Small Business

The eBay School of Business


Here's the scoop on real-world entrepreneurial training; reasons to avoid the "casual" meeting; what happens when equity is divided evenly; and more

Entrepreneurship Training the eBay Way

Can selling on eBay help students prepare for launching their own businesses? That was the approach an entrepreneurship professor at Stetson University took to "bridge an enormous gap…between most carefully researched plans and the experience of entrepreneurship." The purpose of the class "was to have the student experience real entrepreneurship with real money, a real organization, and real customers," states professor William Andrews in a research paper (click here to read it).

Student teams were given $500 each in startup cash to form five companies, including one that sold high-end tennis racquets, one that traded electronic equipment, and another that re-sold goods bought from local department stores at 75% off. The department store re-seller did best, netting $138. While most of its inventory came from department store clearance sales—which allowed return of unsold merchandise—some came from flea-market sales as well. Some biking shirts at three for $10 "seemed like a good deal," one of the students reported, "but unfortunately, they didn't sell as hoped."

The worst performer? The team trying to auction off unsold nights at a hotel in Sanibel Island, which lost $121.

There's No Such Thing As a "Casual" Investor Meeting

Investor Brad Feld recounts on his blog how one of his portfolio companies met "casually" with a venture capitalist who had previously expressed interest in the company, even though it wasn't then in the market for financing. "I spent five minutes with the CEO of my portfolio company preparing him for the meeting. Our time was spent entirely on the background of the prospective VC. I spent zero minutes looking at the company 'fundraising presentation' (since we weren't fundraising)."

The result? "The meeting was a disaster," recalls Feld. "I saw the presentation after the fact—it was a 'C'—not horrible, but not very good.The VC immediately formed a negative opinion" and now has "no interest in having any further conversations."

His conclusion is that "in all fundraising situations, don't be casual. The first impression counts a huge amount and sets the tone." (Click here to read the full posting.)

All's Fair Among Equals

Conventional wisdom has it that founding teams should divvy up equity according to experience and ability. But recent research suggests that teams splitting equity equally "tended to be more stable" during the first two years of the venture, according to Noam Wasserman, a professor at Harvard Business School. Similarly, "When the team invested the same amount of financial capital at founding, the team tended to be more stable."

However, if a team dividing equity equally then goes out and raises venture capital, the stability evaporates "and completely washed out the positive effect" of equality. One other thing: Companies founded by teams of friends, which divide equity equally tend to be less stable during the first six months, after which they're the same as everyone else. (Click here for details.)

About that Little Shop You've Always Wanted to Open…

The Internet may be a growing presence in retailing, but the dream of the retail shop remains strong, says Dorothy Finell in her new book, The Specialty Shop. She strongly advocates that prospective retailers resist the temptation to appeal to multiple markets, and instead adopt a "niche" strategy. The "golden rule" of good retailing, she says, is, "The Right Item, at the Right Time, in the Right Place."

Beyond that, it's all about attention to detail: ambience, location, and effective personnel. Finnell uses descriptions of a variety of specialty stores that sell everything from coffee and tea to gifts to dolls to books to illustrate her points. She advocates modest (rather than high) charges for gift wrapping, and liberal policies governing refunds, to emphasize the importance of customer service. And she's a big advocate of using the Internet to supplement advertising. It's a useful guide for assessing in depth the pros and cons of running a small retail shop.

David E. Gumpert covers business/health issues and also writes the biweekly What Entrepreneurs Need to Know column.

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