Her company occupies six floors in a building on West 35th Street and uses, among other businesses, six nearby sewing factories, a cutting room and even a maker of fabric flowers in the neighborhood. She organizes “Save the Fashion District” rallies, writes about the danger of losing local production and lobbies lawmakers in Washington to support the American fashion industry.

“If my only option as a young designer was to make my clothing overseas, I could not have started my business,” she said.

Yet Ms. Lepore says that when she signed a deal with J. C. Penney for a low-cost clothing line for teenagers — clothing that sells for about one-tenth the price of her higher-end lines — Penney could not afford production in New York.

Of the 150 or so items she now has featured on Penney’s website, none are made in this country. “That price point can’t be done here,” Ms. Lepore said of lower-end garments.

As textile and apparel companies begin shifting more production to the United States, taking advantage of automation and other cost savings, a hard economic truth is emerging:  Production of cheaper goods, for which consumers are looking for low prices, is by and large staying overseas, where manufacturers can find less expensive manufacturing. Even when consumers are confronted with the human costs of cheap production, like the factory collapse in Bangladesh that killed more than 1,000 garment workers, garment makers say, they show little inclination to pay more for clothes.

Essentially, to buy American is to pay a premium — a reality that is acting as a drag on the nascent manufacturing resurgence in textiles and apparel, while also forcing United States companies to focus their American-made efforts on higher-quality goods that fetch higher prices.

Last year, Dillard’s, the midtier department store, wanted to promote American-made clothing, according to Fessler USA, an apparel maker in eastern Pennsylvania. It turned to Fessler to produce tops. Theirs was a brief relationship. “Almost overnight, they called and said, ‘Made in America just doesn’t sell better than made in Asia, and you can’t beat the price,’ ” said Walter Meck, Fessler’s chief executive and principal owner.

The pattern repeats across retailers. Brooks Brothers’ American-made cashmere sport coats sell for $1,395; comparable imported ones go for $1,098. At Lands’ End, American-made sweatshirts cost $59, while the ones made in Vietnam cost $25. The label on an Abercrombie Fitch American-made sweater, which sells for $150, screams about its American origins. But most of the sweaters for sale at Abercrombie are the cheaper ones priced at $68 and up, and made abroad.

Eric Schiffer, known as Ricky, and his business partner, Leonard Keff, last year opened Keff NYC, a knitting operation in New York’s garment district. Business has been good, with contracts from higher-price retailers like Abercrombie, Anthropologie and Ralph Lauren. One afternoon earlier this year, Mr. Schiffer watched as a table full of women knotted loose threads on Ralph Lauren gloves destined for the American team in the Winter Olympics next year in Sochi, Russia. (Ralph Lauren chose American manufacturing only under pressure from consumers and government officials up in arms after it supplied Olympics uniforms made in China for the 2012 Summer Games.)

Though labor costs about 40 percent more than in China, and retail prices end up 20 percent higher, Mr. Schiffer says Keff’s clients — and, more important, their customers — can afford it.

“We can’t work with the Targets and the J. C. Penneys of the world,” he said. “It’s not for everyone. It’s really just for the higher-end companies.”

Paying for Quality, or Not

Americans spend more than $340 billion a year on clothes and shoes, more than double what they spend on new cars, according to the American Apparel and Footwear Association. And they say they want to buy American, even if it hits them harder in the pocketbook.

Two-thirds of Americans say they check labels when shopping to see if they are buying American goods, according to a New York Times poll taken early this year. Given the example of a $50 garment made overseas, almost half of respondents — 46 percent — said they would be willing to pay from $5 to $20 more for a similar garment made in the United States.

It is a sentiment that advertisers have picked up on. In the first half of 2013, according to the most recent data available from the research firm Kantar Media, spending on advertising by companies like the Toyota Dealer Association, Chevron and New Balance that emphasized products’ American-made status nearly tripled when compared with the first half of 2012.

The flurry of new promotions also has the Federal Trade Commission policing made-in-America claims. According to its rules, “all or virtually all” of a product has to be both assembled and sourced in the United States in order to qualify.

But shoppers’ statements that they are interested in American-made goods don’t always square with how they actually spend their money, especially when they are on a budget.

Article source: http://www.nytimes.com/2013/12/01/business/that-made-in-usa-premium.html?partner=rss&emc=rss

After Mr. Manfredi sold the company at the end of 2004, the buyer allowed him to take the policy with him. It was a $20 million term policy, which meant he had to continue paying the rising premiums to keep it in place. Mr. Manfredi, who was 65 at the time, figured he’d hold on to the policy for a while and see what happened.

Three months later, he learned he had melanoma and was given a 50/50 chance of living four years. Through a combination of aggressive treatment and experimental drugs, Mr. Manfredi survived. All of a sudden, though, the cost of the policy, whose premiums had gone to more than $200,000 a year from $94,000, didn’t seem like such a good deal.

“Once I heard it was melanoma I figured I should hold on to it if I’m going fast,” Mr. Manfredi said. “But when I kept living, it didn’t seem like a good investment.”

He started looking for options to sell the policy, and that was when he considered a life settlement. Life settlements are perceived by many in the insurance business as a dark corner of the industry. Generally, they’re used by older individuals who need money right away and whose life insurance, usually in the form of a permanent, cash-value policy, is one of their primary assets.

But as the industry has matured in recent years, life settlements have also become a way for a company — or in many cases, a small-business owner — to extract value from an often-overlooked asset.

“I’d say 70 percent of the time people let these policies go,” said John P. Keenan, a partner at Signature Estate and Investment Advisors. “We’ll talk to the executive and say, ‘If this is something you want to carry, we can go back to the company and ask if they’ll release the policy,’ ” he said. “We tell them that as an executive you had a need for it and you probably got it cheaper than you could today.”

In Mr. Manfredi’s case the settlement worked out well. He agreed to split the policy into four smaller ones. In 2012, he said he sold three policies with a combined death benefit of about $10 million for $1.35 million. In April, he sold the remaining $10 million policy for $1.2 million.

“I was relieved not to have to pay the premiums,” he said.

W. Scott Page, president and chief executive of the Lifeline Program, which negotiated the purchase of Mr. Manfredi’s policies, said in general a policyholder would be paid 10 to 75 percent of the death benefit of a policy. His company will pay to convert a term policy to permanent insurance and make any future premium payments.

To calculate the payment, life settlement companies require anyone looking to sell his key-man policy (or any life insurance policy, for that matter) to submit to a health exam as if they were being underwritten for a new policy, he said.

The process is not as ghoulish as it may sound. Mr. Page is not betting on any one person’s life, but pooling at least 100 policies together and selling interests in that pool as he would any type of securitized debt. He said that helped smooth out the returns, since it balanced out the people who live longer than expected with those who die sooner.

“Normally people in their late 60s or early 70s, regardless of their impairments, we can pretty much project what their life expectancy is going to be,” Mr. Page said. “But when you have a healthy 40-year-old you’re not going to be able to project how long they’re going to live.”

For that reason, life settlements are not an option for younger executives. But there are other ways to monetize key-man policies short of dying. Mr. Keenan said he often talked to former business owners or executives about how these policies could fit into their investment plan. If the person has a net worth in excess of the estate tax exemption — now $10.5 million for a couple — the key-man policy could be used to pay the taxes.

The policies themselves can also be used as a deferred-compensation plan or a way to retain an executive for a certain number of years. Christopher O. Blunt, president of the insurance group at New York Life, said there were generally three ways to structure key-man insurance so it was seen as a benefit to the person being insured.

A company could set up what is called a 162 executive bonus plan, where the company pays the premium and the executive is the owner and the beneficiary of the policy. Or it could pay for what is called an endorsement split dollar policy, where the company retains the cash value but gives the employee life insurance to protect his or her family.

A third way is to use the policy as the basis for a supplemental employee retirement plan, where the policy would become a key-man policy if the executive died while working for the company. Otherwise, the employee would get access to the cash value after a certain number of years.

Mr. Blunt said these policies needed to be seen in their primary role first. “When you own a small business, it’s a highly valuable, but uncertain and illiquid asset,” he said. “Small-business owners say, ‘I have a business that is worth millions.’ It’s only worth millions in a nondistressed situation.”

For that small-business owner, these policies can also be seen as assets (even though they’re not on the balance sheet) in negotiating the sale of a company. “If I buy your company and along with it, I get the key-person coverage, that makes the company more valuable,” said Robert H. Garner, executive vice president of CBIZ Life Insurance Solutions. “If someone has had a health issue or is 10 years older, the price doesn’t go up.”

He added that those policies also showed the buyer who was important. “Part of, ‘What is the company worth?’ is what are the people worth,” he said.

But executives should be careful about drawing benefits directly from such policies. For one thing, there are limits to how much life insurance people can get, and a key-man policy reduces what they could buy themselves to benefit their families.

And there can be taxes on these policies that people need to understand, whether they are trying to sell a policy or they receive one as a benefit.

For Mr. Manfredi, whose hobby is gambling, having the cash now meant more than a big death benefit for his family down the road.

“If I go in the next 10 years, it’s not a great investment,” he said. “But I saw it as a good time to do it.”

Article source: http://www.nytimes.com/2013/11/30/your-money/insurance-on-the-person-who-makes-the-business-run.html?partner=rss&emc=rss

At first, the classes attracted about four attendees, who paid $20 apiece to learn how to make a basic batter and frosting. “Through word-of-mouth, the classes started filling up and we were getting 10 people a night,” Ms. Nelson said. The owners expanded to the space next door and then decided to try a Groupon promotion offering half-price classes in the hopes of selling a few hundred coupons. They sold 9,000.

Even with the Groupon discount, Ms. Nelson said, the shop managed to make money on the classes. “That first seat is expensive,” she said, “because you are paying for the instructor, the room, the oven and utilities, but every seat after that, the marginal costs are lower, so you’re highly motivated to fill the room.”

Even without the discounts, she said, the room kept filling. “We held two or three classes a day and were sold out for five months, so we decided to make the classes into a whole other part of the business,” she said. The company’s overall revenue increased — it was about $1 million last year — and there is now a shop in Brooklyn, too. This year about 40 percent of Butter Lane’s revenue will come from classes.

Although it may seem counterintuitive for a cupcake seller to teach customers to make their own, Ms. Nelson said the classes actually increased sales of the store’s baked goods. “We’ve created experts who bring their friends in and explain how we use, for instance, real vanilla beans,” she said. Plus, she added, they have proprietary flavors that they do not teach in the classes. “What’s really wonderful is that once these people take a class, they feel they are a part of the brand,” she said. “They become our ambassadors.”

Small businesses are always looking for ways to get customers into their stores and onto their websites, but especially since the recession, many have started offering classes or holding events to lure in the curious, convert them to customers and build relationships. Steve Butcher, chief executive of Brown Paper Tickets, a company based in Seattle that provides online event registration and ticketing, said that since 2009 the company’s work with small businesses had grown 350 percent. “When we started in 2000, 3 to 5 percent of our clients were small businesses,” he said. “But in 2008, when the economy tanked, small businesses began to get much more creative.”

Now, as many as 30 percent of Brown Paper’s 15,000 monthly events — including guided river walks and hog-butchering classes — are sponsored by small businesses. The recession forced many of them to find new ways to make their brand resonate, said Jeffrey A. Carr, a professor of marketing and entrepreneurship at the Stern School of Business at New York University. “You can connect a brand to a product,” he said, “but branding today is a lot more about emotional attachment.”

In the last three years, Creative Kidstuff, a small chain of children’s toy stores in Minneapolis, has been using downtime in its party rooms to offer free prenatal and birthing classes as well as children’s music classes. The stores also hold events for families, like the Decorate Your Bike workshop on the Fourth of July and Fingerprint Memories, where children create a holiday-themed tile using their fingerprints. Two years ago, when the company began sponsoring a summer concert series, about 25 people attended the first, said Roberta Bonoff, the company’s chief executive: “This summer, we had 500 people.”

Although stores see a bump in traffic and sales during events, Ms. Bonoff said that was not the main benefit. In fact, she said her in-store sales had been flat the last few years (although online sales have been up 30 percent a year during that same period). “We really believe the benefit of these events is brand loyalty and exposure,” she said. “Babies are born everyday. This is a way to acquire new customers who may not have heard about us.”

The Woodinville Whiskey Company in Woodinville, Wash., holds bottling parties, where customers bottle, label, cork and case whiskey. Their efforts are rewarded with a “bottling crew” T-shirt, a discount on anything they buy that night and dinner. Woodinville is a small-batch, handcrafted microdistillery founded by Orlin Sorensen and Brett Carlile. With 100 cases a night to bottle, the owners decided about two years ago to involve customers in their nightly ritual. Now they post the dates of parties on the company’s Facebook page weeks in advance; about 16 people can participate in each one. “Those spots fill up within six to eight minutes of the posting,” Mr. Sorensen said.

Article source: http://www.nytimes.com/2013/11/28/business/smallbusiness/hands-on-activities-to-build-customer-loyalty.html?partner=rss&emc=rss

At first, the classes attracted about four attendees, who paid $20 apiece to learn how to make a basic batter and frosting. “Through word-of-mouth, the classes started filling up and we were getting 10 people a night,” Ms. Nelson said. The owners expanded to the space next door and then decided to try a Groupon promotion offering half-price classes in the hopes of selling a few hundred coupons. They sold 9,000.

Even with the Groupon discount, Ms. Nelson said, the shop managed to make money on the classes. “That first seat is expensive,” she said, “because you are paying for the instructor, the room, the oven and utilities, but every seat after that, the marginal costs are lower, so you’re highly motivated to fill the room.”

Even without the discounts, she said, the room kept filling. “We held two or three classes a day and were sold out for five months, so we decided to make the classes into a whole other part of the business,” she said. The company’s overall revenue increased — it was about $1 million last year — and there is now a shop in Brooklyn, too. This year about 40 percent of Butter Lane’s revenue will come from classes.

Although it may seem counterintuitive for a cupcake seller to teach customers to make their own, Ms. Nelson said the classes actually increased sales of the store’s baked goods. “We’ve created experts who bring their friends in and explain how we use, for instance, real vanilla beans,” she said. Plus, she added, they have proprietary flavors that they do not teach in the classes. “What’s really wonderful is that once these people take a class, they feel they are a part of the brand,” she said. “They become our ambassadors.”

Small businesses are always looking for ways to get customers into their stores and onto their websites, but especially since the recession, many have started offering classes or holding events to lure in the curious, convert them to customers and build relationships. Steve Butcher, chief executive of Brown Paper Tickets, a company based in Seattle that provides online event registration and ticketing, said that since 2009 the company’s work with small businesses had grown 350 percent. “When we started in 2000, 3 to 5 percent of our clients were small businesses,” he said. “But in 2008, when the economy tanked, small businesses began to get much more creative.”

Now, as many as 30 percent of Brown Paper’s 15,000 monthly events — including guided river walks and hog-butchering classes — are sponsored by small businesses. The recession forced many of them to find new ways to make their brand resonate, said Jeffrey A. Carr, a professor of marketing and entrepreneurship at the Stern School of Business at New York University. “You can connect a brand to a product,” he said, “but branding today is a lot more about emotional attachment.”

In the last three years, Creative Kidstuff, a small chain of children’s toy stores in Minneapolis, has been using downtime in its party rooms to offer free prenatal and birthing classes as well as children’s music classes. The stores also hold events for families, like the Decorate Your Bike workshop on the Fourth of July and Fingerprint Memories, where children create a holiday-themed tile using their fingerprints. Two years ago, when the company began sponsoring a summer concert series, about 25 people attended the first, said Roberta Bonoff, the company’s chief executive: “This summer, we had 500 people.”

Although stores see a bump in traffic and sales during events, Ms. Bonoff said that was not the main benefit. In fact, she said her in-store sales had been flat the last few years (although online sales have been up 30 percent a year during that same period). “We really believe the benefit of these events is brand loyalty and exposure,” she said. “Babies are born everyday. This is a way to acquire new customers who may not have heard about us.”

The Woodinville Whiskey Company in Woodinville, Wash., holds bottling parties, where customers bottle, label, cork and case whiskey. Their efforts are rewarded with a “bottling crew” T-shirt, a discount on anything they buy that night and dinner. Woodinville is a small-batch, handcrafted microdistillery founded by Orlin Sorensen and Brett Carlile. With 100 cases a night to bottle, the owners decided about two years ago to involve customers in their nightly ritual. Now they post the dates of parties on the company’s Facebook page weeks in advance; about 16 people can participate in each one. “Those spots fill up within six to eight minutes of the posting,” Mr. Sorensen said.

Article source: http://www.nytimes.com/2013/11/28/business/smallbusiness/hands-on-activities-to-build-customer-loyalty.html?partner=rss&emc=rss

“About two and half years ago we started to realize that commissions were getting in the way of our company’s ability to achieve our mission and purpose,” said Craig Gorsline, ThoughtWorks’ president and chief operating officer.

To many in the highly competitive world of sales, such a move is tantamount to blasphemy. But Mr. Gorsline and his top executives concluded that the world had changed since ThoughtWorks opened in 1993. Twenty years ago, the company’s clients needed sales representatives to explain pricing and polices. Today, the Internet has made such information widely available. “Commissions were getting in the way of a proper dialogue with our customers,” Mr. Gorsline said.

ThoughtWorks is not alone. A host of companies are rethinking commissions and the role of sales representatives. “The carrot-and-stick model has diminished the rate of return on performance,” said Tom Searcy, chief executive of Hunt Big Sales, a consulting firm based in Indianapolis. Thanks to the Internet, Mr. Searcy said, even before a sales agent shows up, “the customer has done the work comparing vendor solutions, checking scores of comparisons from users and buyers.” That, Mr. Searcy said, is why, in large part, he believes the commission-free sales force is the wave of the future.

The proponents of ditching commissions believe they foster negative behaviors, such as focusing on an individual’s profit over the company’s, emphasizing short-term outcomes and encouraging unproductive competition among sales representatives. Even companies that pay commissions can face costly turnover as representatives chase more lucrative offers. But to do away with commissions altogether raises a concern that these companies share: Without them, can they attract and keep top sales agents?

Over the years, ThoughtWorks prided itself on developing a culture based on collaboration. But some parties in the sales equation appeared to be operating at cross purposes. “We made the decision to take the individual incentive out of the picture,” Mr. Gorsline said, “and instead focus on the customers and their pain.”

Throughout 2011, the company worked on a strategy. During that time, Mr. Gorsline and his team brought the entire sales force together to discuss the new direction, explain the rationale and provide a forum for discussion. “It was all very transparent,” he said. Next, they met with individual sales representatives to establish a new compensation plan. A start date of January 2012 was set.

According to Mr. Gorsline, the straight-salary structure took into consideration high performers, offering them compensation close to what they had earned with commissions. Still, all of the representatives took pay cuts — although they did gain something: a steady paycheck. “We operate in a cyclical industry,” he said. “This provided them with a sense of security whether it was a good year or a bad one.”

Still, about 10 percent of the representatives quit. “They clearly didn’t like the approach,” Mr. Gorsline said. “But in the grand scheme, that was O.K. for us. We were then able to use this as a filter during recruiting. We ended up with better candidates, aligned with our overall mission.”

More important, Mr. Gorsline said, the company’s annual growth increased between 18 and 22 percent in each of the last two years. “We still demand revenue generation,” he said. “The only thing that changed is the way they are compensated.”

This is not an entirely new phenomenon. In 1991, Terry Ortynsky, the founder and owner of the Royal Auto Group, a car dealer in Saskatchewan, Canada, with annual revenue of 75 million Canadian dollars, stopped paying commissions and ended all incentive targets for his sales team — something almost unheard-of in car sales.

Confronted with chronic high turnover in sales, Mr. Ortynsky concluded that “there was a conflict between doing what was right for the customer and an individual who wanted to earn a higher salary.” Because the real goal is to build relationships with customers, Mr. Ortynsky said, “it’s a team effort, and you can’t really divvy up commissions in that situation.”

Article source: http://www.nytimes.com/2013/11/21/business/smallbusiness/for-some-paying-sales-commissions-no-longer-makes-sense.html?partner=rss&emc=rss

In 2009, Mr. Ressi started the Founder Institute to teach the basics. Unlike other incubators, the Founder Institute doesn’t take students who already have a company. Instead, applicants are chosen through a personality test. Those accepted learn the process and develop their ideas through a mixture of workshops and what might be called entrepreneurial immersion. The program has opened in 60 cities around the world and charges a sliding scale, from nothing at a Johannesburg scholarship program to about $1,000 in the United States. It also takes a 3.5 percent stake in the companies started by its students.

In a conversation that has been condensed and edited, Mr. Ressi, 41, said that more than 1,000 companies had come out of the program, which he said had flipped the failure rate to 10 percent from 90 percent and created 10,000 jobs. His goal is to create 20,000 jobs a year by 2020 and to “globalize Silicon Valley.”

Q. You try to identify potential entrepreneurs through personality testing. What do you look for?

A. There are a number of traits that combine to create entrepreneurial potential. We find that openness coordinates very well with successful entrepreneurs. The more open-minded you are, the more you see the world as it actually is. The more closed-minded, the more you see the world as you want it to be. An open-minded person running a business might catch a problem faster than a closed-minded person. And when they identify a problem they can fix it much faster.

Q. In comparing yourself to start-up accelerators like Y Combinator and 500 Startups, you have said that while they make jewelry, you mine diamonds. What do you mean?

A. The Founder Institute takes people right when they are taking the first steps to launching a business. We help them launch the business and become full-time entrepreneurs. Most other programs take founders who have already established companies. The inputs to most incubators today are the output of the Founder Institute.

Q. Why start prelaunch?

A. Because we’re dealing with people at the point of inception, we can help them avoid mistakes before they are made. Start-ups often die in the first 18 to 24 months because of formative mistakes, like choosing a bad co-founder or the wrong corporate entity or an inappropriate platform. Ninety percent of the companies the Founder Institute has created are alive because we’ve helped them avoid those mistakes.

Q. Ninety percent? Really?

A. We’ve recently helped launch our thousandth company and about 10 percent — 116 — are dead. Another 15 percent — 146 — are hibernating or being run by people still at their day job. The 75 percent of our businesses that aren’t dead or hibernating are producing jobs.

Q. Once you have identified likely entrepreneurs, what do you teach them?

A. Our role is not to teach them but to condition someone who has the traits to become a successful entrepreneur. We essentially give them the types of work that an entrepreneur would do and we put them in the kinds of situations that an entrepreneur would find himself in. And we increase the intensity over time and manage that transformation from an employee to an entrepreneur.

Q. How do you do that?

A. A lot of times a company’s initial employees are a very interesting and diverse group of people. We try to replicate what a founding team would look like and we place these entrepreneurs in those founding team environments. We create working groups with four or five peers, and they meet multiple times per week to discuss their progress in building their business. These groups act like a founding team because they help one another build their businesses.

Q. When you say employees can be interesting and diverse, do you mean difficult and contentious?

A. There is a saying in entrepreneurship that your early employees are all commandos. Commandos are people who can do almost everything well: emails, strategy, code, design. Founders are also often commandos. So these working groups resemble closely what your company will look like over the first 16 to 24 months of existence. Are they super easy to deal with and friendly? No. They are usually supersmart and hardworking, and they usually don’t suffer fools very well. So you have to manage your working group like you’ll manage your early employees and that’s not going to be easy. But if you don’t have experience doing it, you’re going to fail.

Q. You also have C.E.O. mentors teach subject workshops. How did you develop your curriculum?

Article source: http://www.nytimes.com/2013/11/14/business/smallbusiness/an-entrepreneur-who-manufactures-entrepreneurs.html?partner=rss&emc=rss

Hoping to reduce recidivism, he came up with an idea for an online platform, called Fotopigeon, that lets friends and relatives upload photos, which are then sent through the postal service directly to the incarcerated for a flat fee of 50 cents a print. “Companies like Shutterfly and Snapfish — their packaging won’t get accepted by prisons,” Mr. Hutson said, “because they don’t like anything that doesn’t come in a plain white envelope.”

Mr. Hutson knows his market well. In October 2007, when he was 24, he was deeply immersed in solving a different business problem — the inefficient distribution of marijuana from Mexico to Florida — when 10 Drug Enforcement Agency officers showed up at his mail store in Las Vegas with guns drawn. Mr. Hutson had been moving marijuana through his business, using DHL, UPS and FedEx trucks to transport it to Florida. With no previous criminal record and an honorable discharge from the Air Force, which he entered directly after graduating from high school, Mr. Hutson expected to get off with a “slap on the wrist.” Instead, he was sentenced to 51 months in prison.

Like many former inmates, Mr. Hutson, now 29, has benefited from a growing number of support programs available to those who want to start businesses. In Manhattan, for example, Catherine Hoke founded Defy Ventures, a nonprofit organization whose participants have started 44 businesses, including an event-planning company, a cleaning service and a mobile barbershop. “One of the primary skills they need to survive on the street are good hustling and sales skills,” Ms. Hoke said. “I’m not saying that all drug dealers make great entrepreneurs, but many of the skill sets are shared.”

In Silicon Valley, Chris Redlitz, a venture capitalist, and his wife, Beverly Parenti, have started an organization called the Last Mile, which is opening a business accelerator within San Quentin State Prison. Mr. Redlitz runs a traditional incubator called KickLabs and is trying to replicate the model within the prison. “We’re looking for three things,” he said. “Do they have passion? Can they be a leader? And do they have perseverance? To survive in prison, you have to have those three things.”

Mr. Hutson was released in March 2012 from a halfway house in Tampa, Fla., where he had been working on the first version of his company, then called Fotopigeon. He got help refining the idea at NewME, an accelerator based in San Francisco that works with entrepreneurs in demographics that are underrepresented in the tech community. “He really is a natural-born entrepreneur,” said Angela Benton, who founded NewME two years ago. “At first, he wasn’t sure how much to share about his background.”

At one point, when he was trying to persuade the chief executive of a large photo-fulfillment company to work with his start-up, Mr. Hutson explained that he was aiming at a demographic that few understand. The executive, Mr. Hutson said, “asked me the million-dollar question: ‘How do you know all this?’ ” Mr. Hutson told his story, and the chief executive took the gamble, signing on as Fotopigeon’s fulfillment company. “I thought my record would prevent people from doing business with us, but it was just the opposite,” Mr. Hutson said. “I had domain expertise.”

His business plan involved tapping into the little-understood market of 2.3 million people incarcerated in the United States. According to his research, the average inmate has $300 a year in a prison commissary account, the means by which prison goods, including phone calls, are purchased. Inmate families spend $600 annually per prisoner, he said. Mr. Huston’s plan was to market directly to prisoners, who would send friends and family members to the Fotopigeon website. If 10 percent responded and their loved ones sent 10 photos a month, Mr. Huston estimated, the photos, combined with other offerings, like a phone service, could bring $22 million in annual revenue within three years.

At NewME, he said, “they thought it was a good business model, but they didn’t see how it could be huge.” His mentors at the accelerator, including Mitch Kapor, the founder of Lotus Development, who wound up investing $100,000, suggested that he re-evaluate. Sending photos, they suggested, was just one way for the company to make money.

This article has been revised to reflect the following correction:

Correction: November 6, 2013

An earlier version of this article misspelled the surname of the founder of NewME. She is Angela Benton, not Barton.

Article source: http://www.nytimes.com/2013/11/07/business/smallbusiness/released-from-prison-and-starting-a-company.html?partner=rss&emc=rss

By sharing her kitchen and her keys with strangers, she estimates that she brings in up to $10,000 a year.

Airbnb is a service that is adored by some, despised by others, and most commonly known as a place to rent out your apartment while you’re out of town for a few days. But doing so is often illegal in New York City, one reason the company has locked horns with the New York State attorney general, Eric T. Schneiderman.

A huge amount of money hangs in the balance of this dispute, including revenue for Airbnb, as well as untold millions in hotel tax dollars that the attorney general says Airbnb has been costing the state every year. Also at stake is a discrete little economy, populated by New Yorkers who make a substantial portion of their income by renting out apartments on a short-term basis through the website, sometimes legally and sometimes not.

“Last year we made about $90,000 from this business,” said Leslie, who rents out two rooms in her two-family house in Brooklyn through Airbnb.

Leslie, a stay-at-home mother who is married to a teacher, agreed to speak only if her address and last name were withheld. So did Joe, who said his “dedicated Airbnb room,” which brings in about $2,000 per month that he splits with his two roommates, allowed him to start a small technology company. And P., a musician who rents out two apartments in Manhattan and one in Brooklyn.

One man, however, declined to be identified by his extremely common first name, by his profession or even by the state in which he lives. Instead he described himself as “one of the people they really want to get.” He operates empty New York City apartments as short-term rentals, none of which he lives in, a practice he called “beyond lucrative.” It also happens to generally be illegal.

In most residential apartment buildings, renting out your space for less than 30 days is illegal, unless you are present when you have that visitor. The restriction does not apply to single- or two-family homes, like Leslie’s, but zoning laws may still limit the practice. Leases and building bylaws may also forbid it.

Still, even those whose rental side business might surmount legal hurdles were skittish about being identified. Sometimes they did not want their neighbors to know. But they were also worried that the state might choose to make an example of them. Mr. Schneiderman has subpoenaed Airbnb for transaction information on many of its New York users, and the company is fighting to keep the information private.

According to the attorney general’s office, based on information given to it by Airbnb, the top 40 Airbnb hosts in New York have each grossed at least $400,000 over the past three years, a collective total of over $35 million. The top 100 hosts in that time period have grossed $54 million.

“We began this process in the hopes of collaborating with Airbnb to recover millions of dollars in unpaid taxes and to stop the abuse of Airbnb’s site by operators of illegal hotels,” Matt Mittenthal, a spokesman for Mr. Schneiderman, said in an email. “Airbnb isn’t standing up for average New Yorkers who rent out their apartments from time to time — Airbnb is standing up for highly profitable, illegal businesses that make up a huge chunk of its corporate revenue.”

Some building management companies have begun clampdowns of their own. One of them, TF Cornerstone, recently sent a letter to all of its rental tenants saying that subletting their apartments short-term on websites “creates an overall security risk” and also violates their lease. Another company, Dermer Management, reminded residents in some of its condo buildings that though Super Bowl weekend might seem like a great time to rent out their apartments for extra cash, the buildings’ sublet policy forbids it.

But Airbnb and its hosts say that they serve an important economic function in the city, helping travelers on a budget visit a place so expensive it might otherwise be out of reach, and that they bring those tourists to areas where they might not otherwise go.

“It’s important to remember that almost 90 percent of our hosts have only one listing and it’s the home they live in,” said David Hantman, head of global public policy for Airbnb. “They have asked for a lot of data on regular New Yorkers, and we don’t want to turn it over.”

Ms. Robertson, who began renting out space in her apartment when an illness resulted in high medical bills in a difficult economy, said she had guests only when she was at home. And both she and Leslie, the stay-at-home mother in Brooklyn, said they had declared all of the money they had earned on Airbnb as income.

“Show me the law, and I’ll follow it,” said Leslie, who is in the process of hiring an expediter to help her navigate zoning restrictions against the practice. “When I ask five different lawyers what the law actually means, I get five different answers.”

But as several hosts pointed out, letting a stranger use your shower is not for everybody, and there are those who will always prefer to stay in a hotel.

“This spring, my own family was in town looking at colleges and they refused to stay here — they stayed in a hotel,” said Susan, who owns a small consulting business and rents out a room in her co-op apartment. “There are people who want complete privacy and room service, and they’re willing to pay for that. It doesn’t matter how many good reviews I have, my family’s not staying here.”

She still finds plenty of takers, though. She said the rental income from that one room made up about half of her income.

Article source: http://www.nytimes.com/2013/11/05/nyregion/the-airbnb-economy-in-new-york-lucrative-but-often-unlawful.html?partner=rss&emc=rss

THE CHALLENGE Seeking to revive her long-neglected personal life, Ms. Gignilliat announced to her core staff in January 2010 that she was stepping back. She would continue to work, but she would cut back her hours and work mostly from home. The business did well, $1.85 million in revenue in 2010, with her on reduced hours. Last fall, however, she decided she wanted to re-engage — and double sales in four years. Her hope was that she could re-energize the business without demoralizing those who had been running it.

THE BACKGROUND A decade after starting her business, Ms. Gignilliat had an epiphany, when, as a panelist at the Sloan School of Management at M.I.T., she heard herself referred to as the owner of a “lifestyle business.” “Lifestyle?” she muttered to herself. “I have no life.” For years, she had been logging 80-hour weeks. Soon to turn 50, she was unmarried. “I’d stopped traveling. Stopped reading. I had no social life. I realized I was dating my business.”

Ms. Gignilliat took great pride in the business she had built from first-year sales of $40,000. Her creative offerings ranged from an $85-a-person, small-plate, stand-up meal to a high-end, Iron Chef-like competitive experience for $125 a person. Some months, Parties That Cook averaged two events a day.

But like many founders, Ms. Gignilliat worked so hard creating, managing and building her business that she sacrificed her personal life and burned out. Her self-prescribed remedy: work less, play more. “The first three months, I’d forgotten what I liked to do,” she said. But gradually, she downshifted from her customary fifth gear to what she pegs as second, working maybe 30 hours a week when she was not traveling. She started working out with a trainer and lost 10 pounds. She set off on several “bucket list” vacations, fly-fishing in Idaho and trekking in Bhutan. She hosted dinner parties for singles, and she fell into a close personal relationship.

Out of necessity, she delegated many of the company operations that she had continued to manage, like menu development, Web design and staff training. As she learned that Parties That Cook could survive without her constant attention, Ms. Gignilliat disengaged further — or “checked out,” as some of her employees termed her status in 2012. “The pendulum swung a bit too far,” she said recently.

In fall 2012 her boyfriend suggested that she consider “re-engaging and taking the business to the next level.” Those words struck a chord. Recognizing that she would want to sell the business by the time she was 60, only seven years hence, she realized she needed to create as much value as possible — “so I could sell it and retire.”

In November 2012, meeting at her home with two longtime employees to discuss budgeting and forecasts for the next year, Ms. Gignilliat slipped into a de facto announcement of her return to active duty. She set an aggressive sales target of $2.7 million for 2013, up from 2012 sales of $2.18 million. “I think we can do it,” she said, “because I’m stepping back in. I’m re-engaging.”

Seeking guidance, Ms. Gignilliat hired a business coach for leadership and personal advice but was unable to begin those sessions until after she stepped back in. She sought additional one-on-one counseling from Jim Horan, a speaker and author, because she was eager to use Mr. Horan’s One Page Business Plan to motivate her staff.

THE OPTIONS With the decision to step back in made, the lingering question was how she would pull it off. She had prided herself on a collaborative management style, but now she was simultaneously re-engaging and dictating an ambitious sales target. How would her team react? And how should her C.E.O. 3.0 role look? Could she ensure that she would stay engaged and not burn out again?

Article source: http://www.nytimes.com/2013/10/24/business/smallbusiness/a-burned-out-owner-who-backed-off-tries-to-step-back-in.html?partner=rss&emc=rss

Along the way, Ms. Reisenthel said, she has learned some important lessons about pitching to investors. “We used to start meetings with a story about our founder, the problem we were addressing, its cost to society and the scientific research that led to our business idea,” she said, “but investors wanted to know right away, ‘What exactly are you selling and who is going to buy it?’ ”

As a result, Ms. Reisenthel learned to get to the point, immediately. Whether they are pitching to venture capitalists, angel investors or friends and family, entrepreneurs who have been through the process stress the importance of making a crisp presentation, sizing up competitors and knowing what kind of information the potential investors require.

KNOW YOUR AUDIENCE Angel investors and venture capitalists come to the process at different times with different needs and goals. “The angel investors we met with during our idea stage were interested in the zeitgeist of the project,” Ms. Reisenthel said. “They were excited to be part of what we were trying to achieve, and they were O.K. with unanswered questions. They didn’t need a detailed five-year plan, and understood their investment would be diluted in value when we took on additional funding.”

She said the venture capitalists, by contrast, are generally willing to invest more money but they want to know when the company expects to be profitable. “V.C.’s are more about the details — market size, business model, cash flow plans, sales break-even point and how the company will find customers,” Ms. Reisenthel said. They were more likely to want to be involved in strategic decisions, expected regular updates and often wanted a seat on the board of directors. “They were also less willing to accept risk than angel investors.”

KEEP IT CONCISE Pete Higgins, a founding partner at the venture capital group Second Avenue Partners in Seattle, has heard hundreds of pitches over the last five years and has financed about 7 percent of them. He said a concise presentation was telling because entrepreneurs who can explain a complicated set of technologies or a new product show they are smart, that they have done their research and that they can communicate — all factors critical to a company’s future.

Ms. Reisenthel uses a slide deck of about 10 and no more than 15 slides and prepares additional slides in case deeper questions arise on topics like manufacturing costs or competitive analysis. “You need to know the business, the technology, the science better than anyone in the room,” she said. “Practice in front of smart professional friends in the industry who can critique you before you go in for the real meetings.” Selling the quality of your leadership and your team is as important as the idea, Mr. Higgins said.

Sometimes just a few compelling sentences can get an idea financed. Last year, Mr. Higgins said, “A start-up veteran pitched us, saying, ‘I want to sell $4.99 live concert recordings that are ready to be downloaded to the concertgoers by the time they get to their car in the parking lot. It’s technically straightforward, makes money for the band on tour and is an inexpensive memento for concertgoers, who are often trying to record on their phone anyway.” Mr. Higgins said he knew in five minutes he would invest, and the Lively app made its debut this year.

KNOW THE COMPETITION Beyond just listing other companies in the same arena, understanding and describing the competitive landscape can be critical, according to Mr. Higgins. “If other companies have tried something similar and failed, tell us why they failed,” he said. “If the market is crowded with competitors, how will you do it better? Just having a feature they don’t is an incremental benefit and not enough to overcome the inertia that will keep customers from switching to your product.”

Mr. Higgins advises entrepreneurs to ask for financing only when they can demonstrate a transformational new technology, a new paradigm, a new distribution method, or a better cost structure that cannot easily be copied. And recognize that there are competitors to every business idea, he said, even if it is the pencil and paper people are currently using to do the task you plan to automate.

EXPECT MISHAPS Julie Gilbert Newrai of Minneapolis raised $1.5 million in her first round of fund-raising in June 2012 and is preparing to begin a second round. Her service, PreciouStatus, relays personalized daily updates from professional care providers to family members of people in eldercare and child care centers.

Article source: http://www.nytimes.com/2013/10/17/business/smallbusiness/fine-points-of-making-pitches-to-investors.html?partner=rss&emc=rss