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12 Key Issues for SaaS Startups Seeking Financing

Posted: 26 Jul 2019 04:55 PM PDT

By Mitch Zuklie and Richard D. Harroch

SaaS (Software as a Service) companies, are attracting some of the top talent and funding in technology today. The most notable SaaS companies occupied seven of the top 10 verticals by venture capital deal activity recently, and three of the top 10 by investments. Venture investment is running ahead of last year's pace, which was more than double the volume of each of the prior three years.

SaaS is being applied to solve all kinds of problems, such as monitoring and security, business intelligence analytics, accounting and finance, healthcare, HR and workforce management, customer relationships, and advertising, sales and marketing. Altogether, revenue for SaaS companies is predicted to grow 17%, generating an $85 billion market.

From an investor perspective, there is a lot that is attractive: scalability, ease of approach, recurring revenue streams, and high gross margins.

So, what does it take to stand out from the pack and get your SaaS company financed? The following is a checklist to help you succeed in raising venture capital, seed, or angel financing.

1. A Great Investor Pitch Deck Is Essential

Raising capital from investors is difficult and time consuming. Therefore, it's crucial that a SaaS startup absolutely nails its investor pitch deck and articulates a compelling and interesting story.

Here are some pitch deck tips:

  • Tell your story in 15 to 20 slides. (If you can't tell the story with brevity, you can't tell it well.)
  • Explain why the market opportunity is large–and where you fit in.
  • Describe the talent on your team. Many investors are skeptical of single-founder startups. While there are notable exceptions, they are rare. Startups are a team sport. SaaS is no different in this regard.
  • Where possible, tell your story visually.
  • Don't provide excessive financial details. Hit the key indicators and save the rest for follow-up.
  • Don't try to cover everything in the pitch deck. Your in-person presentation will give you an opportunity to add and highlight key information.
  • Use plain English–jargon or acronyms distract from your story.
  • Don't underestimate or belittle the competition.
  • Make sure your information and metrics are up to date.
  • "Look and feel" matters. Think of it as your investor interface, and consider getting professional graphics help.
  • Review other pitch decks for ideas on presentation.
  • Be sure to include the following wording at the bottom left of the pitch deck cover page: "Confidential and Proprietary. Copyright (c) by [Name of Company]. All Rights Reserved." This helps protect your intellectual property.
  • Send the pitch deck in a PDF format to prospective investors in advance of a meeting. Relying on Google Drive, Dropbox, or some other online service just puts up a barrier to the investor actually reading it.

For additional guidance, as well as templates, see How to Create a Great Investor Pitch Deck for Startups Seeking Financing.

2. Can You Get Angel Investors for Your SaaS Startup?

Angel investors invest in early stage or startup companies in exchange for an equity ownership interest. The typical angel investment is $25,000 to $200,000 but can go much higher.

  • Angel investors particularly care about the quality of the management team and how big the market opportunity is.
  • Angel investors want to understand the big problem you are attempting to solve. They like to see a clearly articulated elevator pitch for the business, an executive summary or slide pitch deck, a beta version of the SaaS offering, evidence of early traction, and support as to why there will be a large demand for the service.
  • Angel investors run the gamut from friends and family to professional angel investors.
  • You can find angel investors through attorneys, other entrepreneurs, angel investor networks (such as AngelList), venture capitalists, investment bankers, and crowdfunding sites like Kickstarter and Indiegogo.
  • Don't bother asking angel investors to sign a non-disclosure agreement—most won't do it, and it will only slow down the process.

There are a number of good articles on the subject of angel investing, including:

3. Venture Financing for SaaS Startups

After a round of angel financing, SaaS startups often seek the financing and support of a venture capital firm. VC firms provide capital; strategic assistance; introductions to potential customers, partners, and employees; and much more. In exchange, venture investors will typically obtain a preferred equity position in the company, seats on the Board of Directors, veto rights, anti-dilution rights, and a say in how the business is to be run.

Here are some key things to know about venture capital financing:

  • Venture capitalists typically focus their investment efforts on specific industry sectors, on stages of a company's life (early stage seed or Series A rounds, or later stage companies that have achieved meaningful revenues), and geography (e.g., Bay Area, Southern California, New York, Boston, or Santa Monica). Know the firm's focus before you approach it.
  • Valuation of the company will likely be one of the main issues and it is negotiable; there is not one "correct" valuation methodology or formula to rely upon.
  • A venture capitalist who is interested will submit a non-binding "term sheet," which will set out the key terms of the proposed investment. Experienced corporate counsel should be engaged to help navigate and negotiate on the issues.
  • The amount of control and Board seats will be important for both the entrepreneurs and the venture capitalists.
  • The venture investors will insist on anti-dilution protection and the right to participate in future rounds of financing.
  • Venture investors will perform extensive due diligence before consummating the investment (a venture financing process could take 30 to 90 days to close).
  • The venture investors will want to make sure the founders have incentives to stay and grow the company and will likely request that the founders' shares become subject to vesting based on continued employment (and then become "earned").
  • After a financing is completed, venture investors will often hold a minority interest in the company. However, they will typically insist on "protective provisions" (veto rights) on certain actions by the company that could adversely affect their investment or their projected return.

There are a number of comprehensive articles on the venture capital financing process, including:

4. Show That the Market Opportunity Is Substantial

Investors want to invest in big opportunities with large addressable markets. Make sure you are able to:

  • Define the initial market you are in and its dollar value.
  • Show that your company will be positioned to capture a large part of the total addressable market.
  • Consider other markets that your company's services can address beyond your initial market.
  • Consider markets your service can "unlock" for strategic partners in other industries.

Phil Dur, the co-founder of PeakSpan Capital, a venture capital firm investing in SaaS companies, states:

"One of the more significant determinants of company value obviously is market opportunity. If you are performing well, and in a rationale competitive dynamic in a market that 'matters' to a lot of customers, you're likely to see this reflected back in the valuation ascribed to your business. Don't hide the ball!  Be forceful and clear about the attractiveness of the market opportunity you are pursuing."

5. SaaS Business Model Issues 

Investors are particularly sensitive to a number of key business model issues inherent in SaaS companies, including:

  • With so many SaaS offerings out there, how can you get noticed and be differentiated?
  • How long is the sales cycle?
  • How easy is the onboarding process for new customers?
  • Can the company find a scalable way to acquire users?
  • How can churn be mitigated?
  • Can the long-term value of the customer be increased over time, while decreasing the cost of acquisition of a customer?
  • Is the service user-friendly enough?
  • What level of customer support is necessary to ensure customers are satisfied?
  • What ongoing product improvement costs will the company face?
  • Can the company manage a significant growth in users from a technical standpoint with acceptable financial consequences?

Is the subscription management/fees process easy and efficient? (Some companies build their own subscription management solution; others use a third-party platform such as Apptus.)

6. Intellectual Property and Technology Issues for SaaS Companies

SaaS investors are particularly interested in a company's software, technology, and underlying intellectual property. The questions the investors will pursue include:

  • How differentiated is the company's software?
  • What competitive advantages will there be over existing SaaS offerings?
  • How easy will it be to replicate the company's offering?
  • How costly will it be to fully build out, maintain, and enhance the offering?
  • What key IP does the company have (patents, patents pending, copyrights, trade secrets, trademarks, domain names)?
  • How was the company's IP developed?
  • What comfort is there that the company's IP does not violate the rights of a third party?
  • Is the IP properly owned by the company, and have all employees and consultants assigned the intellectual property over to the company?
  • Would any prior employers of a team member have a potential claim to the company's IP?
  • If the IP was developed at a university or through government grants or with open source technology, does the company have the right to use the technology?

See 10 Intellectual Property Strategies for Technology Startups.

7. Make Sure You Understand the SaaS Competitive Landscape

The company's competitors will always be an issue for investors, as some investors believe the SaaS marketplace is oversaturated in some subsectors. You will need to be prepared to answer the following questions:

  • Who are your company's chief competitors?
  • What gives your company a competitive advantage?
  • What are the key differentiating features of your offering?

You must show a thorough understanding of the current competitive landscape and be prepared to answer questions about your competitors. If you don't fully understand your key competitors, the investor may conclude that you really don't understand the market. Your competitors will often be large, well-capitalized companies, so expect the inevitable question about how you can reasonably compete with bigger players.

8. What Traction Have You Obtained?

A company that has obtained early traction will be more likely to obtain investor financing and with better terms. Here's how you can demonstrate it:

  • The creation of a beta or minimally viable offering
  • Initial or pilot customers
  • Strategic partnerships
  • Customer testimonials
  • Admission into competitive programs such as Y Combinator or other technology accelerators or incubators
  • Early press or social media buzz

An investor will probe into what has driven these successes and how they can be accelerated and scaled.

Andy Thompson, CEO of the San Francisco SaaS company Safehub, which monitors the structural integrity of buildings and gives real-time alerts to building owners, states:

"We found it extremely important in our presentation to investors that we were able to show them a working demonstration of our SaaS dashboard, and that we were able to show initial customer pilots. Plus, we were admitted to the accelerator program at Bolt in San Francisco. This allowed us to raise a significant first round of financing."

9. The Key Financial Metrics for SaaS Companies

Here are the important financial metrics for SaaS companies:

  • Monthly Recurring Revenue (MRR)—For SaaS companies primarily with monthly subscription contracts, show MRR. It has the following three components:
    • New customers added in the month
    • Existing customers that have terminated their subscription
    • Increased revenues from existing customers who have expanded their subscription
  • Annual Recurring Revenue (ARR)—If you offer yearly or multi-year subscriptions, the primary focus is on ARR.
  • Annual Contract Value (ACV)—Annual Contract Value is the average annualized revenue per customer contract. For example, if the company had one customer under a three-year contract for a total of $30,000, the ACV would be $10,000. This is the average across all customers.
  • Lifetime Value of a Customer—What is the lifetime value of a customer? Obviously in the early days of a startup this will be hard to quantify. But it is important to project the potential lifetime value of a customer to assess marketing costs and customer profitability.
  • Gross Margins—Gross margin is the company's net sales revenue minus its cost of goods sold. This represents the amount of sales revenue left over after the company has incurred the direct costs of producing the SaaS product.
  • Cash and Cash Flow Burn—SaaS companies often face significant losses in the early years, resulting in an associated cash flow problem. And the faster the growth, the greater the cash flow problem. So, SaaS companies have to carefully consider their burn rate and capital requirements. Entrepreneurs must continually monitor their cash position and changes in cash position.
  • EBITDA—Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is often used to measure a company's operating performance, without factoring interest costs, taxes, or accounting adjustments.
  • Customer Churn—The churn rate is the rate at which the company is losing customers. A high churn rate can show that customers are not satisfied with the product or not finding enough value for the cost.
  • Customer Funnel Metrics—How many raw leads or inquiries for the product is the company getting a month? How many of those are converting to paying customers? What lead sources are the most profitable? How does the company increase leads?
  • Customer Acquisition Cost—What is the average cost to acquire a customer? Be careful not to underestimate these costs.

Ideally, you will develop an online dashboard that allows you to easily monitor and report these key metrics.

And make sure you are learning from these metrics—and learning fast. Boards and founders often are very slow to react to slowing sales traction, taking a few sales cycles to diagnose a problem, and then more time to find a solution. The problem is typically the product, the sales team, or marketing. It's best to figure out the solution very quickly.

Dean Stephens, the CEO of San Francisco-based SaaS health company Talix, Inc., states:

"SaaS financial and operating metrics provide powerful insight into product and company performance. Without such knowledge, leadership teams are blind. With it, we can make timely changes in sales, marketing, product, and other investments. And this metrics tracking should not be an expensive overhead cost to maintain. Today's off-the-shelf reporting tools should link accounting, budgeting, contracts, sales and marketing activities, and customer success into a lean, smart reporting infrastructure."

10. Are the Company's Financial Projections Realistic and Interesting? 

If a SaaS company presents investors with projections showing the company will achieve $3 million in ARR or revenues in five years, they will have little interest. Investors want to invest in a company that can grow significantly and become an exciting business. Alternatively, if you show projections in which the company predicts to be at $500 million in three years, the investors will just think you are unrealistic, especially if you are at minimal revenues today. Avoid assumptions in your projections that will be difficult to justify, such as how you will get to a 400% growth in revenue with only a 20% growth in operating and marketing costs.

In order to believe your financial projections, investors will want you to articulate the key assumptions you have and convince them those assumptions are reasonable. If you can't do that, then the investors won't feel you have a real handle on the business. Expect that investors will push back on the assumptions and that they will want you to have a cogent, thoughtful response.

11. The SaaS Customer Agreement

Investors will want to see your customer agreement. It should include:

  • A limited non-exclusive right for the customer to use the service in compliance with the terms of the agreement
  • The term of the license (month-to-month or year-to-year is the typical term)
  • Pricing for the service
  • How the contract gets renewed (such as by auto renew)
  • Termination rights by the subscriber and the company
  • Intellectual property rights ownership retention by the company
  • Limited representations and warranties by the company, and disclaimer of any other representations and warranties
  • Service levels
  • Maintenance and support obligations
  • Limitations and exclusions of liability
  • Data security and privacy provisions
  • Limited indemnification protection
  • Dispute resolution procedure (such as by arbitration and excluding the right to bring class actions)
  • Force majeure clause

This is an area where a tech transactional lawyer can provide real value—and help you sleep at night.

12. Legal Issues for SaaS Startups

Finally, investors will look at several more questions to ensure your house is in order from a legal perspective:

  • Has the company been properly organized? (Most investors prefer investing in corporations, not LLCs.)
  • Is the company paying attention to data privacy and cybersecurity issues? Is it in compliance with GDPR and other applicable federal and state laws? Is it CCPA ready? If it's healthcare-focused, is it HIPAA compliant?
  • Has the company complied with applicable securities laws when issuing stock or options in the company?
  • Has the deal with co-founders been made clear, especially if one founder were to depart the company?
  • Is the company in compliance with employment laws? Does it have appropriate policies in place, such as those prohibiting sexual harassment? Has it obtained all appropriate employment documents from employees?
  • Are all employees and contractors required to sign Confidentiality and Invention Assignment Agreements?
  • Is the company taking appropriate steps to legally protect its intellectual property?
  • Are key tax considerations taken into account?
  • Does the name of the company or its service pose any trademark issues, domain name problems or other issues?
  • Should the company implement an employee equity plan to incentivize employees?

For relevant articles, see:

Conclusion

SaaS startups have enormous potential, and the sector has attracted significant interest from investors. It's important for SaaS entrepreneurs to learn from others in the industry. A great place to start is SaaStr Annual, a yearly industry event hosted by SaaStr, the world's largest community of SaaS executives, founders, and entrepreneurs. The Bay Area conference attracts over 12,000 visionaries and technologists; the European version has over 2,500 attendees. The conference is enormously popular and SaaStr founder Jason Lemkin is a highly ranked source on Quora.

About the Authors

Mitch Zuklie serves as Chairman and Chief Executive Officer of Orrick, Herrington & Sutcliffe, an international law firm. Under Mitch's leadership, the firm has pursued a strategy to be a leading advisor to the global Technology & Innovation, Energy & Infrastructure, and Finance sectors. Mitch is an experienced business and legal advisor who has completed hundreds of venture capital financings and numerous public offerings, mergers, acquisitions, and licensing transactions. He counsels technology companies at all stages of their life cycles, as well as their founders, advisors, and investors. 

He serves on the Board of the Berkeley Center for Law and Business and the Advisory Boards of the Stanford Law School Center on the Legal Profession and the Harvard Law School Center on the Legal Profession. He is also a member of the Board of the Wild Salmon Center. 

Mitch posts regularly on social media about Orrick, venture capital, innovation and other interests. Follow him on Twitter and Instagram. 

Richard D. Harroch is a Managing Director and Global Head of M&A at VantagePoint Capital Partners, a large venture capital fund in the San Francisco area. His focus is on Internet, digital media, and software companies, and he was the founder of several Internet companies. His articles have appeared online in Forbes, Fortune, MSN, Yahoo, FoxBusiness, and AllBusiness.com. Richard is the author of several books on startups and entrepreneurship as well as the co-author of Poker for Dummies and a Wall Street Journal-bestselling book on small business. He is the co-author of the recently published 1,500-page book by Bloomberg, Mergers and Acquisitions of Privately Held Companies: Analysis, Forms and Agreements. He was also a corporate and M&A partner at the law firm of Orrick, Herrington & Sutcliffe, with experience in startups, mergers and acquisitions, and venture capital. He has been involved in over 200 M&A transactions and 250 startup financings. He can be reached through LinkedIn. 

Copyright © by Richard D. Harroch.  All Rights Reserved.

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The DOL Proposed Overtime Rule: Will Your Company Be in Compliance?

Posted: 26 Jul 2019 09:12 AM PDT

By Tonya Fletcher

Earlier this year, the U.S. Department of Labor (DOL) published a proposed rule that would make nearly a million workers eligible to receive overtime pay. The proposed rule is for white-collar exemptions to overtime, which refers to employees with duties that primarily involve executive, administrative, or professional responsibilities as defined by the regulations.

Currently, employees with a salary of less than $23,660 per year ($455 per week) must be paid overtime if they work more than 40 hours per week. The proposed rule published by the U.S. Department of Labor would raise the salary threshold to $35,308 per year ($679 per week).

It's important to note that this proposed rule does not change overtime protections for police officers, firefighters, paramedics, nurses, or laborers which include non-management production line employees and non-management employees in maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, and construction workers.

Overtime regulations can be confusing. In summary, the Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, record keeping, and youth employment standards affecting employees. Employees must be paid at least the minimum wage, and are entitled to overtime unless they are classified as exempt. To be exempt from overtime, employees must be paid a salary of at least the threshold amount and meet certain duties tests. If an employee is paid less or does not meet the duties tests, they must be paid one and a half times their regular rate for working more than 40 hours in a workweek.

It’s important to not wait until the rule is finalized to begin reviewing your practices. Some common mistakes are misclassifying employees, withholding pay, and miscalculating overtime. According to data from the DOL, the most common violators were employers in the retail, construction, and food services industries. Let's take a look at these common compliance mistakes.

1. Misclassifying employees

An exempt employee means he/she is exempt from the minimum wage and overtime provisions of the law. These positions usually include supervisory or management roles, but can include other roles depending on the industry or specific job duties. To be classified as exempt, the employee must meet both the salary and the duties test, which means they must:

  • Be paid on a salary basis
  • Earn at least $455 per week now, but $679 per week with the new proposed rule
  • Be paid the full, agreed-upon salary for any workweek in which they perform any work

The proposed DOL overtime rule doesn't include any changes to the job duties that classify employees. Exempt employees aren't entitled to overtime pay, but can't be paid less than an agreed upon salary.

Non-exempt employees are entitled to overtime pay. To ensure non-exempt employees are being paid correctly, keep track of all hours worked, pay overtime when applicable, and pay at least minimum wage. Also, remember that a non-exempt employee can receive a salary and still be entitled to overtime pay.

Some states also have requirements that have higher minimum salaries and/or more stringent duties tests than the FLSA. If you have employees in multiple states, you must comply with the FLSA and requirements in each state where employees work.

Misclassifying employees as exempt can be a very costly mistake. Consider this: In a typical wage and hour lawsuit, an employer could end up paying back wages and damages equal to the amount of the back wages, fees to an attorney to represent them, as well as the employee's attorney fees. This is why you should make sure your employees are properly classified, and since responsibilities can change, regularly review exempt employees to make sure they continue to meet the duties test that applies to their position.

Other Articles From AllBusiness.com:

2. Withholding pay

Employers must pay employees for hours worked in the workday, which means all hours between the time someone begins and ends work on a particular day. If this employee's workday extends beyond his or her normal shift hours, they must be paid for that extra time—even if it wasn't authorized.

All time spent by an employee performing activities which are job-related is potentially work time, even "off the clock" job-related activities that benefit the company. Types of compensable work time include:

  • Mandatory training or meetings
  • Time that includes waiting to receive job assignments for the day or time spent putting on and taking off safety gear
  • Working through an unpaid meal break
  • After hours or outside work, like requiring employees to check emails or take calls after hours
  • Travel from office to the first work site of the day if a stop at the main office or jobsite is required before starting work for the day.

Additionally, private sector non-exempt employees covered by the FLSA must be paid for all overtime hours worked and are not eligible for "comp time," and even if an exempt employee works part-time they must be paid the minimum salary of $455 per week ($679 per week with the proposed rule). Deductions from an exempt employee's salary are permitted in only a few limited circumstances.

3. Miscalculating overtime

The FSLA states that overtime is one and a half times the regular rate of pay. The regular rate is defined as total compensation divided by the total hours worked. If an employee has two or more different types of work for which different straight-time rates have been established (for example, $10/hour for one type of work and $12/hour for another type of work), the regular rate is the weighted average of such rates. If the employee receives a non-discretionary bonus or commission, that additional pay must be included in total compensation for purposes of calculating overtime pay.

Though there is still time before the proposed overtime rule is expected to go into effect, it’s important to review current employee classifications and pay practices for compliance. Then, review the potential impact of these regulatory changes and develop a plan to comply with the new regulations.

RELATED: Five Ways Your Business May Be Violating Employment Law

About the Author

Post by : Tonya Fletcher

Tonya Fletcher has several years of experience in human resource management with expertise in increasing organizational effectiveness. She currently is the Labor Compliance Manager at FrankCrum where she supports sales and client retention by managing the delivery and content of best practice information to client owners and managers regarding all types of employment-related topics.

Company: FrankCrum
Website: www.frankcrum.com
Connect with me on LinkedIn.

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6 Surefire Strategies to Kickstart Employee Engagement

Posted: 26 Jul 2019 08:57 AM PDT

According to Gallup, employee engagement is on the rise with 34% of employees engaged at work. While that’s great news, it still leaves 66% of employees who are potentially not engaged or not happy at work. And chances are, these disengaged workers are also less productive and loyal to your business.

Employee engagement is a major contributor to your business's success. If your employee engagement is on the rocks, learn how to develop and sustain employee engagement at your business.

Employee engagement strategies

Employee engagement can work wonders for your small business by bringing employees out of their shells. It can also:

If you want to see these positives become a reality at your business and improve employee engagement, try the following six strategies:

1. Recognize achievements

You've heard it before: location, location, location. The location of your business is critical to your business's success. But here's a new one for you: recognition, recognition, recognition.

Like how location is essential to your company's success, recognition is key to employee success and engagement. Recognition can make or break your employee retention and engagement.

If you want to increase engagement, recognize employees for a job well done. Say "congratulations" to employees when they reach a goal. Give employees a card for their work anniversary to show that you appreciate them. Take them out to lunch as a thank you for landing that big client.

Don't let employees' hard work go unnoticed. Instead, keep an eye out for employees going above and beyond to make your business the best it can be.

2. Create employee-led committees

I think I can speak for many fellow employers when I say that growing your employees into leaders is essential. After all, they are the future of your business. But what does growing leaders have to do with employee engagement?

According to one study, only 19% of organizations are effective at developing leaders. If your business is falling flat in the leadership area and needs a way to improve employee engagement, I have a solution for you: employee-led committees. Committees led by employees are ideal for encouraging camaraderie and showing employees you value their input. Plus, committees can help employees develop valuable leadership skills and keep them involved in your company.

Create an employee-led committee and ask employees to sign up and participate. Chances are, employees are looking for an opportunity to lead. A committee is the golden ticket. Depending on your business, you might even need to create multiple employee-led committees (thus spreading the opportunities for employees).

At my accounting and payroll software company, we have various committees to discuss improving our software, operations, and marketing strategies. We implemented our committees about a year ago, and in only one year, they've produced great ideas, boosted engagement, and strengthened teamwork.

Other Articles From AllBusiness.com:

3. Host social events

One surefire way to improve employee engagement and foster connections is to host social events in or outside of the workplace. There are endless possibilities for social events. Think food trucks, potluck meals, or raffles at work.

If you want to go above and beyond, think outside of the box when coming up with ideas for activities. Give employees something to talk about by doing things you wouldn't normally do. Try to do a different activity each time you have an event to keep employees on their toes.

At my company, employees never know when the next surprise is right around the corner. We've had a roller rink party, free smoothie day, and chili cook-off, just to name a few. Social events are a way to show employees you appreciate their hard work and dedication to your business. Events give your employees a chance to socialize. Not to mention, it's important to have a little fun every once in a while.

4. Ask employees for feedback

When customers give you honest feedback, what do you do? Do you just smile and nod? Or, do you use that feedback to better your business? Most businesses answer with the latter. Shouldn't the same go for employees' feedback?

If you want to improve and sustain engagement, you have to take your employees' opinions seriously. Otherwise, your employees could start dropping like flies.

Have employees fill out regular surveys about your business. Some businesses may prefer doing annual surveys. Personally, I like hearing employees' thoughts and feedback more than once per year. Consider having biannual, semi-annual, or quarterly surveys or reviews. That way, you can stay up-to-date on how your employees feel. And, you can find out how to improve in the future.

When crafting your survey questions, don't be afraid to find out the truth. If you truly want to pinpoint problem areas and boost employee engagement (don't we all?), you have to ask the right questions. Ask questions like, What's your favorite part about working here? Least favorite part? How can we improve in the future?

5. Provide thorough training

If you want to build a culture of trust and improve employee engagement, set your team up for success. To do this, you have to provide employees with proper training to thrive.

From day one, you should have a process for training employees. Your new employees should feel welcome and mesh well with your company culture while learning the ins and outs of your business. An employee's training and how well they get along with coworkers helps lay the foundation for employee engagement. If workers find themselves struggling to keep up or feel left behind, it can spell doom for engagement going forward.

6. Give individual attention

Paying attention is critical in all aspects of business. You have to pay attention to your competition, threats, finances, and—you guessed it—your employees. If you want employee engagement to be prominent in your small business, pay attention to your employees.

Think of your employees as plants. If you give them attention and feed them the right resources, they will flourish. But if you don't accommodate their individual needs, they may start wilting.

Each employee has different needs and motivators. Keep up with your employees' needs and find out what makes them tick. You can use performance reviews, meetings, or even small talk to learn more about an employee. Take advantage of performance reviews to see where each employee stands and whether you're meeting their individual needs. Be sure to use their feedback to better engage going forward.

The more you get to know an employee individually, the better engagement you will have.

RELATED: These 13 Employee Perks Weren't Such Great Ideas After All

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Toxic Employees Can Have Deadly Consequences for Your Business

Posted: 26 Jul 2019 08:54 AM PDT

Toxic employees are like any other dangerous substance; in the context of a business, they can poison a workplace. What may have once been a congenial group of employees can seemingly turn into a renegade band in which no one has any loyalty to the company or even cares what happens in the future as long as salaries are paid.

Business owners and managers need to stay aware and be vigilant of employee attitudes and needs. This comes from having open and honest communication. When interaction breaks down between different levels of employees (owners and managers, managers and subordinates), the stage is set for any toxic employees to become focal points for the other employees.

Of course, situations that have nothing to do with a business might be the cause of an employee's discontent: family, financial, health issues, etc. Regardless of the source of a person’s unhappiness, it still must be dealt with if the attitude negatively affects the business environment. It is precisely for this reason management must properly and promptly handle toxic employees so the overall employee attitude and company efficiency is not negatively impacted.

Consider the following ways to handle difficult, toxic employees:

Be patient and maintain composure

Toxic employees are like kegs of gunpowder ready to explode at any second. They look for any opportunity to express their frustrations, try to intimidate, or be aggressive with the people around them. Push the wrong button, and havoc reigns supreme.

Rather than being provoked into arguments that probably can never be won, it is important that you are patient and maintain your composure when you deal with an upset employee. Rather than challenging and inflaming an already tense situation, a calming approach rather than a defiant approach will allow the employee to regain a sense of stability and rational thinking. The idea is to reduce tensions not elevate tensions.

Be direct

Strong and clear communication is a necessity. Dealing with a toxic employee is not a time for "beating around the bush." Employees must know what is expected of them and that there are consequences for their actions—both good and bad. When employees do not have clear expectations, they are more inclined to test the limits of management to see exactly what will and will not be tolerated. Strong, direct communication and successful leadership are interrelated.

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Be proactive

When you’re having a conversation with a toxic employee, think about what can be done to improve the work environment that might alleviate the employee's level of stress and anxiety. In other words, be proactive in actions rather than reactive with actions. This is a time to depersonalize the situation and think like the employee—symbolically putting yourself in their shoes. Rather than pitting yourself against the employee, think emphatically about what you can do to help turn them into a positive, energetic worker.

Remove the spotlight

Toxic employees love to be in the spotlight. It’s their time to shine and get attention. When the glare of the spotlight is removed, many times issues will subside or completely disappear.

As a manager, you need to remember your time is valuable and cannot be consumed with attention-seeking employees. It is far better to work with employees who have positive attitudes and can help the business achieve its goals. There comes a time when toxic employees need to either get "on board" or plans have to be made for a timely exit. The spotlight should always be on the business and not on the unhappy employee.

Be consistent

All employees should be handled in the same manner. Boxing gloves cannot be used on some while kid gloves are used on others. Rewards and praise need to be given for superior performance, and negative consequences for poor performance and bad attitudes. Good employees resent unequal treatment while toxic employees relish inconsistent behavior by management.

No place or time for toxic employees

Your business’s success depends on every employee at every level being as productive and efficient as possible. Toxic employees cannot be allowed to disease an energetic workforce. We've all heard this expression: "One rotten apple spoils the barrel." Well, one toxic employee can ruin an entire workforce.

RELATED: 4 Ways to Keep Toxic Clients From Poisoning Your Business

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Should You Hire a Lawyer for Your Small Business?

Posted: 26 Jul 2019 07:30 AM PDT

As an entrepreneur, you spend most of your time focused on day-to-day tasks, like managing your staff, helping customers, and marketing your business. It's easy for legal concerns to take a backseat—but that can be dangerous. Unless you take the proper steps to legally protect your business, everything you've worked so hard for can be at risk.

When does a small business need a lawyer and when is it okay to take the DIY approach? Here's a guide.

When does a startup need a lawyer?

  • Business structure: Plenty of legal self-help resources can be found online that can help you form a corporation, partnership, or LLC on your own. (Rocket Lawyer, LegalZoom, and Nolo are three of the most popular legal self-help websites.) In general, most startups can handle their business formation this way. But if your business is complex—for instance, you've got dozens of investors, and two or three owners who are each contributing intellectual property—consulting with both an attorney and an accountant is a smart move. These experts can help you examine the pros and cons of different forms of business and assist in all the legal paperwork.
  • Patents and trademarks: You should always trademark your business logo and other identifying brand marks. The U.S. Patent and Trademark Office website has plenty of self-help advice to guide you, and in most cases, filing a trademark is pretty easy to do on your own. However, the patent process is more complex and making a mistake could cost you your big idea. It's wise to consult an attorney who specializes in patent law to help you through the maze.
  • Creating contracts: In any business relationship, you should have a contract to protect yourself and your business. The contract should be clearly written, outlining the scope of work, how and when you'll be paid, and what happens if something goes wrong. You can find templates online and use them to create contracts for basic business situations, such as hiring a contractor or delivering a service. But you should have an attorney review your contracts to make sure they're complete, and have an attorney review any contracts that clients want you to sign.

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When does an existing business need a lawyer?

  • Debt collection: Unfortunately, at some point or another, every small business owner has a client or customer who doesn't pay their bill. Debt collection may not work, so if you need to take the client to court, you may want an attorney to offer advice or represent you (if it's a larger claim).
  • Hiring employees: The minute you hire employees, your business is subject to dozens of state and federal laws. An employee handbook is an essential tool for setting out your policies and complying with laws. You can use self-help legal resources to draft an employee handbook on your own. However, a lawyer should review and fine-tune it to ensure your employee policies follow the rules.
  • Terminating employees: Need to fire an employee? Consult a lawyer first. Some 30% of small businesses worry about getting sued, and in termination cases, it's a real risk. A lawyer can make sure you've followed all the proper steps before terminating the person.
  • Lawsuits: Even the smallest businesses can get sued, and if you're hit with a lawsuit, you'll want an attorney on your side. Scrambling to find a lawyer when you're in a panic doesn't always yield the best results. Start a relationship with a lawyer now—before you need one—and you can feel confident you've got a professional on your side in case of an emergency.

Knowledge is power

Legal issues can be intimidating for small business owners. Knowledge is power, so educate yourself as much as possible. Legal self-help sites, such as the ones I mentioned earlier, will give you an overview of legal issues that affect small businesses, as well as forms, templates, and other tools you can use to handle simple legal matters yourself.

To avoid legal problems, think ahead during every phase of your business. From choosing your business name to negotiating a lease with a landlord to hiring your first team member, entrepreneurship has plenty of potential legal traps that can harm you if you're not aware. Knowing your legal rights and understanding your responsibilities during each stage of business growth will help protect both you and your business.

RELATED: A Midyear Business Legal Checkup for Small Business Owners

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