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The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.

13 Steps for Startups
By Carleigh Lowe Monday, April 20, 2009

Author Paul Graham has compiled a fantastic and useful list, called Startups in 13 Sentences. Below is an excerpt.

1. Pick good co-founders.

2. Launch fast.

3. Let your idea evolve.

4. Understand your users.

5. Better to make a few users love you than a lot ambivalent.

6. Offer surprisingly good customer service.

7. You make what you measure.

8. Spend little.

9. Get ramen profitable.

10. Avoid distractions.

11. Don't get demoralized.

12. Don't give up.

13. Deals fall through.

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Top 10 Reasons to Start a Business Now
By Carleigh Lowe Friday, April 17, 2009

1. You will build your business on a foundation of frugality, which will benefit you in the long run. Knowing how to keep costs low is a great lesson to learn in the beginning.

2. Great talent is available in the job market.

3. Customers are looking for value. They want more for less and if your business or product provides this, you will succeed.

4. Contrary to popular belief, banks and venture capital firms are willing to lend money to great ideas. They want to transform the market place.

5. You will be poised and prepared to catch the upturn of the economic market when it starts to rise.

6. Your new employees will have great attitudes and less ego. They will be excited, focused, and appreciative to be a part of a budding business.

7. Being laid off can be a blessing in disguise because it allows you to spend your time and energy on building your own business.

8. Innovation will be built into the fabric of your company because you and your team will have to be inventive and creative to stand out.

9. Office space, vendors and suppliers are cheaper than ever.

10. You can get great press right now by showing that your company has an alternative view in the market place.

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The Weekly Media Trainer: Part 5
By George Merlis Thursday, April 16, 2009

The Fundamentals: Bridging and Flagging

The last two installments of media mastery fundamentals dealt with your interview agenda:  how to create one and how to make it compelling to the journalist.  First you have your ideas -- the message points -- and then you craft Grabbers that turn the ideas into soundbites or pull quotes.

But how do you get to that agenda point and your brilliant Grabber if the reporter doesn’t ask you the right questions, questions that provide easy paths to your agenda?  You use a four-step process called bridging.

Here are the steps:
1.    Acknowledge the question with a short-form answer.
2.    Build a bridge.
3.    Deploy your message, illustrated with a grabber.
4.    Shut up.  Don’t go back and revisit the original question.

Let’s go over those steps, using a hypothetical scenario.  Let’s say you are the president of the United States and you are sitting down with Steve Kroft of “60 Minutes.”   You’ve come into the interview with four agenda points.  One of them is: The recession is no excuse for postponing action on global climate change; quite the contrary, confronting the issue head-on will stimulate innovation, enhance America’s technology lead and supply 150,000 new jobs.   A grabber for this might be: “There is a silver lining to the carbon dioxide cloud.”

(Note: I made up a number for the jobs to illustrate a point: a specific, accurate number will be more effective than saying “many” or “a lot of” new jobs.  To some readers and listeners, “many” might be 15,000, to others, it might be a million. When dealing with the media, using the specific is always preferable to using a general term).

Now back to your “60 Minutes” interview, Mr. President.  Steve Kroft doesn’t do you the favor of asking about climate change.  Instead he asks questions about other matters.  You, as president, have gone through extensive media training and know how to use one of Kroft’s other questions to get the interview on track to your agenda.  So you bridge after he says: “Mr. President, there seems to be growing populist resentment against the automobile company bailouts.”

Okay, Mr. President, you have to get from car companies to global warming.  Here’s how you do it:

Step One, Acknowledge: “Yes, Steve, there is.  And it’s understandable.  People see these rescue plans as rewarding bad behavior: following the poor business model of incurring a lot of debt and building fuel-inefficient and polluting cars and SUVs.”

Step Two, Bridge: “But when the car companies emerge from this, they are going to be leaner, more efficient and their cars will become part of the solution, not part of the problem. The new cars they build will pollute less, contribute less to global climate change.”

Step Three, Message Point and Grabber: “This is another example of an opportunity wrapped in a challenge and why we should not -- indeed -- must not delay tackling climate change.  The silver lining to the carbon dioxide cloud is that overcoming the problem now will stimulate innovation, enhance America’s technology lead and create 150,000 new jobs.”

Step Four, Shut Up: You stop there.  You don’t go back and revisit the car companies.  To do so invites a follow-up on automobiles.  To stop at “150,000 new jobs,” invites a follow-up on global climate change or on those jobs.  In fact, if I were Kroft, my follow up would be: “Can you undertake something so challenging in time of recession?” Which, of course, plays right into your presidential agenda.

Shorter forms of acknowledging and bridging can be even more effective.  For instance, a question you can’t answer is a perfect springboard for diving quickly into an agenda point.

Acknowledge: “I don’t know.  I can find out for you.”

Bridge: “But what I do know is....”

Message Point: Deliver your message, illustrated with a compelling Grabber.

Shut up: Don’t go back and say, “As I say, I don’t know about the first, so I’ll find out for you....” Just end it with your Grabber.

When you’re bridging, you want to avoid segue whiplash -- that is, a transition that takes you so far from the original question that it is painfully obvious that you’ve just bridged. Also bridge judiciously; if you bridge every single question you’ll appear evasive to the reporter.  If you do it during a live TV or radio interview, the audience comes away thinking you are evasive.

Flagging is another get-the-interview-back-on-track tactic.  Let’s say you’ve acknowledged, bridged and gotten lost.  Or let’s say you find yourself giving an excruciatingly long and meandering answer.  The solution is to raise a flag.  What’s a flag?  It’s an expression like, “The real point is....” or “The most important thing to take away from this is...” or even, “The bottom line here is...” What you are saying, in effect, is, “Ignore everything I’ve said up to now, here comes the good stuff.”  (A flag MUST be followed by the good stuff, not more meandering. If you meander after you’ve flagged, you’ve tossed away your life vest and you are completely adrift.)  Flagging is an inelegant ladder and should be used only if you’ve dug yourself into a deep hole.  But it’s a lot more elegant that blathering on endlessly or dribbling off hesitatingly into an inconclusive silence.

Next week:  The ideal answers.  Keeping them short, simple, focused and making them media-friendly.

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Entrepreneurs Share Their Story
By Carleigh Lowe Wednesday, April 15, 2009

I found the post below on the The Global Small Business Blog by Laurel Delaney to be quite inspirational, and I think you will too. Hearing entrepreneurs' stories is definitely one of our favorite things at Harvard Business Services. Share YOUR STORY with us by emailing it to Carleigh@delawareinc.com.

Lots of entrepreneurs get off to a rocky or humbling beginning yet go on to become wildly successful.  Here’s a glimpse at five who, despite their early challenges, managed to make their own way in life. We can learn from their endeavors and find opportunities in the unlikeliest places.

1.  Start a juice stand. As a young boy growing up in Honolulu, Hawaii, Steve Case demonstrated his undying entrepreneurial spirit by starting a juice stand with his brother using limes grown in their backyard.  He and his brother Daniel went on to share a paper route, sell seeds and magazine subscriptions and start a company they called Case Enterprises.

Case eventually worked for Procter & Gamble and while traveling, tinkered with the personal computer, which back then was considered a novelty device.  He became intrigued with the possibilities of the online world.

His brother Daniel, who had become an investment banker, introduced him to the directors of Control Video, a struggling computer game company. They offered Case a job as a marketing assistant on the spot, and he took it so he could pursue his vision of an interactive world of computer-based communication and entertainment.

In 1989, Case created his own branded online service named America Online.  Quantum Computer Services, a company Case had founded and was running, changed its name to America Online, Inc. in 1991.

2.  Read aloud and perform recitations. Born in Kosciusko, Mississippi, Oprah Winfrey was reared by her grandmother on a farm where, at the age of 3, she started building the foundation for her broadcasting career by learning to read aloud and perform recitations. From age 6 to 13, she lived in Milwaukee with her mother. After suffering abuse and molestation, she ran away and was sent to a juvenile detention home at the age of 13, only to be denied admission because all the beds were filled. As a last desperate measure, she was sent to Nashville to live under her father’s strict discipline.

At 17, Winfrey’s broadcasting career began.  She was hired by WVOL radio in Nashville, and two short years later signed on with WTVF-TV in Nashville as a reporter and anchor.

She headed for Chicago in January 1984 to host WLS-TV’s “AM Chicago,” a near hopeless local talk show. In less than a year, she turned “AM Chicago” into the most popular show in town. The format was soon expanded to one hour, and in 1985 it was renamed “The Oprah Winfrey Show.”

When Forbes magazine published its list of America’s billionaires for 2003, it revealed that Winfrey was the first African-American woman to become a billionaire.  (Sources:  http://en.wikipedia.org/wiki/Oprah_Winfrey; and http://tinyurl.com/c3m23f)

3.  Develop an independent streak. At nine months, Larry Ellison contracted pneumonia, and his unmarried 19-year-old mother living in New York gave him up to her aunt and uncle in Chicago.  Until he was 12 years old he did not know he was adopted.  As a boy, Ellison showed an independent streak and often clashed with his adoptive father. From an early age, he showed a strong aptitude for math and science.

During the final exams in his second year in college, Ellison’s adoptive mother died, and he dropped out of school. He enrolled at the University of Chicago the following fall, but dropped out again after the first semester. His adoptive father was now convinced that Ellison would never make anything of himself, but the seemingly aimless young man had already learned the elements of computer programming in Chicago. He took this skill with him to Berkeley, California, arriving with just enough money for fast food and a few tanks of gas.

For the next eight years, Ellison bounced from job to job, working as a technician for Fireman’s Fund and Wells Fargo bank. As a programmer at Ampex, he helped build the first IBM-compatible mainframe system.

In 1977, Ellison and two of his Ampex colleagues founded their own company, Software Development Labs. They went on to win a two-year contract to build a relational database management system (RDBMS) for the CIA. The project’s code name: Oracle.

They finished the project a year ahead of schedule and used the extra time to develop their system for commercial applications. They named their commercial RDBMS Oracle as well. In 1980, Ellison’s company had only eight employees, and revenues were less than $1 million, but the following year, IBM itself adopted Oracle for its mainframe systems, and Oracle’s sales doubled every year for the next seven years.

The million-dollar company grew into a billion-dollar company. Ellison renamed the company Oracle Corporation, for its best-selling product.  Oracle went public in 1986, raising $31.5 million with its initial public offering.  (Sources: http://en.wikipedia.org/wiki/Larry_Ellison; http://tinyurl.com/cdn5hj)

4.  Backpack through India. Steve Jobs was born in San Francisco to Joanne Carole Schieble and Abdulfattah John Jandali and adopted by Paul and Clara Jobs.  He spent his childhood in the South Bay area, a region that would later become known as Silicon Valley. During high school, Jobs held a summer job at the Hewlett-Packard Company in Palo Alto before attending college. His original association with Steven Wozniak began as a result of attending lectures and working at HP.

Although he attended Reed College in Portland, Oregon, Jobs never graduated, having spent only about six months at college. He returned to California in 1974 and began attending meetings of the Homebrew Computer Club with his friend Wozniak. At the same time he took a job at Atari to save money for a spiritual retreat to India. While working there he discovered that a popular whistle recreated the tones needed to make long distance phone calls with AT&T. Jobs convinced Wozniak to go into business with him to make blue boxes and sell them to people desiring to make free long distance phone calls.

Jobs ended up backpacking through India but returned to work with Atari. He continued to work with Wozniak on other projects and finally convinced him to market a computer Wozniak had built for himself. On April 1, 1976, Apple Inc. was born.

Jobs has grown Apple from a company bordering on bankruptcy in the 1990s to a very successful company today. He has helped establish the new electronic divisions and personally helped create the iPod, iPhone, and other personal devices.  (Sources:  http://en.wikipedia.org/wiki/Steve_Jobs; http://tinyurl.com/csolhj)

5.  Sell sketches to neighbors. Walt Disney was raised on a farm near Marceline, Missouri, and became interested in drawing at an early age, selling his first sketches to neighbors when he was only 7 years old.

In 1918, Disney attempted to enlist for military service. Rejected because he was only 16 years old, Disney joined the Red Cross and was sent overseas, where he spent a year driving an ambulance and chauffeuring Red Cross officials. His ambulance was covered, not with stock camouflage, but with drawings and cartoons.

After the war, Disney returned to Kansas City, where he began his career as an advertising cartoonist.  In 1920, he created and marketed his first original animated cartoons, and later perfected a new method for combining live-action and animation.

In 1923, Disney left Kansas City for Hollywood with nothing but a few drawing materials, less than $50 in his pocket and a completed animated and live-action film. His brother, Roy Disney, was already in California, with an immense amount of support and $250.  Combining their resources, they borrowed an additional $500, and constructed a camera stand in their uncle’s garage. Soon, they received an order from New York for the first “Alice Comedy” feature. The brothers began their production operation in the back of a Hollywood real estate office two blocks away.

Mickey Mouse was created in 1928 with his first sound screen debut in “Steamboat Willie,” the world’s first fully-synchronized sound cartoon. In 1940 construction was completed on the Burbank Studio, and in 1955 the Disneyland Park opened.  (Sources:  http://en.wikipedia.org/wiki/Walt_Disney; http://tinyurl.com/dhobdb)

What lessons can you learn from these global entrepreneurial icons who changed the face of American culture? In going after a dream, exercise unbridled enthusiasm until you achieve it.   So do something unusual to manifest your own latent entrepreneurial capabilities:  start a juice stand, backpack to India or sell a sketch to a neighbor.  You never know where it will lead.

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Blank Check Preferred Stock
By Rick Bell Tuesday, April 14, 2009

blank check Preferred StockEvery Delaware general corporation must have one class of common stock, but it can have more than one class of stock, with different rules for the different classes. The most popular second class of stock is called “preferred stock” because it contains terms that are preferred over the rights of common stockholders. Delaware’s brand of preferred stock is so powerful and flexible a business tool, it is commonly called "blank check preferred stock."

Common stock has two characteristics that are written in the law and they are mandatory. The first is that every share of common stock carries one vote. If you own 100 shares you have 100 votes to vote on all matters presented at stockholder meetings.  The second is the right to your pro-rata share of any dividends issued by the directors to the common stockholders. If the total dividend is $1,000,000 and you own 10 percent of the total outstanding shares, you’re entitled to 10% of the million dollars. Common shareholders own the company and they have a right to share in the profits. That’s fair.

But the board of directors, with shareholder approval, can authorize a second class of "preferred stock" (aka blank check preferred stock) that can be issued by the board to attract capital, top people, or strategic alliances. The total number of shares of preferred stock may be split into any number of different “series” of the preferred stock, each series having its own separate terms. For example, the company may be created with 1,000,000 shares of common stock and 100,000 shares of preferred stock. The board can designate that the preferred be split into 10 series numbered one through 10 of 10,000 shares each, and that the terms of each series can be negotiated separately and are independent of the other series.

What’s preferred about blank check preferred stock? First, voting rights. Common shareholders get one vote per share, but you can give one or more series of the blank check preferred stock super voting power like two votes per share, or 10 or 100 or 1,000 votes per share. Why do this? Let’s say you’re creating a series of preferred stock to option out to key personnel. You can offer company insiders voting power this way. Or let’s say you are attracting capital from a key shareholder that already owns a big percentage of your common stock and you don’t want him to take control. So you create a series of preferred stock with no voting rights, but a guaranteed 10% dividend paid quarterly. Your investor might be enticed to invest more money but give up any increased voting rights. Or let’s say you are raising capital and you’ve sold 45% of your stock. Once you sell more than 50% of the company, you lose control. So what do you do? Bring out a series of preferred stock designated as "founder’s stock" in which the 10,000 shares have 100 votes per share. Have the board of directors issue the whole 10,000 shares to you. Now you can sell more of the common stock to investors and still keep control of the company. These maneuvers are sophisticated tricks and should be undertaken with the assistance of a really good corporate lawyer, obviously.

Secondly, blank check preferred stock can have a preferred dividend over common stock. Preferred stockholders can be guaranteed a certain dividend per share ($1.00 per share, for example) or a dividend based on a business calculation that suits the deal, (x% of increase in net profits, for example). These dividends can be guaranteed, cumulative, and convertible to common stock if the deal makers agree on it and a good lawyer drafts it up right. Preferred dividends are usually paid before the common stockholders see any return.

Third, blank check preferred stock can hold a security interest in a company-owned asset. This can include a patent, real estate, a major piece of equipment, or any other company asset. Let’s say your company owns a patent that is much more valuable when combined with another patent that you don’t own. Negotiating with the owner of that patent might be a breeze if you could design a series of preferred stock with no voting rights but a security interest in your patent and a royalty from sales of the products that contain their patent.  (Or whatever you can dream up). Or let’s say the company is desperate for an influx of cash. Bankruptcy is the next step if a deal isn’t put together in time to save the company. No one will buy your common stock if you’re about to go bankrupt, but someone might invest if you gave them a security interest in the assets that will be freed up if the company goes bankrupt. I hope you never need to use that technique, but if you find yourself in that position you’ll be glad you have a Delaware corporation with blank check preferred stock.

If you’re just about to form your Delaware general corporation and expect to sell stock in the company to raise money, it would be a good idea to consider getting the preferred stock right from the start by including it in the certificate of incorporation.  That way you won’t need the shareholders' approval to authorize it when the time comes that you need it. The directors will be able to issue the stock in the best interests of the company without the necessity of getting shareholder approval. If you already run a Delaware general corporation, you will need shareholder approval to amend the certificate of incorporation authorizing the preferred shares. If you control the common stock now, it would be a good idea to authorize this class of stock at your next shareholder meeting so that when you need it, it’ll be there.

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