influenced by industry and geographical location than a general trend upward.

One particularly positive trend was noted by Jeanne Cunicelli, Principal of Bay City Capital when she stated that substantial capital was being reserved by venture capital funds for follow on investments in the companies they were backing. Ms. Cunicelli indicated that this trend and others she observed led her to conclude that the “quality of capital” is high at the present time.

With regard to very early stage investing, Patrick Stewart, Managing Director & President of IdeaFoundry, indicated that angel investors, many having been burned in the dot.com burst, are more cautious than in earlier boom times. In general he stated, angel investors are most comfortable investing in companies that have customers and revenues. It appears that the days when a software hotshot could raise millions with a “big idea” are indeed over.

One interesting theme was repeated over and over at the conference by both venture capital and buyout fund investors — “We invest in people.” They seem to be saying, yes, you need a good idea, a good product, a good plan and numbers that add up. But that is not enough. We need to believe in you as a person. Can you accomplish what you are promising? For those seeking funding, the importance of a good management team, an enthusiastic project champion, and people who can get things done, cannot be stressed too strongly.

12 Months to Startup

“What are you going to be doing a year from now? If your answer is ‘Same old job, same old life,’ then it might be time to shake things up and start that business you’ve been dreaming of.”

To help you out, this post from Entrepreneur.com outlines 12 monthly tasks that’ll put you on the path to entrepreneurial success.

“By this time next year, you don’t have to be in the ‘same old job’ -you can be in business.”

Push vs Pull Software Products

“The book (Purple Cow) argues that advertising as a way of growing a business is dead, and that a product has to be able stand out own like a ‘purple cow’ and sell itself through word of mouth.

This has been my philosophy as well in my software development. Products that are remarkable and ‘pull’ in customers are superior to ‘push’ products, that require convincing and advertising to sustain sales. Remarkable products spur people and the press to talk about the products, resulting in free advertising; this creates a positive feedback loop, where greater awareness leads to greater discussion, which, in turn, results in ever more awareness until saturation occurs.

There’s a tendency for companies to build ‘me too’ products, because there is an established market for the product and someone else has already thought about the interface design for that category. There probably is some truth to this as some marketers warn entrepreneurs to beware of markets with no competitors, because there may be no demand; the counterargument is that there is always a first product in any given category. The problem with ‘me too’ products is increased competition.”

From .NET Undocumented: Purple Cows.