Archive for the ‘Operations’ Category

Securities Offerings on the Internet

Wednesday, March 19th, 2008

In the 1990s, my colleague, Lou Turilli,* and I wrote an article for The National Law Journal about how the Internet might shape securities offerings. I followed that up with an article for Wall Street Lawyer, Securities Offerings Online By Small, Nonpublic Businesses. It specifically focused on whether small companies could viably offer and sell securities on their own via the Internet. I concluded that, “Clearly, selling securities online is a viable concept. Yet until fundamental issues such as the problem of gaining visibility, the lack of secondary markets, the arbitrary pricing and the disinterest of established investment bankers each are addressed, the opportunity for small businesses to raise capital in cyberspace will hold great promise as an idea, but be of limited practicality in the real world.”

I don’t think that my conclusion has changed. Distribution and pricing remain key obstacles for companies that want to promote their own online offerings. Marketing the securities is still a serious issue, and there are credibility concerns for the companies as well. Thus, serious companies will continue to pursue the traditional route.

* Lou and I practiced law together at Day, Berry & Howard. She recently was Vice President and General Counsel of Ryerson.

Crafting a Message That Sticks

Wednesday, March 12th, 2008

I like what Chip Heath, Professor of Organization Behavior at Stanford, has to say about communication in The McKinsey Quarterly.* In this interview, he discusses “sticky ideas,” ones that people remember and that change something about the way they think or act.

Professor Heath states that the best advice is to make messages more concrete. Keeping them simple and credible, emotional and unexpected-with surprises-are other basic traits of sticky ideas. Finally, telling a story makes a message more effective, as “[s]tories act as a kind of mental flight simulator, preparing us to respond more quickly and effectively.”** Good stuff.

* registration is free.

** As a junior lawyer, I had to draft a securities filing for a complicated transaction. I was working with a seasoned attorney in our firm and his advice was to “tell a story.” The point was to make it easier for those reading it (i.e., the regulators at the SEC) to understand. I don’t remember much else about the transaction, but this stuck with me.

Sam Walton’s 10 Rules for Success

Thursday, March 6th, 2008

In 1962, Sam Walton founded Wal-Mart. He built it into the largest retail company in the world. He had 10 rules for success….

Rule #1
Commit to your business. Believe in it more than anything else. If you love your work, you’ll be out there every day trying to do the best you can, and pretty soon everybody around will catch the passion from you – like a fever.

Rule #2
Share your profits with all your associates, and treat them as partners. In turn, they will treat you as a partner, and together you will all perform beyond your wildest expectations.

Rule #3
Motivate your partners. Money and ownership aren’t enough. Set high goals, encourage competition and then keep score. Make bets with outrageous payoffs.

Rule #4
Communicate everything you possibly can to your partners. The more they know, the more they’ll understand. The more they understand, the more they’ll care. Once they care, there’s no stopping them. Information is power, and the gain you get from empowering your associates more than offsets the risk of informing your competitors.

Rule #5
Appreciate everything your associates do for the business. Nothing else can quite substitute for a few well-chosen, well-timed, sincere words of praise. They’re absolutely free and worth a fortune.

Rule #6
Celebrate your success and find humour in your failures. Don’t take yourself so seriously. Loosen up and everyone around you will loosen up. Have fun and always show enthusiasm. When all else fails put on a costume and sing a silly song.

Rule #7
Listen to everyone in your company, and figure out ways to get them talking. The folks on the front line – the ones who actually talk to customers – are the only ones who really know what’s going on out there. You’d better find out what they know.

Rule #8
Exceed your customer’s expectations. If you do they’ll come back over and over. Give them what they want – and a little more. Let them know you appreciate them. Make good on all your mistakes, and don’t make excuses – apologize. Stand behind everything you do. ‘Satisfaction guaranteed’ will make all the difference.

Rule #9
Control your expenses better than your competition. This is where you can always find the competitive advantage. You can make a lot of mistakes and still recover if you run an efficient operation. Or you can be brilliant and still go out of business if you’re too inefficient.

Rule #10
Swim upstream. Go the other way. Ignore the conventional wisdom. If everybody is doing it one way, there’s a good chance you can find your niche by going exactly in the opposite direction.

Mark Cuban’s Rules for Startups

Thursday, February 28th, 2008

Mark Cuban founded broadcast.com, which was acquired by Yahoo! during the dot.com boom. He has some generally good rules for startups here.

Ask the VC

Thursday, February 14th, 2008

I get asked a loteven by experienced executiveshow much equity they should expect when negotiating to work for private companies. That’s all over the map and really depends on the company, the position, etc., but here’s a blog that tackles that subject and more: Ask the VC. It’s written by Brad Feld and Jason Mendelson, who are with Mobius Venture Capital and The Foundry Group.

This blog is worth checking out if you’re a small company planning to seek venture investment or even an entrepreneur trying to build a better private company. I like blogs with a lot of meat and little fat…and this is one of them.

Here’s one of those odd little twists that happen in life. Brad was the CTO of a company called AmeriData Technologies that was later acquired by General Electric. When I practiced law, I represented a venture firm that invested in AmeriData. I met the two founders of that company, but don’t recall meeting Brad.

Directors and Officers Liability Insurance

Wednesday, February 6th, 2008

Directors and Officers Liability Insurance, commonly referred to as “D&O insurance,” covers damages and defense costs if a company’s officers and/or directors are sued for wrongful acts that may have occurred while they were performing their corporate duties. It is payable to the corporation or the directors or officers themselves.

Wrongful acts may include errors, omissions, misstatements or misleading statements, breach of duty to the corporation or neglect. Plaintiffs may include just about anyone: shareholders, vendors, creditors, regulators, competitors, and employees.

D&O insurance used to only be available to larger, established corporations. In recent years, however, even small, private companies have been able to purchase D&O insurance. CarpenterMoore, a Nasdaq company, provides D&O liability insurance among its products.

Voting Trust Agreements and Effecting Corporate Action

Saturday, February 2nd, 2008

If you want to cause a corporation do something on the corporate level if a particular event occurs, there are a variety of avenues you can pursue. Here are some options:

* Put a provision in the corporation’s charter (AKA Article of Organization or Articles of Incorporation). However, this is inflexible and costs money. If you want to change the provision, it’s a hassle. Plus, it’s a public document, so all the world knows what you’re doing.

* Create a Shareholders’ Agreement. The agreement among shareholders would recite all the reasons for the behavior, but there’s no guarantee that the behavior will occur, so it’s much riskier. A shareholder agreement gives the right to demand action, but can’t force the action. Only a lawsuit can do that.

* Change the corporation’s Bylaws to require the change. This doesn’t cost anything and it’s not public. That said, it ties the hands of the directors. If the event is conditional, then you also would have a side agreement among the shareholders to require the event to occur if the condition occurred. However, there’s an argument that this restricts the directors’ ability to manage the corporation unless all the directors are parties to the side agreement.

* Create a Voting Trust Agreement. A voting trust transfers the legal title to the stock and its voting rights to a trustee for a certain period of time. It affects only those shareholders who are party to the agreement. It provides flexibility and privacy and is fairly inexpensive.

Like any legal document, a voting trust agreement is a creature of the particular jurisdiction to which it is subject. The voting trust must be acknowledged by the corporation and its shareholders. Further, it’s a good idea for the trustee and alternate trustee to acknowledge it also.

A Conditional Voting Trust Agreement is a voting trust agreement that has no affect unless a particular event occurs. In that case, the trustee will step in with control of all shares to guarantee the results. Essentially, the trustee is an enforcer. It’s a good idea to avoid requiring the trustee to have physical possession of the shares in any voting trust agreement, as that could delay the trustee’s actions.

Employee Morale: Sometimes the Little Things Make a Big Difference

Friday, January 25th, 2008

Little things can sometimes make a big difference in company morale. It’s not all about compensation and perks.

An example of this is what I did at E-Solutions Integrator, a startup at which I was COO. e-SI, a technology services / software development firm, was born during the Internet boom. Our employees were working long hours and were doing a great job in helping to build the company.

Early on, when we had 20-25 employees, I bought a gross of movie tickets. I wrote a personal note to each employee about their contribution, how they individually had made a difference to the company, and how much their efforts were appreciated. I enclosed a couple of movie tickets with each note.

I walked through the office and spoke with each individual, and handed them the personal note. This was something I’d done on a whim, and I didn’t expect the response. It really made a difference, and I saw a lot of big grins. Months later, some of the personal notes were still pinned up in employees’ cubes. It took little effort on my part, but was a big boost to morale during busy, demanding times.

Working in a Regulated Industry – Dos and Don’ts

Monday, January 7th, 2008

The average company in the mortgage brokerage world is just a mom and pop business with a few people. Regulation is one reason that the industry is highly fragmented. Residential mortgage lending and brokerage is highly regulated in the United States by the federal government and by each state agency. As the President of a mortgage brokerage, one of the primary obstacles to our growth is complying with ever-changing regulations.

So how do you keep up with regulations and make sure you stay in compliance? First, join the relevant trade organizations, so you can keep up with changes. For example, in Massachusetts, I’m a member of both the National Association of Mortgage Brokers (NAMB) and the Massachusetts Mortgage Association (MMA). They keep me in the loop of both proposed changes and those that actually occur.

Second, make sure your required forms and disclosures are up-to-date and accurate. Again, belonging to national and state trade organizations helps on this count.

Third, invest in your employees. Make sure they are educated on both the relevant law and regulation and also on when and how to complete required forms and disclosures. Having educated employees also makes them better at their jobs, and customers are better served. Your company will do better because many competitors don’t bother to invest in their employees.

Fourth, audit employees’ work both during and after a transaction occurs. For example, during a mortgage transaction, when a mortgage consultant (salesperson) transmits a file to the processing center, the processor makes sure that the forms and disclosures are completed correctly. If a disclosure needs updating during the transaction as a result of a change in program or rate, then the consultant or processor, depending on the type of disclosure, is required to make it. When a transaction is completed, senior managers review files to make sure they comply with the law. If there is an document that should be completed differently, then it is reviewed with the employee. In other words, there is constant training as a result of this audit.

Fifth, make sure all of your files are in order. In our case, this not only means completed or withdrawn mortgage transaction files, but all other files we are required to keep by law. These include financial books and records and advertising (In Massachusetts, for example, one must keep all mortgage advertsing, even intangible items like radio scripts, for three years.).

What’s the result of doing all of the above? Regulators may schedule reviews or pop in unannounced. It shouldn’t matter. If your files and records are in order and completed properly, you’ll come across as a professional. The regulators will realize they’re dealing with pros, an above-average company in the industry. They may spend less time during the review and you’ll come out shining. I know, because we’ve received the highest rating during all of our compliance reviews to date.

I’ve discussed the dos of working in a regulated industry. What are the dont’s? They’re exactly the opposite of the above. Ignore the basics and you’ll end up with heavy fines, bad publicity and perhaps, even being shut down.

Communication in Your Company

Tuesday, January 1st, 2008

Communication is critical to all of life’s relationships. Anytime two or more people are involved in a common endeavor or activity, a potential for miscommunication exists. And if the potential is there, it may well happen—that’s Murphy’s Law.

While it’s not typically a major focus when starting a company like sales, finance or the other functional areas, it is critical to success. As the organization grows, careful and clear communication among the company’s employees will make or break the company, especially if it is going through hard times or is operating during a time of market turmoil.

During my career, I’ve advised hundreds of clients ranging from tiny operations to global giants. What’s separated the great from the mediocre companies, regardless of size, has been the employees’ ability to communicate effectively.

For example, many companies develop a mission and key goals. Sometimes, they’re posted on a website, in an employee handbook or in the front lobby. Sometimes, they can be found only in the head of the company’s founder. Typically, company missions and critical drivers are not communicated or not communicated well to employees. As a result, employees can end up working towards different ends and at odds with each other.

Here are some practical tips for better company communication:

  • Focus on what is important to your company—mission and goals—regularly in company meetings. You have to repeat this information over and over and over; it can take a long time to sink in. You want everyone on the same train going down the same tracks.
  • You’ll gain trust by sharing knowledge than by hoarding information.
  • If you have bad news, it’s better to let your employees know than have rumor and uncertainty eat away at your company’s morale. Keeping Morale Up When Your Business is Down goes into more detail on this.
  • Communication in person is best.
  • Communication by video is second best.
  • Communication by telephone is third best.
  • Communication by written word is the least best way to relate to someone. Words, without visual or oral clues, are easily misinterpreted. Who among us has not ended up in a series of email or text exchanges that became angrier, misinterpreted or confused because of miscommunication?