Someone once said, “You should never tell Babe Ruth how to hold a bat”.

Truer words were never spoken and yet everyday, I work with managers, who have employees with a 1000 batting average, who insist on telling them how to hold a bat.

Process, policy and procedure are critical elements which allow us to consistently replicate desired outcomes.  But once those are memorizialized, routinely reviewed and improved, the employees who work within them should be turned loose and allowed to fly.

 Leaders who insist that employees should perform every task, approach every project, finalize every sale, exactly the way the manager would, is severely limiting the potential of the business and, more importantly, the employee.  If you have an employee who comes to work eager to do their job everyday, who knows themselves well enough to work efficiently and effectively, give them the sign to swing away.

My best advice to managers and leaders - get out of the battersbox today, don’t start coaching until they approach first and give them the room and equipment to knock the ball out of the park, every single day.  I promise you, they will.

Graduation was last Friday. The David Eccles School at the U graduated approximately 1,100 students with bachelor’s, Master’s, and Ph.D. degrees. I love graduation. It is a truly joyous event for everyone involved. Everybody is happy, families and graduates are rightly proud of the accomplishment graduation represents, and we had a huge crowd in the Huntsman Events Center. My guess is around 8,000 family, friends, spouses, in addition to approximately 700 students who attended graduation and approximately 50 faculty who were there to celebrate our graduates accomplishments.

One of the developments this year was a substantial number of graduates who had majored in entrepreneurship. Entrepreneurship as a major is subject to debate in entrepreneurial circles. The basic argument is that “appetite for risk” cannot be taught, and this is what it takes to be an entrepreneur. We can teach people how to get financing, how to put together pro formas, the fundamentals of market entry, and help them develop strategic entry plans and at the end of the day — so the argument goes — they are not entrepreneurs if they cannot make the jump off the cliff and start the firm.

There are others who view this slightly differently. Jon Huntsman spoke at the David Eccles School several years ago, and he strongly endorsed the idea of “getting paid to learn the business.” His point was that no one knows enough about their industry and the fundamentals of running a business coming out of school, so potential entrepreneurs should put in a few years really learning the business and industry they hope to enter. From this perspective, take a job, pay attention, and keep developing your business plan until you have the credibility to launch a firm.

These two perspectives on how potential entrepreneurs should launch their careers both have some validity, and they are probably complementary. I have a different take on the entrepreneur major and why it is becoming popular nationwide. The entrepreneur major is the only major in business where students are trained to think about value creation as their core activity in the world of work. Every other major is about mastering a technical body of knowledge necessary to occupy a professional position working for someone else. Entrepreneurs, on the other hand, are grilled from day one on how they are going to create economic value through their business activities, and they have to develop answers that are about running the business, including serving customers, financing operations, and developing the human resources necessary for the firm to grow and prosper.

Entrepreneur majors learn about business. Few of them will start a business coming out of school because they know what they do not know. Will they eventually start businesses? Some will, some will not. I do not see starting businesses as the most important contribution they can make, although I hope the risk takers have the preparation to avoid the more obvious landmines that tank start-ups in the early phases. For the typical graduate who is more risk adverse, I think the payoff is they look for opportunities to generate value, and these are the kinds of employees we all want working for us. They are also employees who advance into leadership roles in the firms where they work.
I think the growth in students majoring in entrepreneurship is going to make a difference for Utah’s labor force over the long run, and I think the students graduating with this major are going to be the contributors to the growth of firms in Utah for a long time. It is great to see students graduating with a business degree who are interested in business, and this is what the entrepreneur major is all about.

Later.

I was quite proud of my first foray into the blogosphere.  In fact, I had great ambitions to write a whole series of legal related posts for the entreprenuer.  However, the only two comments (the verbal kind) I received on my first post essentially were that it is the most boring thing they have ever read (and one of people saying this is a tax lawyer!).

Accordingly, I am revising my plan (though not giving up on addressing legal issues for the entrepreneur).  The posts hopefully will be less “bookish,” more practical and marginally more interesting.

With that in mind: Entity Formation

There are certain types of businesses that will form as partnerships, S-corporations, etc., but odds are, your decision of the type of entity you want to create likely will be a binary one between an LLC and a traditional “C” corporation.

While LLCs and corporations have many similarities (e.g., limited liability), they also have a number of differences.  The principal one of these is the tax treatment.  Corporations pay their own taxes.  LLCs do not.  Income and losses of an LLC flow through to the owners of the LLC, who pay any taxes directly.  This means that to the extent a corporation makes a dividend of taxable income, that income will be taxed twice (once at the corporate level and once at the shareholder level).  This can be a very significant benefit.  People often focus on this “double taxation” issue and assume LLCs are the superior business vehicle.  All else equal, that is true.  However, not all else is equal.

A number of factors tend to favor corporations over LLCs.  For example:

• due to the flow through nature of LLCs, the admnistrative burden of keeping track of capital accounts, allocations, distributions, etc., in LLCs can be quite high.  This is largely non-existant with corporations.  Quite possibly, the tax savings associated with LLCs may be outweighed by administrative costs.
• the “double tax” only is an issue to the extent (1) a corporation has taxable income AND (2) the corporation issues a dividend.  Most early stage companies are not going to fall in that category.
• VCs rarely invest in LLCs (primarily because they don’t want pass-through income).  If you are going to raise VC money, you need to be a corporation.
• Because LLCs are highly driven by tax issues, legal fees tend to be higher with certain types of LLCs.
• Operating agreements can be very complicated (and costly) documents to create.  By comparison, bylaws (the corporate functional equivalent) generally are very straightforward and inexpensive to create.
• The more an LLC wants to “look like” a corporation (i.e., equity incentive plan, different classes and series of membership interests, etc.), the more expensive they become.  Corporate stock option plans, separate classes and series of stock, etc., while not necessarily “cheap” to create, generally are must less expensive by comparison.
• Although LLCs apparently date back to 1892, they are a relatively new creation in the United States.  The body of law surrounding corporations is better understood, better settled and more predictable than LLC law.

While LLCs have many beneficial characteristics, one should not focus on potential tax benefits to the exclusion of other relavent factors.  While there may be an argument that some corporations would be better off structured as LLCs, there is good reason corporations outnumber LLCs.

Recently I’ve had to deal with an individual that, while powerful in her own business sphere and very rich, seems to have adopted the idea that because she powerful and rich (notice i did not say successful, because i beleive sucess is far more than money and power) she can be a jerk.  Some, in business have the idea that only the tough and agressive can win, which in the end may be the case (depending on what end you are looking for), but for me I think life is to short and relationships to important to adopt such an approach and propose this approach as taught by Mother Teresa which may really be success regardless of power and wealth:

“People are often unreasonable, irrational, and self-centered. Forgive them anyway. If you are kind, people may accuse you of selfish, ulterior motives. Be kind anyway. If you are successful, you will win some unfaithful friends and some genuine enemies. Succeed anyway. If you are honest and sincere people may deceive you. Be honest and sincere anyway. What you spend years creating, others could destroy overnight. Create anyway. If you find serenity and happiness, some may be jealous. Be happy anyway. The good you do today will often be forgotten. Do good anyway. Give the best you have, and it will never be enough. Give your best anyway. In the final analysis, it is between you and God. It was never between you and them anyway.”