Why Crowdfunding is Bad for Business

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Homeowners use peer lending sites such as Prosper.com to pay for a new deck, and artists use Kickstarter to pay for their next project. But so far, it's been difficult for business owners to use peer lending or crowdsourcing, as it's variously known, to fund their business.

The reason is, people generally want to get a return on their investments. But federal law currently prohibits Joe Consumer from investing in a business startup. There are strict rules about who is an "accredited investor" for this type of high-risk investment. Right now you generally need at least $5 million in assets to qualify.

There's been recent legislation that aims to change the qualifications required of investors in startups. Also entrepreneurs are hopeful that the law will change. Tom Szaky from Trenton, N.J., waste-management firm TerraCycle, for instance, recently opined in the New York Times that the rules should be changed to allow crowdsource funders to invest in startups.

I'm going to say I'm against the idea. Why?

Startups don't just need money -- they need expertise. In the current scheme of things, investors often provide that expertise. They became wealthy because they know something about how to run a successful business.

But in a crowdsourced model, no one investor has substantial money in the venture. So there's no one who could insist on a board seat as part of their deal, or otherwise make an entrepreneur take their ideas seriously for how to grow the business.

That makes the startup a riskier venture, both for the investors and the entrepreneur. Maybe that entrepreneur will find mentors in other places. But nothing's compelling them to do so.

Often, connecting with angel investors or a venture capital firm brings a business owner some high-quality expertise in the deal. It's unclear if entrepreneurs would get the help they need to be successful if their funding comes from hundreds of individuals each putting up $50.

Crowdsourced funding sites thrive on successes -- being able to state the high rate of return for investors. Would a business-oriented crowdfunding site be able to make a good claim here? Perhaps, but I'm betting no.

Seven Tips for Becoming a Better Boss

Is better hiring and retention high on your to-do list this year? Many people need to do more with less nowadays. A great way to start is with bettermanagement and more effective workers.

It’s easy to see why companies would want to start building a great workplace. Where to begin can be more difficult to discern. This lack of clarity makes it tough to take focused actions that move a company forward. In some cases, it can even discourage leader if the scope and breadth seems too large to overcome.

If you’re among those aspiring to build a better workplace, even a great one, here are seven tips from the leaders of companies recognized in this year's annual Best Small Workplaces list.

1. Begin with yourself. “In order to build a great workplace, you must first build yourself by gaining a deep understanding of your strengths and weaknesses as a leader, and you must completely commit to developing yourself into the best leader and person you can be. At the same time, you must hire outstanding people who are as committed as you are to build a great workplace.” – Robert Pasin, Chief Wagon Officer, Radio Flyer

2. Flip the traditional management dynamic. “Treat every employee as a colleague, and turn the management structure upside-down. If you are hiring well, then the management of the company is there to support the talent and aspirations of your employees, and not the reverse.” – John Saaty, CEO, Decision Lens.

3. Hire the best. “Hire people smarter than you. This is the best advice my father gave me when I was starting my business, and I believe it holds true today. In today's competitive environment, your time at work will be easier and more pleasant if you are surrounded by smart people-- those who share your values, mission, and vision and like to have FUN! Talented employees will help your business to grow, and create a great place to work. Customers value knowledgeable employees -- the smarter your new hires are, the better off your business will be in the end.” -- Lauren Dixon, CEO, Dixon Schwabl

4. See employees as whole people. “Every employee has things in their life more important than work. If you fail to realize that, there will be a fundamental disconnect in your relationship with that employee. Realize it and embrace it, and you will be on the way to a mutually beneficial relationship. ” – Tim Storm, CEO & Founder, FatWallet

5. Use positive, constructive motivation. “It’s said that eight out of 10 people come to work in the morning wanting to make a difference, but by lunch it’s down to four. That’s usually a result of the environment more than anything, not just the physical but the interpersonal. Lead your employees with a clear vision, support them with adequate resources, and possibly most important – reward them for treating others with respect. Motivate everyone in a positive, constructive way, and your biggest problem will be having to build more office space sooner than you thought!” – Tim Hohmann, CEO, AutomationDirect

6. Practice accountability to your values. “Hold everyone accountable to your core beliefs and values, including you. No ‘license to kill’ is allowed no matter how much money someone brings into your business. Otherwise, a double standard develops which will derail the creation of a great workplace.” – Jim Rasche, 3EO, Kahler Slater

7. Start now. “Don’t wait till you get bigger to put in place key items, such as staff surveys, peer interviewing for hiring and clear standards of behavior [developed by staff].” – Quint Studer, CEO and founder, Studer Group

Innovation from Amazon, Starbucks and USPS

How do the big, name-brand companies stay on top? One answer is innovation. Besides acquiring smaller, innovative companies, most giant brands also put a lot of energy into research and development. So they're constantly testing out new ideas in every element of their business, from marketing strategy to products.

Here are three of latest and greatest ideas that recently caught my eye, which come courtesy of Starbucks, Amazon and UPS:

Starbucks recently opened a portable store in the Seattle area that's made from four stackable shipping containers. The store offers many possibilities. It's moveable like a food truck, but offers a different look and feel. Maybe they could plop it down in different cities, or as a test store in a prospective market. If customers don't come, they could try again a few blocks away.

At the same time, the store makes a statement about Starbucks' commitment to the environment. It's essentially a recycled store. On the exterior reads the company's motto: "regenerate, reuse, recycle, renew, reclaim." It also has a tiny footprint, under 500 square feet.

The company says it may use them in the parking lot while stores are being remodeled or constructed. What a great way to start building your audience before you open.

For its part, Amazon is testing out a new delivery method for its many packages -- PIN-based, self-service lockers they place at a nearby 7-Eleven or other 24/7 convenience store. If you're not home much, you could pop by your locker when it's convenient and keep your packages secure in the meanwhile. They're trying out these lockers in Seattle, New York and London.

UPS likes this idea, too -- they're testing "gopost" parcel lockers outside post offices in Northern Virginia. The lockers enable customers to receive high-value items such as smartphones in a secure way, then retrieve them anytime.

These news twists show how valuable it is to rethink every aspect of your business. Not all new initiatives should be about products or services. It'll be interesting to see how these innovations are received by customers.

Mark Cuban's 12 Rules for Startups

Anyone who has started a business has his or her own rules and guidelines, so I thought I would add to the memo with my own. My "rules" below aren't just for those founding the companies, but for those who are considering going to work for them, as well.

1. Don't start a company unless it's an obsession and something you love.

2. If you have an exit strategy, it's not an obsession.

3. Hire people who you think will love working there.

4. Sales Cure All. Know how your company will make money and how you will actually make sales.

5. Know your core competencies and focus on being great at them. Pay up for people in your core competencies. Get the best. Outside the core competencies, hire people that fit your culture but aren't as expensive to pay.

Related: Mark Cuban on Why You Should Never Listen to Your Customers

6. An espresso machine? Are you kidding me? Coffee is for closers. Sodas are free. Lunch is a chance to get out of the office and talk. There are 24 hours in a day, and if people like their jobs, they will find ways to use as much of it as possible to do their jobs.

7. No offices. Open offices keep everyone in tune with what is going on and keep the energy up. If an employee is about privacy, show him or her how to use the lock on the bathroom. There is nothing private in a startup. This is also a good way to keep from hiring executives who cannot operate successfully in a startup. My biggest fear was always hiring someone who wanted to build an empire. If the person demands to fly first class or to bring over a personal secretary, run away. If an exec won't go on sales calls, run away. They are empire builders and will pollute your company.

8. As far as technology, go with what you know. That is always the most inexpensive way. If you know Apple, use it. If you know Vista, ask yourself why, then use it. It's a startup so there are just a few employees. Let people use what they know.

How to Raise Money for Your Startup

Raising capital for a startup venture during these difficult economic times has been a major obstacle for many aspiring entrepreneurs. But it's not impossible.

There are several steps budding business owners can take to get in front of prospective investors and to help make sure they pony over the cash you need, says Asheesh Advani, author and co-founder of CircleLending, a peer-to-peer lending service that was acquired by Virgin Money USA in 2007. He now serves as CEO of asset management services company Covestor. Advani was a speaker at Entrepreneur's Growth Conference here on Jan. 11, 2012.Raising capital for a startup venture during these difficult economic times has been a major obstacle for many aspiring entrepreneurs. But it's not impossible.

Here are Advani's best tips for landing the money you'll need to get your business off the ground:

Know the different types of investors. There are three types of people who might invest their money in your business idea: friendly investors, hobby angels and professional investors. Friendly investors are the people you know personally, namely friends and family. Hobby angels are individual investors who are most likely professionals themselves who have some money to spare. Professional investors, of course, include venture capitalists, angels and banks. "Professional investors care most about the economics of your business," Advani says. "Whether they understand your business or not, they're required to consider your business idea, as well as countless others."

Make a list of prospects. Scour your industry and your professional network to put together a first group of people and test your business pitch, he says. If the people in this initial group appear to be interested, expand your list of prospects from there.

"When I started my businesses, I wound up raising money from 75 different investors," Advani says. "Not because I wanted to. I needed to."

He suggests keeping track of your contacts, your meetings and your goals for each of the meetings. Keep in touch with the contacts throughout the pitching process.

Set a closing date. Determine a specific, official date for when interested professional investors need to get you the money they promised -- and hold them to it. When dealing with friendly and hobby angels, Advani suggests a "rolling closing date," meaning that you'll accept the investment money as soon as they're willing to give it. Also, be sure to be clear with friendly investors about what happens if the money they invest isn't paid back on time or at all.

"These are people who are close to you, so do everything you can to maintain a good relationship," Advani says.

Use middle men carefully. Third-party groups can be great for two things, Advani says. They can help connect entrepreneurs to individual investors they didn't otherwise know. Examples include peer lending and investing sites Lending Club and Prosper.

Crowd funding sites are another option. These services -- including Pro Founder andPeerbackers -- can help entrepreneurs collect numerous investments from people via social networks.

But be careful about sharing your business idea online, Advani warns. "Before you post a profile on any of these sites, remember that everyone will know what you're planning to do," he says.

Protect Your Business from a Rogue Employee

Days before Christmas, a New York glass installer who admitted he uploaded an unfinished copy of X-Men Origins: Wolverine to the Internet, received a one-year sentence in federal prison from a U.S. District Court judge who termed his actions "extremely serious."

It's a sad story for Gilbert Sanchez, the glass installer, but what, you ask, does this have to do with my company or start-up? Let's suppose for a moment that instead of installing glass, Sanchez worked for you and, rather than uploading the movie from his home, he did so using his work computer and your company's Internet connection. This circumstance may carry implications for businesses.

Recently, a raft of lawsuits have appeared accusing thousands of individuals of illegally uploading and downloading materials in violation of U.S. copyright laws. Attorneys for film companies -- including one Los Angeles plaintiff that sued more than 5,800 individuals for downloading one particular adult film -- file many of these suits.

OK, so you probably won't see many of these films at the Academy Awards celebration in February, but the plaintiffs in these lawsuits are hell-bent on collecting settlements from a large number of individual defendants. They're in the process of issuing subpoenas to Internet service providers to obtain the name and address of individual subscribers -- including businesses -- to pursue mass settlements.

The question is, what do you do if your company is subpoenaed as a result of a mass filing? TheElectronic Frontier Foundation, a nonprofit founded in 1990 to defend digital rights, says that because these cases are unique you should immediately contact an attorney in either the state where the lawsuit was filed or in the state where your business is incorporated.

Stewart Kellar of the San Francisco-based E-ttorney at Law agrees, but says business owners slapped with a mass file-sharing lawsuit also need to have an Internet Usage/Copyright Infringement policy in place to avoid such legal actions in the first place. He says that policy "should state in no uncertain terms that the Internet is to be used for business and (maybe) personal email use only and for no other purpose."

Kellar suggests that if your business does receive a subpoena from its ISP, it should first be determined if the infringement occurred on a work computer by an employee. If so, the company can offer up the employee to the plaintiff, pay the settlement fee and seek reimbursement from the employee. Or a company can just ignore the demand letter and see if the plaintiff will proceed and make good on its threats.

"A business that provides an Internet connection to its employees or the public is itself an ISP," says Keller. "Unless it knew about the infringing activity and then induced or facilitated that infringement, contributory liability is very unlikely."

What Your Business Can Learn From Apple's Battle with Samsung?

If you haven't been paying attention to the ongoing court battle between Apple and Samsung, you're missing an epic conflict over patents and trademarks, both of which are often overlooked by entrepreneurs when attempting to launch a new product or service.

The dispute centers on Apple's claims that Samsung's products infringe upon its design patents. Per the latest in the conflict, a U.S. District judge ruled last Friday that Apple failed to meet its burden of showing a likelihood of irreparable harm in the injunction it sought against Samsung. As a result, Samsung, the world's largest consumer electronics company, now has the go ahead to continue selling its Galaxy S 4G, Infuse 4G, and Droid Charge phones and Galaxy Tab 10.1 tablet in the U.S.

It's an early Christmas gift for Samsung, but winning a battle does not the war win, according toChristopher V. Carani, a partner in the intellectual property law firm of McAndrews, Held & Malloy and chair of the American Bar Association's Design Rights Committee. Here's what Carani has to say about this seven-month-old court fight and why business owners should pay attention to future skirmishes:

Preliminary injunctions are hard to win but do have impact. Apple had an uphill battle in persuading a judge to pull Samsung's targeted products off the shelves prior to the fact-finding discovery process and full trial based on the merits of Apple's claims. In this case, even though Samsung prevailed on the preliminary injunction, the motion created delay and uncertainty in Samsung's U.S. launch.

Apple's design patents strategy proved effective. Apple's strategy of applying for multiple design patents for the iPhone enabled it to protect itself and was effective in ensnaring Samsung's tablet and smartphone products.

Prior art searches to invalidate patents are critical. When someone claims your product violates their patent, you conduct a search for "prior art" -- that is, anything proving that a product or service existed prior to a given date. Samsung's saving grace in this latest round was that its litigation team located prior art references that undermined the validity of one of Apple's iPad design patents. What Samsung discovered was a 1994 Knight-Ridder video depicting a tablet newspaper of the future, which looks very similar to the iPad and Galaxy Tab 10.1 tablet.

While Samsung doesn't have to take its products off store shelves, the judge found in Apple's favor with respect to one of Apple's iPhone design patents. As a result, Apple has an excellent chance of obtaining a large damages award for that patent infringement as well as for lost profits from Samsung's sales of the Galaxy S 4G and Infuse 4.