122 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
◾ Chief Operations Ofcer (COO)
− Responsible for the daily operation of thecompany
− Routinely reports to the highest ranking executive, usually the
CEO
− Role is highly contingent and situational, as the role changes from
company to company
− In the manufacturing sector, the primary role of the COO is rou-
tinely one of operations management
− Planning by prioritizing customer, employee, and organizational
requirements
− Maintains and monitors stafng levels
◾ Chief Financial Ofcer (CFO)
− Corporate ofcer primarily responsible for managing the nancial
risks of the corporation
− Responsible for nancial planning and record-keeping, as well as
nancial reporting to higher management
− In some sectors the CFO is also responsible for analysis of data
− Typically reports to the CEO and routinely attends Board of
Directors meetings
− Interfaces with auditors to provide quarterly and annual nancial
statements
− Supervises accounting practices
◾ Corporate Secretary
− Responsible for the efcient administration of a company, particu-
larly with regard to ensuring compliance with statutory and regula-
tory requirements
− Ensures that decisions of the Board of Directors are implemented
− Keeps corporate books
− Communicates with shareholders to ensure that dividends are paid
− Maintains company records, including directors and shareholder lists
and annual accounts
◾ Treasurer
− Responsible for liquidity risk management, cash management, issues
debt, and interest rate risk hedging, securitization
− Oversight of pension investment management
− Capital structure (including share issuance and repurchase)
− Advises the corporation on matters relating to corporate nance
− Oversees other nancial activities such as insurance coverage
Financing Your Dream ◾ 123
◾ Controller
− Maintenance and audit of all nancial records
− Top managerial and nancial accountant
− Supervises the accounting department
− Assists management in interpreting and utilizing managerial account-
ing information
− Prepares operating budgets
− Prepares tax lings with various local, state, and federal agencies
◾ Vice President
− Assigned important and specic roles in corporate administration
− Cannot legally bind the company without express or implied authority
− May replace the President on the event of his or her death, resigna-
tion, or incapacity
− Companies that use this title generally have large numbers of people
with the title of Vice President with different functional responsibili-
ties (VP Manufacturing, VP Marketing, VP Sales, etc.)
6.5 Creating Value for Your Stakeholders
“A job is a short-term solution to a long-term problem.” —Robert T.
Kiyosaki, author of Rich Dad, Poor Dad
In our society, there is a great reluctance to talk about how to make money,
lots of money. Run out of money, and you will be forced to declare bank-
ruptcy and see your dreams vanish. Universities are very good at teaching
scholastic and professional skills, but are generally silent when it comes to
money. Talking about money is not politically correct in academia.
As a fellow entrepreneur, I will discuss money with you without shame
or guilt. My best advice to you: get rich and hire many good employees…
after all, when was the last time you worked for a poor person? Table6.3
discusses what money can do for everyone.
6.6 Employee Benets
Your employee benet program is an integral part of a total compensation
package. Some benets are government-mandated, while others are incen-
tive-based to attract needed talent. Benets required by government are
124 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
unemployment compensation, worker’s compensation, Social Security, sur-
vivor benets, disability benets, and medical benets. Figure6.3 presents a
summary of potential employee benets.
Be aware that the Affordable Healthcare Act, once enacted, requires
employers with 50 or more employees (or “full-time equivalents”) to offer
healthcare coverage or pay a $2,000 ne per employee (excluding the rst
30 employees).
6.7 The 3 Fs, Angels, and VCs
At rst, most entrepreneurs spend their own money, technical resources, and
time in the yet-to-be formed company. At this point, the company is in the
“dream” or “idea” stage and the entrepreneur is accumulating “sweat equity.”
According to Investopedia, sweat equity “is the contribution to an innova-
tive project or startup enterprise in the form of effort and toil.” Sweat equity
is the ownership interest, or increase in value, that is created as a direct
result of hard work by the owner and is the preferred mode of building
equity for cash-strapped entrepreneurs in their startup ventures because they
Table6.3 Making Lots of Money Is Good (and Amazingly Altruistic)
Conventional Wisdom Entrepreneurial Wisdom
The love of money is the root of all evil. Money is the lifeblood of your
organization.
Source of income = a good job Source of income = value creation
Work in exchange for adequate money
(salary).
Make money work for you.
Multiplication is better than addition.
Write a good resume and get a job.
Get along with everyone.
Write a business plan and raise lots of
money.
Keep your nose clean. Inspire greatness in your staff and
create lots of multi-millionaires.
Pay taxes and take home the remainder. Take full advantage of tax deductions
and other legal investment incentives.
Work to provide for your family. Work to provide gainful employment
for many employees. You too, will
gain in the process.
Financing Your Dream ◾ 125
may be unable to contribute much nancial capital to their enterprise. In the
context of real estate, sweat equity refers to value-enhancing improvements
made by homeowners themselves to their properties. The term is probably
derived from the fact that such equity is considered to be generated from the
“sweat of one’s brow.”
3
For example, consider an entrepreneur who spends a year in his or her
startup. After a year of developing the business and getting it off the ground,
the entrepreneur sells a 25% stake to an angel investor for $500,000. The sale
gives the business a valuation of $2 million (i.e., $500,000/0.25), of which the
entrepreneur’s share (sweat equity) is $1.5 million.
6.7.1 Friends and Family
Beyond sweat equity, most tech startups raise their rst capital from friends
and family. Friends and family nancings are always the easiest to complete,
often taking less than two months from start to nish. Friends and family
rounds usually raise $25,000 to $150,000 in total.
4
Friends and family investors share the following characteristics:
◾ Not accredited
◾ Unsophisticated in nance
Employee Benefits at a Glance
Staffing
Requirements
Total
Benefit Package
Government
Regulations
Financial
Resources
Competitive
Position
Recruiting
Competition
Employees
Employee
Participation
Employee
Needs and Morale
Individual and Family
Benefits
Communicating
Benefits
Flexible Benefits (Cafeteria)
Part-Time Employees
Figure 6.3 Employee benets—Besides salary, what else can you offer your
employees?
126 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
◾ Invest their own capital
◾ Investing in a friend, not necessarily in the business
◾ Passive investors (do not demand Board seats)
6.7.2 Angel Investors
“Angels” typically invest capital in seed, startup, and early-stage companies.
Angels are often successful excited entrepreneurs themselves, or retired
executives who wish to “give back” their time and expertise. Angels invest
their own money, that is, they are not money managers, and generally pre-
fer to invest in local companies, looking to make a reasonable Return on
Investment (ROI).
According to a 2010 report distributed by the Angel Capital Education
Foundation, total startup funding from venture capital funds, state funds,
and angel investors is approximately $20.8 billion annually. Surprisingly,
friends and family contributed nearly three times that amount of capital to
thousands of startups each year. With approximately $60 billion in startup
funding from friends and family, entrepreneurs must consider this important
option as they seek to launch new businesses.
5
Angels are accredited investors (an SEC denition), which includes:
◾ Financial position:
− Net worth: $1 million, or
− Annual personal income: $200k or
− Family income: $300K
◾ Assumptions:
− Knowledgeable—capable of performing own due diligence
− Can afford to lose the entire investment
◾ Implications:
− Giving up regulated disclosure, but many are now part of Angel groups
6.7.3 Venture Capital
According to Wikipedia, venture capital (VC) is nancial capital provided
to early-stage, high-potential, high-risk, high-growth startup companies.
A VC fund makes money by owning equity in the companies in which it
invests, which usually have novel technologies or business models in high
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