## How to Calculate Hourly Cost of an Employee

by on May 21, 2013

 Tweet

For the sake of occasional business analysis — such as calculating return on investment (ROI) on a project, hiring a new employee, allocating costs — here’s a simple formula for calculating the hourly cost of an employee:

cost per hour = annual gross salary/1000

So the \$75,000/year salary costs the company \$75 per hour. The \$30,000/year data entry person costs the company \$30 per hour.

This quick and practical calculation is based on the assumption that the overhead, including payroll taxes, health insurance, benefits, office space, office equipment, telephone, Internet, electric power, transportation, and so forth costs the company about as much as the employee gross salary.

So the step-by-step calculation, using a \$75,000 salary, is:

1. Double the gross salary (\$150,000)
2. Divide by 50 because a work year includes 50 weeks (\$150,000/50 = \$3,000)
3. Divide by 40 because a work week includes 40 hours (\$3,000/40 = \$75)

## Willamette Angel Conference Invests More than \$450K

by on May 10, 2013

 Tweet

Yesterday’s Willamette Angel Conference (WAC) 2013 event invested more than \$465,000 in four Oregon startups, highlighted by more than \$250,000 in Portland-based Sonivate, which has developed a fingertip-mounted ultrasound probe that enables imaging while leaving both hands free to do work with simultaneous tactile feedback.

Three other startups got WAC investment at the event: Amorphyx, a Corvallis company with innovative technology that reduces manufacturing costs and increasing the brightness, speed and efficiency of LCD and flexible displays; DesignMedix, a Portland company addressing the rapid rise in drug resistance in multiple diseases; and Green Zebra Grocery, an innovative chain of small healthy-food grocery and convenience stores, based in Portland.

The event concludes three months of study (called “due diligence”) by the group of more than 30 angel investors, about half and half from the Oregon university towns Corvallis and Eugene. This year’s event was held on campus at Oregon State University. The event alternates between Corvallis and Eugene. I’ve been a member since it started in 2009.

Earlier in the day, keynote speaker Diane Fraiman of Voyager Capital noted that Oregon companies have received more than \$600 million in venture capital funding, and challenged us, the WAC members, to continue investing in our area. That might have influenced us — our deliberations are strictly confidential, so I’m not saying — that afternoon as we added more than \$200,000 to the investment amount originally planned that morning. That also doubled our previous year’s investment, and — we think — made this WAC event the largest investment of any of the Oregon angel investment groups.

Hallspot, a Eugene company that started on campus at the University of Oregon, was awarded a \$2,500 Palo Alto Software prize for the best concept-stage company.

## Amazing Time-Lapse Videos of Earth Changing

by on May 10, 2013

 Tweet

Watch from space as Las Vegas grows from 1984 to now. Or watch as a glacier shrinks, and the Amazon jungle recedes. Watch Dubai grow.

Time Magazine and Google have combined to create this Time Lapse site Earth Engine site, offering time-lapse photography of the earth changing from 1984 through 2012, using NASA technology and satellite pictures, plus Google’s Google Earth technology.

What you see is, well, take a look … this is a great use of technology, good for the organizations that put it up there, and good for it’s educational value. Well done.

## The Growth is Always Greener in Your Neighbor’s Lawn

by on May 7, 2013

 Tweet

Have you noticed this? Businesses that sell to small business want to sell to enterprises. Businesses that sell to enterprises want small business. I’ve seen it for 30 years now.

On the one hand, it’s good business. Expand. Go from where you are to where there’s more market waiting.

On the other hand, damn, I think there’s a DNA problem for most of us. I, for example, have always been comfortable with small business and startups. Companies I’ve started focused on small business and startups. And much as I’ve tried, repeatedly, I never really figured out how to sell to the big business, alias enterprise.

I think these are different worlds. And they are borders that are hard to cross. I like the way Michael Driscoll puts it in this VentureBeat item: Startups are from Mars, enterprises are from Venus

(Image: bigstockphoto.com)

by on May 1, 2013

 Tweet

Of course ongoing businesses generate ex-employees for lots of different reasons. People move on, get better jobs, and change. Teams break up. People evolve and needs evolve.

Ask yourself this: Are ex-employees more likely to be enemies or friends of the business? Do you see a trend? What does this tell you about your management style?

(image: bigstockphoto.com)

## Q&A revisited: Really, How Do I Sell My Idea to a Big Company. Part 2.

by on April 29, 2013

 Tweet

Irony: This post from about a year ago explains why you can’t sell an idea to a large company, and recommends not even trying. And dozens of reader comments ask how to do exactly what the post itself says they shouldn’t even try. And I get more comments all the time, plus emails on my ask me form, asking how to sell the idea to the big company.

So I give up: Please promise me you’ve read this post before you go on. Know what you’re up against. Don’t be naive. Selling an idea to a big company is a one-in-a-million shot. You are probably wasting your time. But if you insist, here are my suggestions.

Step 1: Develop idea ownership

1. Drill down on whether or not your idea is patentable. Patents are for inventions, not ideas. You either consult an attorney or do the research yourself. It’s a tough subject because it’s not what you think it should be, it’s what the real world and the beaurocrats do. And having a patent isn’t enough; it has to be a good patent, that protects against work-arounds, and will hold up in court. And a patent is something you can own. And sell or license.
2. If you can phrase your idea as a creative work then you can protect it with copywrite. That’s for books, songs, recorded performances, software products, films, television shows, paintings, and so forth. That’s protection, and ownership, but it doesn’t mean you can prevent people from copying you. If it’s good, they will.
3. The other way to own an idea is to build a company over it. We call this general are one of trade secrets. It’s like the classic secret sauce. You bottle it, sell it, and hope imitators can’t reproduce it. So you can approach that target big company as a business already selling something, instead of just an individual with an idea to sell. Yes, that takes work; but your odds of success are much better.
4. It won’t hurt to periodically write your idea down on paper, describe it as best you can, and mail it to yourself by certified mail. Do that whenever the idea changes. If you do, then at some future date, if you’re in a dispute, you can open that registered and sealed mail in front of a judge to prove what your idea was when. But don’t trust this protection very much: having an idea first doesn’t mean you own it.

Step 2: Get an attorney you trust

You need an attorney. (Note: I’m not an attorney; I can’t give you legal advice; I’m sharing my non-attorney experience as a business owner). Although non-disclosure (NDA) and confidentiality agreements are slim protection against big companies, it’s still better to have them than not to have the protection they offer. And an attorney you trust.

Step 3: Approaching the big company

I have to admit, I can’t tell you how to do this; I’ve never heard of anybody doing it successfully.

In theory, companies have some system for managing these contacts. Visit their website, call their main phone lines, investigate and explore. I do know that companies vary widely in how they deal with suggestions. Some have web forms. Some have employees. Some have a wall that’s hard to penetrate. And maybe there’s some that sift through ideas with interest and respect.

Often, finding the right person to talk to within a big company is like a reverse telephone tree. You start calling phone numbers available. With each call you make, you ask who’s the right person to talk to. With each new person who puts you off, you ask for another suggestion.

Step 4: The great beyond

If you find yourself actually dealing with that big company, pitching your idea, wow, I’m impressed; and you’ve already done the impossible. I hope you have a good attorney. I hope you succeed. My advice is be extremely skeptical and extremely cautious.

## Save the Patient. Make Exorbitant Profits. Is This Okay?

by on April 15, 2013

 Tweet

How do you feel about projecting excessive profitability in a health care business plan?

Over the weekend I saw the pitch for a brilliant business plan, with great technology, for developing medical electronics that could significantly reduce some kinds of complications in some kinds of surgeries.

“The world needs this,” I thought. “I hope these people succeed. I hope they get the investment they need.”

But then they got to the financial projections.

Their sales forecast soared to tens of millions of dollars, but their technology was so good that it seemed credible. They had PhDs and patents and a strong team. No problem there.

But they also projected 80-85% EBIT (earnings before interest and taxes). And that got my attention. It’s not just my chronic skepticism about absurdly high projected profits in business plans; it’s also about intentions, exploitative pricing, what Wikipedia calls price gouging. And about ethics.

It reminded me of the Steven Bill cover story in Time Magazine a couple of months ago, called Bitter Pill. Or if you want the short version, watch this Jon Stewart interview with Steve Brill. He says:

It’s the people who organize the care, who sell the equipment, who sell the drugs; they’re the ones making the money.

Later I asked the inventor about the ethics of pricing. He understood the problem. He gave me a sensitive respectful answer. He said he trusted his more-businesslike co-founders who set the prices. He explained that pricing is set by the whole system, pretty much what Brill’s piece suggests. He didn’t say that profits from this one product would go straight back to research for other products, more inventions, and more improvement in surgical equipment. Insurance companies set the price. His company can beat the existing costs with something much safer. So, if they can execute their plan, they’ll make huge profits.

Medical costs will still go down, if it works, because it reduces complications. Patients will benefit too, with less pain, illness, and death. But according to their own numbers, they could charge a third of their planned price and still make healthy profits.

What do you think?

(Editorial note: I’m not giving specifics on purpose. I don’t want to make this about a specific company. And at this point it’s all hypothetical anyway, just a few numbers in a business plan.)

## How to Fix the USA: Excellent TED Talk

by on April 8, 2013

 Tweet

If you’re a citizen of the USA you should spend the minutes to listed to to Lawrence Lessig’s TED talk, “We the people and the republic we must reclaim.” This is completely bipartisan, spans liberals and conservatives, and addresses problems that affect all of us, regardless of views on any specific issue.

## Q&A: I Need a Loan to Fill Orders

by on April 5, 2013

 Tweet

This is another question I received via the ask-me form on my website:

I have master service agreements with [omitted for confidentiality] in the midwest.  I am also working on an agreement with a company in South America.  I have a great reputation with upper management and they want to use my services.  The only problem I find is carrying payroll until the invoices start coming in, in this case they are net 60.  I literally have facilities telling me here are multimillion dollar contracts, but I cannot afford the payroll.  Any suggestions?

Yes, I do have suggestions. And the problem that solutions depend a lot on who you are, what resources you have, and your past history. Still, here’s my offer of help:

1. What you’re running up against is banking law that prevents banks from taking risks with depositors’ money. Banks can loan money for a business plan or a possibility.
2. The SBA (small business administration) can guarantee up to 70% of the risk so banks can loan you that money without violating the law. You need to submit paperwork, a business plan, and an application. More than 1,000 banks work with the SBA, so there is probably one near you. Ask the small business banks in your area. The deal is done by the bank, but guaranteed by the SBA.
3. What most entrepreneurs do, if they have the resources, and they can deal with the risk, is borrow off of existing assets. For example, my wife and I had a lien on our house for years to support a credit line for Palo Alto Software. We didn’t like it. It was risky. But we did it, and it worked out, because the company survived and grew. But you can lose your house or whatever assets you pledge, so be very careful. Never bet something you can’t afford to lose. And business is betting. It’s not something I haven’t done myself, but it’s not something I recommend comfortably.
4. Before Palo Alto Software, when I was still doing business plan consulting, I found a local non-bank financial company to loan me against invoices from a major local corporation. They charged high interest but they advanced me 80% of every invoice and they didn’t take the risk because they had a hold on my bank account and if an invoice hadn’t had been paid (that, thank goodness, never happened) they would have subtracted the amount from my bank account. Google credit line on receivables to see what comes up. And the difference between that situation and yours is I was getting advances on invoices for finished work.

(image: shutter stock photo)

by on April 1, 2013

 Tweet

I have a question about writing a business plan for my [business]. How do I write a business plan reflecting very little start up costs and a loss so far? I have been putting off writing a business plan, but I feel as if I need to set specific goals in writing to strive for.  Most of the business plans seem so complicated for my very small business. Since I am trying to keep my costs very low, I’m wondering if it’s worth paying the monthly fee to create a plan or there another more economical (free) option?  Thank you for your time.

Thanks, I’m glad you asked. Coincidentally, I just posted Business Plan Yes, But Comprehensive and Detailed, Not So Much earlier this week. But I’m happy to go over this again because it’s so important for real businesses to plan, but the myth of the big formal business plan so often gets in the way. What a shame.