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August 12, 2012

Elana Fine, associate director of the University of Maryland’s Dingman Center for Entrepreneurship, recently took questions online. Here are excerpts from her chat.

How to set projections

Q: I have an idea for a specific niche service market to build an online/mobile business. I need to develop potential revenue projections. While I am realistic (not “Make millions online today!!”), I still want to be optimistic for a three-to-five year time frame. Could you provide some advice for a framework?

A: The best framework is a bottoms-up approach — identify your revenue streams and growth assumptions for each stream and show how they grow over time. For example, if you are going to win two customers in month one, six customers in month eight and 20 customers in year two — the projections should reflect that growth and revenue expectations per customer (or user, etc.) over time. Top down, taking a large market and making assumptions about a percentage of that market you can capture usually leads to significantly inflated projections and doesn’t show advisers or investors that you have given thought to how you will methodically grow your business. Also important to think about the bottom line — what are expenses associated with generating that revenue? To quote one of my favorite lines from our investors this year, “Is the juice worth the squeeze?”

Where to turn for money?

Q: I am launching a new mobile app and will need additional capital (maybe $250,000) to help complete the next stage of development. I think angel investors might be the right fit, but what is the best way to approach them and get their attention?

A: In the current environment, the best way to get funded for a mobile app is to show that you have traction with users — get a minimally viable product out there and show that you can reach your users and understand their need. There are so many apps out there it is hard to convince investors that you can break through the noise.

Learning to be a lean start-up

Q: A lot of buzz has been going around on the lean start-up methodology being applied in technology and other industries. How can first-time young entrepreneurs get their hands on training and implementing such methodology to their business ideas?

A: The best way to learn about the process is to talk with start-ups to understand how they determined their minimally viable start and how they determined when/how to iterate. As you start your business “leanly,” you have to also think about the decision points to iterate less and grow more.

Proving what I can do

Q: I’d like to start a interior design business. I believe in my talent, but I don’t exactly have a portfolio full of projects that I can show to potential clients since I am fairly new at this. What is the best way to get my foot in the door and start establishing myself?

A: Would you like to come start at my house? All kidding aside, figure out what kind of projects you can do in your spare time for family and friends for free, and use that to start your portfolio. Even if it is a small room here and there, you can create the “before” and “after” shots to convince others of your talents.

Lending a hand

Q: Love your Business Rx chats every week in Capital Business — they are great. How can entrepreneurs get more involved in the local community? I would like to interact with our start-ups on an informal basis, but don’t know where to turn?

A: I was pretty sure only my mom was reading. The D.C. tech community is thriving, with plenty of options for entrepreneurs looking to get connected. Organizations such as D.C. Tech Meetup and Foster.ly are providing great forums for entrepreneurs to meet. There are also new incubators such as The Fort and Acceleprise that bring in mentors to help with their companies.

Solo or Affiliate?

Q: I’ve been working as a solo consultant to nonprofits. I’ve been courted by a consulting firm, which is attractive on one level. They would handle billing, provide a training system for me to use with clients instead of me coming up with specialized trainings completely on my own, and they will help market me. On another level, I have some concerns: I would still have to get my own clients, they want exclusivity (so I can’t serve other clients on my own, without giving them a cut), and a noncompete clause (I’m prohibited from pursuing their clients if I leave, but they get a portion of my earnings for a year after I leave — because they have trained me, blah, blah, blah). What advice do you have on weighing whether to remain solo or join a firm?

A: This is a really tough question and really depends on how important it is for you to have control over your company. You may be able to generate more business by being able to leverage other infrastructure, but you do lose independence and flexibility when you join with others. It sounds like you could probably continue with being a sole contractor and find other outsourced service providers to handle billing and training, without signing on with another firm.

Do I have a hobby or business?

Q: What is the line between a hobby and a business? Is there a financial threshold that one must cross before having to deal with becoming a formal business? For example, if a friend knows I have my own personal Web site and offers to pay me to set one up for him, have I started a business?

A: I’m certainly not an accountant or tax specialist, but if someone pays you for a good or service you have provided, that is technically a business. A hobby would be if you like to set up Web sites for friends for free.

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