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Published July 16, 2011 | FoxNews.com

As the Oscar buzz surrounding actress Meryl Streep keeps growing — thanks to her portrayal of Margaret Thatcher, it’s worth remembering one of the real Iron Lady’s most famous observations: that any housewife could manage the British economy. 

President Obama should heed that advice, and realize that economy begins at home. Unfortunately, his recent statements on the economy give little reason for hope on that front.

The president’s press conference on Monday epitomized the “do something” nature of his administration. He wants to do something about … well, everything—from getting more kids into college to fighting global warming (although the latter is less evident these days, at least in public). The trouble is that he thinks he needs more and more of our money to do it, so he wants any budget deal to include tax rises.

Let’s take the example of college education grants, which the president suggested should be funded by an increase in taxes on millionaires like himself. The president’s budget request for 2012 contains an allocation of $36 billion for increased Pell grants for students from poor backgrounds to attend college. That’s out of an entire federal budget request of $3.7 trillion, which makes Pell grant expenditure just 1 percent of the total.

Looking at that from the viewpoint of Mrs. Thatcher’s proverbial housewife, we can compare it to the median household income of about $46,000, which, after taxes, is about $3,000 a month. 

The size of the problem that President Obama singles out as requiring tax increases is equivalent to a household budget shortfall of $30 a month. A competent economic manager should be able to deal with that sort of problem by tightening his or her belt elsewhere. The president’s seeming incapability to contemplate this demonstrates just how out of control the federal spending machine is.

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While the demand at stores like the 99-Cent Store or Dollar Tree is still relatively high, the biggest chains in the nation have fallen short of Wall Street’s expectations for several months, a trend that may prove even more ominous for the economy at large.

“I think what’s going on in those stores is that we are in a depression for 80 percent of Americans,” top retail analyst Howard Davidowitz told KNX 1070.

America’s three largest discount chains — Dollar General Corp., Family Dollar Stores Inc. and Dollar Tree Inc. —  all recently missed their quarterly earnings targets.

Davidowitz pointed to the weakness of the dollar and a gloomy consumer outlook as some of the factors behind the stores’ slump.

“In those stores, somebody comes in with $12 to do all their shopping,” said Davidowitz. “The person who used to come in with $12 now comes in with $8.”

“In other words, the economy is continuing to be worse, the Obama depression continues to explode,” he added.

Analysts say rising food and transportation prices are likely eating into the profit margins of discount stores, which risk driving away price-sensitive customers with any potential price hikes.

Core customers at most U.S. discount chains typically have a household income of $40,000 or less.

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Published June 13, 2011 | FOXBusiness

If there is a lesson to be learned from the current recession, it is the value of running a well-capitalized company. Whereas debt has spelled disaster for too many highly leveraged businesses, equity offers resilience.   

The problem with raising equity from investors is that business owners worry about losing decision-making control over their companies. My response to owners of deeply troubled, equity-starved businesses is that they have already lost control of their businesses. Without some added capital to power a business turn around, their companies will likely close or enter bankruptcy. Nobody wins in this scenario.

Here are some tips to help business owners obtain a higher level of comfort, cash and control before approaching the equity markets for financing.

No. 1: Upgrade your board of directors, now. Ideally, privately-held businesses should upgrade their board of directors every four or five years to match advancing business goals. What’s important is for you to pick your team, preferably with targeted industry expertise. Skip friends and family members. “Weak” boards always get overhauled by new investors. In subtle but meaningful ways, these new members will be more loyal to the financial investors than the business founder. 

No. 2: Get an employment contract. How can business founders get fired from the companies they started? It’s easy. This happens when founders lose voting control of the company’s shares and the loyalty of the company’s board of directors. One way to minimize the risk of getting fired from your own company without cause or adequate compensation is to negotiate a “reasonable” employment contract with your company’s board of directors prior to raising capital. New investors typically receive one or more board of directors’ seats as part of their funding agreements, which can change the board’s overall voting dynamic of a board. If a company’s sales and profits don’t meet projections, impatient new board members can push for management changes. Again, business owners are likely to get a better deal from board members that they invite to the board, not investors. 

No. 3: Hire the qualified talent. Every time business owners put unproven staff in demanding positions, they jeopardize their equity stake. Here’s why: The longer it takes a company to meet product development schedules or bring in profitable sales, the more capital founders may have to raise to cover added operating costs. More capital infusions mean more dilution to the founder. Don’t waste time or money on so-so employees.

No. 4: Stock options. With board of directors’ approval, companies can set aside a certain number of treasury shares for an employee stock option plan. Because founders can receive annual stock option awards for good performance, stock options can help founders buy back their equity stake long after the company no longer needs investment capital.

No. 5: Explore “earn backs.” To the extent business owners accept what they perceive as a “low” valuation to secure expansion funding, founders can ask investors to escrow or set aside a certain number of shares to reward exceptional performance. If management doesn’t meet agreed targets, then the lower valuation holds. If management beats projections, then the founder earns back a slice of the company’s equity pie.

No. 6: Pay attention to preferences. Most business founders get hung up on negotiating their company’s current worth, or its “pre-money” valuation. I say, pay equal attention to preferred stock “liquidation preferences.”   

When a company grows to a lucrative sale, preferred shareholders get paid one or two times their original investment before common stock holding founders receive a penny.    Investors can also add to their percentage equity stake with annual stock dividends that accumulate year after year until the company is sold. Again, founders have to wait in the wings until investors get their liquidation preference multiple plus all accumulated stock dividends.

And lastly, here’s my best advice for maintaining control of your company. Capitalize it well and don’t hide problems from investors or board members. Collaborate as partners, not foes.

Published July 12, 2011 | FOXBusiness

The etymology of the word “entrepreneur” is well established. Since the earliest of French times, it has meant “someone who breaks into hives when coming within 20 feet of a lawyer.”

While I’m joking regarding the word’s origins, I’m quite serious (albeit figurative) regarding the entrepreneurial response to lawyers. Most young entrepreneurs see themselves as an unrivaled visionary and the last thing they need is some old dude in a three-piece pulling on the handbrake.

Until something else does.

Nothing will grind the entrepreneurial party train to a halt faster than a big lawsuit, nasty contract dispute or some other legal circus animal that no one bothered to stop from coming on board. The lawyer-averse entrepreneur suddenly finds himself begging for a hug from the old dude.

So, before you need to beg for that hug, here are 10 pitfalls that often cause startups legal trouble. A penny of legal proactivity in each of these areas will offer a pound of protection as your business matures.

1.   Not Hiring a Startup Lawyer: There are a lot of lawyers that represent small businesses, but there are only a few that regularly represent startups–particularly when it comes to fundraising from sophisticated angels and venture capitalists. There is a “market” around angel and VC funding and if your lawyer is not immersed in that market you can get fleeced.

2.   Not Having Founders’ Agreements: How do you split the equity pie? Who contributes what? Who acts as CEO? What if a founder stops performing? There are so many questions that founders never think through because everything is going to be “awesome.” However, when cash and humans are involved, things are seldom uniformly awesome.

3.   Choosing the Wrong Corporate Entity: While this sounds mundane, it is actually quite important. Whether you want to run your business as a C Corp, S Corp, LLC, LP etc. is wholly dependent on your long-term objectives. Different structures offer different opportunities and restrictions, and changing your structure years later is administratively painful and expensive.

4.   Using Someone Else’s Trade Name: Many entrepreneurs will lock on a company name without researching whether someone else owns that name. They will put up a web site, print a bunch of advertising collateral, and then they get a letter from some Malaysian conglomerate that says, “Quit using our name and pay us $1 million in damages.”

5.   Comingling Accounts: When money first starts coming in – either from investors or sales–it is easy to mix personal and business accounts. Don’t do it. The more you do, the more that someone can pursue your personal assets for any unpaid corporate liabilities.

6.   Failing to Protect Intellectual Property: Most great ideas are supported by a product or process that should be patented. If you are telling people all about your idea without a NDA or a patent application on file, you run the risk that your great idea will soon be your competitor’s great idea. Identify your core pieces of intellectual property and patent them.

7.   Failing to Have Adequate Employee Agreements: While these are less extensive than the founders’ agreements, you need at least a standard agreement in place for all of your employees and consultants that covers confidentiality, ownership of things they develop, etc. The agreement will not feel that important early on, but it will come in handy when your first employee is hijacked by a competitor.

8.   Failing to Check for Employee Agreements: If you are hiring someone from a company that has followed step No. 7, failing to investigate their former employee agreements can cause problems – especially if you are hiring them for their technical knowhow. If their “knowhow” is owned by their former employer or is blocked by a non-competition agreement, you may be getting less value than you bargained for. 

9.   Failing to Comply with Federal or State Securities Laws: If you are asking even a couple of people for money – whether it is an investment or a loan – you must make sure you are observing the various securities laws. While you may not need to “register” your securities, you may need to file for an “exemption.” An improper offering can lead to regulatory fines and, maybe even worse, unwinding of a transaction.

10. Understand Key Contracts: If a third-party is important to a core part of your business, you need a contract with that party and you need to understand the core terms of that contract. In a breach-of-contract lawsuit, ignorance is not a defense.