Bethenny Frankel—From Real Housewife to Real Entrepreneur

In most circles, Bethenny Frankel is known for her role as the non-housewife in Bravo’s The Real Housewives of New York City (Bethenny was actually single during this show) and subsequent reality shows, like Bethenny Getting Married and Bethenny Ever After. Even before she really rose to fame on The Real Housewives franchise, she appeared on shows like The Apprentice: Martha Stewart to try to hone her business skills and launch a career. She quickly realized that the reality show platform was one she could use to build a brand and eventually make her mark as an entrepreneur.

When the first season of Real Housewives started in 2008, Bethenny was working as a natural foods chef and caterer and reportedly had only $8,000 in her bank account. Today, Bethenny has created an empire around staying thin and still enjoying life through her SkinnyGirl products, recently selling her SkinnyGirl Margarita product to Beam Global (with brands like Jim Beam bourbon and Sauza tequila) for a reported $120 million. Last month, SkinnyGirl Sangria was added to the mix.

On top of conquering the world of low calorie ready-to-drink alcoholic beverages, Bethenny is a successful author with three books landing at the top of The New York Times Best Sellers List—Naturally Thin: Unleash your SkinnyGirl and Free Yourself from a Lifetime of Dieting; The SkinnyGirl Dish: Easy Recipes for Your Naturally Thin Life; and A Place of Yes: 10 Rules for Getting Everything You Want Out of Life.

In a recent article on CNN Money, Bethenny gave the following five pieces of advice for other budding entrepreneurs:

1. Have a personal mission statement—identify your goals and steps to accomplish them.

2. Build a platform for your business—such as joining the cast of a reality show in Bethenny’s case.

3. Remain true to your brand—keep the products consistent and with the priorities of your mission statements in mind.

4. Don’t let setbacks derail you—don’t quit at the first rejection you get.

5. Make your social media presence a priority—social media will help identify your audience and what their needs are.

Despite the numerous attempts of other cast mates at similar business ventures, Bethenny stuck to her plan and is now on the cusp of building an empire. Where do I sign up for The Real Housewives of Minneapolis?

Bobos in Paradise: The New Upper Class and How They Got There

The Book: Bobos in Paradise: The New Upper Class and How They Got There, by David Brooks (Simon & Schuster, 2000).

Why you should care: An examination of the rise of an educated, wealthy elite that has created new markets and provided many of the entrepreneurs who tap these markets.

As an impressionable youth of 21 years, I stumbled upon an article in Esquire magazine (a magazine I hadn’t read before nor, if the truth be told, have I read since) that made quite an impression on me. Entitled “The Dangerous Arrogance of the New Elite,” the article—authored by a fellow Minnesotan named David Lebedoff, now a Gray Plant Mooty colleague—examined the rise of a powerful new class within society based on measured intelligence and meritocracy, and suggested this might not necessarily be a good thing for a society founded on the principle of majority rule and the collective wisdom of the masses.

Flash forward many, many years. David Brooks, an articulate and urbane conservative columnist for the New York Times (and the only such conservative whose writings many of my more left-leaning friends actually enjoy, let alone stomach), writes a book that dissects this new class, which to all appearances has replaced the stolid, inbred, and materialistic WASP upper middle class of the Eisenhower years.

It all started when universities began to use standardized tests as part of their admissions programs, turning colleges and universities from “finishing houses for the social elite” into “meritocratic and intellectual hothouses” churning out a social class “responsible for more yards of built-in bookshelf space than any group in history.” The information age heaps rewards on this educated group and widens the income gap between the educated and uneducated. Brooks looks at the wedding announcements in the New York Times to identify the markers of these upscale Americans—college, graduate school, career path, and parents’ professions.

A decade later, his observations still ring true. An interesting sociological observation, you might say, but what does this have to do with entrepreneurs?

Well, for one thing, this class is a vast market with incredible financial resources and much disposable income. A hallmark of this class is that it is “financially correct”—it tries to spend its disposable income without looking vulgar or too materialistic, which leads it to “spend huge amounts of money on things that used to be cheap.” Think about that. When I was young (harumph!), coffee was cheap and came in one flavor and water came from the tap (or, on a hot summer’s day, the garden hose). Back in the 1950s, who would have foreseen the exploding market for lattes and bottled water?

More important, perhaps, is that this class combines the search for personal fulfillment of 1960s bohemians with the materialistic streak of the 1980s yuppie bourgeoisie—hence the term “Bobo”—and these characteristics may actually encourage individualistic entrepreneurial activity. According to Brooks, Bobos view life as being about “making sure you get the most out of yourself, which means putting yourself in a job that is spiritually fulfilling, socially constructive, experientially diverse, emotionally enriching, self-esteem boosting, perpetually challenging, and eternally edifying.” Work is “an expression of their entire being.”

Sound like anyone you know?

Government Misses Opportunity to Discourage Trademark Bullying

A few months ago, the U.S. Patent and Trademark Office issued the results of a study on trademark bullies. The study was mandated under a provision of a Senate bill—The Trademark Law Technical and Conforming Amendment Act of 2010—which required the Secretary of Commerce to conduct a study to examine the extent to which smaller businesses may be harmed by larger companies that attempt to enforce their trademark rights “beyond a reasonable interpretation of the scope of the rights granted to the trademark owner.”

Would that be something like the recent legal action in which Kellogg’s sued the Maya Archaeology Initiative claiming that the MAI’s toucan logo infringes Kellogg’s Toucan Sam character and games? A recent Forbes article contains a side-by-side comparison of the marks so you can judge for yourself. Is it fair to assume that Kellogg’s just might be exaggerating its trademark rights to suggest that the public will confuse a nonprofit organization’s concerns with Mayan culture with Froot Loops® because one uses a realistic toucan bird and the other a cartoon toucan character?

Sadly, the USPTO whiffed at its opportunity to seriously address very real issues facing trademark owners concerned with both enforcing and defending their trademark rights, and perhaps discouraging legal actions such as this.

Balancing the reported incidences of bullying with equally valid concerns expressed about the pressures on trademark owners to police their marks or risk the loss of rights, the report essentially concluded that it is unclear if there is a problem with trademark bullies. But then, acknowledging that small businesses might be disproportionately harmed by the financial inability to defend against the overreaching tactics of some trademark owners, it suggested that the federal government could help by promoting pro bono legal assistance, encouraging continuing legal education programs on trademark policing practices, and enhancing educational outreach programs to educate small businesses about protecting and enforcing their trademark rights.

Unfortunately, these uninspired recommendations do little to discourage the act of bullying. Telling the little guy to avoid the corner where the bully hangs out, or to get a friend to reason with the bully on his behalf—or duke it out if necessary—doesn’t address the problem of the bully. What about considering measures that would support good policing practices focused on the quality of enforcement efforts, rather than the quantity of attacks? Maybe make it easier for a successful trademark defender to recover the costs and fees of its defense where the claims of infringement are unreasonable?

Perhaps if the USPTO had taken a stronger position with respect to bullying tactics, Kellogg’s would have thought twice about its action against the Maya Archaeology Initiative. Kellogg’s unsuccessful history with similar claims against such defendants as Toucan Golf Inc, a manufacturer of promotional golf equipment, and a steel drum band, The Toucans, has apparently taught them nothing about what constitutes reasonable trademark enforcement.

Is Your Online Brand Presence as Important as You Think?

This may seem like an ironic question to be asked by someone who is trying to become a world famous author of a blog for entrepreneurs.*

The short answer to the question is, of course, having a presence online is important. If it weren’t, companies like Facebook, Twitter, and Linkedin wouldn’t have a collective market cap of a gazillion dollars! The important point to remember, though, is this—don’t spend so much time on your online marketing and sales efforts that you ignore more traditional forms of generating business.

I was reading a recent Inc. article about measuring your online brand presence and some interesting tools that can help you do that. Online tools can also help you strengthen your network. That said, in most cases (maybe not for Amazon or ebay), your online brand presence is most useful to support the more “tried and true” sales and marketing efforts.

I recently heard a radio story about a company that had experienced a dramatic sales decline in the downturned economy. When quizzed about ways to combat the decline, the CEO indicated that he had required the sales team to increase social media outreach; he touted an increase in the total number of “connections” by over 500%. What struck me is that he didn’t mention direct customer outreach or other more “traditional” approaches to sales and marketing (maybe that’s because it was a show about the import of social media on our lives). Needless to say, he did mention that sales had continued to decline, although possibly at a lesser rate than they would have otherwise.

I’m not surprised by this at all. You’re no more likely to deepen relationships with customers solely through social media than you are to establish a deep emotional relationship sitting at home in your boxers browsing at Match.com.

I’m not saying that social media can’t be the starting point to a meaningful customer relationship or a part of an overall branding or customer relations campaign. But I am saying get out and talk with customers, think about hands-on, “out of the box” promotional opportunities, and find ways to get others credibly talking about your product or service. Better yet, find professional marketing and PR help to assist you in developing a comprehensive communication strategy (that includes an online component).

After you’ve done all of that, there’ll be plenty of time to figure out what your “friends” are doing on the latest Zynga game on Facebook…

* OK, maybe “world famous” is a little too ambitious. How about a guy who has spent some significant time over the last several months trying to establish an online social media presence for members of the entrepreneurial services group at a law firm?

Angel Networks Help Start-ups Find Reclusive Investors

Angel networks have garnered a lot of publicity lately. In Minnesota, the Minnesota Angel Network launched with much fanfare. In California, AngelList continues to have great success. Why are these networks so important to start-up companies? Money. And because angels are often hard to find.

Start-up and emerging companies need money. They particularly need money during what is called the “valley of death.” This is the stage in a company’s development after completion of a prototype but before generating enough revenues from sales of products to keep the lights on. Companies need money to continue paying employees and paying the rent until the time they can begin selling to customers. Venture capitalists used to invest in pre-revenue companies during this stage, but have moved farther down the development spectrum to revenue-generating companies that are less risky. It is in this valley of death where start-up companies need angel investors who are willing to make a leap of faith.

Angel investors are individuals who have extra money available to invest in high risk, early-stage companies. Most qualify as “accredited” investors, which means that they have a net worth of $1 million or more or annual income of $200,000 or more ($300,000 with a spouse). $1 million isn’t what it used to be and a $200,000 income might not even cover tuition at a private college, so I won’t call these angel investors “wealthy.”

The challenge for start-ups is in finding angels. They don’t stand on the street corner with a sign that says “Angel Investor.” Angels are very reclusive and don’t want unsolicited calls from novice entrepreneurs or stacks of business plans from start-ups operating in industries in which they have no experience.

Because angel investors don’t want to be found, entrepreneurs who need money must spend a lot of time finding angels the old fashioned way—networking. The most successful capital raisers I’ve seen are the ones who are relentless. If you tell them no, they’ll ask you why and ask for the names of three more investors to contact. They pound the pavement until they’ve secured the funding they need.

Angels like to have a filter that eliminates the bad deals, and allows the good deals to get to them. This filtering process can be done through individuals such as entrepreneurs, founders, advisors, and professionals. Sometimes the greatest help I can provide a start-up is making an introduction to an investor.

Angel networks remove the inefficiency and time required in this process. In a network, angels sit idly by, waiting for an executive summary that catches their attention. The angel initiates and controls the communication. I expect that we’ll see more angel networks as the existing networks grow more successful.

All of this is a wonderful development for our entrepreneurial ecosystem. Good luck, Minnesota Angel Network. We need you.

The Entrepreneur Equation: Evaluating the Realities, Risks, and Rewards of Having Your Own Business

The Book: The Entrepreneur Equation: Evaluating the Realities, Risks, and Rewards of Having Your Own Business, by Carol Roth (BenBella Books, Inc., 2011).

Why you should care: Touted as a realistic evaluation of what it takes to succeed in a start-up enterprise.

From time to time a book title will jump out at me from a list of newly issued titles, a book review, or even (seemingly) out of thin air. Such is the case with this book. Full disclosure (probably comes from working with so many securities lawyers): I have not read this book, or had the chance to flip through it or even to look at the pictures.

The title, though, is intriguing enough that I did take a moment to check it out on Amazon.com, where it has earned a creditable five stars based on 69 reader reviews.

From some of these reviews, I gather that the book eschews unbridled optimism and instead gets down to the cold facts regarding entrepreneurial life, its goal being to educate and warn would-be entrepreneurs about what they are up against. A representative blurb characterizes the book as “a cold splash of water for starry-eyed dreamers.”

Has anyone out there read this yet?

Tax Credits May Make the End of 2011 an Attractive Time for Investing in Small Businesses

Many of you probably saw Kermit Nash’s post earlier this week regarding the status of the Minnesota Angel Tax Credit. In his post, Kermit notes that of the $15.9 million available for angel tax credits in 2012, the Minnesota Department of Employment and Economic Development has already allocated $9.02 million, leaving slightly less than $7 million available for allocations this year.

Apart from the good news that Minnesota companies have been able to take advantage of the tax credit and secure needed financing, the lesson, in part, is that if you want to take advantage of the tax credit this year, do not wait until the last minute, as it appears that this year’s tax credit may be fully allocated. If you want to know more, check out the hyperlinks in Kermit’s post.

Here’s another investor incentive that may help corporations raising capital this year. The Small Business Jobs Act of 2010 extended through the end of 2011 a tax break for certain investments in “qualified small businesses.” Assuming the investment satisfies all the requirements, up to 100% of the gain from the investment may be excluded from tax.

In order to qualify, the investment must be made before the end of this year in a “qualified small business”—a domestic C corporation (not an S corporation, LLC, or foreign corporation) that has not had more than $50 million in gross assets at any time since 1993 and will not exceed that threshold immediately after the issuance of the stock. In addition, at least 80% of the corporation’s assets must be used in a “qualified trade or business,” which term excludes certain types of businesses such as professional services, financial services, consulting, agriculture, extractive industries, and hospitality services. Technology companies, manufacturing companies, and retailers are some of the types of businesses that are considered “qualified” and have benefited from the exclusion.

Only non-corporate investors can take advantage of the tax break (corporations that invest in qualified small businesses are not eligible), and such an investor must: (i) purchase the stock directly from the qualified small business or indirectly from an underwriter, not from an existing shareholder, and (ii) pay for the stock using money or other property (not including stock), or be issued the stock as compensation for services. The investor must hold the stock for at least 5 years.

Assuming the investment meets these requirements, the investor should be able to exclude from income all or most of the gain on the qualified small business stock. There are, however, limits as to the amount of gain that can be excluded. The maximum amount of the exclusion in any one year is the greater of $10 million (reduced by the amount of eligible gain from stock in the same corporation from prior years), or 10 times the investor’s adjusted tax basis of the stock sold in that year.

If Congress doesn’t extend the current exclusion, it will expire at the end of this year, and investments in qualified small business stock will be eligible for a 50% tax exclusion, rather than the 100% exclusion available today.

Note that the 100% exclusion was initially set to expire at the end of 2010 until Congress extended it through 2011, so it is possible that the 100% exclusion may once again get extended into next year, or that it may get extended but at a reduced level. It is not at all clear what, if anything, Congress intends to do with the 100% exclusion, so any investor seeking to take advantage of the exclusion should complete a qualified investment this year.

There are, of course, exceptions to these rules, and any investor seeking to take advantage of the qualified small business stock tax exclusion should consult with their legal and tax advisor prior to making an investment.

Making Love to a Gorilla…or How to Raise Money

It’s hard to believe I have been in and around the technology financing area as a lawyer and investment banker for almost 27 years now. I sometimes think I have seen or heard it all. I have learned a lot about many things over the years, but one of the most important lessons I have learned is that raising money is like making love to a Gorilla—you don’t stop when you want to; you stop when the Gorilla wants to.

Each time I work with an entrepreneur—whether an experienced serial entrepreneur or an entrepreneurial virgin—the one thing they all want to know is the secret to raising money. Having been a lawyer, an investor, an investment banker, and an entrepreneur, I think I have some insight into the answer to that question.

First, identify investors. Now this might seem like an easy task, but it actually is not. In the 1980s and 1990s, the Minneapolis area was known for the large number of angel investors and small investment banks that could and would help early stage technology companies. The number of investment banks has shrunk to three and the number of angel investors has decreased as well. Since I moved back to Silicon Valley, I have met a large number of angel investors but they all seem to be investing less than they did before the 2008 recession.

So how do you find them? Network, network, and network. Ask people, especially your advisors, for referrals. Most angel investors treat referrals better than cold calls.

I often hear from entrepreneurs. They tell me, “My lawyer (or fill in the blank) is doing a great job!” Then they ask me if I can refer them to some investors. It actually has started to make me angry when a entrepreneur asks me this. I believe that what separates a competent corporate counsel from a great business lawyer is the ability to make introductions, to understand the business, and to use his or her experience to help the company with more than legal problems. Make sure you are getting everything you need. If you have to ask another lawyer or accountant to help with something, then maybe yours is not as good as you think.

Second, make sure that you have lowered the investment hurdle as much as possible. Picture the hunt for financing as being like jumping over a hurdle—any problem an investor may spot raises the hurdle and makes it harder for you to jump over. Make sure the corporate structure is right for investment. Sometimes the most important thing an effective advisor can do is to make you look “normal” to the investment community.

I often run into companies that are set up as limited liability companies. For a variety of reasons, many investors are not comfortable investing in LLCs. The lawyers representing these companies either did not know this or they gave bad advice. Also, I often see companies where they have not properly secured the intellectual property of the company. Employees and consultants have failed to execute proper assignment and confidentiality agreements. And make sure the valuation you are seeking is in line with the norms in the area and the industry. Again, your advisors may not be valuation experts, but if they are really skilled with this type of capital raising they should be able to tell you if what you’re proposing passes the smell test.

Finally, remember that, even if you have done everything right, at the end of the day the investors get to set the rules of an investment, including valuation. If the investors say that they get preferred stock or price-based anti-dilution or any other typical requirement, then you’ll have to accept their rules to get their money.

I have helped raise more money than I can remember. It always comes down to the Gorilla rule, so don’t forget it when you go out to raise money.

A Post by Frank Vargas, Guest Blogger

Minnesota Angel Tax Credit Update: Going…Going…Not Quite Gone

As of press time, the Minnesota Department of Economic Development (DEED) Web site reported that, of the $15.9 million in angel tax credits available for 2011, $9.02 million have been allocated to date. Funding for the years 2012 to 2014 is set at $12 million per year. Considering that the program was formally launched at the end of July 2010, the program has yielded approximately $16.02 million in tax credits in the last 12 months.

Last year, investors collected $7 million in credits, less than the $11 million available. The enacting legislation allowed excess credit to roll into the following year, so the $4 million of unallocated 2010 credits rolled into 2011, boosting the total available in 2011 to nearly $15.9 million. Without the rollover, there would have been less than $3 million available for the balance of 2011.

If the current trend continues, the remaining angel credits will be gone well before the end of the year. Moreover, there may be a number of companies that would otherwise qualify for credits but won’t qualify while 2011 credits are still available, which will create additional demand for 2012 credits. Such unsatisfied demand could be for as much as $3 million of credits.

If your company is planning to raise capital in the first or second quarter of 2012, and you intend to rely on the availability of the credit for qualifying investors, consider this…

• If the 2012 allocation is $12 million, and


• If 2012 demand is consistent with 2011 demand, and


• If unsatisfied demand from 2011 is approximately $3 million,

…then it isn’t a stretch to see that the entire credit allocation for 2012 could be exhausted by July 2012 or even earlier. Time will tell if there will be unsatisfied demand that will roll into 2012, especially with continuing signs of strain on the economy. There’s no question, though, that Minnesota companies have been successfully using the credit as a tool to attract investment.

Can You Divorce Your CEO? Lessons From The Dodger Divorce

Frank and Jamie McCourt were the envy of Boston. He a successful commercial real estate entrepreneur and she a lawyer, they garnered respect in the community and quickly rose in the ranks of the wealthy elite.

Frank and Jamie married in 1979 and have four adult sons. Today they have accumulated numerous real estate holdings and other assets worth an estimated $1.2 billion. On top of their fortune in real estate, they are owners and operators of one very notable closely held business—the Los Angeles Dodgers.

In 2004, Frank purchased the Dodgers from Fox Entertainment Group, Inc. for $421 million. The team is reportedly worth $800 million now, the third most valuable Major League Baseball team after the New York Yankees and the Boston Red Sox.

Prior to the purchase of the team, the couple signed a postnuptial agreement that purportedly made Frank the sole owner of the franchise. The reason this distinction is important is because they were moving to California, a state that operates on a community property system. In a community property system, any acquisition or appreciation of property during a marriage is deemed owned equally by both spouses.

In 2009 the couple decided to separate and a very public and messy divorce ensued. The center of the divorce is the fate of the Dodgers. At the time of the divorce, Jamie was not only invested in the value of the team—she was acting CEO. And last October, Frank fired her.

On August 4th, the court will determine in a one day trial whether the Dodgers are owned entirely by Frank (in which case Jamie would receive $100 million in addition to all of their real estate), or if the couple owns the team 50/50 (in which case the team will likely have to be sold and the proceeds split between them).

There are a few lessons in all of this.

The McCourts, or at least Frank McCourt, attempted to deal with the uncertainty of ownership upon divorce in a postnuptial agreement. The agreement was later invalidated, but a postnuptial agreement can be a good way to pre-negotiate the way the business would be divided in the case of divorce or death.

Additionally, divorcing a co-owner or key employee of your company, such as a CEO, can be as difficult if not more difficult than determining custody of children. Co-parenting often doesn’t work, but both parents feel strongly about being involved. Further, all of the employees, and to some extent the players and fans, have to be wrapped up in the details of this couple’s divorce. A Dodger’s executive was quoted in an ESPN article as saying: “There was a saying in the front office that the three worst days of our jobs would be when Vin Scully died, when Tommy Lasorda died, and when the McCourts decided to split. There was never any question it was gonna go lethal.” The ownership, management, fans—and even Major League Baseball—continue to ride the rollercoaster of the now two year divorce proceeding.

In addition to a postnuptial agreement, all business owners should deal with the impact of divorce on shareholders/owners and prepare for that situation in a buy sell agreement. Divorce can be an event that triggers a mandatory redemption of stock by the company, or a buyout from other shareholders. If planned correctly, a divorcing spouse will not necessarily have rights to continued ownership and management of a company.

The McCourts appear to have plenty of assets to offset the eventual determination of who gets the Dodgers, but in many circumstances the company can be a family’s largest asset and it can be predominately illiquid. The fears of many business owners, and what is becoming a reality for the McCourts, is that in order to finalize the divorce the company will have to be sold.