Reasonable Expectations: A Key to Success

My colleague, Nevin Harwood, often extols the importance of setting reasonable and appropriate expectations in life—in fact, as a fellow entreVIEW author, he even posted on the topic just over a couple of years ago, shortly after we launched our blog. I’ve also talked with his wife, who has assured me that setting reasonable expectations has been one of the keys to the enduring success of their marriage!

I was reminded of the significance of expectations on my recently completed biannual pilgrimage to New York City, Mecca for musical-obsessed individuals like me. Prior to the journey, I had some pre-conceived notions about the six musicals we would see (in four days—yes, I know it’s an illness). The shows included:

• The highly acclaimed “Matilda The Musical”—more on  
   that below;                  
• “Kinky Boots” (with music and lyrics by Cyndi Lauper);
• “Motown The Musical”;
• “Far From Heaven”;
• The revival of Rodgers and Hammerstein’s “Cinderella” (starring Minnesota’s own  
   Laura Osnes in the title role); and 
• “Here Lies Love” (authored by David Byrne and Fatboy Slim)*

When it comes to high expectations, “Matilda The Musical” couldn’t be topped. This show, based on the classic children’s novel by Roald Dahl, was originally developed by the Royal Shakespeare Company and opened in London in November of 2011, where it won a slew of awards, including seven Olivier awards (including Best Musical). In April, the show opened on Broadway to widespread acclaim.  It has been nominated for 12 Tony Awards and already has won a ton of awards on this side of the Atlantic.

Was it good? Yes. But it wasn’t that good. It was a very cleverly staged, well-acted, accurate portrayal of the Dahl novel with a score that was fine, but not memorable.

A couple of shows that exceeded my expectations were “Motown,” which actually tells the story of Berry Gordy Jr. rather than just stringing together performances of the expected jukebox hits, and “Cinderella,” which has managed to keep the terrific score from the original, add a few more songs from the Rodgers and Hammerstein trunk, and almost completely overhaul the book to make the characters much more three-dimensional. 

I’m not sure that “Cinderella” was significantly better than “Matilda.” It’s just that one of them fell short while the other exceeded my high expectations.

The entrepreneurial “lesson” here is be careful to set appropriate expectations when you are talking with advisors, potential investors, bankers, or even family members. You’ll do much better long term by creating projections that you can actually achieve, and by exceeding any milestones you identify. I’m not saying that you should “sandbag” potential supporters by setting the bar too low; I’m just suggesting that you’d be better off slightly overachieving a realistic goal than slightly underachieving an aggressive one. Investors aren’t likely betting on your projections (as long as they can see there’s a significant opportunity), but they are betting on you.  By setting reasonable expectations, you’ll help reinforce why they made the bet and give them confidence to rely on you in the future.

*In case you were curious, “Here Lies Love” was my favorite show of this trip. It wasn’t just because I was able to become a patron at a Filipino dance club inhabited by Imelda Marcos and cohorts (which is the transformation that the Public Theater made to its black-box theatre); it’s because the historical story was interesting, the characters were engaging, and the score was inventive and memorable. I suppose it could also be that my expectations weren't set too high...

MN Angel Tax Credits Run Out for 2013

In recent posts, my colleagues, here and here, and I have provided updates on the status of the Minnesota Angel Tax Credit.  As of early-May, according to the Minnesota Department of Economic Development’s (DEED) website, all $12.7 million of the tax credits available for issuance in 2013 had been exhausted.

There was some hope that the Minnesota legislature would allocate additional credits for 2013 in this session’s tax bill.  Indeed, there was at least one proposal to increase the tax credits available for issuance this year.  However, the tax bill that the legislature approved at the end of the session on May 20th, and which the governor signed, did not include an increase for tax credits this year.

The legislature did approve an allocation of $12 million for calendar year 2014.  Given the pace at which tax credits have been allocated the past two years, I think we can assume that the $12 million of tax credits available for 2014 will be exhausted by the time the snow melts next spring in Minnesota. (Jeff Nelson, the angel tax credit program’s coordinator, speculates that they will run out of credits by April.)  So, if you are planning to raise capital next year, and hope your investors will be able to take advantage of the tax credit, you will need to get in line early.  DEED will begin accepting applications for the 2014 angel tax credit in November this year.

The Wide World of Trademarks

As I was digging around recently for some information regarding worldwide trademark activity, I ran across the 2012 State of Trademark Report from Thomson CompuMark and got caught up in the reports and statistics of the World Intellectual Property Organization (WIPO).  The Thomson report includes 2012 information covering 186 countries and registrars, and the WIPO reports are based on survey results from approximately 150 national and regional IP offices around the world regarding IP activity, including trademarks.  Complete WIPO statistics are only available through 2010; the 2012 reports are based on actual information for 2011 from about 100 offices and estimates for information not yet available.  WIPO also has a really cool searchable data base where you can find out things like how many applications were filed in Bhutan by German nationals in a given year.

Without including boring details (go to the sources for that), here is some information that I found interesting:

• For the last several years, China has led the world in trademark activity (generally determined by the number of applications filed in that country).  The U.S. is second and rounding out the top five spots in 2012 (according to the Thomson report) were Brazil, Turkey and France.  (Germany was in Turkey’s place last year). 

• German applicants filed the most applications worldwide (by class equivalents) based on 2011 WIPO data.  The majority of new applications filed by German applicants, as well as French and U.S. applicants, were filed abroad.  The bulk of applications filed by Chinese applicants were filed in China.  

• Overall trademark activity has been more or less flat in the last couple of years, but is showing some signs of growth in a few countries, most notably the United Kingdom.

• On a worldwide basis, the leading classification for new applications was 35 (Advertising and Business Management Services).  In second place was Class 25 for clothing.  Other biggies:  Class 5 (pharmaceuticals), 9 (scientific apparatus/equipment) and 41(educational services).  

• China accounted for nearly 70% of the total volume of trademark applications in Class 25 for clothing and had nearly twice as many Class 5 applications (pharmaceuticals) as the U.S. 

• The least active classifications on a worldwide basis have been 13 (firearms and ammunition), 15 (musical instruments) and 23 (yarns and threads for textile use).

• About 1/3 of the total applications filed worldwide in the last couple of years have been for services, with higher percentages of service mark applications filed in such countries as Australia, Mexico, Turkey, U.K. and the U.S. and the highest percentages in France, Germany and Spain (over 50%).  Over 75% of the applications filed in China have been for goods.

• The most recent WIPO information shows that countries such as Curacao, Samoa, Sao Tome and Principe, and Tonga, each had less than 200 trademark applications in 2011. 

• The Thomson Report identifies the top ten companies with published marks as Johnson & Johnson, Novartis, Nestle, LG, Unilever, Disney Enterprises, Procter& Gamble, Nissan, Sanofi and Philip Morris.

The data can be overwhelming, but the various charts and graphs in these materials do give a good picture of patterns and trends that can be useful in understanding today’s worldwide economy.

Leaning Way In

Recently, the women lawyers in our firm have been leading discussion groups around the book Lean In by Sheryl Sandberg.  Sheryl is the COO at Facebook and one of Fortune Magazine’s “50 Most Powerful Women in Business.” Her book about women in the workplace has received a ton of press lately—good and bad. Say what you will about the book, but there are some concepts that transcend gender roles at work and are good reminders to all of us.

1. We all need mentors and people to champion us. Sometimes the idea of mentors and a “mentoring program” is overused, and no one really understands what that means. We often overlook the real impact of having good and intentional mentors in our life.  I think most of us have been in meetings where a group of people are trying to decide who to hire, who to fire, who to promote, or who to award a bonus to, and there are some people who have a little louder voice than the rest who seem to get behind a candidate. Especially when the candidates are similar, that person with a “champion” seems to stand out from the pack. We all need someone to champion us, no matter what our profession. How do we find someone to champion us? Often this is a mentor. Finding someone to seek advice from, to navigate your career path with, and to eventually champion you, is imperative in a successful career of both men and women. The book makes an excellent point in that your mentor does not have to be (and maybe shouldn’t be) your boss. This mentor can be an outsider to your business, can be a contemporary that you trust, or can be a person that you emulate. Just find one. A real one. Not just someone you with whom make small talk about the weather at fixed monthly meetings.

2. Careers aren’t ladders anymore; they are more like a jungle gym. Today people are much less likely to join a business after college or graduate school, work their way up the ranks, and end up CEO someday. People’s career paths aren’t straight and linear; they take diversions, they are sometimes horizontal, and they sometimes get off the jungle gym and take a break. The point is that we should be aware of every opportunity, not just the ones that appear upward and natural next steps. Some of the most successful people took a horizontal risk or took a trip down the slide for a year or two. You can still end up at the top of the jungle gym.

3. Have a real partner. The book points out that people really can’t get to the top of their professions, or achieve top business success, without support from a real partner. This doesn’t have to be a marital partner, but someone who helps take care of some of the other responsibilities and needs in life. Sometimes this is a whole village of people. Make sure the people in your life are real partners and not just another responsibility or task on your list.

4. Don’t leave the game before you have to. This was the chapter that resonated with me. This chapter discussed some of the subconscious decisions you may make that in effect lower your trajectory. I do this—all. the. time. This is the decision not to take the job in New York because eventually you might want to be close to family, the decision not to take that big project because you might want to take a trip next year, or the decision not to go away to college because this boyfriend might be the guy you marry someday (he never is—also see #3 above). Might, maybe, could be. Why are we planning for things that aren’t here yet? Why would you pass up an opportunity for a condition that isn’t present yet? The book’s point is a good one; don’t limit yourself unless and until you have an actual reason to do so.

Names, Numbers, Dates, and Signatures – Cleaning Up Your Legal Documentation

As most of the entrepreneurial community in Minnesota is well aware, the funding still available under the state’s Angel Tax Credit program, which gives investors in tech start-ups a tax credit on qualified investments, is fast dwindling. I’m sure ours is not the only law firm in town working with clients that are still hoping to take advantage of the remaining allocation of credits, and reaching out to potential investors with their business summaries, financial information, and perfectly-crafted elevator pitches. 

These aren’t the only requirements of the savvy investor, however. Potential business partners also often want to understand the precise equity structure of company in which they are investing, who comprises the company’s board of directors, what the requirements are of the governing documents (articles, bylaws, buy/sell or member control agreements), and other corporate matters. These issues, while often easy to discuss and agree upon in theory, are not technically (or legally) solidified unless they exist in writing, with appropriate names, numbers, dates—and signatures. For some of our entrepreneurial clients, who are often working at break-neck speed, these items exist in spreadsheets, word documents, or emails, but not in legally-binding agreements. And the need to step back and complete this documentation in order to present it accurately to investors seems like a frustrating, stilted, “lawyerly” process that just delays the finalization of key partnerships and funding. 

Despite the seeming insignificance of some of these items, the importance of the technicalities surrounding these types of business decisions cannot be understated. Promising an investor that they will receive 10% equity in your company in exchange for their investment, without clear documentation illustrating who owns the other 90%, when they received it, and for how much, does not instill much confidence in the certainty of that 10% (or in compliance with applicable state and federal securities regulation). And promising an investor a board seat without confirming to them how much power this may yield (will they be one of two, or one of seven board members?) may not add the value to their investment that a company thinks it should. 

According to West’s Encyclopedia of American Law, a signature is “a mark or sign made by an individual on an instrument or document to signify knowledge, approval, acceptance, or obligation,” with the purpose of “authenticat[ing] a writing . . . and bind[ing] the individual signing the writing by the provisions contained in the document.” I recently assisted a client who insisted that his company’s capitalization table reflected three current owners. However, the third owner had continually delayed providing his signature on the subscription documents evidencing his investment and ownership in the company. Ultimately, when push came to shove and the importance of reflecting the company’s ownership accurately was required, it became clear that there was no true meeting of the minds, and the company was left with its two, official founders. Signatures are the talismans that turn mere conversations (or that “hand-shake” deal) into something that companies – and investors – can rely on as permanent and secure.

I have also recently been working with a client that is attempting to raise money, and an investor inquired about composition of the company’s board of directors. The client had multiple notes as to who was supposed to have been on its board at different times throughout the company’s two-year history, but (much to the surprise of its super skilled legal team) had never followed the statutory process required for the election of directors, or properly documented decisions that had been made regarding the structure of the board. While getting these documents in order was not a very large undertaking, it did take additional time, delaying the company’s receipt of its equity capital and adding some undue headache to the process.

Dates are important as well. Providing a snapshot of your company’s capital structure requires that the documentation leading up to that point is dated and executed prior to the date of the snapshot. And as most business owners realize, subsequent investments dilute previous investors, so solidifying the order of who came in first, second, and third, is critical.

With the potential for at least one incentive to invest, the Minnesota Angel Tax Credit, appearing close to running out for the year (unless proposed legislation like this is passed to increase it), companies are realizing that any delay in communicating with an investor is a set-back. Getting your legal “house in order” with accurate and complete documentation can save time and energy down the road – when these attributes will surely be needed to polish that elevator pitch!

A Post by Karen Wenzel, Guest Blogger

The Book: Steve Fischer, When the Mob Ran Vegas: Stories of Money, Mayhem and Murder (Berkline Press, 2005)

Why: An engaging look at the dark side of the entrepreneurial spirit.

My copy of Webster’s defines “entrepreneur” as “one who organizes, manages, and assumes the risks of a business or enterprise.” My colleagues and I are accustomed to using the term to apply to someone who is effecting a positive result—someone who plays by the rules while developing new and innovative products or offering improved services that redound not only to the entrepreneur’s own interests, but also in some way (or perhaps it’s better to say more or less) to the public good as well.

But take another look at the dictionary definition. It is, in and of itself, morally neutral. This was brought home to me by one of the good guys (I’m looking at you, Damon), with whom I escaped from a lackluster legal seminar one afternoon to visit the National Museum of Organized Crime & Law Enforcement (better known as the Mob Museum) in Las Vegas.

The museum itself was a bit of a disappointment, but my friend suggested I read When the Mob Ran Vegas, and he helpfully passed along his own copy (autographed!). It proved a most illuminating read about entrepreneurism on the dark side. It is, in essence, a collection of stories about the people who built Las Vegas not as we now know it, but in an early, darker manifestation. Many of these people are famous (and infamous), most are now dead, but all contributed to creating an adult playground in the midst of a desert.

For me, though, this book is most notable for the arcane facts that I’m sure will someday, somehow, be useful for me to know. For example, I learned that “4,000 quarters is $1,000 and weighs exactly 10 pounds.” Of course, I knew the first part of that and, in case it isn’t obvious from all of my prior posts, I wasn’t even a math major. But the second half must be worth remembering, right?