the!bright!side!episode!17:!small!business!brightside.cedamichigan.org/files/transcript-ep-17.pdfravi!yalamanchi!!everyloanwehavedone,that’swhatit...
TRANSCRIPT
The Bright Side Episode 17: Small Business
Produced by CEDAM
Underwritten by MIplace.org
Marsha Lyttle We help everything from what would be a sole proprietor – one individual who is maybe home based and doing something very simply – to up to 500 employees. Patricia Rayl Well we have created something we call our business resource guide. We want to welcome people to town and we want to welcome new businesses. Ravi Yalamanchi Every loan we have done, that’s what it has done to the businesses. We not only turned them around in sustaining, but they’re actually adding jobs. Angela Barbash Kickstarter is donation-‐based crowdfunding. This is investment-‐based crowdfunding. This is the entrepreneur saying, “If you give me $100, I’m going to promise to give you back $100 plus to the best of my ability.” Marcy Bishop Kates This is actually one of our graduates. So they were with us for about six months and now they have a brick and mortar production facility in Troy. We have licensed over 70 small businesses.
-‐-‐-‐Small Business-‐-‐-‐
Starting a Business I-‐69 Trade Corridor Region SBDC
Marsha Lyttle People get really focused on their product or their service. They’re excited. They’re passionate about it. It’s something they love to do, something they want to do, something they know how to do. Friends have told them, “You make great pies. You ought to be selling those great pies.” But the product or service isn’t the business. That’s just what comes out of the business, and you have to have the frameworks of a business to be successful in producing and delivering that product or service. There’s much more to what a business really is and we try to help them understand what those foundational things are. And we teach how to write a business plan. We teach how to write marketing plans. We work… we have classes on financial and legal aspects. So we can take people through those aspects of creating that business foundation in chunks. We provide absolutely no cost one-‐on-‐one consulting. We have a team of consultants across the state, all of which have specific experience and knowledge in business management and operation. Most of which have also been business owners, so they come out of that experience themselves. We’re one of just ten states that has special certification to provide technology commercialization assistance. We’re not talking about simple technology like a business that is a computer repair service. We’re talking about technologies where there are some very advanced processes or products or innovations. Things that might require some additional research and development, which often has an expensive price tag associated with it. And so there’s extra special work that needs to be done to help bring something like that to the marketplace, and we have counselors that have that special expertise. Anybody that wants to start a business, we recommend – and we really press people to do this – to attend the Starting a Business class first. (Register for this class at SBDCmichigan.org) But we get into how do you do market research. What information do you need to have to make a decision about whether or not your idea really is a good one, because everybody thinks it’s a good idea. Everybody thinks nobody else has had that idea, which is usually not the case. So it’s market research, it’s resources, and then it’s the planning aspect. Doing it from the seat of the pants doesn’t work anymore. There’s too much competition.
There’s too much noise in this world that you have to break through in order to be able to sell your product and service. The other thing they need to know about is what financial resources do they have available to them that they can use, and what would they be eligible for or could they qualify for? The point of all that is it’s not about the money. Anybody can start a business. I have examples of companies that started with nothing and it took time, but ten years later they created enough cash and enough success over that time period that they were able to invest their own cash in more equipment and facilities without having to go to the bank for a loan. So the point I try to drive home is: just figure out what resources you have, and if you really care about this business, if you want it to happen, you will make it happen with whatever resources you have on hand.
-‐-‐-‐ SBDC Michigan
SBDCmichigan.org
Video recording of Starting a Business class
Incu-‐Bake
Marcy Bishop Kates Every type of business incubator is very different. So there are traditional office administrative type incubators. There are tech incubators. There are laboratory incubators. We even have a fashion incubator getting ready to start in Lansing. We are a food business incubator, and so we help people with an idea for a food product come in, get connected to lab results, get connected to packaging, ingredients, whatever it is they need. We help them get launched. We help them get licensed. That’s a huge stumbling block for a lot of people. It’s not hard, but it can be confusing. And then we have a kitchen where they can actually produce their food. Anne Rauscher Well, I’m getting ready to produce the first of that award-‐winning rhubarb syrup here today. The first of the 2014 batches. So I’ve got some rhubarb that was just harvested this morning, actually. Marcy She does wonderful fruit syrups, all farm to jar. She grows all of her own produce. Anne Well, we’ve had the farm operational for about seven years now, and around a year and a half ago or so I decided I wanted to expand on what we were doing and was interested in adding some value-‐added products. I knew about Incu-‐BaKe and I
needed a commercial space to produce my products in. I wanted the opportunity to sell to stores and restaurants and so forth. Marcy In three years, I can’t believe it, but we have licensed over 70 small businesses. Just this week we licensed two new small businesses from the Lansing area. One makes hickory syrup from the shag bark hickory tree. Brand new product. There’s only one other producer in the nation that makes it. So we’re really excited about him. And then we also licensed a new dried herbs team, which is going to be really fun to have them around. We always joke that we have everything from granola to golumpkis. So that’s all golumpki. Golumpki are Polish cabbage rolls. And we have a very successful little company called Golumbki Gal. They’re out of Jackson, and they have sold I don’t even know how many golumpkis. It’s crazy. With somebody like Mitten Munch, who was really our first graduate, they knew because there was no way that they could be in our kitchen enough to satisfy their demands. They had orders and they just couldn’t fill them. They were spending two or three nights a week, 12 hours at a time, and they just couldn’t keep up with their demand. So they found a building, they got set up, and they are on their way. So we do have a client here that now has a bakery down in Mason. We had another caterer out of Jackson, and she’s working on opening a gastro pub. So we’ve had quite a few different people who are moving on. And sometimes it’s just that they decide, “Oh, this isn’t for me.” And they haven’t made a $50,000 investment in something and then decided it isn’t the right decision for them. So to me that’s just as much of a success as somebody who actually moves on to a brick and mortar. But really the thing that’s the same for all incubators is it’s helping people start a business within a community. And that’s what we love about Incu-‐BaKe.
-‐-‐-‐ Incu-‐Bake
incu-‐bake.com
Local Investing and Crowdfunding with the MILE Act
Angela Barbash I have been a financial advisor for… got into the industry in 2001, 2002, and made it through the crash in 2008. And I actually had clients starting to ask new questions that they had never asked before coming out of that like, “How do I get my money off of Wall Street?”
Our mission is to nurture the growth of the social impact economy, and it is comprised of companies that are doing well and doing good at the same time. So we nurture that growth by providing research, education, and advocacy. So in the past, starting in the 1930’s all the way up until about 2012 this started to change. If I was an entrepreneur and you were a potential investor in the community, I had to know that you were what’s called accredited, meaning you had over $1,000,000 in net worth, or you made more than $200,000 a year in annual income, or $300,000 in joint annual income. So I had to either know you were accredited, or if I knew you were not accredited, or it was questionable whether you were accredited, I had to know you personally. And that was the only way I could approach you to ask if you’d like to invest in my business. And I could absolutely not take an ad out in the newspaper and say, “I’m raising capital! Anybody come to the table that’s interested.” So that meant that the way that our local capital markets developed, then, was that people who were high net worth had access to quality companies who were coming up and good investment opportunities, and on the flip side, those entrepreneurs who had connections through their family and their friends had access to those accredited investors and could more easily get the investment that they were looking for. Well, considering that only 7% of Americans are accredited, it turned into this two-‐tiered system of haves and have-‐nots. Where if you grew up in a socioeconomic bracket that didn’t have those kind of connections, you were locked out of the system. So we ended up with this economy in Michigan that is very focused on those high growth businesses. And we understand and appreciate why the state and all of our institutions have gone after that sector, but those businesses and those investors make up less than 10% of our businesses. The other 90% of businesses were sort of left out of this whole system. That’s when individual states started to say, “How can we reduce the barriers to entry for both investors and entrepreneurs?” And that’s happening in Michigan now with the MILE (Michigan Invests Locally Exemption) Act. (The “Crowdfunding” Law) If you are going to use MILE, you file a one page notice filing with Lansing, with the Licensing and Regulatory Affairs division. You pay $100 fee. You submit your business plan and your financial projections and the terms of your deal. So is it debt, is it equity, what is it? So you have full disclosure. You have to put everything on the public record. These are all the documents that you’re going to show to potential investors.
And then you need to meet what’s called the three pronged 80% rule. You have to be Michigan based. You have to have 80% or more of your assets, your business assets, in the state of Michigan. You have to have 80% or more of your revenues being generated in the state of Michigan. So Michigan sales tax is being triggered. And you have to use 80% of the capital that you raise in the state of Michigan. (Not legal advise. Talk to an attorney to see if you qualify.) You file your notice filing, you pay your $100 fee, you submit your documents, and then you go raise your capital. You can raise your capital offline, low tech, through conversations, presentations in the community, or you can do it online through one of the platforms that are available. You have a 12 month window to raise the capital, and if you do not have audited financials – which most small businesses don’t – you are capped at $1,000,000 per year that you can raise. And if you have audited financials, you can raise up to $2,000,000. And that’s per year. So you could keep doing capital raises as you grow. So that’s the gist of MILE.
-‐-‐-‐ Reconsider
TimeToReconsider.com
Micro and Business Loans Metro Community Development
Ravi Yalamanchi Our idea or goal is to create a mechanism where capital can be accessed. Where normal lenders are not lending, that’s where we step in. David King We were trying to get a loan for several… I want to say, year and a half. And both my business partner and I, we fell through in ’08 ’09, and it affected our credit. And we had a hard time. Then we got with Tracy and we got a great loan at a great rate. What’s nice about getting that loan, it looks to other financial institutions now, alright, someone took a chance on you, alright, maybe we’ll take a chance on you now. And that’s happened. We’ve actually had one of our banks give us a line of credit. Ravi Nine times out of ten, we get businesses that are about to be going into bankruptcy or foreclosure or struggling. And those are the businesses we are looking at and trying to see how we can restructure them.
Michael Hawley We were having problems. Getting behind on things. And although we’re an icon in the community – we’ve been here since 1967. I’ve personally been here since 1974. And things were going good until about 2003/4. Things started slipping. As prices went up, you couldn’t really raise your prices. Banks, our credit union, other credit unions, they all at first, “Well, let’s take a look!” They’d all get back to you and shake their heads. We would’ve been gone if not for Metro. We would’ve been gone last year. We’ve actually started hiring as things seem to be picking up just that little bit here lately. Ravi And pretty much I can say in confidence that every loan we have done, we not only turned them around in not only sustaining, but they’re actually adding jobs. David We started with just Tom and I, and now we’ve got ten employees. Michael We just hired three in the last couple weeks. Ravi All of them were not credit worthy from the eyes of the bank. And the banks had a good reason. But us taking the risk and investing in them and working with them proved that our model is working. David This is a project right now we’re doing for Chrysler. It’s a transmission rollover. As you can see, we’ve got it on a G4, it’s a balance system. It’s operator assisted. So what happens is instead of the operator lifting the weight, we have the tool do it. Michael This is the dinner line. Salads, dinners, pizzas and strombolis down that line. Ravi Every business is family owned. They have been in the business somewhere between 20 to 40 years. And they believe, obviously they believe in the community and they’ve been invested in it. So we want them to be successful and that’s our goal.
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Metro Community Development metro-‐community.org
Patenting Quinn Law Group, PLLC
Reid DeManche People should think of patents as an investment. If your whole business is based on selling a specific product, and it’s going to be really easy for someone else to say, “Hey. That product is neat. This other business is selling it for $5. They did all the work to develop it. I can steal their idea and make it myself for $2 and sell it for $3,” then you might need a patent to protect from the other company coming in and stealing your idea to your detriment. You can patent things like materials. You can patent new chemicals. You can also patent processes or methods. The requirements for a patent are that it’s new and non-‐obvious. And this may be a good example of the difference between new and obvious: there’s nothing that says you can’t patent a food recipe. Problem is that most of the ingredients that you use in a recipe have been known forever, and so the patent office might say, “Look. Putting a different type of cinnamon on top of your sugar cookies… it was obvious to try some different types of cinnamon.” So that’s a spot where maybe you can prove that no one has ever used that type of cinnamon on sugar cookies before. But it’s not that much of a stretch, it’s not that much of a leap to try some different types of cinnamon on your sugar cookies. The first step in your process is going to be an investigation, analysis, or research step. So your patent attorney or agent is going to learn about your invention. Likely then we’re going to go look around. Somebody else may have done it already. Maybe they weren’t successful at it. Maybe they published a paper about it in the 50’s and couldn’t figure out how to get funding for their idea, so it went away. Even though you don’t know about it, even though it wasn’t ever commercially produced, maybe that product or process is still old and you’re not going to get a patent. So after that, then you’re going to go ahead and begin drafting a patent application. That process ends with filing the patent application at the United States Patent and Trademark Office. They’re going to say, in most cases, “We don’t think you deserve a patent.” Your patent agent or patent attorney are then going to go back and forth with the patent office several times arguing, refining, pointing out things that we think are mistakes. They might point out tweaks we could make to our language that would allow the patent to issue. this process varies widely in time and in money. Anywhere from 1-‐3 years is normal. After that, hopefully, you’ve spent all this time, all this money, the examiner says, “Okay. We’re going to issue this as a patent.” So even after you’ve done all the work, every four years if you want to keep your patent alive, you’re going to have to pay a maintenance fee. Depending on your company size, whether you are an individual, you may get a break on those fees.
Check the United States Patent and Trademark Office for their inventor resources. Before you start shelling out money or even trying to find your patent attorney or patent agent, get as much information as you can.
-‐-‐-‐ Reid DeManche
Quinn Law Group, PLLC Novi, MI
quinnlawgroup.com
Microenterprise Network of Michigan Resource Directory
Looking for small business resources? The Microenterprise Network of Michigan resource directory lets you search Michigan for what you need, from lending to business incubators to technical assistance. Search by service, country, entrepreneur type, and industry. Use one or more categories to find resources. Find the online directory at http://michiganmicro.org. You can also learn about becoming an MNM member here. Membership is free when you join CEDAM and gives you access to members-‐only funding alerts, news, discussions, and quarterly meetings on the most up-‐to-‐date microenterprise topics.
Main Street Business Resources Blissfield Downtown Development Authority
Patricia Rayl Blissfield DDA Main Street program has been in effect for about three years now. And before that we were also doing façade grants as part of the DDA. We’ve been over the last fourteen years or so slowly and steadily improving the look of our downtown community. We do parades, we do car and bike shows, for example. We’re open. We want to welcome people to town and we want to welcome new businesses. We have created something we call our business resource guide. And it has wonderful information in it about the local process and who to talk to if you have questions. But we also have the resources from the Small Business Administration and SCORE, that sort of thing. But also for somebody who’s just trying to explore whether they want to have a business in town, we have our market study that we just did recently available as well. So we’ve got that summarized in here, but I can also be happy to give it to anybody who wants it.
DDAs around the state, they’ll have their own individual spin and flavor, but the whole idea with downtown development authority is that revitalization of downtowns. In Blissfield, we used to have something called Richland Furs, and they were the largest furrier in the whole nation at one point. And in fact I ran across an article from the 30’s that talked about how they had a plane and if you lived within 150 miles they would send their plane out to get you and bring you to town to do your shopping and take you back home. We have a really great home furnishing business called Blissful Living. And then across the street is an original old-‐fashion soda fountain called Cakes n’ Shakes. Next to that is our florist, and actually those buildings were burnt at one point just recently in 2010. So the fire meant that they had to start over, and so the DDA and Main Street was very helpful in getting them back on their feet and they’re thriving today.
-‐-‐-‐ Blissfield Main Street
BlissfieldMainStreet.com
Marsha Lyttle The SBA defines a small business as having 500 or fewer employees. That’s sort of the generic definition. There are a lot of sub definitions. But that works for us. Angela Barbash Our hope is that with the entrepreneurial environment that we’re building in Michigan, that we will help businesses fail less. That’s the goal. And succeed more! Thereby investors succeed more and fail less. Ravi Yalamanchi So in the loans we made, we sustained and grew to a number of 220 jobs over a period of 2 to 3 years. So that’s the impact we’re looking at. Patricia Rayl We also have seen some buildings that have been let to take care of themselves freshly painted and revitalized and there’s even buildings that are finding new owners, which we’re very excited about. Marcy Bishop Kates I’ve always wanted to be an entrepreneur. Every hobby I’ve ever had my entire life, I thought about how to make it into a business. And so I kind of decided it’s either now or never. And so it was now.
-‐-‐-‐ BrightSideTV.com
Outtakes Marsha Lyttle We used to be the Michigan Small Business and Technology Development Center.
Olivia Courant But, the name and position. Marsha Okay. My name is Marsha Lyttle. I am the regional director for the Michigan Small Business and Tech… oh wait, scratch that! Olivia Woah, yeah! Marsha So used to saying it.
Olivia Courant [laughing]
Marcy Bishop Kates You like my signs? Olivia Is this the freezer? Marcy That’s my favorite one. It’s Christopher Walken. It’s a walk-‐in!
-‐-‐-‐Credits-‐-‐-‐
Producer CEDAM Episode made possible by: MIplace.org Music Keffy Kay – “To The Light” Josh Woodward – “Morning Blue,” “Snooter,” “Evolution,” “Handyman’s Lament”
(joshwoodward.com) Dan-‐O Songs – “Shine Gold Light – Classical Mix” (danosongs.com) Kevin MacLeod – “Jarvic 8” (incompetech.com) Bensound.com – “Going Higher,” “Dance” Tyler Vander Maas – “The Bright Side Theme” This show made possible by an equipment grant from the Lansing Public Media Center.