The Importance of Legal Entity Structure for Startups

Startup Business Structure: Guide to Legal Entity Structure

Two keys to success in almost any entrepreneurial venture are preparedness and adaptability. When you are bold enough to start a company based on your own unique vision, there are many challenges and issues to consider. But what should not get lost in the ether is choosing the proper type of business entity for your company. Your legal entity structure is both the foundation and the framework that will prepare you to achieve your business aspirations in the future.

As circumstances may change over time, in either your business situation or the prevailing laws, you should be nimble enough to adapt. Case in point, as outlined later in this article, there are some brand-new changes to the Connecticut Limited Liability Company Act that are worth considering if you have established, or are considering establishing, an LLC.

TYPES OF BUSINESS ENTITIES
Sole Proprietorship
The simplest and, by far, the most common form of U.S. business entity is the sole proprietorship. Apart from actually opening for business and filing a certificate for the trade name you will operate under, there are no other formal or legal requirements—so there are no associated costs. It is also an advantageous form of ownership from a tax perspective as all income and expenses flow through to your personal income tax return. So, business losses can be used to offset income from unrelated sources. The downside is that the business owner is personally liable for any debts, judgments or other liabilities of the business. In some cases, however, a personal umbrella liability policy may provide some protection.

Partnership
If two or more individuals will be involved in your business, either as owners/operators or passive investors, a partnership may provide an adequate business structure to meet your needs. This can be a general partnership, in which all partners share in the management responsibility and business liabilities, or a limited partnership with a combination of general partners and limited partners, the latter of which bear no responsibility or risk exposure beyond the level of their personal investment. Exposure to liability rests solely with the general partners in a limited partnership. To lend some formality to the business arrangement and to avoid misunderstandings over roles and accountability, a partnership agreement is usually a good idea. As compared with a sole proprietorship, the accounting for a partnership is a bit more complex. There may be legal expenses involved if you decide to create a partnership agreement, but both entity forms enjoy the benefits of a relatively simple business structure to own and operate along with pass-through tax treatment.

Corporation
An independent legal and tax structure that is separate from its owners, the corporation is widely considered the best entity structure for business owners who anticipate a significant growth trajectory and seek personal protection from business liabilities and debts. There are a number of state filings and ongoing regulatory and administrative requirements that can be expensive and time consuming, but on the plus side, corporations are perhaps best suited to attract outside investors and shareholders. On the downside, corporations are subject to so-called double taxation in that the business itself is a taxable entity, and the profits, when distributed to owners in the form of dividends, are also taxable to the owners personally. Of course, with the assistance of an able accountant, you may be able to reduce tax exposure by deducting qualified business expenses and by allocating profits to the owners in the form of reasonable compensation.

The subchapter S, or S corporation, is a corporation structure sometimes chosen by smaller companies principally to protect the organization from double taxation. Some of the disadvantages include a limit in the permissible number of shareholders (not more than 75), the requirement that all shareholders be U.S. citizens, and the inability to offer equity interests other than common stock.

Another subset type of corporation that is widely popular in some circles today is the benefit corporation. This entity structure codifies a corporate commitment to act morally, ethically and responsibly with regard to society and the environment. Currently, 33 U.S. states and the District of Columbia have passed laws permitting the formation of benefits corporations, and six other U.S. states are reportedly “working on it.”

Limited Liability Company (LLC)
Considered by some to be the best of both worlds, the limited liability company shares key advantages of both corporations and partnerships. If you form an LLC, you can take advantage of the liability protection of a corporation along with the pass-through tax treatment of a partnership. LLCs also share some of the disadvantages of corporations and partnerships. There is some initial red tape—such as applying for tax ID and employer ID numbers. And just as corporations are required to file a certificate of incorporation and create a set of related bylaws, LLCs must file a certificate of organization and, if there is more than one member, create an operating agreement. After formation, however, LLCs are spared some of the ongoing formalities of corporations. For instance, you will not be required to hold annual meetings and maintain official minutes. One of the disadvantages you’d face is that, as with partnerships, LLCs cannot go public and therefore cannot issue publicly traded stock, making it more challenging to raise capital.

DECISION POINTS

As we have clearly delineated under each of the legal entity structures outlined here, the two principal deciding factors in selecting a form of legal entity are taxes and personal liability. The ability to attract investors and raise capital has been shown as another key issue to consider. Finally, but not insignificantly, there is the cost of establishing and maintaining the chosen business structure—primarily legal, accounting and administrative expenses and ongoing record-keeping requirements.

EXPERT GUIDANCE

To delve into the complexities of this topic for startups, we’ve tapped a couple of legal experts who have extensive hands-on experience working with a variety of companies to help them consider all the implications of these decisions.

First, we spoke with Matthew Monteith, an attorney with the law firm Shipman & Goodwin LLP. The following questions and responses outline some of the advice he offers his clients as they begin to think about choosing a legal entity structure.

CI: Should choosing a legal entity structure be among the first things a startup does?

MM: The short answer is that it depends on your circumstances—whether your business is still in the idea stage or further along, whether you are working alone or with other owners, and the specific nature of your business and its products or services. It makes sense to wait until your business plan is more definitive. However, before you get too far afield, you must decide on the most suitable business structure. It’s not a matter of whether to establish a formal legal entity; it’s a matter of when.

CI: What is the most important factor to consider in the decision whether to incorporate?

MM: The number-one reason to establish a corporation or an LLC is to limit liability. If you plan to sell a product or service that has the potential to cause physical harm or financial loss, you will want to form a legal entity that will provide some protection. If you were to form a sole proprietorship or a general partnership, all of your business and personal assets would be fair game for potential litigants, whereas with a corporation or an LLC, you effectively segregate the assets of the legal entity from your personal assets. It is important to note, however, that merely establishing a corporation or LLC is not enough—your personal assets are only protected to the extent that you follow the legal entity rules. For instance, if you continually access business assets for your personal use, you may invalidate the justification to shield your personal assets. This is what is called “piercing the corporate veil.”

CI: What other issues come into play in the legal entity choice?

Certainly the tax implications are an important factor—beyond the issue of whether your business will be a pass-through or subject to double taxation, there are other tax benefits and rules to consider. Other than that, if you have intellectual property, if you are ready to begin selling your product, if you have multiple founders, if you plan to seek outside investment, if you will be entering into a contract on behalf of your company . . . in all of these situations, you will be well served by the formality and established parameters of a defined legal entity structure.

CI: If raising capital will be vital to a startup, how will this impact the legal entity decision?

MM: From a practical standpoint, your target investors will often drive your decision in terms of legal entity form. Most institutional investors tend to prefer to invest in C corporations, although many are certainly willing to invest in LLCs. Of course, if an initial public offering (IPO) is likely in your future, you’d have to convert your LLC to a C corporation before going public. The other potential downside of the LLC is that some individual and angel investors are not as comfortable with the LLC terminology of members and managers as opposed to the more familiar shareholder role.

ADAPTING TO CHANGE

Even after you have chosen a business structure, that doesn’t mean that nothing will ever change. The factors that make one type of business entity best suited to your company may be impacted by changes in the law. In fact, there have been some major changes to the Connecticut Limited Liability Company Act that just became effective on July 1, 2017.

To explore the significance and impact of these changes, we spoke with Gregg Lallier, an attorney with the law firm Updike Kelly & Spellacy PC.

CI: It has been stated that the new LLC act will create a more “business-friendly” legal environment for LLCs. How so?

GL: One of the chief disadvantages of the prior LLC act in Connecticut was its lack of uniformity as compared with the laws of other states. The new act—the Connecticut Uniform Limited Liability Company Act—is patterned after the Uniform Act that is currently in place in 17 other states in the United States. This is important because we can now look to the legal precedents already established in those other states for guidance as we endeavor to apply the new act to LLCs operating in Connecticut.

CI: Can you point to some of the new law’s more noteworthy aspects of which existing LLCs should be aware?

GL: There are some changes in the new act that redefine the fiduciary duties of members and managers and their related duty of loyalty. Essentially, the new act treats members who are not managers of the LLC more akin to shareholders whose only risk exposure is the extent of their investment in the business. Many would consider this a positive change. There are also certain other stipulations in the new act with regard to the voting requirements to amend the certificate of organization or operating agreement and the votes required to admit new members to the LLC. In these and other matters related to the new act, by and large the law will continue to defer to the existing operating agreement as the final arbiter of operational protocol. It is worth noting, however, that in cases where the operating agreement is silent on a specific issue, the default provisions of the new act will prevail. And in other cases, the operating agreement is prohibited from contradicting the new act.

CI: Should existing LLCs make changes to their operating agreements based on the new act?

GL: You don’t necessarily have to redo your operating agreement. However, due to some of the nuances referenced in the previous question, prudence would dictate that you should have an attorney review your existing LLC operating agreement to determine whether any modifications are called for.

CI: If a new company is considering various legal entity structures, is there anything about the new law that might make choosing an LLC more compelling?

GL: There is nothing specific in the new act that makes an LLC any more or less compelling. Choosing a legal entity structure is really more of an economic than a legal issue. An LLC will always be attractive if you want to take advantage of having income pass through to your personal tax return and have the ability to offset income and losses. But the predominant deciding factor comes down to whether your company will need outside investors. If it will, you may find that investors have a specific preference of entity structure and perhaps a preferred state of incorporation—for example, Delaware.

THE BOTTOM LINE
Determining the most advantageous legal entity structure for your startup is an important decision with far-reaching implications. Therefore, it’s one of the pivotal times when you really should seek out professional tax and legal advice. Although you undoubtedly have a firm grasp on the near-term needs of your business and the future state you are striving for, there is great peace of mind in having experts to guide you through the myriad opportunities, risks and “what-if” scenarios that simply may not occur to you.

Gregg J. Lallier is an attorney and shareholder of Updike Kelly & Spellacy PC. His practice primarily focuses within the high-tech and venture capital industries. Gregg has represented both mature and emerging growth companies in a variety of high-tech enterprises, including software, information technology, e-commerce, clean technology and healthcare services and equipment. He also regularly represents angel, venture capital and other institutional investors.

Matthew Monteith, a former CI employee and an associate with Shipman & Goodwin LLP, practices primarily in the areas of business and finance. He represents commercial banks, venture capital investors, private equity funds and other senior and junior lending institutions, as well as emerging growth companies and other corporate borrowers, in connection with a variety of commercial transactions including term and revolving credit facilities, mezzanine financings, acquisitions and dispositions, preferred equity investments, entity formation, and general corporate and contracting matters.

The Age of Digital Commerce Democratization: How Brands and Retailers Will Be Growing Online Business

It certainly does seem like so much commerce today is happening online. From home goods to clothes to food, people are clicking and tapping to get the things they need and want.

In reality, the numbers suggest that e-commerce is still in its infancy. Despite the booming popularity of online retailers like Amazon, Jet and Walmart and the fact that nearly every brand stands up its own online store, e-commerce—or digital commerce—still makes up only around 5–10 percent of overall retail today. Analysts universally project that number to grow exponentially in the years to come, posing both significant opportunities and challenges for retailers and brands eager to capitalize. Those who embrace technology are likely to have the upper hand.

In the early days of e-commerce, disparate technology platforms and incompatible systems made it difficult for brands and retailers to integrate seamlessly. For a brand to have its products sold on a retailer’s online storefront, it might have to invest millions of dollars to acquire and implement the proprietary technology used by that particular retailer. A brand with constrained resources, therefore, might only be able to engage a small number of online retailers.

Today, advances in connected commerce technologies are removing those barriers, making it so much easier for brands to connect to retailer sites and allowing retailers to expand the catalog of products. Technology is allowing back-end systems to seamlessly connect and talk to one another, no matter the legacy systems in place, enabling brands to have their products seen in more places and allowing retailers to ultimately offer more choices to their customers.

Advances in technology have benefits for individual retailers and brands as well.

For brands, the manner in which their products are presented on a retailer’s site is critical and hugely sensitive. In the past, brands were pretty much at the mercy of the retailer who decided where to position the product, which competitive products to group it alongside, etc. If a brand wasn’t happy with how it was presented online, there was little it could really do aside from pulling its product lines altogether and risking a hit to its profits in the process.

With the ability to more easily connect with multiple retailers, brands can be more selective and have greater control over how they are presented and portrayed, moving products from one retailer to the next if they are unsatisfied or if they are simply seeing better results from a particular retail platform.

For retailers, advances in connected commerce technology mean that they can greatly expand the catalog of products available on their sites and enlist a greater number of brand partners who can quickly drop-ship products directly from the brand warehouses. Retailers can also provide more choices to their brand partners with regard to connecting to their back-end systems without having to invest significant dollars to do so.

A report from eMarketer projects that worldwide, e-commerce sales will jump from $1.91 trillion this past year to $4.05 trillion in 2020. Just about any analyst report plucked from the internet suggests the same—digital commerce will continue to grow.

Retail industry players can no longer identify themselves by the products they sell. There are no more clothing brands or home goods retailers. To effectively compete as digital commerce progresses, all need to think of themselves as technology companies. And if they don’t have the internal capabilities to embrace the digital revolution, the time is now to partner with a company that does. By leveraging and investing in the newest digital platforms, systems and technologies, brands and retailers can work more closely in partnership to deliver stronger offerings to consumers and claim a leadership stake as the connected commerce evolution progresses.

Peyman Zamani is chief executive officer at Logicbroker, a digital commerce company that connects fragmented brand and retailer platforms and strengthens the connections that enable digital commerce. The company will be hosting Connected Commerce 17, a one-day summit celebrating the future of digital commerce and exploring the opportunities to scale digital commerce operations to deliver an exceptional customer experience.

Cybersecurity Imperatives for Startups

Incidents of cyberattacks and malicious hacking seem to be dominating the news cycle of late, but computer system crimes have been increasing since the late 1980s. Many of the early occurrences were not meant to be harmful—skilled young programmers, often on a lark, sought to challenge the defenses of cyberspace.

Today’s attacks, however, have been far more nefarious—like the May 2017 WannaCry ransomware outbreak that affected more than 200,000 victims in at least 150 countries. While such high-profile cyberattacks tend to grab headlines, it’s really small businesses and startup companies that are the most vulnerable targets for cybercriminals. Yet, due to inattention and lack of resources, these businesses often have the least-protected IT infrastructures.

SOBERING STATISTICS

A May 2016 cybersecurity survey published by smallbiztrends.com shows that, “small businesses are not only at risk of an attack, but many have already been attacked. 55% of the respondents said their companies had experienced a cyber attack and 50% had data breaches involving customer and employee information over the prior 12 months.”

Perhaps the biggest cybersecurity risk facing small businesses is their failure to recognize the potential losses they could face. Research published by Towergate Insurance indicated that, “82 percent of small business owners believe they are not targets for cyberattacks because they don’t have anything of value to steal.” But the reality is that even small businesses have a lot to protect including their intellectual property, brand, reputation, and customer information.

Furthermore, if a cyberattack results in significant system down time, that loss of income may be unrecoverable. U.S. Congressional lawmakers in proposing legislation to help small businesses have stated that, “60 percent of small businesses that suffer a data breach go out of business within six months.” And according to its annual Cost of a Data Breach Study, the Ponemon Institute found that the average cost of a data breach increased from $3.79 million to $4 million in 2016.

TYPES OF CYBERTHREATS

There are many different types of cyberattacks with new techniques continuing to evolve daily. While cybersecurity and IT professionals work tirelessly to uncover and neutralize malicious threats, hackers are doggedly working to expose and exploit new vulnerabilities. While monetary gain is the most common motive for cyberattacks, disgruntled employees, vindictive competitors, angry customers and more can also pose a threat. The following list includes the most pervasive types of cyberattacks perpetrated today.

Malware is a broad term for a range of cyberthreats including Trojan horses, viruses, worms, spyware and the particularly notorious ransomware. These types of electronic infections typically enter systems via email attachments, software downloads or operating system vulnerabilities and often spread to other connected computers in a network.

Denial-of-Service/Flooding refers to attacks meant to intentionally overload a website or network with data requests as a means of crippling the system and blocking those with legitimate reasons to access system operations or functions.

Password Cracking efforts strive to discover passwords using techniques such as Brute force Attacks, which methodically try every password possibility one by one, Dictionary Attacks, which test various combinations of dictionary words and Keystroke Logging Infections, viruses that track user keystrokes.

Phishing usually employs an official-looking email or pop-up advertisement to entice customers or employees to click on a link and reveal their user names, passwords, account information or credit card numbers.

Man-In-the-Middle Attacks are a ruse whereby the perpetrator pretends to be both parties on either side of an online exchange. For instance, the criminal would trick a bank customer into thinking he or she is communicating with his or her online bank and once the customer logs in to the bank’s secure server, the criminal has full access to the customer’s accounts.

Pharming occurs when website visitors are redirected from a legitimate website to a bogus, imitation website. Once on the phony site, the customer can unknowingly share personal details such as credit card numbers and account information.

Inside Attacks can be the most disheartening for companies to face because they are the result of the deeds or misdeeds, whether malicious or unintentional, of their own employees. Disloyal and disgruntled employees in particular can pose a grave threat when their vindictive motives are unknown.

CYBERSECURITY SOLUTIONS

Once the various methods of cyberattacks are understood and the potential motivations for cybercrimes are explored, the question that remains is how small business and startups can protect themselves. To that end, the Federal Communications Commission has provided the following guidelines.

Ten Cybersecurity Tips For Small Businesses

Train employees in security principles. Establish basic security practices and policies for employees, such as requiring strong passwords and establish appropriate Internet use guidelines with penalties for violating company cybersecurity policies. Establish rules of behavior describing how to protect customer information and other vital data.
Protect information, computers, and networks from cyber attacks. Keeping clean machines with the latest security software, web browser, and operating system is the best defense against viruses, malware, and other online threats. Set antivirus software to run a scan after each update. Install other key software updates as soon as they are available.
Provide firewall security for your Internet connection. Make sure the operating system’s firewall is enabled or install free firewall software available online. If employees work from home, ensure that their home system(s) are protected by a firewall.
Create a mobile device action plan. Mobile devices can create significant security challenges, especially if they hold confidential information or can access the corporate network. Require users to password protect their devices, encrypt their data, and install security apps to prevent criminals from stealing information through public networks. Be sure to set reporting procedures for lost or stolen equipment.
Make backup copies of important business data and information. Regularly backup the data on all computers. Critical data includes word processing documents, electronic spreadsheets, databases, financial files, human resources files, and accounts receivable/payable files. Backup data automatically if possible, or at least weekly and store the copies either offsite or in the cloud.
Control physical access to your computers and create user accounts for each employee. Prevent access or use of business computers by unauthorized individuals. Laptops can be particularly easy targets for theft or can be lost, so lock them up when unattended. Make sure a separate user account is created for each employee and require strong passwords. Administrative privileges should only be given to trusted IT staff and key personnel.
Secure your Wi-Fi networks. If you have a Wi-Fi network for your workplace, make sure it is secure, encrypted, and hidden. To hide your Wi-Fi network, set up your wireless access point or router so it does not broadcast the network name, known as the Service Set Identifier (SSID). Password protect access to the router.
Employ best practices on payment cards. Work with banks or processors to ensure the most trusted and validated tools and anti-fraud services are being used. You may also have additional security obligations pursuant to agreements with your bank or processor. Isolate payment systems from other, less secure programs and don’t use the same computer to process payments and surf the Internet.
Limit employee access to data and information, and limit authority to install software. Do not provide any one employee with access to all data systems. Employees should only be given access to the specific data systems that they need for their jobs, and should not be able to install any software without permission.
Passwords and authentication. Require employees to use unique passwords and change passwords every three months. Consider implementing multifactor authentication that requires additional information beyond a password to gain entry. Check with your vendors that handle sensitive data, especially financial institutions, to see if they offer multifactor authentication for your account.

EXPERT GUIDANCE

To lend further context to this vital subject matter for small businesses and startups, we’ve tapped a couple of industry experts who are in the trenches day after day and have seen more than their share of the cyber underworld.

Gilad Peleg is CEO of SecBI—Security Business Intelligence—a well-known organization in the cybersecurity field for its adaptive investigation platform designed to help security experts and organizations investigate, respond to and prevent breaches. Here are some of his thoughts:

Don’t Forget to Protect Your Most Valuable Asset—Your Idea

As Peleg pointed out, “Every startup’s main asset is its Intellectual Property. They usually invest heavily in creating it, and very little in protecting it! Startups work fast and in distributed environments employing myriad tools, platforms and locations (on premise, cloud, VPN and remote work) and often put less emphasis on security. Even little things like ensuring that their employees’ laptops are password protected and are not left in the car [should not be] ignored.”

Think Beyond the Basics

Peleg said, “Startups need to deploy the basic security controls such as firewalls, anti-virus, secure web gateways, etc. However, deploying such systems is not a foolproof solution. Hackers might (and probably will) get through to access your network and possibly exfiltrate sensitive data. Today’s cyber security attacks utilize very advanced techniques that are extremely hard to detect, requiring great skill and expertise to perform what is called ‘threat hunting.’ Most startups do not have dedicated security personnel. This means they need to employ very efficient technology such as machine learning and artificial intelligence to enhance their security posture.”

Consistently Test Cybersecurity Systems

Peleg emphasized, “You can’t close all holes, but you can make a serious attempt to do as much as you can and then test yourself. Once all security controls have been deployed, utilize a solution that can quickly assess whether the network [has been] compromised or if there are active breaches or signs of data exfiltration.”

We also spoke with Yoni Shohet, Co-Founder and CEO of SCADAfence, a pioneering organization that delivers innovative cybersecurity solutions to the pharmaceutical, chemical, food and beverage, automotive and building automation industries.

As this article has stated, many startups underestimate their exposure to cyber threats. Shohet said, “Today, cybercriminals are able to gain financial benefits from hacking any organization – big or small. This is mainly thanks to ransomware attacks where the adversary takes control over sensitive data/devices and demands money in return. Any company that has Internet connected computers can easily become victims of such attacks where they can lose control over their intellectual property or sensitive customer data. Therefore, all companies must take the proper measures to ensure safety from these types of attacks—including proper backup of data, strict access control, strong authentication and encryption.”

Be Wary of Third-Party Vulnerabilities

As Shohet would point out to startups, “You are only as strong as your weakest link. This is true when it comes to third party vendors and your supply chain. Startups need to make sure that when they allow external parties to access their data, they should always make sure that they only have access to required information and that the maximum protection is put in place. This will allow these companies to better contain the potential damage caused by third parties.”

Start With the End In Mind

A final piece of advice Shohet offered is that, “Startups should build their own products with security in mind. This means ensuring that during the entire development life cycle that the products they develop are not vulnerable to attacks. For example, certain products cannot afford to risk an attack that might interfere with their operation or switch them off completely—such as lifesaving medical devices or smart home devices. Therefore, these products must be tested for security issues and vulnerabilities throughout the entire development process.”

FINAL WORD: MAKE CYBERSECURITY A TOP PRIORITY

As evidenced by the increasing number of cybercrimes targeting vulnerable small businesses, cybersecurity is a risk that startups must be prepared to actively manage. That means everyone in the organization—from owners to employees—must recognize the importance of protecting the company and its customers and be an integral part of the solution.

Is It Time to Revisit Your Social Media Strategy?

Almost without question, a social media strategy is a vital part of the marketing mix for most companies doing business today. But the question that remains surrounds the effectiveness of your strategy and how often and under what circumstances you should reevaluate your approach.

As social media becomes increasingly essential to business success, the Center for Marketing Research at the University of Massachusetts Dartmouth continues to monitor its use. Specifically, the center conducts an annual study of social media usage among Inc. magazine’s top 500 companies—the fastest-growing privately owned companies in the United States.

The research was collected in two stages. The first stage evaluated the use of eight social media tools: blogging, LinkedIn, Facebook, Twitter, Instagram, Pinterest, YouTube and Google+. The second stage involved interviewing a random sample of executives from the Inc. 500 to gain their perspective on social media effectiveness and its ability to translate into sales and revenue growth.

Key Research Summary: “We may be entering a time of great reflection, reevaluation and realignment of how new communication tools enhance not only brand awareness but sales.”

Given this broad research conclusion, how should companies react? To dive into this, we tapped the views of an industry expert, Chris Rinaldi, a digital strategist at ZAG Interactive.

RESEARCH FINDINGS

Most Active Social Media Channels

According to the research, 82 percent of the Inc. 500 companies employ at least one form of social media. LinkedIn remains the most popular for the fifth consecutive year, with 94 percent adoption, followed by Facebook (88 percent) and Twitter (79 percent). The most notable change from 2015 is the rapid increase in adoption of Instagram. Instagram jumped from 32 percent adoption in 2015 to 46 percent in 2016, making it the fastest-growing social media platform.[/cs_text][x_image type=”none” src=”http://ctinnovations.com/wp-content/uploads/2017/07/graph1.jpg” alt=”” link=”false” href=”#” title=”” target=”” info=”none” info_place=”top” info_trigger=”hover” info_content=””][cs_text]Source: University of Massachusetts Dartmouth Center for Marketing Research, February 2017.

These findings back the assertion that as social media continues to evolve, companies must actively evaluate which platforms are the best fit for their business and industry.

Vibrant Blogosphere

The findings of the study show that since 2007, the Inc. 500 have consistently outpaced the Fortune 500 (the largest companies based on revenue) in their use of public-facing corporate blogs. As shown in the chart below, while usage of blogs between both groups has fluctuated over the years of the study, in 2016, 42 percent of the Inc. 500 and 36 percent of the Fortune 500 had active blogs.[/cs_text][x_image type=”none” src=”http://ctinnovations.com/wp-content/uploads/2017/07/graph2.jpg” alt=”” link=”false” href=”#” title=”” target=”” info=”none” info_place=”top” info_trigger=”hover” info_content=””][cs_text]Source: University of Massachusetts Dartmouth Center for Marketing Research, February 2017.

In his expert opinion, Rinaldi believes that particularly for a new company, blogs represent a key way to cut through the clutter of a competitive marketplace and offer a unique point of view. He said, “I would venture to guess that Inc. 500 companies might use their company blogs more than Fortune 500 companies because it is easier for a startup to plan, implement, write and manage a blog than it is for their larger counterparts. In many cases, startups can be more agile in generating content, so these companies should take advantage of being able to relate more to readers in a distinctive way—solving potential customer problems with how-to articles, tips, industry trends and best practices to build a loyal following and increase the bottom line.”

Burgeoning Popularity of Instagram

The study revealed a dramatic increase in the adoption of Instagram among the companies researched. We asked Rinaldi what advice he would offer to companies in terms of the most effective ways to use Instagram.

He said, “First and foremost, companies should use Instagram in a way that aligns with their overall brand positioning, business goals and marketing objectives. Like all social media channels, Instagram should be utilized as another channel to reach potential consumers in a way that is authentic and engaging. Because Instagram is centered on images, companies should ensure that the photography is on point. If the image is not literally branded with the company logo, then it better be on brand—evoking the ethos of the brand in a visually arresting way. Since a picture says a thousand words, let the image do the heavy lifting, while the caption should include brand messaging, keywords and popular hashtags, as well as a call to action. Practicing these tips, companies must also remember not to come across as too canned or promotional on Instagram. Focus the posts on displaying aspirational aspects of your company, encouraging likes and comments. Lastly, commit to posting at least two times a week on Instagram during peak engagement times for your company.”

HOW TO EVALUATE SUCCESS

Moving the Dial on Sales

As part of the study, executives were asked which social media channels they felt were most effective in translating their marketing efforts into sales. Forty percent responded that they generate the most traction via Facebook. Another noteworthy trend revealed in the research was the continual drop in online advertising as well as a decrease in traditional print and broadcast media over the past three years, along with the concurrent increase in the use of social media networking platforms.[/cs_text][x_image type=”none” src=”http://ctinnovations.com/wp-content/uploads/2017/07/graph3.jpg” alt=”” link=”false” href=”#” title=”” target=”” info=”none” info_place=”top” info_trigger=”hover” info_content=””][cs_text]Source: University of Massachusetts Dartmouth Center for Marketing Research, February 2017.

Focus on ROI

The biggest concerns about using social media among the companies in the study were the ROI and the resources and time required to execute a compelling online presence. Of CEOs, 52–59 percent expressed reservations about whether the return warrants the effort.

Rinaldi responded, “Social media ROI can be difficult to measure, but there are both quantitative and qualitative means to do so. All major social media channels offer some degree of analytics that, when combined with overall site statistics, can indicate social media marketing effectiveness. Beyond these numbers, the benefits of social media include overall brand awareness and impressions, as well as the invaluable consumer feedback and customer service that occurs from the two-way conversation.”

Measures That Matter

It’s a generally accepted point of view that you can’t manage what you can’t measure.
We asked Rinaldi how analytics can be used to improve social media targeting and effectiveness.

He said, “The way the algorithms work on social media platforms today, companies have to pay to play. Companies need to budget for paid amplification on social media to ensure that their target markets will see their social media content. For optimal results, companies can create social media marketing campaigns focusing cover images, ads and posts on particular messages while driving to a trackable landing page for conversion. Using both social media analytics and ad tracking metrics in conjunction with site statistics, companies can measure, monitor and adjust tactics for maximum effectiveness.”

Along the same lines, the study concluded, “With the ability to target using platforms that attract either mass markets, or niche markets, social media efforts can become more efficient and possibly more effective in generating sales.”

WHAT ACTIONS TO TAKE

Because social media tools and platforms seem to endlessly evolve, adapting to change can be a challenge. That’s why the UMass Dartmouth study of social media trends across industries has been so closely followed for the past 10 years.

The findings of the 2016 study clearly indicate that companies are striving to adapt to a dynamic social media landscape, but this cannot be done without specific strategic planning for social media and active ongoing content management and monitoring.

Consider Consolidation

The study makes the case that as platforms become more and more alike in their capabilities (communities, videos, blogging, etc.), some consolidation might be in order.

Rinaldi commented, “While it does appear that many of today’s most popular social media platforms are becoming a bit homogenized, companies should still look to leverage the major channels in the manner that each specializes—Facebook (community outreach), Twitter (timely updates), LinkedIn (business networking), and Google+ (searchability). Before adding Instagram, Snapchat or another social channel to the mix, companies should see how they fare with the core four.” He added, “It is always better to do a good job on even just one social media channel than doing a poor one on a lot of them.”

Actively Manage and Monitor

When it comes to managing content, Rinaldi suggested, “Companies should make every effort to post unique content on each of their active channels, giving consumers a reason to follow each one. Companies should adhere to a content calendar, plotting out posts at least a month in advance to make it easier for their social media teams to focus on timely posts as they pop up.”

In terms of monitoring, the good news is that most executives interviewed (62 percent) reported that they do actively track their social media presence using a monitoring tool. They are reportedly following up on online conversations about their brands, products and industries. The study has shown that the Inc. 500 companies “understand how important it is to be aware of the opinions and perceptions their customers share online.” They recognize that “their brand identity and potentially their sales are dependent on having a positive online presence.” Finally, they recognize that “a lack of monitoring could have consequences for companies given the potential for viral communications now possible through social media.”

The UMass Dartmouth annual study is clearly a valuable tool to assess the most utilized channels of communication between companies and their customers and can be used as an aid to help evaluate when and whether to change course in the future.

Chris Rinaldi, Digital Strategist, ZAG Interactive

Three Tips to Make Your Marketing Better

CI’s portfolio companies are some of the most amazing I’ve ever worked with. Fascinating technology applied in brainy ways to effect groundbreaking innovation: Color me impressed! Despite being incredible—and vastly different—each company I consult with typically benefits from similar marketing advice. Here are my top three tips.

Assume a position. From social media to direct mail to advertising to SEO and beyond, there are almost as many marketing tactics as there are products. Want a simple guide for all of your efforts? Write a positioning statement. This short but powerful piece of prose defines your target market and outlines how you want your brand to be perceived, particularly in comparison with other options. Refer to this document, which is for internal use only, whenever you need to focus your marketing efforts. Every marketing tactic you use should support your positioning statement.

Here’s a template to get you started:

For [target market], the [brand] is [competitive frame] because [differentiator or proof point].

Zipcar’s positioning statement is hailed by marketing gurus as a good example. Let’s take a look:

To urban-dwelling, educated techno-savvy consumers [target], when you use Zipcar car-sharing service [brand] instead of owning a car [competitive frame], you save money while reducing your carbon footprint [points of difference].

Can you see how every time Zipcar makes a marketing decision it can refer to the positioning statement as a guide? For example, if Zipcar is trying to figure out whether to contact customers via Twitter or direct mail, they’ll know that their target market—urban, educated, techno-savvy customers—is probably more easily reachable and more receptive via Twitter.

Don’t make potential customers and investors work too hard. You may have the most sophisticated technology backed by the most brilliant scientists and used by the most prominent Fortune 100 companies/Yale-trained surgeons/astronauts. But, if you can’t explain it quickly and simply to your audience, potential investors—even me—you’re making your professional life a lot harder. People are busy. They’re not going to spend a lot of time deciphering highbrow prose. Keep your company and product descriptions clear and simple. Bonus points if you can write them without buzzwords.

Consider: This groundbreaking, state-of-the-art product uses breakthrough technology to offer advanced solutions for cerebrovascular accidents.

Huh?

Better: Our catheter-based retrieval device allows you to remove clots more quickly and safely than ever before, vastly improving outcomes for your stroke patients.

Focus on the customer. I see so many company and product descriptions that are well written and accurate, but simply miss the mark from a marketing perspective. Your customers don’t care what you do—they care what you do for them. This means you should use “you” a lot more than “we” or “us.”

Think you’re focused on your customers? Find out for sure at http://www.customerfocuscalculator.com/ . Simply enter your URL and the free “we we” calculator will let you know. I tested one of our former portfolio companies (I won’t say which one), and here’s what came back:

“It appears that your web page has 3 words focused on your visitor, while it has 12 words focused on your business. That means your site is focused on your customer 20% of the time, while focused on your business 80% of the time. It appears that this web page speaks about your own business more than 4 times as much as it speaks to your customer. It’s likely that this is having a negative impact on your conversion results.”

To fix it, simply rewrite your sentences so they focus on the customer. Instead of “Our platform is the best educational platform in the world,” you could say, “You need a better educational platform. Your search is over…”

Finally, focus on benefits, not features. Even better? Focus on the benefits of the benefits—the emotion behind what your product or service delivers.

Consider three examples:

Our chef’s knife features a carbon steel blade, polypropylene handle, laser-controlled edges and full bolsters. (Marketing the features.)
Our chef’s knife has a carbon blade which ensures that you’ll make sharp, precise cuts every time you cook, while the polypropylene handle offers you no-slip comfort. Full bolsters keep the knife evenly balanced for easier handling while you chop and slice. (Marketing the benefits—much better.)
You’ll feel like Emeril when you use our professional-grade chef’s knife. Chopping, dicing, slicing—you’re in control and will make beautiful, even cuts every time. Bask in the glory of your guests’ admiration as you present a gorgeously carved steak and perfectly prepared crudités while they sip wine and ooh and aah over your culinary skill. (Marketing emotion—better still.)

As Harvard Business School professor Theodore Levitt said, “People don’t want to buy a quarter-inch drill, they want a quarter-inch hole.” Explain how you’ll deliver it to them.

Got your own marketing tips to share? Let us know on Facebook, Twitter or LinkedIn.

About the Author

Amy Hourigan is vice president of marketing and communications at Connecticut Innovations. You can contact her at amy.hourigan@ctinnovations.com.

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Key Elements of Sustainable Companies

[cs_content][cs_section parallax=”false” style=”margin: 0px;padding: 0px;”][cs_row inner_container=”true” marginless_columns=”false” style=”margin: 0px auto;padding: 0px;”][cs_column fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″ style=”padding: 0px;”][x_image type=”none” src=”http://ctinnovations.com/wp-content/uploads/2017/05/Content-Detail-News.jpg” alt=”” link=”false” href=”#” title=”” target=”” info=”none” info_place=”top” info_trigger=”hover” info_content=””][/cs_column][/cs_row][/cs_section][cs_section parallax=”false” style=”margin: 0px;padding: 45px 0px;”][cs_row inner_container=”true” marginless_columns=”false” style=”margin: 0px auto;padding: 0px;”][cs_column fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″ style=”padding: 0px;”][cs_text]Key Elements of Sustainable Companies

Leaders of three Connecticut companies that have stood the test of time share some of the keys to their success.

Starting a new business comes with its own set of challenges. But once that business is up and running, entrepreneurs face an often more daunting challenge: how to keep the company flourishing over the long term. Leaders of three Connecticut Innovations portfolio companies that have been in business for decades recently shared their reflections on the elements that have contributed to their companies’ staying power.

Be Ready to Change

A factor all three executives point to is the ability to evolve in order to seize opportunity or respond to changes in the environment. “We’ve had to reinvent ourselves countless times,” says David Andrews, founder and chair of Datalytics Technologies LLC. The company, originally called Andrews Consulting Group, reached a milestone this year when it completed its 30th year in business.

Datalytics got its start in 1984 helping smaller companies update their computer systems. A few years later, Andrews and his colleagues got wind of a revolutionary new computer IBM was about to introduce. Seeing opportunity on the horizon, Andrews says, “We transformed ourselves into the world’s leading expert on a computer that didn’t even exist yet.” IBM eventually engaged Andrews to help plan and launch the product, called the AS/400. “We continued to help companies replace their computers,” Andrews says, “but instead of the System/38 we did with the first client, we were helping companies put in AS/400 computers, so the size of the companies we were dealing with got even bigger.” Helping medium to large businesses adopt the AS/400, as well as helping companies avert Y2K disruptions, kept Datalytics busy through the 1990s.

After 2000, though, the AS/400 rush was winding down, and Y2K was history. Datalytics needed to reinvent itself again. “We started experimenting with doing two or three different things with our business,” Andrews says. A new concept called “business intelligence” was starting to sweep the industry. Companies needed to be able to take data from software—such as the J.D. Edwards software Datalytics was expert in—and move it to a separate computer called a data warehouse, where it could be stored and analyzed to extract meaningful information. Sensing a growing demand, Datalytics built a data warehouse that became a supplement to its J.D. Edwards business.

A series of high-level takeovers involving J.D. Edwards, Oracle, Business Objects and SAP resulted in Datalytics’ partnership with leading companies and its emergence as a high-technology software company. Its own product, RapidDecision EDW (Enterprise Data Warehouse), is now being used by some of the world’s foremost companies.

“The world of technology is adventure-filled,” says Andrews. “Every business these days needs to rethink and reinvent itself, because the world changes so fast.”

Jerry Long, co-founder and CEO of the nearly 20-year-old PCC Technology Group LLC, also identifies the ability to change as a key requirement for sustainability. Long’s first company, PC Consultants, did well from the late ‘80s and well into the ‘90s by training public employees in the basics of computer usage. By the mid-‘90s, however, most of those who needed training had received it, and young people coming out of college already had computer skills. “The writing was on the wall,” says Long. “We needed to find something else to do.” So, in 1995, Long and partner Joe Singh launched PCC Technology Group. Like Datalytics, PCC was busy with Y2K projects in the late 1990s, but went on to become a provider of business domain expertise and information technology solutions. The company’s services include application outsourcing, e-governance, e-solutions, system integration, strategic planning and contract professional staffing. PCC, Long says, “has evolved tremendously. We’re not doing a lot of things we started out doing. We were able to see the opportunities that were presented to us and do what we needed to do to take advantage of them.”

David Green, president of Phoenix Soil LLC, is in a very different line of work. The company he started in 1993 treats contaminated soil to transform it into clean fill. Yet the ability to change has kept his company in business twice as long as his original business plan anticipated, and the business is still going strong. The company began when the state introduced regulations requiring the removal of underground storage tanks. Today, Phoenix processes materials excavated during urban redevelopment, housing construction, state transportation projects and more. The company has continually changed the technology it uses in processing materials. “You have to be ahead of the curve with the latest technology,” Green says. “Especially in the environmental field, the latest technology becomes the ‘best available control technology.’ If you don’t have that, you can’t continue to exist.” Green’s company recently moved to a new facility and invested $650,000 in technology advances.

“In business, you have to go to the next level, or you have to go home,” Green says. “You can’t stand still in business, because it’s a constantly moving field.”

Stay Vigilant, Stay Informed

David Green adds that staying ahead of trends in one’s industry is critical to long-term success. “To be sustainable, you have to stay 100 percent on top of what your market is,” Green says. “We have to plan three to five years ahead, have to know what environmental changes are coming and what laws are proposed, so we can expand to get into a market or plan to get out of a market.”

Datalytics’ David Andrews agrees. “One of the biggest challenges in the technology industry is monitoring changes,” Andrews says. “You have to have the ability to look forward and anticipate changes, and frankly, you need the ability to get it right in terms of seeing what’s coming next.” Theories and trends emerge all the time, he says, but not all of them pan out, so it’s important to keep one’s options open. “We survived and thrived because at critical points we bet on more than one horse, trying multiple things in parallel,” Andrews says. When it became clear that one of those “horses,” the software business, was the strongest, Datalytics spun off the others to concentrate on it.

Jerry Long of PCC Technology Group says that he’s constantly engaged in staying ahead of technology innovation. He invests time in talking with key people and staying current with the literature to keep his finger on the pulse of change.

The Right People

A company’s human resource needs often change as the company evolves, and having the right talent at the right time is another key to sustainability. Sometimes the people essential to success stay the same. “Most of my key people have been with me for 20 to 30 years,” says David Green. “These people know the regulations, know how to keep everything proper and legal, and they know because of their experience how to judge what’s happening in our environment.”

Many of the people at Datalytics have also been with the company from the beginning. As the business has changed, however, the company has both recruited new people and parted ways with others. “You have to make every effort to take people from one generation of the company to the next,” says David Andrews, “but you have to realize that there are cases where people just can’t make the transition successfully.”

Sometimes the situation calls for changes at the very top of the organization. “What kills a lot of businesses is that the people who start the business are not always the right people to carry it to the next phase,” Andrews says. Datalytics has been willing to bring senior people from outside into executive positions and dramatically change the roles of existing managers when necessary for the company’s growth. “Most technology businesses that fail do so because they don’t make the transition from the entrepreneurial group to professional managers,” Andrews says. “You have to suppress your egos when you do this.”

Jerry Long says similar changes have been necessary at PCC Technology Group, with the company recruiting some people and separating from others. While such changes can be difficult and complicated, he says, “The most important thing is that the business is the most important thing. We have to do what will make the business succeed.”

The head of the organization may even need to change personally. Long says he has gone from a philosophy of “my way or the highway” to one that recognizes that others’ ideas and suggestions have merit. While he used to guard company information closely, today all financial and other information is shared with all employees. This knowledge, he says, enables them to connect their own jobs to the company’s goals.

Not all of the people critical to sustainability are inside the company. Networking is vital, says David Green. “You have to have a lot of really good friends—banker friends, friends in transportation, in all different areas. There are so many facets you don’t know, and there are experts who can help you. Make a lot of friends.”

Impress the Customer – of Course!

Satisfied customers are, of course, the lifeblood of any business, and they must be a priority. “We’ve done some things imperfectly, but we’ve always made sure the customers we serve are happy in the end,” says David Andrews. “Occasionally, we’ve lost money on a particular account, just to make sure the customer was happy. We’ve bent over backwards to keep customers happy and protect our reputation. That’s a given if you want to last a long time.”

“You have to value the customer, do what you say you’ll do, have high integrity and take good care of the customer,” Jerry Long says. “That philosophy has always permeated our business, and it’s made us successful.”

Make Smart Funding Choices

An infusion of capital at the right juncture from the right partner can significantly affect a company’s sustainability. Many Connecticut companies turn to Connecticut Innovations.

CI helped fund Datalytics’ expansion several years ago. Now the company’s partner, SAP, is urging it to expand into an even larger market, so Datalytics plans to raise a significant amount of outside capital.

PCC Technology Group, which had always been self-funding, recently obtained funding from Connecticut Innovations. Why now? “We have some growth goals, and we want to be sure we can meet those goals,” says Jerry Long. “It’s critical to our presence in Connecticut. We want to grow as we think we should.”

Phoenix Soil also recently sought outside funding from CI and other financial institutions for the first time to help the company move to a new location, purchase its own property and implement advanced technologies. “CI has been amazing,” David Green says. “They made it very enjoyable and pleasant, and they were extremely timely. It was a magnificent business dealing. CI would be the first group I’d go and see again.”

From the financial perspective, Green offers one final piece of practical advice to anyone who wants to build a sustainable company: “Don’t spend more than you make.”

NOTE: Special thanks to those who shared their insights for this article:

David Andrews, founder and chair of Datalytics Technologies LLC
David Green, president of Phoenix Soil LLC
Jerry Long, co-founder and CEO of PCC Technology Group LLC

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Top Five Tips for Expediting a Brownfield TIF Project

During the time that I have been with the Connecticut Brownfields Redevelopment Authority (CBRA), a wholly owned subsidiary of Connecticut Innovations, I have coordinated more than $12 million in CBRA financing to support more than $200 million in redevelopment projects across the state – using a financing vehicle known as tax increment financing (TIF). TIF support provided through CBRA is upfront grant funding available to developers to pay for property remediation. The town where the brownfield property is located pledges future taxes on the improved property to pay back CBRA.

The following tips are meant as a real-life playsheet to brownfield redevelopment, an option that many developers and property owners often overlook. I hope these tips will help you better understand and navigate the brownfield redevelopment process as you launch your project.

Get started sooner rather than later. A brownfield redevelopment project can be many years in the making. Therefore, I would recommend that you initiate discussions with state, municipal and other key contacts early on. I am often asked, “How long does a redevelopment project take?” There is no simple or standard answer. The duration of a project, in part, depends on the complexity of the project. Some projects move forward very quickly, and some take an extraordinary amount of time.
Be aware of zoning specs and municipal preferences for development sites. Bear in mind that a redevelopment project plan that may work in one zone may not readily work in another. Here’s an example. An undeveloped, 23-acre brownfield site in North Haven was located in a retail corridor, so it made perfect sense as a site for a new retail development. A retail developer, in fact, did acquire the site and build a shopping plaza: North Haven Commons. Always keep in mind that major changes, such as zoning changes, may be possible but do take time.
Hire an environmental firm with a proven track record. An experienced licensed environmental professional (LEP) should be hired to drive the project and inform and educate developers and municipal representatives about the environmental regulations that apply to the site. The LEP’s firm will serve as the parties’ liaison with the state’s Department of Energy and Environmental Protection. The bottom line is to choose an environmental firm that is experienced and meets your needs.
Designate a point person for the project. Connecticut Innovations is here to make brownfield redevelopment projects easier. To facilitate our collaboration with you, it is important for you to assign a point person from your core team for the project. This might be the principal of the development firm, the LEP or a project manager. Regardless of who it is, that person becomes the “go-to person” with the authority to make decisions. On our Goodwin College project, for example, the president of the college took a leading role in many aspects of the redevelopment.Once the point person has been designated, there needs to be a direct and open line of communication between all key decision makers, which will also include municipal officials – who are eager to help put brownfield sites back into productive use and back on the tax rolls.
Keep the goal in sight. Brownfield redevelopment projects take a great deal of time and stamina. Among other things, you will have to manage a significant amount of paperwork. If a document or report needs to be produced, take care of it in a timely fashion. Procrastination is not your best friend. Challenges and obstacles will not go away! Keep in mind the worthwhile goal of putting a brownfield property back into productive use.

One item I have not mentioned is financing. As you know, nothing can be done without the proper funding, whether it be local, state, federal and/or private financing. I’d be happy to discuss CBRA’s TIF program or other financing vehicles with you – or any other aspect of undertaking brownfield redevelopment projects. Just give me a call at 860.258.7833.

About the Author
Cynthia Petruzello is vice president, brownfields financing, at Connecticut Innovations. You can contact her at cynthia.petruzello@ctinnovations.com or 860.258.7833.

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Does Your Startup Need Social Media to Thrive?

If you ask any marketer whether social media is critical to building an audience, you’d be hardpressed to find one who would say no. Most brands have a presence on LinkedIn, Twitter and Facebook, if not Instagram, Pinterest, Google+ and Snapchat.

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Funding Your Startup: Lessons Learned (and Advice on Avoiding Missteps)

Skipping your workout. Losing touch with a good friend. Getting sucked into Facebook/Instagram/Fantasy Football when you’re supposed to be practicing your board presentation. Hey, we all do stuff we regret. Yes, even whip-smart tech entrepreneurs stumble from time to time. Take funding, for example. A recent financing survey by The Alternative Board (TAB), which provides business advisory boards and coaching services for small businesses, found that when it comes to raising money, many entrepreneurs would do things differently if given a second chance. Fortunately, we can learn from their mistakes. Matthew Storeygard, a director of investments at Connecticut Innovations, weighs in.

Survey Says…

Funding Regret #1: Borrowing at the wrong time.

Thirty-four percent of entrepreneurs in TAB’s survey said the most important funding lesson they learned was to borrow at the right time.

Expert fix: “Timing is key,” says Storeygard. “Entrepreneurs should always be thinking ahead regarding their capital needs, and should understand the critical milestones they must hit to drive value.

“It’s best to approach venture capital firms and angel investors or other sources of funding earlier rather than later. That way, you can get on their respective radars. It’s okay if your first contact isn’t a pitch for funding. Sometimes that’s even better because you can get feedback in a lower-pressure environment.”

Pro tip: The risk of approaching funding sources too late is greater than the risk of approaching them too early. Why? “If an investor senses desperation, you’re not likely to get as good of a deal as you would have otherwise,” says Storeygard. “You will also be unable to generate the feeling called the Fear of Missing Out (‘FOMO’) that helps drive valuations.”

Funding Regret #2: Borrowing from the wrong source.

Thirty-four percent of entrepreneurs also said they wished they’d borrowed from the right source. Banks, personal savings accounts, friends and family, government grant programs, venture capitalists, angel investors—when it comes to funding, there are many avenues to explore. It’s easy to see how an entrepreneur could get it wrong.

Expert fix: “First and foremost, it’s important for entrepreneurs to understand the market, and to know which milestones are necessary for funding,” says Storeygard. “Software companies can build a minimum viable product and begin to test the market with minimal resources, so for them, it’s better to push off raising from an institutional source if possible. On the other hand, biotech, medical device and other capital-intensive industries don’t have that luxury. For these industries, non-dilutive funding is the most attractive avenue with which to begin.

“The federal SBIR program is suited for small companies engaging in research and development that is of interest to the federal government and its various agencies. Many grant opportunities are available and can provide financial resources for an entrepreneur to continue developing the company’s concept or product without dilution. Angel investors and VCs are the right source when the entrepreneur has a clear understanding of the path forward. For some industries, this may include an understanding of the regulatory path, costs for validation and data gathering, and revenue targets that next-round investors want to see. Venture debt is another source of funding that entrepreneurs can consider, but it is best to look at this source after you have significant cash flow with which to repay the debt.”

Funding regret #3: Securing the wrong amount.

Looking back, business owners responding to TAB’s survey indicated that they should have borrowed more (29 percent) rather than less (11 percent).

Expert fix: “You need more than you think you need,” says Storeygard. “Entrepreneurs are optimistic by nature; if they weren’t, no one would ever start a business. Ventures always cost more and take longer to develop than one thinks, so it’s better to err on the side of raising more. As an investor, I understand that entrepreneurs don’t want to give away too much of their company and suffer too much dilution. However, in my opinion, the correct way to look at it is that a smaller piece of a large pie is better than a huge piece of no pie, which is what you end up with if you run out of money.”

Pro tip: Ask for more than you think you need.

Funding regret #4: Not having the right adviser.

Thirteen percent of business owners said they regret not having the right adviser.

Expert fix: “It’s really important to have good advisers—people with whom you can be completely honest and vulnerable,” says Storeygard. “The co-founder model works well because being an entrepreneur is such an intense experience that it’s important to have a sounding board. Beyond that, outside advisers can help to open doors and provide specific expertise, and can be completely aligned with the goals of the company. As far as your VCs go, they certainly can and should be advisers, and most of the time they are aligned with you. However, there are times when VCs need to make difficult decisions where they are not totally aligned with the startup’s founders; for example, when they’re deciding whether or not to invest in a follow-on round or whether to replace the CEO. My advice is to find advisers who are experts in your particular field, and find them early.”

Pro tip: You can find advisers by networking at conferences, meetings and the like, and while it takes hard work, persistence and ability to withstand rejection, these are qualities successful entrepreneurs already possess.

Bottom Line

Regrets? Like Frank Sinatra, you’ll still have a few. But if you learn from other entrepreneurs’ mistakes, they likely won’t be related to funding.

Interested in learning more about this topic? Check out our other funding resources.

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Three Charts That Show the Effect of Venture Fundraising on Founder Ownership

Raising money inevitably dilutes the stakes of company investors, employees and founders, but the idea is that a growing valuation results in a net positive, as it increases the value of everyone’s now-smaller slice of the pie. That’s how we end up with billionaire founders like Bill Gates, Jeff Bezos, Mark Zuckerberg, etc. Read the full Pitchbook article here.

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