Thursday, April 19, 2012

Innovative Ways to Innovate

This article was written by Steve Tobak, in Money Watch, reprinted by permission

COMMENTARY: There's no magic formula for coming up with the next big thing, and there's no shortage of people trying. Luckily, there doesn't appear to be any shortage of demand for innovative ideas and products.

Having been around entrepreneurs, startups, and innovative companies my entire career, I've seen quite a few methods that seek to foster innovation. Here are eight "innovation catalysts" that really work:

Standing on the shoulders of giants. Innovators often elevate others' ideas into products people can use. There's a device called a ScareCrow that detects pesky animals like birds or rodents and shoots water at them. It's actually a motion sensor combined with an impulse sprinkler. It works, it's relatively inexpensive, and it's ingenious because there's nothing new; it's just two inventions used together in a unique way.

Unintended consequences. More often than not, products go viral or succeed for different reasons or uses than originally intended by their entrepreneurs. McDonald's (MCD) started with a hotdog, not a burger. Mark Zuckerberg's first stab at Facebook, dubbed Facemash, was to rate whether female Harvard University students were hot or not. Google's (GOOG) founders created a search engine, but the company's remarkable business success comes entirely from an advertising business model.

Think different. MP3 players, smartphones, and tablet computers were around long before Apple (AAPL) introduced the iPod, iPhone, and iPad. But Apple doesn't develop products the way other companies do. It ignores the status quo, doesn't use focus groups, and when it outsources functions it manages them meticulously, like a vertically integrated company. Apple doesn't look at competitive devices and ask, "How can we make it better?" It asks, "What do people really want to do that they can't" -- and delivers.

Innovators don't see different things -- they see things differently.
Where does innovation come from?
Unusual origins of 15 innovative companies

Meet customer needs, one step at a time. Sony (SNE) was originally a radio repair shop. Toyota (TM) made looms. Nokia (NOK) was a paper mill. IBM (IBM) sold weight scales, meat slicers and coffee grinders. Xerox (XRX) made photographic paper. Sometimes, you just start somewhere, put one foot in front of the other, and end up somewhere else entirely. It helps if you follow the needs of your customers.

It's not the end; it's the beginning. Some people and companies have a great idea or develop a unique product, become incredibly enamored with what they've managed to come up with, and promptly sit on it. Kodak (EK) actually invented the digital camera. Tivo (TIVO) lost control of digital video-recording technology. Stanford Research (now SRI) and Xerox PARC had loads of inventions that were commercialized and popularized by others. And don't even get me started with RIM (RIM) and its BlackBerry smartphone. Once you've come up with something, don't stop -- keep innovating.

A focus group of one. Some people have a unique ability to intuit what customers want before they even know it themselves. Others have flashes of inspiration that come from who-knows-where. How do you know if someone in your organization has some of that Steve Jobs or Albert Einstein magic going on? I don't know, but for some people and organizations a focus group of one is all you need.

Fish or cut bait? Sometimes you've got to have a sense for when to keep going and when to quit. How do you know? I've heard everyone from top venture capitalist Steve Jurvetson to Oracle (ORCL) CEO Larry Ellison essentially say that, to be a successful entrepreneur, you need to be prepared for 100 people to tell you you're an idiot. I guess that means fish ... and keep fishing.

Brainstorm. Brainstorming has become a watered-down term in business. Like any process, there are a few ways to do it right and many ways to do it wrong. Nevertheless, if you get the right people in a room, the right leader, the right goal, ask the right questions, and use the right methodology, you'd be amazed what you can come up with. I know, that's a lot of rights, but believe me, it can be done.

Are You Complying with Labor Laws or Are you Inviting a Law Suit?

This article was written by Robin Noah, SCORE Orange County Management Counselor

clip_image002Labor law compliance gets more difficult each year… and it is not going away anytime soon.

Managing risk to prevent lawsuits is a challenge for every employer. Consider that being kind, allowing variables from policies and sometimes flexibility in work schedules is an invitation to violate employee laws. An act of kindness can sometimes become a business liability.
There are many areas that are governed by some rule or regulation or policy. Here are some of the most common areas where employers can get into legal situations:



  • Exempt/nonexempt employee classification
  • Meal breaks
  • Independent contractor status
  • Harassment and discrimination
  • Hours of work
  • Leaves of Absence
  • Overtime Pay
  • Deductions from wages
  • Use of At Will
  • Final paycheck
  • Termination

A good example is the new AB 469 signed by Governor Brown October 2011. Known as the Wage Theft Protection Act of 2011 it became effective January 1, 2012. The bill requires that all employers must provide non-exempt and other employees at the time of hire with a written notice that contains specified information. It must be provided in the language the employer normally uses to communicate employment-related information to the employee.

The Labor Commissioner has made available a template that complies with the requirements of the notice.

This bill would make it a misdemeanor if an employer willfully violates specified wage statutes or orders.

I suggest that you learn more about this law as soon as possible.

You can find specific information relating to this law at several web sites:



Your best protection is knowledge. There is a wealth of information on the internet. Make it a practice to visit the websites that affect employer/employee relations.

Start off by visiting the United States Department of labor web site ; for the state of California labor laws visit

When making inquiries regarding labor laws, be sure to ask for the California rule to ensure that you are complying with your state’s laws.

As usual be aware of any collective bargaining agreements that may override policies and labor law rules.

LLC Taxation – a Brief Overview

imageThis article was written by Mike Capsuto, SCORE Orange County Management Counselor

A limited liability company (LLC) is a popular form of organization for small businesses. LLCs are organized under state laws to provide its owners (called members) protection of their personal assets from business creditors. Even though the formation of a LLC is relatively simple, the tax rules can be complicated.

To start with, LLCs do not pay taxes. They are pass-through tax entities similar to a proprietorship, partnership or S corporation. Each member reports and pays taxes on LLC income on their personal state and federal tax returns and are responsible for filing and paying quarterly income taxes. Losses are also passed through to members and claimed on their tax return. The percentage of income or loss allocated to each member is stated in the LLC operating agreement. However, a LLC can distribute profits and loses disproportionately if it meets certain technical rules. This is called a special allocation. To claim a loss the member must have an active role in the organization and not be a passive investor. In a single member LLC all profits or losses will pass through to the sole owner

LLCs will be classified as a sole proprietorship or partnership for tax purposes based on the number of members. These are called default classifications. LLCs with one member will be classified as an entity disregarded from its owner (the technical term for a sole proprietorship). LLCs with two or more members will be classified as a partnership. An election can be made by any LLC to be taxed as a corporation. In general, the tax laws and regulation as determined by your filing classification must be followed. Federal and California tax laws are similar but each has different reporting requirements.

Federal Tax Reporting Requirements

LLCs with one member will have a default classification as an entity disregarded from its owner (a sole proprietor). Its income, deductions, gains, losses and credits are reported on the one or more of the following schedules to be filed with the owners Form 1040:

Schedule C, Profit or Loss From Business (sole proprietor).

Schedule C-EZ, Net Profit or Loss From Business (sole proprietor)

Schedule E, Supplemental Income or Loss.

Schedule F, Profit or Loss from Farming

LLCs with two or more members will be classified as a partnership and have the same reporting and filing requirements as any partnership entity. It will file Form 1065, U.S. Partnership Return, and issue each member a Schedule K1 showing the their share of LLC's profits or loss. The member reports the amount on their individual tax return.

LLCs classified as a disregarded entity or partnership can elect to be classified as a corporation. This is accomplished by filing Form 8832, Entity Classification Election, a copy of which must be attached to the Federal income tax return of each member. Corporations are taxpaying entities and as such profits and losses are not allocated to the members.

California Reporting Requirements

LLCs that organize in California, register in California, or conduct business in California are required to meet the following reporting requirements:

• LLCs must conform to the same classification used in their Federal tax returns.

• LLCs classified as partnerships or disregarded entities, are required to file California Form 568, Limited Liability Company Return of Income. California Form 568 must be filed by the 15th day of the 4th month after the close of the LLC’s taxable year. Form 568 has the instructions for reporting the distributive share allocated to each member.

• LLCs required to file Form 568 must pay an annual tax of $800, and also be subject to a fee based on total income from all sources derived from or attributable to the state of California. The annual tax is due by the 15th day of the 4th month of the taxable year, and is paid using CA Form 3522, Limited Liability Company Tax Voucher.

• In addition, LLCs filing Form 568 that has members who are not residents of California must file FTB 3832, Limited Liability Company Nonresident Members' Consent with Form 568. FTB 3832 is signed by nonresident members and foreign entity members to indicate their consent to be under California’s jurisdiction to tax their distributive share of income attributable to California sources. For every nonresident member who did not sign a FTB 3832, the LLC must pay the tax.

• LLCs classified as corporations must file CA Form 100, California Corporation Franchise or Income Tax Return. The California Form 100 needs to be filed by the 15th day of the 3rd month after the close of the LLC’s taxable year.

• The LLC will be taxed at the current corporate tax rate and will be subject to a minimum tax of $800.

• If an LLC does not file Form 568 and/or does not pay all tax, penalties, or interest due, its powers, rights, and privileges may be suspended.

The above is not intended to be comprehensive. Its purpose is to give some understanding of the complexities of LLC taxation. Each LLC is unique. It is advised that you review the tax situation with a tax professional. A tax professional can help with the filings and prevent the LLC from being suspended and its members from being audited or paying interest and penalties for noncompliance. Keeping your LLC active and in compliance with tax laws can provide the needed protection not only for you but also your family.

Looking for a Loan? Don't Wait For a Big Bank

This article was written by Catherine Clifford, in Entrepreneur Magazine, reprinted by permission

If you are looking for a loan for your business, big banks aren’t your best bet right now. Instead, you might be better to turn to a community bank, a credit union, of any number of alternative lending sources, such as account receivable financiers, microlenders, or Community Development Financial Institutions (CDFIs).

While overall, the lending market has been showing signs of life, the biggest U.S. banks approved a smaller percentage of loans in March than in February, according to a recent survey by Biz2Credit, an online credit marketplace in New York that connects small and midsize businesses with lenders.

Loan approvals at big banks -- defined as those with more than $10 billion in assets -- dipped to 10.9% in March from 11.7% in February. The slide in approvals at the biggest U.S. banks comes as approval rates at smaller banks, credit unions and alternative lenders stayed steady or ticked up slightly. The approval rate was also below the 11.6% approval rate from the largest U.S. banks in March of 2011.

Related: Crowdfunding's Wild West Awaits a Stampede

The availability of credit for small businesses has been improving over the last year, says Rohit Arora, the CEO of Biz2Credit, but the recent slowdown is troubling.

The contraction of the big bank loan approval rate also comes as big banks tout their expansion into the small business lending arena, Biz2Credit says.

For example, Bank of America recently said it is hiring 90 new small business bankers across North and South Carolina and Georgia, part of an initiative to add 1,000 small business bankers across the country by the middle of the year. In particular, Bank of America said it increased new credit to small businesses by 20 percent in 2011, compared to the previous year.

Related: Top Sources of Small-Business Financing in 2012

In the wake of the recession, small businesses have been gripped the hardest by a tightening on the spigot of loans and have been increasingly looking to new and alternative ways of accessing capital. In an effort to get capital flowing again to small businesses, the JOBS Act was signed into law just last week. The new law aims to make capital more available to entrepreneurs and small-business owners by stripping away certain regulations, making it easier for entrepreneurs to raise money and go public.

The Biz2Credit index was calculated by analyzing lending applications from 1,000 candidates seeking loans on Loan requests ranged from $25,000 to $3 million, the average credit score was 680 and the average life of the business was two years.