Lance Walley

Tornado relief work in Joplin, Missouri

Lance — Sat, 18 Jun 2011 23:01:15 +0000

I flew off to Oklahoma and Missouri last week to help however I could in Joplin, Missouri. That’s where an unusually large & destructive F5 tornado hit on May 22, 2011.

I flew to Tulsa, spent a night there, rented a pickup truck, and drove 90 miles to Joplin. I figured I’d drive into town and find somewhere to be useful – a church, Red Cross, fire dept, City Hall, whatever. And that worked great… once in town, people told me to register at the nearby Southern Missouri State University.

The Central Christian Center on Virginia Street needed a guy with a truck to take food, water, diapers, peanut butter, Gatorade, etc, out to field tents where residents turn up for supplies.

I was a guy with a truck

I spent the next couple of days driving around damaged parts of Joplin, looking for telltale tents where the smaller re(distribution) centers were. Sometimes they had all they needed for the day, but usually, they were happy to get more stuff.

On my 3rd and final day, they didn’t need deliveries done, but wanted me to deliver water and Gatorade in residential areas. They had everything but ice, so I found a gas station that sold ice, bought 4 bags, and was on my way.

The people of Joplin really appreciate all of the volunteers, and it was great meeting them, as well as other volunteers. I’d go to Outback for dinner and eat at the bar, and I’d always meet other folks who were there for similar reasons. One night, some Texas contruction guys paid for my dinner. That was really cool of them. I later read in the local newspaper that Outback lost one of their employees in the tornado.

Most of Joplin is fine, which is good because at least people can take shelter and comfort with family & friends nearby. I spoke with a guy from Louisianna who said Hurricane Katrina was insane because the damage was similar, but so widespread that the nearest basic civilization (electricity, water, gas, etc) was hours away. That is a truly frightening idea. Like I said, in this case, as bad as the tornado was, at least you could drive to Starbucks or Outback like it never happened.

Anyway, the trip was a great trip. It was good to be slightly disconnected – just connected enough to answer sales calls and check in now and then. Customers were very supportive when they heard where I was!

I checked Twitter less often, and given the surroundings, many of the topics seemed somehow less relevant

The people were great! One guy told me that if there’s one silver lining, it’s that the people came together and work as a community.

There was a little bit of looting, but apparently very little. If there’s a Hell, any looters are going straight to it! Can you imagine? One resident wrote scripture on his house to dissuade looters. Another wrote that anyone looting would be shot. The Texas construction guys said they liked the latter

One thing I noticed that’s interesting is that, given the circumstances, you’re freed from usual requirements of civility (like caring about your clothes or obeying all traffic rules), yet everyone is reasonably civilized. Some layers of expectations disappear, but there’s no mayhem.

If you can do such a thing, you should!

It’s good for you, good for the community, and good for the whole country!

I’m very glad to hear that others may do such things after hearing about this.

Chargify is a journey

Lance — Sun, 20 Mar 2011 22:15:05 +0000

It’s been 2 years since I departed on friendly terms as CEO/co-founder of Engine Yard. I started writing this blog post a few nights ago at Epicenter Cafe in SF, just a few blocks away from EY. Feels like yesterday that I was checking out 300-sq-ft condos above Epicenter and wondering if they’d survive in their semi-odd spot on Harrison.

Six months after I left EY, I found the folks at Grasshopper Group in Boston, who had been developing Chargify for a little while. I joined the team, invested some money, and helped (along with everyone!) build a great service and company-inside-a-company.

Fast-forward another 18 months and Chargify has signed up thousands of developer accounts and hundreds of running businesses on our platform, from tech startups and fitness coaches and real estate services to well-known companies like Scribd, Opscode, and Get Satisfaction.

SXSW

I was at SXSW last weekend and met a dozen Chargify customers. They’re all happy. They’re running interesting businesses, with Chargify taking care of all the stuff around… I’ll make up a term… “CLRM” (Customer Lifetime Revenue Management).

It’s just not “billing” or “charging” a card. It’s a whole lifetime of managing customers and revenue.

All of those customers from SXSW have cool ideas for us to build into Chargify. They’re giving us the feedback that helps one grow a good idea into a great idea.

We want to delight customers by giving them a great experience, from releasing improvements to answering phone calls & support tickets. But I want to do even better. I want customers to say, “Whoa, that is sexy! I never even thought of that!”

Grasshopper is a 45-person, profitable company. They can invest more in Chargify, but they have a number of ideas they’re funding, and they’ve already invested a decent amount to get Chargify near break-even.

Chargify is close to break-even, so we can just stay on the path we’re on more or less forever. In fact, doing so is tempting because it’s simple and requires no change.

So it’s the age-old question of growing with profits or growing ahead of profits. Once your business is profitable, you can decide if you want to grow with profits or ahead of them. Many businesses grow ahead of profits by using credit or external investment. (In this paragraph, I’m leaving out the whole issue of how you get to profits, which takes some investment up front.)

For readers interested in what it costs to get something like Chargify going, we’ve invested enough to buy a very nice house in most parts of America! I consider our use of capital very efficient, given how much we’ve created and the breadth of talent involved. We have 24/7 support, a dev team, a web & marketing team, NOC team, PR, HR, Finance, Legal, and everything else that our customers rely upon. Being grown within Grasshopper makes this possible.

Investors have been interested for a year. Now we’re at a point where it makes sense to consider.

It makes sense because: 1) The need for our service is obvious; 2) We can continue without investment; 3) Investment would bring greater richness of ideas & experience, as well as money.

So, if you’re interested in joining us, please follow/DM me on Twitter or email me. Contact details are on the right.

And, btw, I want to call out the great contributions of people who’ve already helped us largely for free. Some great folks out there have helped us delight customers with contributions of sample code, help with support tickets, software to integrate Chargify with other systems, etc. We, and our customers, are grateful!

Pricing & Profit

Lance — Sun, 15 Aug 2010 01:00:30 +0000

Pricing is one of the harder parts of a business to get right. But it’s easier than ever, though, with a SaaS business – because you can iterate!

In the first 2 years at Engine Yard, we raised prices 3 times. And after I left, EY changed pricing a couple of times – not always raising or lowering pricing, but changing *how* things are paid for… for instance, charging for tech support by itself instead of bundling it with hosting.

As someone managing a business, at first you’re trying to find the price that gets customers at all, then the price that makes profit, then the price that maximizes profit.

When you start something new, the best you can usually do is make an educated guess that’s based on other products and companies, as well as past experience. A common fear in just about everyone is that they’ll price too high, but it can be more damaging to price too low.

As others have said, price is the strongest signal you can send to the market. Price affects perceived value! A higher price causes people to assume your product or service is better. Of course, if you go with a high price, you have to live up to customer expectations.

Price attracts some and repels others. Some people seek the cheapest solution. Some seek the most expensive. Most people are comfortable in the middle and are uncomfortable at the extremes, which is why most plan selection pages have 1 or 2 plans in the middle of the range of prices (and usually in the middle of the literal page or layout).

Chargify

I think we guessed pretty well at Chargify. We’ve kept our pricing stable for a year, and if anything, we get feedback that our pricing is a bit low.

We have a large and diverse set of merchants using our platform now. Some need more support than others, some want a Service Level Agreement, some want premium support, etc.

We want to offer the features that the majority of merchants need. And we want to offer top-notch support as well as top-notch people, infrastructure, vendors, and partners.

The cost of features is pretty obvious: we have a team of developers who make the magic.

The cost of the rest is less obvious: we all share responsibility for tech support, so the support cost is somewhat hidden. It shows up in things like feature development taking longer.

Other less direct costs include the sys admin we hired, the fantastic processing facility we moved to, and the support person we’re hiring. And one more very important layer: all the folks at Grasshopper Group who support us in many valuable ways.

So, basically, there’s a whole company to account for . And we need to make a healthy profit.

Profit

Profit is good, of course, because it alone allows us to continue indefinitely, to invest in people & technology, to market our services, to repay startup costs, and to make mistakes. Companies that don’t make a good profit are in serious danger from inevitable mistakes & Acts of God. For instance, we will almost certainly spend time developing some wrong features, or we’ll need to pay for insurance we don’t know about yet, or we’ll step on someone’s patent, or a flood will hit our data center, etc.

Healthy profit makes all those things less problematic.

Distribution!

Ooops! I forgot something when I wrote this yesterday… Distribution! Wow, big oversight! Sometimes I’m a bit dense

There are definitely successful businesses that are mostly (or maybe entirely) direct sales models. Maybe 37signals? I really don’t know. I suspect that many SaaS offerings (especially those aimed at smaller customers) may be direct or mostly direct sales/distribution models.

But my early business experience growing Parallax taught me that allowing others to profit by selling and supporting our products could really widen our reach. After a number of years, something like 50% of our sales came through distributors all around the world.

These distributors maintained inventory of our hardware products and they provided tech support in their local language. They also advertised our products and showed them at conferences. Imagine how cool it was when we saw our products at conferences from Hungary to Japan, fully translated in advertisements, and we didn’t have to do anything except ship product to them occasionally.

Anyway, distribution channels can definitely be a good thing. The kind I described above want 30-50% off the retail price so they can pay for the services I mentioned and make a decent profit. Radio Shack was the granddaddy and they demanded 55% off retail! They also placed really big orders!

For something like Chargify and other SaaS offerings aimed at small businesses, there tend to be fewer layers between producer and consumer, but what about affiliate programs? What about partners (as your business grows)? These parties need to have an incentive to bring customers to you, so your pricing needs to have room for them if you foresee any role for them.

Of course, you can rev your pricing as your business and channels evolve. You may start 100% direct as we did at Parallax and end up 50% thru distribution after a few years.

I love talking about this stuff because it’s fascinating and the journey never ends!

Back to Chargify

We want be very profitable and remain accessible to small startups and provide services that more established businesses need.

If you have a minute, I’d love your input on a short, 5-Question Survey that will help guide our thinking.

Merchant Accounts & Payment Gateways… Keeping the Grass Green!

Lance — Wed, 23 Jun 2010 03:58:54 +0000

I have this conversation every day, so I decided I should do a (long) blog post on it…

To use Chargify, you need to have a Merchant Account and a Payment Gateway.

Most people don’t know what these things are or how to get them, because most people never need to know what these things are until they have a business and they want to accept credit card payments from customers.

As long as this is, I tried not to go into every detail, but it should suffice for most developers and business folks who just want to know what they need.

WATER SYSTEM ANALOGY

Imagine the outdoor watering system for your typical suburban home…

You have a city water supply that provides water to the homes on your street.
You have have a pipe that connects your house to the city water pipe under your street.
You have a set of water valves that control flow to your grass & plants. Older valves are opened & closed manually. Newer valves are operated electrically.
If your sprinkler valves are electric, then you have a control box that you can program to open & close the valves on a schedule, changing the schedule for the season, giving more water to some plants and less to others, etc. And really new systems have sensers for sunlight, temperature, and moisture, so they can water exactly the right amounts at the right times and still save water.
At the end of the system, you have sprinklers and other devices that provide water directly to grass and plants.

With that as a rough analogy and visualization, here’s how credit card processing works for your business…

WATER SUPPLY –> CREDIT CARD PROCESSING NETWORK

The water supply is the credit card processing network… all the banks and computer networks that process transactions. The big players in this system are Visa, MasterCard, and the card-issuing banks, which actually provide credit cards to customers.

Water flows one way in this analogy and that’s fine for purposes of illustration. Most of the time, when it comes to credit cards, money should be flowing from your customers to your business.

But the network really is two-way. Money does occasionally flow back to customers: when you issue a refund to someone or, worse yet, if your customer does a “charge-back” (this is when they call their credit card bank and say they’re not satisfied with your service, so the bank yanks the money out of your bank account, plus an additional charge-back fee that’s usually around $30).

Charge-backs are bad. The fees can add up very quickly, and you’ll be cut off from the credit card network if your business generates more than a few charge-backs per year. The best way to avoid them is to run a good business and provide your customers with many ways to contact you if they don’t understand a charge on their credit card statement. Make sure the info that appears on their statement includes a web address or telephone number (more on this in the next section).

Imagine if you were pushing dirty water back into your city’s water supply. They’d cut you off pretty quickly!

PIPE TO YOUR HOUSE –> MERCHANT ACCOUNT

The pipe to your house is your “Merchant Account”. Think of your Merchant Account as your “node” on the credit card processing network that spans the world. It’s a bank account, but it’s a pretty unusual bank account. You cannot access it directly like a regular checking or savings account, but it links to one of your regular bank accounts…

Charges & refunds that are processed through your Merchant Account will be deposited into or taken out of a bank account that you specify (probably your main business checking account).

Most banks large and small can provide Merchant Accounts. You can get a Merchant Account by walking into Wells Fargo, Bank of America, Barclays Bank, Bank of Australia, etc. Or you can contact a broker who will help you get the best Merchant Account for your business.

It usually takes 1-3 weeks to get approved for a Merchant Account. The bank needs to check your credit and consider the kind of business you’re operating before they give you a Merchant Account. Why? Because dealing with credit cards is a touchy issue and everyone wants to protect the whole system from abuse, so they need to know something about the merchants who are charging customer’ cards.

The bank is literally giving you, the merchant, credit: you’ll get paid within a few days after a customer makes a purchase, but the customer can ask the bank for his money back months later. What if you’ve gone out of business and the bank can’t get the money back from you? That’s credit risk. That’s why the Merchant Account bank must charge a “discount rate” on every transaction, usually between 2-4% plus a flat fee of, say, 30 cents. There is usually a monthly minimum of, say, $30/month. The more risky the type of business, the higher the fees will be.

I mentioned charge-backs in the prior section. The only note I want to add is this: when you set up your Merchant Account, you’ll be asked for the business name as you want it to appear on customers’ credit card statements. Be sure the business name is something they’ll recognize, and better yet, make sure it includes a web address or telephone number. That makes it really easy for customers to contact you if they’re confused about a charge, and therefore much less likely to do a charge-back!

Note about Countries…

Your customers can be anywhere. It’s where your bank is located that matters below…

Your Merchant Account will be linked to your regular business bank account, wherever that may be. For the most part, your Merchant Account needs to be in the same country as your regular business bank accounts. It’s rare that banks or governments will allow these to be in separate countries, but…

We have seen examples of Dutch and German merchants getting Merchant Accounts at Barclays Bank in the UK. This makes sense, since all three countries are in the EU. I don’t know how much of this is allowed, but it seems logical.

WATER VALVES –> PAYMENT GATEWAY

The water valves are your “Payment Gateway”, which allows you to access your Merchant Account. Remember, your Merchant Account is a bank account that you cannot directly access. Your Payment Gateway is your interface.

The Payment Gateway allows you to process charges and refunds to your customers. It also provides services like fraud prevention (through card billing address verification) and secure storage of credit card data.

And just like physical water valves, you *can* operate your Payment Gateway manually. You can log into it via the web and process charges & refunds. If transactions were declined, you can view a history and see what error messages, if any, came back from the credit card network. Some Payment Gateways have simple features to handle recurring billing, too, but because their business focus is not recurring billing, they don’t have the breadth or depth of a service like Chargify. Of course, they *do* have breadth & depth in the processing of charges & refunds, fraud prevention, secure data storage, etc.

The Payment Gateway usually charges 5-10 cents per transaction, plus perhaps a monthly fee or minimum of $20-30/month. There are also usually extra fees for fraud prevention (like 5 cents per address verification) and $20/month for secure data storage.

Note about Countries…

Your customers can be anywhere. It’s where your Merchant Account is located that matters below…

Payment Gateways only work with Merchant Accounts in specific countries. Here are a few examples:

For Merchant Accounts in the USA: Authorize.Net, TrustCommerce

For Merchant Accounts in Canada: Beanstream

For Merchant Accounts in the UK, Australia, and New Zealand: Payment Express

(FYI, Braintree & VersaPay gateways will be added later this summer)

CONTROL BOX –> CHARGIFY

The sexiest part of the water system analogy is, of course, the Control Box . It builds upon all the other resources to do truly cool stuff, like only watering on certain days, only watering if the ground is not already wet, and allowing you to interface with it from your office computer.

Of course, Chargify does a lot more than a sprinkler control box.

Chargify allows you to define all of your products & pricing, then bill for flat-rate and metered-rate plans, do “iTunes style” billing, do software license/seat billing, automatically prorate when customers change plans, accept discount coupons from your customers, etc.

It allows you to track your signups & revenue on your iPhone. It emails your customers if their card is declined and points them to a web form to update their card info. And many other wonderful things .

The point is, Chargify builds on the existing systems to add a whole new layer of functionality, and that new layer gets better over time. We’re working on new features and expanding our technology and business to better suit the needs of a growing list of merchants – over 1,600 as I write this.

You’ll pay Chargify $0 as you grow their business, then bump up to $50/month when you reach 50 paying customers, etc.

GREEN GRASS –> YOUR BANK ACCOUNT

When things work properly, money from your customers flows into your bank account, much like water onto your lush, green grass.

HOW TO GET STARTED

You can go through a broker that handles everything. Brokers can usually get you better pricing and they typically know which Merchant Account banks will be friendly to your type of business. Check the Chargify page on Merchant Accounts. TransFS is an automated broker, much like LendingTree for mortgages… they take your application and submit it to multiple Merchant Account banks. I’m not sure if TransFS will also get you set up with a Payment Gateway, but I think they do. Millennium Bankcard is a human-powered broker, much like a real estate broker… they take your application and push the process through until you’ve got your Merchant Account and Payment Gateway.
You can walk into your favorite bank and ask about a Merchant Account. Most banks will be happy to sell you one, and they’ll help you get set up with a Payment Gateway, too. Just make sure they give you a Payment Gateway that works with Chargify.
You can also contact any of the Payment Gateways directly and most of them will be happy to help you find a bank for your Merchant Account, too, or they may even resell Merchant Accounts themselves.

SUMMARY

This is a long post and it may seem that there’s a lot to know, but getting your Merchant Account and Payment Gateway are actually pretty easy.

Plan on waiting about 2 weeks and then be delighted if it gets done sooner. I’ve seen it as short as 3 days (USA) and as long as 6 weeks (UK).

If you have decent credit and can put up with a bit of paperwork, it’s really not that bad. If you want to save time and potential hassles, use a broker. I’ve also heard good things about Wells Fargo, but in general, large banks seem to take a bit longer to work with, especially if you’re starting a new business.

It does cost money to have this structure in place. You’ll pay a minimum of $70-100/month for your Merchant Account & Payment Gateway, and then $50/month when you reach the first paid tier at Chargify. So you need to generate enough profit to keep your grass green after paying these expenses, or you need to plan to cover the bill for these things until your business generates enough revenue.

I hope this helps!

I really do like seeing new merchants get started every day in every different business, in every different part of the world.

I’ll update this as it becomes clear what needs clarification.

Find a niche. Don’t shoot for the moon.

Lance — Wed, 24 Feb 2010 06:55:50 +0000

A saw a retweet the other day that I think was originally from one of the top guys at Twitter. It was something about “not shooting for the moon, lest you end up a corpse floating through space” or something like that.

I think his point was that if you shoot for the moon, most of the time you will end up with nothing. There is some irony in this coming from someone at Twitter, but I think his point is valid.

This reminded me of a discussion I had a couple of weeks ago with a great group of guys in Portland, Oregon. One of the guys and I got into a discussion about whether or not one should aim, in business, to change the world. He thought ‘yes’ and I thought ‘no’.

If you want to change the world, start a religion or a political/economic system. Start the next Christianity or the next Capitalism. Follow the footsteps of Gandhi or Mother Teresa. Work to increase crop yields or basic sanitation. Or design really inexpensive water pumps that are powered by solar or human energy (that’s a real one, by the way, that’s really cool!)

We talked about great, hugely successful companies like Google, Apple, Microsoft, Amazon, Oracle, etc. Now, I don’t know this for sure, but I bet most of those companies did not start out to change the world. I bet they started out to fill a market need and to make money… or maybe to take over the world in at least some of those cases .

The whole conversation started because of something I find great: small businesses that fill niches across our economy. Through Chargify, I talk with people who run small businesses that you’ll never hear of, that start small with revenue of a few hundred or a few thousand dollars a month, that grow to cover the mortgage, then allow the person to cut back their consulting or job hours, and eventually provide a good living for their family and employees.

I met a guy who developed a simple web/email-based service for a decidedly non-tech niche that he enjoys. It generates $3K/month, which pays his mortgage. I won’t be surprised if I ask him in 6 or 12 months and he’s up to $4K or $6K or even $10K/month. But even if it stays around $3K/month, it’s still great, because it’s one of several things he’s doing and it’s already paying a large expense for his family.

I’ve seen other stories that start similarly, but if you leave and come back 5 years later, whoa, the business is generating $25K or $50K or $100K a month, employing people, providing a good living and maybe building savings.

I love these stories because I think of them as the real economy, the online and offline backbone that generates a large chunk of our GDP – maybe a majority of it.

These entrepreneurs and SMBs aren’t shooting for the moon, but I bet they have a much higher statistical chance of success versus those who do shoot for the moon. Almost by definition, these folks notice a need and aim to fill it. Need is a big prerequisite to success. We’ve all been infatuated with an idea that we thought was really cool, even when there was no real need.

There’s a lot of attention given to the TINY, TINY percentage of hugely successful consumer-oriented tech companies. While we can learn from these successes, I think dwelling on them is akin to planning to be the next Derek Jeter.

Most of us are better off targeting a niche and growing from there. There’s nothing wrong with a “boring” niche business that few will ever hear of in the media, and in fact, I think it’s wise.

Some people say my viewpoint deprives us of the benefits of shooting for the moon. We need great breakthroughs, great athletes, great musicians, and literal trips of discovery. I don’t disagree.

I just think most people contemplating a business are better off starting with something more attainable and then building on that success. The irony is that most of them will be better off in 10 years than those who aimed for the moon.

9 Startup Steps, Learned over 22 Years

Lance — Thu, 28 Jan 2010 08:12:36 +0000

I had a great conversation several Saturdays ago with Logan in Louisiana. The conversation was really cool because he just turned 20 and he’s the prototypical college student, web entrepreneur, and Chargify user in middle America.

Logan and I spoke for 45 minutes. He’s never started a business before, so he had a lot of questions. I started my first business 22 years ago and I’ve started many businesses along the way. Some worked and some failed. I’ve learned a lot with friends and co-founders, from company formation to credit card processing (which tends to be a confusing area).

I was happy to give advice and hopefully save Logan some time and pain. When we wrapped up our conversation, we agreed that I should write this stuff down so it could, just maybe, help other young entrepreneurs and startups out there.

I hope this story will grow and evolve as I get feedback from others. Please note that this is NOT about finding customers or how to market or any of those very important things that warrant their own blog post. Instead, this post is about building the business infrastructure that can be used over and over to try ideas. You will fail more than you succeed, but at least you don’t have to keep re-creating the basic structure to do business.

I assume that an entrepreneur or startup is responding to a market need that they’ve noticed, and that reaching at least part of that market (to test their hypothesis) is do-able before they spend a ton of time and money.

I assume that any entrepreneur or startup realizes that customers are paramount and to be treated accordingly.

Finally, you should “fail fast” if the market doesn’t want what you’re offering. This one is tough, because it’s hard to know if you’re just mis-marketing. In my experience, the market at least gives some signal pretty quickly. I didn’t always listen to that signal, and when I didn’t, it was my loss.

A couple of people have said that this list is too “mechanical” – too simple. Well, here’s the problem with that: a lot of intelligent people don’t know these steps. They may have an interesting idea to pursue but they just don’t know the business steps to get up and running. Why not help them save a ton of time to create a re-usable structure?

This blog post turned into a true monster, so here’s an overview of what’s in the post:

1. Find Some Partners

2. Find a CPA, maybe also an Attorney

3. Set up a Business Entity

4. Get a Tax ID

5. Get a Business Bank Account

6. Get a Merchant Account (for credit card processing)

7. Get a Payment Gateway (for credit card processing)

8. Get a Business Credit Card

9. Get a Business Line of Credit

Please note that THIS IS NOT LEGAL ADVICE, but rather, just recounting my experience. You should seek counsel, as noted below.

1. Find Some Partners

This one is not absolute, but I think it’s generally a good idea. I have a friend who’s done very well by himself and that works well for him, but I think most people will be better off with 1 or 2 partners, especially if they’re inexperienced.

I’ve always had at least 1 partner. The biggest advantage is complimentary skills and interests. It also helps in very practical ways: when one of us was sick, the other could help customers. Oh, and having partners like Ezra and Tom at Engine Yard helped us immensely in terms of connecting with our customers and knowing the technology landscape. I could never do what they do.

There’s a belief going around that 2 partners is the ideal. It’s probably true, but other combos work. We had 4 at Engine Yard. But I can understand that if you have too many and especially if no one is the leader, then you can easily have disagreements later that will hurt the company.

Logan has some partners.

2. Find a CPA, maybe also an Attorney

I know that when someone is just starting out, affording a CPA and/or attorney can be *very* difficult. I remember starting my first company when I was 19. My friend and I started Parallax.com and we had almost no money. I had an $8/hr full-time job and a credit card I could use when needed.

My friend’s dad had a friend who was an attorney, so we got advice from him cheaply, probably free in the very early days. Not a lot of time, but just enough. I don’t think we had a CPA, but in retrospect, I think a good CPA is perhaps the role you need even more at first, just someone you can bounce high-level questions off of, *and* someone who can help at least once a year to make sure you’re doing your taxes correctly.

As your businesses grow in revenue and complexity, you *will* want a good attorney. I only said “maybe” above because I think you can start something small and simple without an attorney. But as soon as you want a corporation or LLC, as soon as you have any significant revenue and employee count and potential liabilities, you should already have an attorney you can turn to.

If your businesses prosper over the years, you will make lasting relationships with these people and they will become part of the overall infrastructure that helps you in your business and personal endeavors.

You can also expect to find new professionals to help you out as your needs change. I’ve found over the years that attorneys can vary a lot, and so can CPAs. Good ones cost more, great ones cost even more, but they know their stuff and are a pleasure to work with. After some time, you’ll be working with professionals who are really good in specific niches.

3. Set up a Business Entity

A “business entity” can take many forms. Here are a few that I know. This can be very simple (a couple of hours) or relatively complex. My advice is to start simple and increase complexity/”features” as the business warrants.

* Sole Proprietorship or Partnership. I’m 99% sure that California (and probably other states) sees these as the same type of entity, just with 1 or more than 1 person involved. These are easy to set up. In fact, in California, it’s the default if you do nothing other than file a Fictitious Name Statement (see below). When I formed a 1-man company to represent myself as a Perl programmer in 2001, that’s what I did. I went to City Hall and registered myself as “PerlUSA”. And in Engine Yard’s very early days, we did not file anything officially, so we were, by default, a California partnership.

Filing a Fictitious Name Statement (also known as a “DBA”, meaning “Doing Business As”) with your local city government is easy. I think this is all you have to do to start a Sole Proprietorship or Partnership in many states. If you live in a non-city/unincorporated area, I assume you can do this with your County government. This filing simply registers you (or a group of partners) under a business name. For PerlUSA, I went to San Francisco City Hall and filed the papers for something like $40. I then went to a local newspaper and paid $30 to have the listing published. I believe this is typical anywhere in America. Total cost in time & dollars: 1-2 hours, <$100. Is this a great country or what?! In one afternoon, I was legally “PerlUSA”.

— This was good enough for PerlUSA for its first 4 years. I only converted it to a corporation when it felt necessary, which was Jan 1, 2005.

* Corporation. Corporations offer a more formal business structure than sole proprietorships and partnerships. They generally offer increased legal and financial separation between the company and its owners/managers. They offer a long-established framework for selling shares to investors and for having a management structure that’s not the same as the owners/investors (though it can be the same and usually is with small corps). They also convey a sense of “establishment” to potential customers, vendors, banks, etc.

As PerlUSA grew and started getting large corporate and government clients, I noticed that they just *assumed* we were a corporation and anything else was a yellow flag to them. And the company had multiple contractors and a few employees, so it was time to be more formal and add the legal and financial advantages.

Apple and Engine Yard are “C Corporations”. Most large companies are C Corps. Income/loss stays in the corporation and the corp files its own taxes, completely separate from the shareholders, employees, etc, which have their own personal financial/tax picture. C Corps can own shares in other corps and do various things that “S Corporations” cannot. I think only C Corps can have different classes of stock with different voting rights per class, etc.

I spoke with my CPA and attorney and we decided on an “S Corporation” for PerlUSA. S Corps are generally good for a small number of owners or professionals who want to represent their services through a corporation. With S Corps, income/loss in the company flows through to the shareholders’ individual tax returns. This is generally considered advantageous.

Apple and Engine Yard are “C Corporations”. Income/loss stays in the corporation and the corporation files its own taxes. C Corps can own shares in other corps and do various things that S Corps cannot, like the different classes of stock mentioned above.

A long paragraph about shareholders, corporations, and corporate governance: A corporation is owned by people who have purchased or otherwise acquired shares in the corporation. The management and employees of the corporation are typically not the same people as the shareholders. There are, of course, many exceptions to this, especially when a corporation is very small. When I incorporated PerlUSA in 2005, I was the sole shareholder, plus I was CEO (which is both an employee of the corp and an executive officer), plus I was Chairman of the Board. Can you say “abuse of power” ? A corporation has a Board of Directors, who are charged with choosing the CEO and generally giving high-level advice and keeping an eye on the long-term direction of the company and its finances. If they think the CEO is doing a poor job, they can replace him/her. The CEO is a member of the Board and *usually* plays the role of Chairman of the Board, meaning that he guides the Board agenda. I could go on… there are examples of CEOs at public companies who formed Boards of their friends, which greatly negated the Board’s effectiveness at checking the CEO’s power. Ideally, you have a Board that trusts the CEO and helps guide the company. Ultimately, the Board and top management answer to the shareholders. And ultimately, the shareholders expect a good return on their investment, and they look to the Board and top management to deliver on that.

Note 1: S Corps can later convert to C Corps, but not vice versa.

Note 2: If you’re going to take on formal investors, they’ll want a C Corp, and probably a Delaware C Corp, because Delaware has laws that are favorable to the corporation and, I think, to shareholders. Interestingly, if they are formal investors like VCs, they will probably want to form a new corporation even if you already have one, just to be totally new & clean. I’m guessing here.

* LLC or LLP. I frankly don’t know a lot about LLCs (Limited Liability Companies) and LLPs (Limited Liability Partnerships). But Chargify is an LLC! Here’s how that happened: my co-founders in Chargify were familiar and comfortable with LLCs, and my attorney said an LLC was approximately as “good” as an S Corporation. Given my trust in my partners and my attorney and the fact that I’ve seen plenty of successful businesses as LLCs, I figured, “What the heck? Might as well try something new.”

What I do know is that our LLC does not officially have “shareholders”, because there are no shares. There *are* “ownership interests”, which a lot of people casually call “shares”. I’m sure there are legal differences and I defer to my attorney and CPA to know where those differences matter.

Logan, the student I mentioned above, formed an LLC with his friends. I was like, “Whoa, you’ve already done that? Cool!”.

4. Get a Tax ID (most business entity types)

Get a tax ID for your new entity. With the less formal business entities (especially sole proprietorship), I think your SSN *is* your business tax ID, but my memory is foggy. I *do* remember that my bank was quite helpful with this when I went to open a business checking account… they had an 800 number they called to get a tax ID if I needed one. For the more formal business entities like corps and LLCs, you will definitely need a business tax ID that’s not your SSN, because the business is legally separate from you; it will file its own taxes and produce W-2s and other tax-related documents that are completely unconnected to you personally.

5. Get a Business Bank Account

So, with PerlUSA, I went to Wells Fargo to open a checking account. My clients expected to make payments to “PerlUSA”, not Lance Walley. Incidentally, I had bounced a couple of checks earlier that year and was on a “bad list” with banks, so I couldn’t open a new account with my SSN. I will forever be grateful to the branch manager for trusting me and over-riding the system. She asked that I please not betray her trust. I never did, and PerlUSA (and later, Engine Yard) went on to bring Wells Fargo a *lot* of business! I hope she was rewarded. I stopped by a few times over the years to say ‘thanks’.

BTW, get a business savings account, too. It’s a good idea to save some percentage of your revenue right off the top, say 10%. Just a good habit to start early.

6. Get a Merchant Account

This is, unfortunately, a big mystery to a lot of people. A Merchant Account allows you, the merchant, to charge your customers’ credit cards directly, so your business name and contact phone number appear right on the consumer’s credit card statement.

This takes work, but it makes your business look real!

Merchant Accounts are kind of hard to get – on purpose. There is a lot of credit card fraud every year and that costs everyone a lot of money. Consumers/buyers have pretty generous rights about getting their money back if they think a charge is fraudulent, so banks are understandably careful about giving out Merchant Accounts.

You can get a Merchant Account from your bank, but most major banks probably won’t give you one if you’re a brand new business with no personal or prior business history. If you *do* have prior good history with that bank, especially business history, your chances increase and I would recommend that simply for convenience and for building a long-term banking relationship that will come in handy years later.

If your bank is not the right option, there are specialized entities ready to help! Your Merchant Account does not need to be at the same bank as your other accounts, and it doesn’t even need to be at a bank that you can walk into. There are banks and resellers that handle only Merchant Accounts all day long.

At times when I’ve needed a Merchant Account and was not in position to use Wells Fargo, I turned to a company called Millenium Bankcard (www.mbankcard.com). They and another, TransFS (www.transfs.com), will help you get a Merchant Account. At Chargify, we refer people to both parties and I think both are good. Personally, way back in 2000, Millenium helped me get set up for my online ringtone business, which was new and very risky from a bank’s perspective.

What’s cool about these kinds of companies is that they’ll learn about your business and do their best to get you set up. It’s *well* worth it when you’re starting out. You can later get a better deal when your company has 3 years of financials. And don’t sweat a half-percent or even a full percent.

Costs: Merchant Accounts typically have a cost structure something like this: 2.5% plus 30 cents per transaction. So if you’re charging your customer $10, the Merchant Account will get 25 cents + 30 cents = 55 cents. There are usually some other misc fees, such as a monthly minimum (I think like $20-30), maybe an application fee ($50-100), etc. The main thing is that the Merchant Account will cost you something like $30 min per month just to have it.

To the best of my knowledge, Merchant Accounts are specific to the Merchant’s country. Since I’m in the USA, I get a Merchant Account with a US bank. This allows me to charge credit cards from almost any country and the received funds will flow into my US Merchant Account. Charges are done in US Dollars and converted from Euros or Canadian Dollars or whatever the customer was using to pay if he’s not using US Dollars.

Finally, the funds flow from the Merchant Account into my regular bank account, presumably my business bank account. When you set up a Merchant Account, you’ll be asked where the funds should go (what bank account to route them to).

To be clear, your customers/buyers can be anywhere. You do not need to set up Merchant Accounts in every country. You do need to set up a Merchant Account in your country.

The companies I mentioned above can only help with US Merchant Accounts. Most Canadians, Brits, and Aussies I know have some idea of how to get a Merchant Account in their country.

7. Get a Payment Gateway

This is CLOSELY related to your Merchant Account, and sometimes it’s hard to tell them apart.

A Payment Gateway is a service that communicates with your Merchant Account. I don’t know the details, but I’ve been told that interfacing directly with a Merchant Account is quite difficult. So Payment Gateways came about to solve that problem.

You communicate with the Payment Gateway and they, in turn, communicate with your Merchant Account. The Payment Gateway actually adds a lot of value, such as secure storage of credit card info, an online credit card “terminal”, address verification services, fraud detection software, etc.

Costs: Payment Gateways have costs similar to Merchant Accounts, but I think they’re usually less expensive. By that, I mean it’s common for the Payment Gateway to charge a small percentage and/or flat fee per transaction, and perhaps a minimum monthly fee. My recollection is that the Payment Gateway fees, while not zero, are much less significant than the Merchant Account fees.

Authorize.net is one of the best-known Payment Gateways, but there are many more. Braintree is another, Cybersource is another, TrustCommerce, etc, and that’s just a few in the USA. There are others for merchants in Canada, the UK, Europe, Australia, etc.

Some Payment Gateways, like Auth.net, only work with US Merchant Accounts.

Other Payment Gateways work with Merchant Accounts in other countries. For instance, Beanstream works with Merchant Accounts in Canada.

7.5 Merchant Account + Payment Gateway

I hope this is starting to make sense. Your Merchant Account and Payment Gateway work together as a pair. Generally speaking, your Merchant Account must be in your country (wherever the funds are ending up), and your Payment Gateway must work with your Merchant Account, which I think pretty much means using a Payment Gateway in your country, too.

Fortunately, almost any of these companies is happy to sell you the missing half. I look at beanstream.com and I see a note about selling me a Merchant Account in Canada. And if I go to Wells Fargo to get a Merchant Account, they will bundle Authorize.net as my Payment Gateway. See how that works? It’s almost hard to buy them separately.

Ditto with the companies I referred you to above for getting this all done in the USA, anyway. They will make all the complexity go away for a small fee .

In the end, you can expect to pay something like $50-70/mo to be able to accept credit cards.

Finally, some Payment Gateways and Merchant Accounts allow you to specify the currency in which to charge your customers. Maybe you want run one website that charges in US Dollars and another that charges in Euros. Definitely doable with the right stuff in place.

And, yes, Chargify is working to make this all possible without tearing our your hair!

8. Get a Business Credit Card

Even if you can only get a Visa or MasterCard for your business with $200 of credit, it will be useful for paying for stuff, and it will start building your business credit. People may argue with me here (ie, credit is bad), but I don’t buy it. Credit is a tool that can be used wisely.

This harks back to my comment much earlier about buidling a relationship with a bank that you can actually walk into and get to know the personnel and management.

I know that American Express became a large tool for Engine Yard and now for Chargify. Frankly, I wasn’t the person who set those up, but I think Amex may be easier than Visa/MasterCard when it comes to new, small businesses. At least that’s how they come across in advertising! I went with Visa early because it was offered/pushed on me by Wells Fargo.

I also know that if you’re really young and have no credit, then you may need a co-signer for some of these banking/credit-related steps. My dad co-signed my first credit card when I was 16, so my credit history started building early.

9. Get a Business Line of Credit

Just like #8, but bigger .

When I was building PerlUSA, we had a common cash flow problem faced by small consulting companies: we needed to pay our guys before clients paid us.

We solved this by building up cash savings and by getting an “LOC” (Line of Credit). I think it eventually got up to $50-75K and savings got up to $70K. Between the two, we were able to buffer payments between clients and consultants. Your workers and sub-contractors (and you) are much happier when you don’t have to wait for that next check so y’all can get paid!

And, btw, those resources helped finance the first year of Engine Yard, so the money plus credit really came in handy.

It took several years to reach those amounts of cash & credit, so you might as well start early. Start with a business savings account and a $200 business Visa.

10. DONE!

I’m sure I’ll think of more in future revisions of this incredibly long story, but I’ve been writing for hours and it’s getting late and I think I’ve covered all the major things I’ve run into in 22 years of businesses.

What I told Logan in Louisiana is that, although some of these steps are difficult, the cool thing is that once they’re in place – once you have the experience – the next time will be easier.

In fact, my advice to Logan was to set up a generic company, and that’s exactly what he and his buddies had done. Do not set up MyWebProjectManagement.com, LLC. Instead, set up Web Services, LLC. Get an 800 number that rings your cell phones. Set up your bank and merchant accounts, etc. Find a CPA.

Depending on which steps you follow above, you can start with just a few days’ effort to get going, then add more, as needed. Getting all the above stuff in place will not happen in a few days – it will take at least some weeks to iron out Merchant Accounts and such, and more weeks or months if you decide on corporate formation with the help of an attorney.

You can try different business ideas and utilize the legal and financial structures you’ve put in place. Imagine how easy it will be for Logan to try his 2nd or 3rd idea! And if one really catches, then he can change the company name or form a new company for that particular business.

The point is to repeat these steps as few times as necessary! Spend some months up front, then spend years benefiting.

I hope this is helpful. I know this document is super long, but it’s useful stuff and it takes years to stumble upon it.

Do you notice the single mom in line?

Lance — Wed, 27 Jan 2010 05:07:46 +0000

I tweeted this an hour ago and thought it worthy of a blog post…

Do you notice the single mom in front of you in the grocery line who has to put back the mixed beans because she can’t afford them? If you can afford it, buy it for her. It’s really appreciated and it teaches a great lesson of unconditional giving.

Random acts of kindness are really cool, much better than (or at least a great augmentation of) official charities. It’s pretty easy to write a check or have an automatic debit for this or that charity and that’s a great idea. But personal & instant is really cool.

Just pay attention to your surroundings and you’ll see opportunities to help someone with a simple gesture. Those beans were like $2 or less, but the mom & her daughter & the checkout woman all really appreciated it. In turn, they’ll be in a better state of mind and will probably help someone else in the coming days.

I grew up in an economically poor household for a few years. I know we were occasionally helped by a stranger or someone who worked at a business we frequented, etc.

Pass it on.

Give the Policeman outside some Chocolate Almonds!

Lance — Thu, 07 Jan 2010 06:08:46 +0000

When I came home today from lunch, I saw a Sacramento Police car parked in front of my house. I’ve seen it before in the same area, so I presumed it was the same policeman. He usually looked like he was doing paperwork or taking a break or something.

I never looked closely.

Today, I parked a few spaces away and went inside my house. The thought crossed my mind to go say ‘hi’ or take him (or her) a small gift left over from Christmas. But I brushed off the thought as I took my shoes off and went up to my home office on the 3rd floor.

I got up to the 3rd floor and then thought, why not? There’s some weird thing that keeps us from doing simple, nice things sometimes. The upside would be to show generosity that’s unfortunately probably pretty unusual.

The downside would be… well, there is no downside.

So I went back downstairs and grabbed a bag of chocolate-covered almonds that were meant for someone else who never saw me over the holidays.

I wondered if the policeman outside would eat them or be suspicious. What a terrible thing to wonder, right? But I figured the package was sealed and new and I could always open it and eat some in front of him.

So I went outside, walked over to the police car, and said ‘hello’.

It was slightly odd, but it was pretty easy to say “Hey, I live right there, I think I’ve seen you around the area, and I thought it would be nice to give you some chocolate-covered almonds.” He was surprised but in a good way.

We ended up talking for maybe 10 minutes about the neighborhood and such.

I’m glad I did it.

It’s so easy to assume someone else will, or that it’s not my job, or it doesn’t matter, etc.

But I think if everyone does simple, little nice things for others every day or every week, it’s gotta add up to a better society for all of us.

And especially for a policeman – imagine the negativity he sees every day.

Pass it on!

Slow Down, Do Less!

Lance — Sun, 03 Jan 2010 04:19:05 +0000

The new year usually makes us think of long-term stuff.

In 2010, I strive to slow down, do less, and focus on what’s important.

I set a similar goal for myself in 2001 and life has been better ever since.

At the time, I decided not to be in a hurry and not to be late for things. Some friends chuckled at the idea of deciding not to be hurried. But it’s actually very doable if you just make the decision and change a few things in life.

I don’t mean being a slacker. Doing stuff feels good, especially if it’s some sort of accomplishment, and dilly-dallying gets boring pretty quickly.

I tossed out most of the noise and crap and focused on things that matter. The rest largely takes care of itself or drops by the wayside and wasn’t important, anyway.

I got a real reminder of this when clearing out my Aunt Dorothy’s apartment a few months ago after she passed away in her 80s.

Aunt Dorothy had 3 large file cabinets of pictures and letters and records of the last 4 generations of the whole extended family. The pics and letters told a great story of husbands and wives separated by WWII, of going to college and medical school, of moving out West, of rearing children, etc.

That huge collection of lives viewed from 2009 reminded me that the vast majority of details were incredibly irrelevant and very soon forgotten by the people living those lives. What was important were the overall directions and narratives of peoples’ lives.

So in day-to-day life, I strive to make fewer promises, fewer appointments. I can’t break promises I don’t make! Make only the ones that really matter. An appointment is a promise to be somewhere at a certain time. I try to make fewer appointments and put more time between them than I think I need. Between important or mentally taxing appointments, I make an appointment to have a mocha somewhere. That gives me breathing room and time to focus on the next thing.

I don’t take my laptop everywhere. I don’t always take it on short trips, either. It’s great going through airport security with just a small backpack and no laptop! Having an iPhone has helped a lot. I don’t always want to be connected, though.

Some of my best thinking is while driving or flying or walking with no electronics whatsoever (not even music). Silence, both audible and mental, really is golden.

(A beef about luggage on airplanes: don’t try to take so much crap! I recently traveled for 3 weeks across America and spent a week in Rome with 1 medium-sized backpack. Hotel laundry is the key. Just like this whole post: less really is more.)

I’m part of a startup again, so work is pretty much whenever I’m awake, so short naps and disconnection time become more important. For me, a 20-minute nap is really good for my brain.

I use as many focus-saving services as I can, like bill-paying services and once-a-month housekeeping (I’m pretty neat already and I can grab the vacuum if I need to). In business, I use services like Engine Yard and Basecamp. They cost a little and save a lot. I need to find more focus-saving services this year.

Incidentally, my new company, Chargify, is a HUGE focus-saving service for anyone running a recurring revenue business. Once you realize how much time & focus it saves, you’ll want to pay twice the price!

I mostly drive the speed limit or even more slowly because my beloved 10-year-old Jeep can’t go very fast. I stop completely at stop signs and look both ways twice. I use my turn signals 95% of the time.

Why do I focus on driving? Because most of us do a lot of it and doing it as I describe is nice to others, results in fewer accidents, AND forces me to slow down and be more deliberate. I want to get a bumper sticker that says, “Slow Down, Do Less.”

I swear if you do this driving thing for 2 weeks, you will start to realize that you were living in some sort of rat race Matrix. You will literally start to see yourself as outside the rat race just by de-stressing while driving. I dare you to try it! Drive 65 or 70 while everyone else is going 80. Get over toward the right, of course, and let the rat race pass you by.

Obviously, I don’t do any calling or texting while driving, not even to receive. Both are stressful and distracting, and are contrary to the aim of doing less unimportant crap! You can check the phone when you reach your destination, or at least wait until you get to a long red light.

I turn off email sometimes. That allows me to stay focused on something bigger and more important long-term. I don’t know about you, but I’m very distractible by communications, which is why I sometimes have to disconnect if I really want to get important stuff done.

So that’s tonight’s thought for 2010: slow down, do less, focus on what’s important. Remember Aunt Dorothy’s files!

Have a good (and slow) one

tflix

Lance — Sun, 19 Jul 2009 20:09:38 +0000

My 2nd Twitter service idea just went live yesterday. It’s @tflix and it’s super simple: you tweet to it a movie title and your zip code and @tflix tweets back show times at 2 theaters near you.

The idea came up one day when my dad was visiting. We were wrapping up breakfast and thinking about catching a movie.

There’s no website, just a Twitter user that’s really a Ruby program running at Engine Yard.

Will be interesting to see if people use it. I’ve primed the pump a little bit, now will see if folks retweet it and use it.