INTERNAL SOURCES

The main internal sources of finance for a start-up are as follows:

1. Personal sources These are the most important sources of finance for a start-up, and we deal with them in more
detail in a later section.
2. Retained profits This is the cash that is generated by the business when it trades profitably another important
source of finance for any business, large or small. Note that retained profits can generate cash
the moment trading has begun. For example, a start-up sells the first batch of stock for 5,000
cash which it had bought for 2,000. That means that retained profits are 3,000 which can be
used to finance further expansion or to pay for other trading costs and expenses.
3. Share capital
invested by the founder. The founding entrepreneur (/s) may decide to invest in the share
capital of a company, founded for the purpose of forming the start-up. This is a common
method of financing a start-up. The founder provides all the share capital of the company,
retaining 100% control over the business. The advantages of investing in share capital
are covered in the section on business structure. The key point to note here is that the
entrepreneur may be using a variety of personal sources to invest in the shares. Once the
investment has been made, it is the company that owns the money provided. The shareholder
obtains a return on this investment through dividends (payments out of profits) and/or the
value of the business when it is eventually sold. A start-up company can also raise finance
by selling shares to external investors this is covered further below.
EXTERNAL SOURCES
1. Loan capital This can take several forms, but the most common are a bank loan or bank overdraft.
A bank loan provides
a longer-term kind of finance for a start-up, with the bank stating the fixed period over which
the loan is provided (e.g. 5 years), the rate of interest and the timing and amount of
repayments. The bank will usually require that the start-up provide some security for the loan,
although this security normally comes in the form of personal guarantees provided by the
entrepreneur. Bank loans are good for financing investment in fixed assets and are generally at
a lower rate of interest that a bank overdraft. However, they dont provide much flexibility.
A bank overdraft
is a more short-term kind of finance which is also widely used by start-ups and small
businesses. An overdraft is really a loan facility the bank lets the business owe it money
when the bank balance goes below zero, in return for charging a high rate of interest. As a
result, an overdraft is a flexible source of finance, in the sense that it is only used when needed.
Bank overdrafts are excellent for helping a business handle seasonal fluctuations in cash flow or
when the business runs into short-term cash flow problems (e.g. a major customer fails to pay
on time).

Two further loan-related sources of finance are worth knowing about:

2. Share capital outside investors
For a start-up, the main source of outside (external) investor in the share capital of a company
is friends and family of the entrepreneur. Opinions differ on whether friends and family should
be encouraged to invest in a start-up company. They may be prepared to invest substantial
amounts for a longer period of time; they may not want to get too involved in the day-to-day
operation of the business. Both of these are positives for the entrepreneur. However, there are
pitfalls. Almost inevitably, tensions develop with family and friends as fellow shareholders.
Business angels
Business angels are the other main kind of external investor in a start-up company. Business
angels are professional investors who typically invest 10k - 750k. They prefer to invest in
businesses with high growth prospects. Angels tend to have made their money by setting up
and selling their own business in other words they have proven entrepreneurial expertise. In
addition to their money, Angels often make their own skills, experience and contacts available
to the company. Getting the backing of an Angel can be a significant advantage to a start-up,
although the entrepreneur needs to accept a loss of control over the business. You will also see
Venture Capital mentioned as a source of finance for start-ups. You need to be careful here.
Venture capital is a specific kind of share investment that is made by funds managed by
professional investors. Venture capitalists rarely invest in genuine start-ups or small businesses
(their minimum investment is usually over 1m, often much more). They prefer to invest in
businesses which have established themselves. Another term you may here isprivate equity
this is just another term for venture capital. A start-up is much more likely to receive
investment from a business angel than a venture capitalist.
PERSONAL SOURCES
As mentioned earlier, most start-ups make use of the personal financial arrangements of the
founder. This can be personal savings or other cash balances that have been accumulated. It
can be personal debt facilities which are made available to the business. It can also simply be
the found working for nothing! The following notes explain these in a little more detail.
1. Savings and other nest-eggs
An entrepreneur will often invest personal cash balances into a start-up. This is a cheap form of
finance and it is readily available. Often the decision to start a business is prompted by a change
in the personal circumstances of the entrepreneur e.g. redundancy or an
inheritance. Investing personal savings maximizes the control the entrepreneur keeps over the
business. It is also a strong signal of commitment to outside investors or providers of finance.
Re-mortgaging is the most popular way of raising loan-related capital for a start-up. The way
this works is simple. The entrepreneur takes out a second or larger mortgage on a private
property and then invests some or all of this money into the business. The use of mortgaging
like this provides access to relatively low-cost finance, although the risk is that, if the business
fails, then the property will be lost too. .

2. Borrowing from friends and family

This is also common. Friends and family who are supportive of the business idea provide money
either directly to the entrepreneur or into the business. This can be quicker and cheaper to
arrange (certainly compared with a standard bank loan) and the interest and repayment terms
may be more flexible than a bank loan. However, borrowing in this way can add to the stress
faced by an entrepreneur, particularly if the business gets into difficulties.
3. Credit cards
This is a surprisingly popular way of financing a start-up. In fact, the use of credit cards is the
most common source of finance amongst small businesses. It works like this. Each month, the
entrepreneur pays for various business-related expenses on a credit card. 15 days later the
credit card statement is sent in the post and the balance is paid by the business within the
credit-free period. The effect is that the business gets access to a free credit period of
aroudn30-45days!
VENTURE CAPITAL FINANCE
Starting and growing a business always require capital. There are a number of alternative
methods to fund growth. These include the owner or proprietors own capital, arranging debt
finance, or seeking an equity partner, as is the case with private equity and venture capital.
Private equity is a broad term that refers to any type of non-public ownership equity securities
that are not listed on a public exchange. Private equity encompasses both early stage (venture
capital)and later stage (buy-out, expansion) investing. In the broadest sense, it can also include
mezzanine, fund of funds and secondary investing. Venture capital is a means of equity
financing for rapidly-growing private companies. Finance may be required for the start-up,
development/expansion or purchase of a company. Venture Capital firms invest funds on a
professional basis, often focusing on a limited sector of specialization (e.g. IT, infrastructure,
health/life sciences, clean technology, etc.).The goal of venture capital is to build companies so
that the shares become liquid (through IPO or acquisition) and provide a rate of return to the
investors (in the form of cash or shares) that is consistent with the level of risk taken. With
venture capital financing, the venture capitalist acquires an agreed proportion of the equity of
the company in return for the funding. Equity finance offers the significant advantage of having
no interest charges. It is "patient" capital that seeks a return through long-term capital gain
rather than immediate and regular interest payments, as in the case of debt financing. Given
the nature of equity financing, venture capital investors are therefore exposed to the risk of the
company failing. As a result the venture capitalist must look to invest in companies which have
the ability to grow very successfully and provide higher than average returns to compensate for
the risk. When venture capitalists invest in a business they typically require a seat on the
company's board of directors. They tend to take a minority share in the company and usually do
not take day-to-day control. Rather, professional venture capitalists act as mentors and aim to
provide support and advice on a range of management, sales and technical issues to assist the
company to develop its full potential.
Venture capital has a number of advantages over other forms of finance, such as:
It injects long term equity finance which provides a solid capital base for future growth.

The venture capitalist is a business partner, sharing both the risks and rewards. Venture
capitalists are rewarded by business success and the capital gain.
The venture capitalist is able to provide practical advice and assistance to the company based
on past experience with other companies which were in similar situations.
The venture capitalist also has a network of contacts in many areas that can add value to
the company, such as in recruiting key personnel, providing contacts in international markets,
introductions to strategic partners, and if needed co-investments with other venture capital
firms when additional rounds of financing are required.
The venture capitalist may be capable of providing additional rounds of funding should it be
required to finance growth.
4. MANAGING EARLY GROWTH OF A BUSINESS, INCUBATION PROGRAM.MANAGING EARLY
GROWTH Critical decisions
The most exciting times of owning a business are the early days. At the start every order you
take is important, and often hard earned against established vendors; the highs and lows that
you go through can be very extreme. As an entrepreneur, the most attractive word in your
vocabulary is growth. You want high growth because in your mind, that denotes a successful
business. It makes perfect sense if you were unsuccessful you definitely wouldnt grow so
the opposite must be true!
1. To hire or not One pitfall (or opportunity) in continuous growth is that at some point you will run out of
capacity to handle everything personally, so you have to decide whether this is an ongoing
trend or just a spike. Do you take on people to help or do you get through the blip and
continue to manage by yourself?
2. Choosing where to focus Often a fast-growing business has more profitable options to pursue than it has resources and
a decision has to be made as to which options should be pursued. One way to determine which
avenues offer the best opportunities for success are to select those with the highest return on
investment (ROI).
3. Balancing the books The other big issue facing a fast-growing business is managing cash flow. As you grow, you will
almost automatically have a lag between spending money and generating funds to put back
into the business, and the faster the growth, the bigger the gap. Ensuring that you have the
cash to back your growth is a major challenge for many new businesses, but it is something that
you ignore at your peril.
Done right, starting your own business is as good as it gets, but be aware that the highs are very
high and the lows. Keep an eye on your cash flow, manage your resources and enjoy what you
do.

KEY AREAS OF FOCUS

1. Market Focus
What makes a venture succeed is the ability to identify emerging attractive markets and to
seize on unmet, unserved customer needs. Successful business is ruled not by the founders'
decisions, but by the marketplace. And the marketplace, in turn, is ruled by "fears and
passions". People will only buy what they want to buy, or are afraid not to buy. And these
"fears and passions" change every day. "Selling is not about content, it is about fit5". The
analysis of the market potential and search for the right fit separates the inventor from the
entrepreneur. Have the market researched, and develop an effective marketing, advertising
and selling strategy. Build a prototype and test market your product or service; identify the
price at what you could sell it. Hot markets do not last forever. So, be prepared to adapt quickly
to the market changes. The market focus means flexibility: watch the market dynamics, spot
what has gone wrong, and move quickly to turn market changes and your errors into
opportunities. Creating customers and better servicing them is the true purpose of enterprise.
In today's highly competitive world with many players, "you need to be able to articulate your
competitive advantage in a matter of minutes, if not seconds. If you cannot, you will lose your
prospective customer's attention, and the business4". Your effective positioning strategy will
help you to get seen and heard in the overcrowded marketplace.
2. Management Focus
It's impossible to grow a successful business as a one-person operation. Sooner or later, you will
have to share responsibility with one or more partners. Thomas Alva Edison, an inventive
genius who took out more than 1000 patents, started several great companies. However, every
one of them collapsed once it got to middle size, and was saved only by booting Edison himself
out and replacing him with professional management. You cannot achieve success with a Class
A idea and Class B management. Turning a great idea into a great business requires professional
managers and market experts. In case you cannot afford top management, you would need to
build your management team from within, developing their own management skills. The core
team should be picked very carefully because its business and interpersonal style becomes the
foundation of the company's culture and grows the value system. They should have an
impressive track record, skills, and depth of experience in the areas most important to the
sustainable competitive advantage of the company. Don't settle for a few average employees "if you want a track team to win the high jump, you find one person who can jump seven feet,
not seven people who can jump one foot."When building your management team, remember
also that top-quality people often emerge from bankruptcies. Prior bankruptcy experience is
valuable - failure has its rewards. It is often better to hire a leader who learned from mistakes
than it is to hire someone who was just lucky. You would also need to learn how to do less and
manage more through decentralizing, organizing groups and delegating responsibilities.
Learning to distinguish between the core activities, that cannot be delegated, from non-core
activities, that must be delegated, is what often separates successful entrepreneurs from
business failures. The core activities that must be performed by the entrepreneur - because no
one else can perform them as well as the company founder - are those that give the company
its competitive advantage over other companies in the industry.

3. Financial Focus
Venture financing (see slide show) usually requires several rounds that, at different funding
stages, may involve founders, family, friends, angel investors, venture capitalists, commercial
banks, non-financial corporations, and stock markets. Financial focus requires entrepreneurs to
change their minds. Focus on profits is a wrong one for new ventures. It should rather come last
than first. Entrepreneurs should rather focus on cash flow, capital and controls in the new
venture's development. "The profit figures are fiction - good for 12 or 18 months, after which
they evaporate", says Peter Drucker. He also stresses that financial foresight demands more
thought than time. Strategic Focus There are several types of strategies followed by successful
companies. A careful study in this area will help you to sort out the kind of your enterprise
strategy that could be used best. Strengths-Weaknesses-Opportunities-Threats (SWOT) analysis
is to be carried out to define your company's sustainable competitive advantage areas and
develop an appropriate business strategy to capitalize on it.
Strengths and weaknesses of the venture's major competitors need also to be assessed. Having
that exercise completed, you must position your company and its first products against its
prime competitors. Positioning is very hard work, and you may need to call for help from a
start-up consultant, a marketing expert, or an experienced business executive. Your strategic
thinking, vision, and business strategy development exercise need to be supported by a set of
analytical techniques. Michael Porter, a professor at the Harvard Business School, points out
the five major elements of strategic business planning:
an analysis of the industry in which the firm competes
sources of competitive advantage
an analysis of the existing and potential competitors who might affect the company
an assessment of the company's competitive position
selection or ratification of strategy, built on competitive advantage, and how it
can be sustained. The currently dominant view of business strategy - resource-based theory - is
based on the concept of economic rent and the view of the company as a collection of
capabilities. This view of strategy has a coherence and integrative role that places it well ahead
of other mechanisms of strategic decision making.7

4. Competing Focus
No business can be successful unless it places a top priority on outdoing its competitors.
Business has always been a battle. Companies which don't do their utmost to outcompete their
rivals are likely go out of business sooner or later. You need to establish and maintain a position
of competitive excellence and master your competitive strategies if your business is to
survive. To achieve this all-important goal, you need to master the seven skills of competing:
Know yourself
Know your customer
Outsmart your competition
Make your staff your evangelists
Learn to enjoy solving customer's problems

When it comes to marketing - think first, spend later

Learn the tactics of competitive warfare
INCUBATION PROGRAM
Business incubators are programs designed to support the successful development of
entrepreneurial companies through an array of business support resources and services,
developed and orchestrated by incubator management and offered both in the incubator and
through its network of contacts. Incubators vary in the way they deliver their services, in their
organizational structure, and in the types of clients they serve. Successful completion of a
business incubation program increases the likelihood that a startup company will stay in
business for the long term: older studies found 87% of incubator graduates stayed in business,
in contrast to 44% of all firms. Incubators differ from research and technology parks in their
dedication to startup and early-stage companies. Research and technology parks, on the other
hand, tend to be large-scale projects that house everything from corporate, government or
university labs to very small companies. Most research and technology parks do not offer
business assistance services, which are the hallmark of a business incubation program.
However, many research and technology parks house incubation programs.
History
The formal concept of business incubation began in the USA in 1959. Incubation expanded in
the U.S. in the 1980s and spread to the UK and Europe through various related forms (e.g.
innovation centres, ppinires dentreprises, technopoles/science parks). The U.S.-based
National Business Incubation Association estimates that there are about7,000 incubators
worldwide. As of October 2006, there were more than 1,400 incubators in North America, up
from only12 in 1980. Her Majesty's Treasury identified around 25 incubation environments in
the UK in 1997; by 2005, UK BI identified around 270 incubation environments across the
country. A study funded by the European Commission in 2002identified around 900 incubation
environments in Western Europe. Incubation activity has not been limited to developed
countries; incubation environments are now being implemented in developing countries and
raising interest for financial support from organisations such as UNIDO and the World Bank. On
November 3, 2010, New York City broke ground on its sixth business incubator and the first in
the Bronx called the Sunshine Bronx Business Incubator which is a joint venture between the
New York City Economic Development Corporation and Sunshine Suites. Incubators are going
through a renaissance as of 2011. New experiments like Virtual Business Incubators are bringing
the resources of entrepreneurship hubs like Silicon Valley to remote locations all over the
world.
The incubation process
Most common incubator services:
Help with business basics
Networking activities
Marketing assistance
High-speed Internet access
Help with accounting/financial management

Access to bank loans, loan funds and guarantee programs

Help with presentation skills
Links to higher education resources
Links to strategic partners
Access to angel investors or venture capital
Comprehensive business training programs
Advisory boards and mentors
Management team identification
Help with business etiquette
Technology commercialization assistance
Help with regulatory compliance
Intellectual property management
Unlike many business assistance programs, business incubators do not serve any and all
companies. Entrepreneurs who wish to enter a business incubation program must apply for
admission. Acceptance criteria vary from program to program, but in general only those with
feasible business ideas and a workable business plan are admitted. It is this factor that makes it
difficult to compare the success rates of incubated companies against general business survival
statistics. Although most incubators offer their clients office space and shared administrative
services, the heart of a true business incubation program is the services it provides to startup
companies.
More than half of incubation programs surveyed by the National Business Incubation
Association in 2006 reported that they also served affiliate or virtual clients. These companies
do not reside in the incubator facility. Affiliate clients may be home-based businesses or earlystage companies that have their own premises but can benefit from incubator services. Virtual
clients may be too remote from an incubation facility to participate on site, and so receive
counseling and other assistance electronically. The amount of time a company spends in an
incubation program can vary widely depending on a number of factors, including the type of
business and the entrepreneur's level of business expertise. Life science and other firms with
long research and development cycles require more time in an incubation program than
manufacturing or service companies that can immediately produce and bring a product or
service to market. On average, incubator clients spend 33 months in a program.[6] Many
incubation programs set graduation requirements by development benchmarks, such as
company revenues or staffing levels, rather than time in the program.
5. NEW VENTURE EXPANSION - STRATEGIES AND ISSUESSTRATEGIES TO GROW YOUR
BUSINESS
When you first started your business, you probably did a lot of research. You may have sought
help from advisors; you may have gotten information from books, magazines and other readily
available sources. You invested a lot-in terms of money, time and sweat equity-to get your
business off the ground. So...now what? There are numerous possibilities, 10of which we'll
outline here. Choosing the proper one (or ones) for your business will depend on the type of

business you own, your available resources, and how much money, time and sweat equity
you're willing to invest all over again. If you're ready to grow, we're ready to help.
1. Open another location.
This might not be your best choice for business expansion, but it's listed first here because
that's what often comes to mind first for so many entrepreneurs considering expansion.
"Physical expansion isn't always the best growth answer without careful research, planning and
number-planning," says small-business speaker, writer and consultant Frances McGuckin , who
offers the following tips for anyone considering another location:
Make sure you're maintaining a consistent bottom-line profit and that you've shown steady
growth over the past few years. Look at the trends, both economic and consumer, for
indications on your company's staying power.
Make sure your administrative systems and management team are extraordinary-you'll need
them to get a new location up and running. Prepare a complete business plan for a new
location.
Determine where and how you'll obtain financing.
Choose your location based on what's best for your business, not your wallet.
2. Offer your business as a franchise or business opportunity.
Bette Fetter, founder and owner of Young Rembrandts , an Elgin, Illinois-based drawing
program for children, waited 10years to begin franchising her concept in 2001-but for Fetter
and her husband, Bill, the timing was perfect. Raising four young children and keeping the
business local was enough for the couple until their children grew older and they decided it was
time to expand nationally. "We chose franchising as the vehicle for expansion because we
wanted an operating system that would allow ownership on the part of the staff operating
Young Rembrandts locations in markets outside our home territory," says Bette. "When people
have a vested interest in their work, they enjoy it more, bring more to the table and are more
successful overall. Franchising is a perfect system to accomplish those goals." Streamlining their
internal systems and marketing in nearby states helped the couple bring in their first few
franchisees. With seven units and sometime under their belt, they then signed on with two
national franchise broker firms. Now with 30 franchisees nationwide, they're staying true to
their vision of steady growth. "Before we began franchising, we were teaching 2,500 children in
the Chicago market," says Bette. "Today we teach more than 9,000 children nationwide and
that number will continue to grow dramatically as we grow our franchise system."Bette advises
networking within the franchise community-become a member of the International Franchise
Association and find a good franchise attorney as well as a mentor who's been through the
franchise process. "You need to be open to growing and expanding your vision," Bette says,
"but at the same time, be a strong leader who knows how to keep the key vision in focus at all
times."
3. License your product
This can be an effective, low-cost growth medium, particularly if you have a service product or
branded product, notes Larry Bennett, director of the Larry Friedman International Center for
Entrepreneurship at Johnson & Wales University in Providence, Rhode Island. "You can receive

upfront monies and royalties from the continued sales or use of your software, name brand,
etc.-if it's successful," he says. Licensing also minimizes your risk and is low cost in comparison
to the price of starting your own company to produce and sell your brand or product. To find a
licensing partner, start by researching companies that provide products or services similar to
yours. "[But] before you set up a meeting or contact any company, find a competent attorney
who specializes in intellectual property rights," advises Bennett. "This is the best way to
minimize the risk of losing control of your service or product."
4. Form an alliance
Aligning yourself with a similar type of business can be a powerful way to expand quickly. Last
spring, Jim Labadie purchased a CD seminar set from a fellow fitness professional, Ryan Lee, on
how to make and sell fitness information products. It was a move that proved lucrative for
Labadie, who at the time was running an upscale personal training firm he'd founded in 2001.
"What I learned on [Lee's] CDs allowed me to develop my products and form alliances within
the industry," says Labadie, who now teaches business skills to fitness professionals via a series
of products he created and sells on his Web site. Seeing that Labadie had created some wellreceived products of his own, Lee agreed to promote Labadie's product to his long contact list
of personal trainers. "That resulted in a decent amount of sales," says Labadie-in fact, he's
increased sales 500 percent since he created and started selling the products in 2001. "Plus,
there have been other similar alliances I've formed with other trainers and Web sites that sell
my products for a commission." If the thought of shelling out commissions or any of your own
money for the sake of an alliance makes you uncomfortable, Labadie advises looking at the big
picture: "If you want to keep all the money to yourself, you're really shooting yourself in the
foot," says the Tampa, Florida, entrepreneur. "You need to align with other businesses that
already have lists of prospective customers. It's the fastest way to success."
5. Diversify
Small-business consultant McGuckin offers several ideas for diversifying your product or service
line:
Sell complementary products or services
Teach adult education or other types of classes
Import or export yours or others' products
Become a paid speaker or columnist
"Diversifying is an excellent growth strategy, as it allows you to have multiple streams of
income that can often fill seasonal voids and, of course, increase sales and profit margins," says
McGuckin, who diversified from an accounting, tax and consulting business to speaking, writing
and publishing. Diversifying was always in the works for Darien, Connecticut, entrepreneurs
Rebecca Cutler and Jennifer Krane, creators of the "raising a racquet" line of maternity tennis
wear , launched in 2002. "We had always planned to expand into other thematic' kits,
consistent with our philosophies of versatility, style, health and fun," says Cutler. "Once we'd
begun to establish a loyal wholesale customer base and achieve some retail brand recognition,
we then broadened our product base with two line extensions, 'raising a racquet golf' and
'raising a racquet yoga.'" Rolling out the new lines last year allowed the partners' current retail
outlets to carry more of their inventory. "It also broadened our target audience and increased

our presence in the marketplace, giving us the credibility to approach much larger retailers,"
notes Cutler, who expects to double their 2003 sales this year and further diversify the
company's product lines. "As proof, we've recently been selected by Bloomingdale's, A Pea in
the Pod and Mimi Maternity."
6. Target other markets.
Your current market is serving you well. Are there others? You bet. "My other markets are
what make money for me," says McGuckin. Electronic and foreign rights, entrepreneurship
programs, speaking events and software offerings produce multiple revenue streams for
McGuckin, from multiple markets. "If your consumer market ranges from teenagers to college
students, think about where these people spend most of their time," says McGuckin. "Could
you introduce your business to schools, clubs or colleges? You could offer discounts to specialinterest clubs or donate part of [your profits] to schools and associations." Baby boomers,
elderly folks, teens, tweens...let your imagination take you where you need to be. Then take
your product to the markets that need it.
7. Win a government contract
"The best way for a small business to grow is to have the government as a customer. The
government is the largest buyer of goods and services. Working with your local government
offices will help you determine the types of contracts available to you. A fair amount of
patience is required in working to secure most government contracts. Requests for proposals
usually require a significant amount of groundwork and research. If you're not prepared to take
the time to fully comply with government terms and conditions, you'll only be wasting your
time. This might sound like a lot of work, but it could be worth it: The good part about winning
government contracts is that once you've jumped through the hoops and win a bid, you're
generally not subject to the level of external competition of the outside marketplaces.
8. Merge with or acquire another business
In 1996, when Mark Fasciano founded FatWire , a Mineola, New York, content management
Software Company, he certainly couldn't have predicted what would happen a few years later.
Just as FatWire was gaining market momentum, the tech downturn hit hard. "We were unable
to generate the growth needed to maximize the strategic partnerships wed established with
key industry players," Fasciano says. "During this tech 'winter,' we concentrated on survival and
servicing our clients, while searching for an opportunity to jump-start the company's growth.
That growth opportunity came last year at the expense of one of our competitors." Scooping up
the bankrupt company, divine Inc., from the auction block was the easy part; then came the
integration of the two companies. "The process was intense and exhausting," says Fasciano,
who notes four keys to their success:
Customer retention.
"I personally spoke with 150 customers within the first few weeks of consummating the deal,
and I met with 45 clients around the globe in the first six months," notes Fasciano. They've
retained 95 percent of the divine Inc. customer base.

Staff retention.
Fasciano rehired the best and brightest of divine's staff.
Melding technologies.
"One of the reasons I was so confident about this acquisition was the two product
architectures were very similar," says Fasciano. This allowed for a smooth integration of the
two technologies.
Focus.
"Maybe the biggest reason this acquisition has worked so well is the focus that FatWire has
brought to neglected product," says Fasciano.
FatWire's acquisition of divine in 2003 grew its customer base from 50 to 400, and the company
grew 150 percent, from$6 million to $15 million. Fasciano expects no less than $25 million in
sales this year.
9. Expand globally
Not only did FatWire grow in terms of customers and sales, it also experienced global growth
simply as a result of integrating the best of the divine and FatWire technologies. "FatWire
finally has international reach-we've established new offices in the United Kingdom, France,
Italy, Spain, Holland, Germany, China, Japan and Singapore," say Fasciano. This increased
market share is what will allow Fat Wire to realize sustained growth. But you don't need to
acquire another business to expand globally. You just need to prime your offering for an
international market the way Fat Wire was primed following the integration of its technologies
with divine's. You'll also need a foreign distributor who'll carry an inventory of your product and
resell it in their domestic markets. You can locate foreign distributors by scouring your city or
state for a foreign company with a U.S. representative. Trade groups, foreign chambers of
commerce in the United States, and branches of American chambers of commerce In foreign
countries are also good places to find distributors you can work with.
10. Expand to the Internet
"Bill Gates said that by the end of 2002, there will be only two kinds of businesses: those with
an Internet presence, and those with no business at all," notes Sally Falkow a Pasadena,
California, Web content strategist. "Perhaps this is overstating the case, but an effective Web
site is becoming an integral part of business today." Landing your Web site in search engine
results is key-more than 80 percent of traffic comes via search engines, according to Falkow.
"As there are now more than 4 billion Web pages and traffic on the Internet doubles every 100
days, making your Web site visible is vital," she says. "You need every weapon you can get."
Design and programming are also important, but it's your content that will draw a visitor into
your site and get them to stay. Says Falkow, "Putting together a content strategy based on user
behavior, measuring and tracking visitor click streams, and writing the content based on
researched keywords will get you excellent search results and meet the needs of your visitors."

NEW VENTURE EXPANSION ISSUES

The development of a comprehensive, systematically derived classification scheme for the
types of problems encountered by emerging entrepreneurial companies would be of both

theoretical and practical utility. Such a classification scheme might serve as a starting point for
the conceptualization and systematic study of distinct problem types. The development of a
comprehensive classification scheme for the types of problems encountered by new
organizations may also provide a basis for linking these problem types to problem-solving
activities, and ultimately to organizational performance (Cowan, 1988). For example, the
classes could provide a focus for future research studying the relationship between certain
problem types and problem formulation and subsequent information-processing activities. The
initial classification framework may have implications for resolution methods, as it may
influence the perceived problem solutions by directing and controlling attention and diagnostic
activity (March & Simon, 1958;Volkema, 1986).
Several classification frameworks have been proposed for the categorization of organizational
problem types. For example, over 30 years ago, Dearborn and Simon (1958)
classified organizational problems into three general types:
1) Sales, marketing, or distribution;
2) Clarifying the organization; and
3) Human relations, employee relations, or teamwork.
More recently, Walsh (1988) proposed that organizational problems can be grouped into five
general categories:
1) accounting-finance;
2) Human relations;
3) Marketing;
4) Internal management; and
5) External management. Both of the above studies, however, were narrowly focused on the
role of selective perception, or the extent to which affiliation with a specific department in an
organization influences the types of problems identified. In Dearborn and Simon's (1958) and
Walsh's (1988) studies, managers were given only one hypothetical company case and were
asked to identify the problem(s) facing that company. Thus, the research methodology
employed in these studies quite likely limited the number and range of problems initially
identified. The relatively small sample of managers employed in the Dearborn and Simon study
may also have limited the range of problems identified. The study by Walsh employed a larger
sample that consisted of 121 middle- and upper-level managers that had been selected by their
organizations to attend a master's degree program at a large university. But again, the range of
problems initially identified may have been limited by the one hypothetical case presented to
the participants (the case portrayed a company with a mature product line that was specifically
challenged by the advent of private-label and generic competition). One might also question
whether the fact that all of the managers in Walsh's study were enrolled in the same executive
master's program (and hence, subject to the same specialized training) may have limited the
range of their problem responses. A recent study by Cowan (1990) found some partial support
for the frameworks proposed by both Dearborn and Simon(1958) and Walsh (1988). In this
study, 59 middle- and upper-level managers who were all enrolled in a two-year MBA program
at a private Midwestern university were asked to write down an example of an organizational
problem they had experienced recently. Thus, Cowan's study did not limit managers to
identifying problems associated with a single case or company. There may have been some bias
due to the fact that all of the managers were exposed to similar training in the MBA program,

however. Additionally, the demand characteristics associated with a university classroom

setting maybe cause for concern in the above studies by Dearborn and Simon (1958), Walsh
(1988), and Cowan (1990). Asking CEOs in the field to nominate significant organizational
problems may result in a different set of initial problem types from those nominated by
functional managers attending an MBA class. Additionally, the above problem classification
studies were not focused on the types of problems encountered by new or rapidly growing
entrepreneurial entities. Some information regarding the types of problems encountered by
emerging organizations can be drawn from studies of business failures and studies of problems
facing rapidly growing firms. For example, Dun and Bradstreet (1987) collected data on new
business ventures that failed, and listed the following as major reasons for failure:
1) Inadequate market knowledge;
2) Poor product performance;
3) Ineffective marketing and sales efforts;
4) Inadequate awareness of competitive pressures;
5) Rapid product obsolescence;
6) Poor timing for the start of a business venture; and
7) Financial difficulties. The method employed to arrive at these classes of reasons, however,
was not specified.