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The Entrepreneurs’ Chronicle

Issue Two | Tuesday, April 1, 2003
Subscribers: 1,178

Editor: Ryan P. Allis, University of North Carolina at Chapel Hill
Sponsors: Center for Entrepreneurship & Technology Venturing, The Entrepreneurs’ Coalition

Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage. – Niccolo Machiavelli, 15 th/16 th  century Italian Statesman


1. Message from the Editor: On This Second Issue
2. Financial Ratio Analysis, from the Business 101 Series
CEO & Chief Executive Officer: Bootstrapping a Company
4. Distinguished Entrepreneur Interview with Dave Rizzo, President & CEO, MCNC

This newsletter may be read online at

Section One
Message from the Editor

Welcome to the second issue of The Entrepreneurs’ Chronicle. This newsletter will contain articles on topics related to entrepreneurship, interviews with entrepreneurs, and reviews of books appropriate for the entrepreneur. It is published on the first day of every month and brought to you by, the Entrepreneurs’ Coalition, and the Center for Entrepreneurship & Technology Venturing at the University of North Carolina at Chapel Hill.

This month’s issue begins with an excerpt from an article from the Business 101 series at entitled, "Financial Ratio Analysis." Following this is an article by myself on the numerous roles taken on by a start-up entrepreneur attempting to grow his or her business without VC funding. Finally, the newsletter concludes with our first Distinguished Entrepreneur Interview. David Rizzo, President & CEO of MCNC, a North Carolina company which brings research institution and university intellectual property to the commercial market, gives his thoughts on the attributes of successful entrepreneurs and talks about his experiences being one.

Next month we will be publishing an article on the best and worst parts about being an entrepreneur. If you have any stories, anecdotes, or thoughts on what your best and worst times have been, please do send them to The best will be published in the article.

If you have any comments, suggestions, or would like to contribute content to be published in the newsletter or online, I encourage you to contact me at Please do feel free to forward this newsletter on to your colleagues and associates. On behalf of the team I thank you for being a subscriber.

Yours entrepreneurially,
Ryan P. Allis, founder
Business & Entrepreneurship Resource

P.S.: I encourage you to join us often in the discussion community at

Section Two
Financial Ratio Analysis
Contributed by

The Balance Sheet and the Statement of Income are essential, but they are only the starting point for successful financial management. Apply Ratio Analysis to Financial Statements to analyze the success, failure, and progress of your business.

Ratio Analysis enables the business owner/manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. To do this compare your ratios with the average of businesses similar to yours and compare your own ratios for several successive years, watching especially for any unfavorable trends that may be starting. Ratio analysis may provide the all-important early warning indications that allow you to solve your business problems before your business is destroyed by them.

Balance Sheet Ratio Analysis

Important Balance Sheet Ratios measure liquidity and solvency (a business’s ability to pay its bills as they come due) and leverage (the extent to which the business is dependent on creditors’ funding). They include the following ratios:

Liquidity Ratios

These ratios indicate the ease of turning assets into cash. They include the Current Ratio, Quick Ratio, and Working Capital.

Current Ratios

The Current Ratio is one of the best known measures of financial strength. It is figured as shown below:

Current Ratio = Total Current Assets / Total Current Liabilities

The main question this ratio addresses is: “Does your business have enough current assets to meet the payment schedule of its current debts with a margin of safety for possible losses in current assets, such as inventory shrinkage or collectable accounts?” A generally acceptable current ratio is 2 to 1. But whether or not a specific ratio is satisfactory depends on the nature of the business and the characteristics of its current assets and liabilities. The minimum acceptable current ratio is obviously 1:1, but that relationship is usually playing it too close for comfort.

If you feel your business’s current ratio is too low, you may be able to raise it by:

– Paying some debts.
– Increasing your current assets from loans or other borrowings with a maturity of more than one year.
– Converting non-current assets into current assets.
– Putting profits back into the business.

Quick Ratios

The Quick Ratio is sometimes called the “acid-test” ratio and is one of the best measures of liquidity. It is figured as shown below:

Quick Ratio = Cash + Government Securities + Receivables / Total Current Liabilities

The Quick Ratio is a much more exacting measure than the Current Ratio. By excluding inventories, it concentrates on the really liquid assets, with value that is fairly certain. It helps answer the question: “If all sales revenues should disappear, could my business meet its current obligations with the readily convertible `quick’ funds on hand?”

An acid-test of 1:1 is considered satisfactory unless the majority of your “quick assets” are in accounts receivable, and the pattern of accounts receivable collection lags behind the schedule for paying current liabilities.

Working Capital

Working Capital is more a measure of cash flow than a ratio. The result of this calculation must be a positive number. It is calculated as shown below:

Working Capital = Total Current Assets – Total Current Liabilities

Bankers look at Net Working Capital over time to determine a company’s ability to weather financial crises. Loans are often tied to minimum working capital requirements.

A general observation about these three Liquidity Ratios is that the higher they are the better, especially if you are relying to any significant extent on creditor money to finance assets.

Leverage Ratio

This Debt/Worth or Leverage Ratio indicates the extent to which the business is reliant on debt financing (creditor money versus owner’s equity):

Debt/Worth Ratio = Total Liabilities / Net Worth

Generally, the higher this ratio, the more risky a creditor will perceive its exposure in your business, making it correspondingly harder to obtain credit.

To read the full article and learn about income statement ratio analysis

Section Three
CEO & Chief Executive Janitor
by Ryan P. Allis

When a company is started, unless there is ample financing, o ften the owner will find himself or herself all alone for a while until sales start picking up and cash flow can support hiring help. Preation, Inc. CEO and colleague of mine Aaron Houghton once told me, “As a start-up CEO you are the Chief Executive Officer, Chief Executive Painter, and Chief Executive Janitor.” Now, clearly this is not the case if you are backed by venture capital or have enough funds to bankroll a staff. However, many people simply do not have much capital they can invest, do not have access to venture capitalists, or simply wish to avoid going into debt or selling off part of their company. Office space for these people, at least at first, often consists of dorm rooms, garages, or third bedrooms.

So how does one get past this start-up phase? What are some ways to start building cash flow? And at what point does one invest in things like office space, intellectual property protection, accounting software, inventory, or employees?

Well, in August 2001, I met with a man who had founded a number of companies, and was working on his next. I’ll call this man simply Mr. R. When I came aboard, everything had been put in place and the groundwork had been done. Mr. R had a product and had spent the past year laying the foundation for the company that would sell that product. Only a few hundred dollars in sales had been made to that point, but things were ready to take off.

I worked with Mr. R until August 2002. At that point it was clear to see that he had done his groundwork well. By that time, the company had made over $800,000 in sales on that one product, with a 51% profit margin, and no outside financing or venture capital. This was a bootstrapped company from start to finish, and for a two person venture it surely did succeed. So what tips would Mr. R give to someone without too much capital going through that initial start-up phase? Well, I had the chance to ask Mr. R just this. Here’s what he said.

"First of all, if you are on a tight budget, be ever mindful that the last thing you need is overhead. Don’t put the cart before the horse. Find a product. There are products out there. Look through the classifieds. There are people out there who have wonderful products but do not know how to market them. Contact these individuals and make them an offer. Give them a small piece of the action and buy the product out from them or license it. If you do not have money, find investors. Just make sure you retain control of the company. There are books available that can show you how to draft sample agreements like this.

The small entrepreneur simply needs to learn that much can happen in their own garage. You can take a product, spend a minimal amount of money to get a label on it and packaging and take it out door to door to small shops. Go to these shops and tell them you’d like to put the product in on consignment basis. Here you may run into trouble with stores asking for credit, but do what you can and extend credit if you are able to get some initial cash flow.

Then take your product and sell it to your friends. If your product is as good as you say it is those same friends are going to be telling their friends. You can build off a simple little platform like this.

Then build your web site, get an affiliate program going, and go from there. The key is finding a superior product that can be manufactured at a very low cost. The typical successful television product needs a seven times markup, 700%. Educate yourself about markups and costs.

Packaging is essential. Spend more on your packaging and written materials. If you cannot write, go find a copywriter that can. Get out and talk to people and get feedback on your product as often as you can.

If you have a superior product, you’ll win the battle. If you do not, odds are you are going to lose.

Learn to do what you can yourself. Don’t walk into a lawyer’s office and spend $2500 needlessly. Find an incorporation mill that can do it for $250. Learn how to write copy, that’s really essential.

If you make a mistake, be sure to learn from that mistake. If you fail, be sure you learn from the failure. I’ve not known a successful entrepreneur that didn’t have four or five failures. I might be a notable exception. I’ve only failed two or three times [laugh].

Just keep punching. It’s tenacity that wins."

Very powerful words from a man that built a very successful company. If you find yourself in a position without too much money, but do not want to take on debt or sell off stock, internalize these words.

Doing the foundational groundwork for a new company can take time. Common jobs include sourcing products, filing articles of incorporation, printing letterhead, business cards, and brochures, writing sales copy, finding office space, developing a web site, negotiating contracts with suppliers, purchasing an initial inventory, registering a trademark, and buying office supplies, among many others.

In August 2001, when I began work to work with Mr. R, there was not enough cash flow to hire any employees yet, so he and I had to do everything. The CEO and janitor saying rang true indeed for Mr. R, while I was a jack-of-all-trades myself. I handled all the emails, the phones, the packaging of orders, the marketing, the walk-in customers, the affiliates, and the web site. Mr. R handled the bankers, the forms, the accounting, and the most important customers. By no means were we in Silicon Valley in 1999 and by no means did the company have millions of dollars of venture capital.

After incorporating, Mr. R went five months before obtaining office space and eleven months before bringing in any outside help. After bringing me on as an independent contractor, no one else was hired for three additional months.

Soon enough, however, we were lucky enough to begin to have enough orders for the product to require a part-time person to package the orders and take them down to the post office. This position soon became full-time as more and more orders came in. This person also kept track of the inventory of all supplies and reordered items as needed.

By February of 2002, the company had grown to the point where I was spending much of my time answering the phones and emails instead of marketing. At this point, the company hired someone to take care of customer service. This person took over all the customer service emails and answered the phones, allowing me to concentrate on growing sales. In April, the company hired was able to hire an eventual replacement for me – someone that I could train in my marketing methodology and practices before I left for college that August.

Finally, in July the Mr. R brought on an accountant to take over as Chief Financial Officer. The company at that point was having trouble with the merchant account processor and the expenses were starting to grow. The CFO handled payroll, took checks to the bank, and went over the expense reports and merchant account figures with a fine-toothed comb.

Mr. R recommends that once your sales get to the $100,000 per month level that a full-time accountant should be hired. While some readers may consider it difficult to get to this sales level, if one has a good enough product, good enough marketing systems, and has done the groundwork well, he or should be able to get to this level in a matter of months. It took Mr. R’s company just nine.

Start with a good product, do the groundwork and due diligence well, don’t skimp on good advisors, put the proper marketing systems into place, get the right people on your team, then mix in a little time and an ounce of perseverance. Finally, just remember as you toil away endless days and endless nights on your dream, on your baby, on your future million dollar company, that the entrepreneurial gods are with you, and cheering you on every step of the way.

Section Four
Excerpts from the Entrepreneur Interview Series

In collaboration with the Center for Entrepreneurship & Technology Venturing (CETV) at UNC’s Kenan-Flagler Business School, the team has begin the Distinguished Entrepreneur Interview Series this month. To be fit the selection criteria one must currently be or have been a founder, co-founder, or start-up CEO in a company that has done more than $5M in yearly sales. One interview will be published in this section each month.

Below we include the full interview with MCNC President & CEO David P. Rizzo:

1. What attributes make a successful entrepreneur?

There may in fact be different attributes for different people.  For me, I felt the need to do something on my own outside of an established culture.  So, first, I would say a healthy independence. Second, a high degree of confidence.  A sense that even if I fail things will be fine.  Third, a willingness to get your hands dirty, answer the phones if necessary.  Fourth, an inherent ability to sell yourself and your company.  There are probably many more!

2. What do you believe are the necessary elements for a business venture to succeed?

1) You have to provide something that people actually want.  You have to know the answer to this, not just assume they want what you provide.  2) You must have an unwavering respect for your customers.  Treat them like royalty.  3) You must be able to attract people that complement your own personal skill sets. 4) you must be willing to let people do their jobs, you have to let go.  5) Cash is king, watch it like a hawk.  6) Make sure your adequately capitalized.  I’d rather own 10% of a large enterprise than 100% of a bankrupt one.

3. How essential do you see an undergraduate degree or MBA being for an entrepreneur?

In today’s economy, where low value-add jobs get shipped offshore, I think an advanced degree is critical.  I don’t believe it necessarily means that it has to be an MBA.  High value add companies are going to have to focus on innovation as a constant process.  I think it would be highly desirable to have some form of technology or science in ones background coupled with an MBA. 

5. What role has academic education played in your own life versus the role of experiential learning and what has been the relative importance of each?

I majored in Economics and that discipline is excellent in that it really teaches the concept of trade-offs and scarcity.  At the time I went through college and into the working world an MBA or advanced degree was not as important as it is today.  Had I to do it over I would have pursued both my MA in Economics and an MBA.  I did have the opportunity to pursue significant professional development at the Wharton School and the Brookings Institute.

6. What are the three most important lessons you have learned about business and entrepreneurship in your lifetime?

1) I would rather be 80% right and make a decision today, than 100% right and make one six months from now.  2) Hire a CFO a year before you think you need one.  3) Fire people six months before you think you should&ldots;.their peers are watching while you wait.

8. What have been the keys to your success?

1) Hiring good people.  2) Market timing. 3) Ability to attract capital.

9. What advice would you give to an aspiring young entrepreneur?

Don’t go it alone, it’s lonely.  If you can’t find an experienced entrepreneur, find some friends to start with you.  Ask for help when you need it.  Everyone wants young companies to be successful.  Form a good Board.  Dot your I’s and cross your t’s on all the legal stuff so it does not come back to bite you later.

10. What books would you recommend to aspiring entrepreneurs? Which books have influenced you the most?

Crossing the Chasm by Geoffrey Moore

11. Describe some of the biggest challenges or obstacles you’ve have encountered as an entrepreneur? How were these overcome?

The downturn in the economy was huge.  It required the shedding of non-essential business lines and a refocusing on core activities.  It also fundamentally changed the capital markets requiring more focus on M&A activities.

12. What memorable mistakes, if any, have you made in business? What did you learn from them and how can they be avoided?

Remember an IPO is nothing more than a financing event.  Don’t get swept up in investment banker hype.  NEVER, spend sales and marketing dollars solely to influence Wall Street.   Keep your sales and marketing dollars focused on near term customer acquisition.

13. What trends and changes do you see occurring in business today? What new technologies and industries will everyone be talking about in twenty years?

This Entrepreneurs Chronicle article was written by Ryan P Allis on 2/28/2005

Ryan P. Allis, 20, is the author of Zero to One Million, a guide to building a company to $1 million in sales, and the founder of Ryan is also the CEO of Broadwick Corp., a provider of the permission-based email marketing software and CEO of Virante, Inc., a web marketing and search engine optimization firm. Ryan is an economics major at the University of North Carolina at Chapel Hill, where he is a Blanchard Scholar. [learn more.