As a result, Zynga founder Mark Pincus will finally join the billionaire club.

We don’t know Zynga’s “cap table” – how many shares are owned by employees? How many millionaires will come out of Zynga’s IPO? Unless an insider reveals the details, it’s going to be hard for us to find out.

For an average silicon valley worker (software developer, QA engineer, product manager, customer support, sales, etc.), hitting the IPO homerun is the “Silicon Valley Dream”.

Things have changed in the past 6 to 12 months. The IPO market suddenly becomes more active. The successful LinkedIn IPO brought back hope – IPO can still happen and one can still make some money from the start-up game in the Silicon Valley. The Zynga IPO will only fuel the burning “IPO fire”.

Are you envious of folks who work at LinkedIn, Zynga, Facebook, or other "hot start-ups”? Are you anxious to leave your big company job and find a hot start-up to join?

Maybe I’m a little bit older (and hopefully a little bit wiser) as I went thought the last great bubble in the Silicon Valley during the mid-to-late 1990’s. I want to share with you my perspective on this.

First, the number one reason for people who become rich in start-up is luck. For a start-up to have a home run like LinkedIn, it doesn’t matter how smart and hard-working the entrepreneur and his team are, they need a lot of luck for all of the stars to align and create a successful start-up.

Second, timing is everything. To have a huge exit, the capital market has to be ready to support such an IPO. For a low-to-middle level employee to make a lot of money from the IPO with fairly small number of stock options, the company needs to have million of dollars of market cap after the IPO. And the employee’s strike price should be low enough for him to reap the benefit. Timings for aforementioned events must align.

Third, statistically there are not many exits over $100mm. On his  blog, famed venture capitalist Fred Wilson stated

“There are on average 1,000 early state financings every year. I suppose a few of those 1,000 financings are for the same company, but I doubt that many are. So we can use 1,000 as an approximation of the number of companies that get funded in a given year.

And somewhere around 50 and 100 of them exit for more than $100mm every year. So 5-10% of the companies financed by VCs end up existing for more than $100mm”

Why am I telling you these? Because I think if you’re an entry-level or middle-level worker in the high tech industry, it is virtually impossible for you to pick the winner of the start-up game.

You’re at a very disadvantaged position – venture capitalist needs one home run out of ten investments to make a lot of money. Entrepreneurs and senior management can make good money even though the company’s exit is moderate because of the higher number of stock options they own.

But, you, as a hard-working worker bee, are risking your career and money (you probably will take a pay cut) while working your tail off for a tiny chance to make it.

Do I sound too negative and discouraging? – I’m not telling you not to join start-up. I want you to understand your odd in the start-up casino – you are just like many people who are visiting Las Vegas casinos – the house has an upper hand over you although you might get lucky once a while.

So, instead of chasing the money, make sure you’re really interested and passionate about the product the start-up is making. Joining the start-up should help accelerate your career, make you more fulfilled professionally, and set you up for next stage of your career.

Please don’t join a start-up with the high expectation of hitting a home run because it’s highly likely that you’ll be disappointed.

On the other hand, if you join the start-up for your passion and the opportunity to learn and grow, you might get lucky to have a base hit, or even hit the home run.

It has a bare bone web site. You can find very little useful information about the company.

Its address is list as a PO BOX number. Their physical address is not available anywhere online.

When I discussed a job offer with them, I asked questions such as "total number of shares outstanding, current valuation of the company, company burn rate, etc.". The answer I got is that "we don’t reveal those information. They’re confidential."

I talked to a few people who are familiar with this company. They told me that this company is secretive to a fault. For any employee to make an external presentation, it has to go through much internal scrutiny. Nobody is allowed to say anything to outside world without permission from the senior management team.

I asked why this company was so secretive — the answer was that they feel that they don’t need to let the whole world to know what they’re doing. They operate in a niche market. They’re the only known player in the niche.

Still, I felt uncomfortable about the super secrecy. It’s not like they’re making a nuclear bomb during World War II.

Are you working for one of those "stealthy mode" start-ups? I haven’t known too many stealthy-mode start-ups become hugely successful.

Ideas is a dime a dozen; execution makes or break a start-up. I like openness.

Today, I would like to share with you a real world case study that explains the concepts of liquidation preference and preferred participation.

I’m not a lawyer. I’m giving you a very simple example. My intention is to get you started and give you a basic understanding. For a thorough, authoritative discussion of legal aspects of start-up financing, please read the excellent The Entrepreneur’s Guide to Business Law. In fact, I think this book is a must read for anyone who plans to start a business or join a start-up.

Liquidation preference is a legal term used by venture capitalist to protect their down side risk. They wanted to at least get their money back. Liquidation preference is very common. The most common term is 1x of venture capital investment.

Preferred participation is another device used by venture capitalists to protect their down side. It is sometime referred as "double dipping".

Let me give you an example to illustrate.

Startup X just received 3rd round of financing. Prior to the financing, Startup X is valued at $8 million dollars. Venture Capitalist put in $2 million dollars. So, right after the financing, Startup X has a post-money valuation of $10 million dollars. After the 3rd round of financing, venture capitalists owns 80% of the company, founders and employees own 20% of the company. venture capitalists have a liquidation preference of $8 million, and preferred participation of 3X liquidation preference ($24 million).

Also, in most startups, venture capitalists own preferred stocks, while founders and employees own common stocks. This means venture capitalists will get their money first before everyone else when an exit event such as acquisition takes place.

Let’s go through 3 scenarios: Bad, OK, and Home Run.

Scenario #1: Bad outcome for Start-up X. The company was crushed by competition. It’s sold for $6 million dollars.

Venture capitalists have two options:

Option #1: Venture capitalists can convert all of their stocks to common stocks. Since they own 80% of the company, they will get $6 million X 80% = $4.8 million. Founders and employees will get $6 million – $4.8 million = $1.2 million.

Option #2: Venture capitalists chooses to take advantage of liquidation preference. Since the liquidation preference is  $8 million, and the company is sold for $6 million, the venture capitalists get the entire $6 million. Founders and employees will get nothing.

Obviously, venture capitalists will choose option #2 in this scenario.

Scenario #2: OK outcome for Start-up X. The company did OK, but had limited growth. The company is sold for $18 million.

Again, Venture Capitalists have two options.

Option #1: Venture Capitalists convert all of their stocks to common stocks. Since they own 80% of the company, they will get $18 million x 80% = $14.4 million. Founders and employees will get $18 million – $14.4 million = $3.6 million.

Option #2: Venture Capitalists choose to take advantage of liquidation preference and preferred participation. They will get:

• $8 million due to liquidation preference
• Because of preferred participation, they will be able to "double dip" for the remaining money up to the $24 million preference participation cap: they will get ($18 million – $8 million) * 80% = $8 million
• $8 million + $8 = $16 million, which is less than the $24 million preferred participation cap. So, venture capitalists will get $16 million.
• Founders and employees will get $18 million – $16 million = $2 million.

Obviously, venture capitalists will choose option #2 because they will make $1.6 million more.

Scenario #3: Home run outcome for start-up X. It’s sold for $100 million.

Let’s review the two options venture capitalists have.

Option 1: venture capitalists convert all of their stocks to common stock. Since they own 80% of the company, they will get $100 million *80% = $80 million.

Option 2: venture capitalists chooses to take advantage of liquidation preference and preferred participation. They will get

• $8 million due to liquidation preference.
• Due to preferred participation, they will double dip. ($100 million – $8 million) * 80% = $73.6 million. However, due to the preferred participation cap of $24 million, venture capitalists can only get $24 million in total, including the $8 liquidation preference.

Obviously, it makes much sense for venture capitalists to choose option 1 since they will make a lot more money by converting their preferred shares to common shares. This example demonstrates that liquidation preference and preferred participation are used to protect down side for venture capital investment.

Liquidation preference is very common — almost every venture capital backed start-up has it. However, preferred participation is something entrepreneur would fight very hard to avoid. In today’s economic environment, it’s not uncommon to see 2X or 3X liquidation reference for preferred participation term, which is pretty bad from entrepreneur and employee perspective.

Today’s market is drastically different from the dot com days. Big acquisition or IPO are rare. It becomes even more important for employees to understand the financing terms to make a realistic assessment of the start-up.

Related posts

• IPO shouldn’t be the goal for a start-up
• Too many managers, too few leaders
• Is starting a company in Silicon Valley stupid?
• You must be a lazy man if it takes you ten hours to do a day’s work

Excellent resources

• The Entrepreneur’s Guide to Business Law
• The Art of the Start: The Time-Tested, Battle-Hardened Guide for Anyone Starting Anything
• From Alchemy to IPO: The Business of Biotechnology
• High Tech Start Up, Revised and Updated: The Complete Handbook For Creating Successful New High Tech Companies

It’s "high profile" because

• it has two of the most famous venture capitalists on earth sitting on its board.
• it had received $100 million in venture funding.
• its senior management consists of super stars from major internet companies such as Google and Amazon, top-tier strategic consulting forms such as McKinsey & Company, prestigious universities such as Stanford and Berkeley, etc.
• It has been selected by major publications as "top 100 start-up super stars", "The next Google", "The 21 Century Top Digital Company", etc.

SOP’s goal is to make one product: it offers a "secret sauce" — its scientist have figured out a way to apply artificial intelligence technology to make any start-up become profitable instantly. It holds the secret of profitability.

But, SOP has one problem: it is not profitable itself. In fact, it doesn’t even have a product yet.

SOP had four rounds of funding. Its senior management team had changed three times. About one year ago, the company hired its 4th CEO. He had done a good job to turn around the company. Product development is on track. Initial beta test of the product had very positive results. SOP seems to be finally turning a corner.

SOP still has some cash left in the bank. But, the CEO wants to launch a very aggressive marketing and sales push. He wants to beef up his cash position so that he can take SOP to the finish line as soon as possible. His goal is to make a lot of money quickly.

To make the aggressive marketing and sales push, the CEO has decided to raise 5th round of funding. He’s already gotten verbal commitments from several venture capital firms.

But, he ran into a problem. A couple of years ago, when the company raised its 4th round of funding, to protect employee’s stock options, the management put in a "poison pill" — in the future, if the company wants to get more funding that will further dilute the employee options, the financing must be approved by employees that represent 70%+ of the total number of employee stocks.

The CEO’s challenge is to get the required votes from employees to approve the 5th round of financing.

The shrewd CEO worked with CFO and legal counsel to come up with a game plan. Instead of calling a company-wide meeting that include all employees, he identified a group of employees who are close to him. Most of them are managers or above. And they represented a little bit over 70% of the total employee stocks.

The CEO gathered these people in a small room. He told them that in order to approve the financing proposal, everyone in the room had to vote "yes". If the financing proposal didn’t get pass, then the proposal will be presented to the entire company to approve, which would significantly delay the financing process.

Pretty much everyone in the room voted "yes" — they knew that they had no choice. The company might go under if they didn’t vote "yes". But, they all felt pretty bad — they wonder why they had such a secret meeting. Isn’t every employee shareholder equal? Why were we invited to this meeting while some colleagues were not invited?

In my opinion, the CEO is not very ethical. All employees should be invited and given a chance to vote.

I’m not a legal professional, but I wonder if this is even legal — this is like the United States has a presidential election, but only certain people are allowed to vote initially.

This post is a fictional account, but it’s based on true stories. I’d like to hear your take on this story: is the CEO’s action ethical? Or even legal?

Related posts:

• Don’t get screwed! Stock option questions you should ask before you join a start-up
• IPO shouldn’t be the goal for a start-up
• Is starting a company in Silicon Valley stupid?
• If I can pick and choose any start-up to work for, I’ll pick … Part 1

Excellent resources:

• The Entrepreneur’s Guide to Business Law
• Entrepreneurial Finance: Finance and Business Strategies for the Serious Entrepreneur
• Raising Venture Capital for the Serious Entrepreneur

Let me tell you: there are a lot of similarities between the stroller world and the car market.

The low-end of stroller market is like Honda Civics: reliable, sturdy, and plain. (Disclaimer: I have nothing against Honda Civics. In fact, it’s one of my favorite cars.)

The high-end of stroller market is like Mercedes: good looking, powerful, and luxury. Just check out the $979 Bugaboo Cameleon Stroller.

Then, there is the SUV equivalent of the stroller world for active parents — Bob Ironman Sports Utility Stroller. I can tell you from experience that it’s a great stroller for both parents and kids. I have talked to quite a few parents about their Bob Strollers. Everyone loved it.

What’s really interesting about Bob Stroller is that almost everyone parent I talked to purchased additional add-ons/accessories to the stroller.

Here are some examples of the add-ons:

• Car Seat adopter that allows parents to attach car seats from other manufacturers to the Bob Stroller.
• Handlebar console that holds water bottles, keys, cell phones, etc.
• Weather shield that protects kids from the rains.
• Warm and Fuzzy fleece panel and padded quilting that keeps kids warm.

These add-ons are not cheap. And the list of add-ons are expanding.

One could argue that the add-ons is a rip-off. They should be included as part of the stroller.

But, the bare bone Bob Stroller is such as a high quality product that many happy customers are willing to make the extra purchase.

The Bob Stroller is the platform.  It’s also designed in such a way that manufacturers could add many new features on top of the platform.

I thought it’s a brilliant strategy.

We often talk about platform strategy in the software world (e.g. Microsoft Windows 7, Mac OS, Linux, etc.) But, it’s not a concept that is limited to the software industry.

Regardless of which industry you’re in, you should think about a platform strategy: build a high-quality core set of functionality that customers are willing to pay, but also has the flexibility to add bells and whistles to generate incremental sales.

Intuitively I thought it was a great business. Looking at the Best Buy shelf, it’s apparent that ZAGG dominated this particular market niche. How expensive could it be to produce a piece of plastic to protect screens? I guess it’s a very lucrative business with high margins.

When I got home, I did a little bit research on ZAGG.

The first invisibleSHIELD design came about early 2005. And in July 2007, ZAGG went public on the NASDAQ. It went from initial product design to IPO in two and half years.

ZAGG is no dot com. It had real, explosive growth because it has the right product at the right time at the right market:

• Right time: iPOD was having explosive growth during this time. invisibleSHIELD rode the iPOD wave.
• Right product: ZAGG’s invisible Shield was based on a clear, thin, and very durable military film originally made to protect US military helicopter blades from high-speed damage. Virtually invisible, indestructible, and thin — these are desired features from customer perspective. 
• Right market: consumers were hungary for an effective solution to protect their gadgets. They’re tired of the bulky protective cases.

ZAGG’s management team also secured the intellectual property for the technology behind invisibleSHIELD early on, which helped them build a defensible position.

In the high tech industry, I have seen my shares of vaporware and cash burning start-ups. I think ZAGG sets a great example for entrepreneurs — build the right product at the right time for the right market, and build a defensible position.

Do you know any ZAGG-like businesses? I’d love to hear from your.

John has been working at a technology company for eight years. He absolutely hates his job now. In fact, he wanted to leave immediately. But, because of stock vesting schedule, he has to wait for a few months. This company’s stock has been performing well. But, it’s also known for being a sweat shop, treating employees very badly. Eight years is a long time. John couldn’t leave during the eight years because he was waiting for his green card application to go through. He finally got his green card recently. He has been planning for the next chapter of his career.

Given his skill set and experience, he could easily get a job at another company. But, he just couldn’t get excited about working for any company. He felt that he had tolerated enough office politics. He has no interest to climb the corporate ladder. He wants to start his own company.

But, John also has to face realities on the personal front. He is in his early 30s, married with kids, and a mortgage. He is also the sole bread earner in his family; his wife is a stay-home mom.

His plan is to

1. rent out his house
2. move the family to his native country in Southeast Asia
3. set up a outsourced software development shop to generate short term revenue while developing a product (he has been working on the idea for a while.)
4. return to the United States to run his business once the product is developed and his development shop is profitable.

The living expenses in this particular Southeast Asia country is pretty low. For example, his monthly rent would be about $200.

Most of his family and friends don’t understand why he wants to do this. They think he is crazy: he has a good job at a well known, high-growth company whose stock is doing great. He lives in the beautiful Pacific Northwest. He has a very nice house and a very nice family. Why take the risk to move the whole family back to a developing country and start a business?

In fact, I’m the ONLY person who told him to "go for it!".

Let me explain my rationale:

• John is only 32 years old. He is still young enough to take major risks. If he is in his forties or fifties, it’d be much harder and risky to take the risk he has in mind.
• John’s wife has told him that she would give him one year to try out his "start-up experiment". Assume they stay in the Southeast Asia country for one year, their totally living expenses is probably going to be less than $15,000. He would also need to spend some money to set up shop. But, he has already had two small outsource projects to work on.  I think the financial risk is manageable — let’s say everything fails. John will not be broke and he will not put his family in any financial danger.
• The opportunity cost will be one-year’s salary. But, the cost of living is also much higher in the United States. So, the opportunity cost of "one-year net income" will be pretty small for John.
• He has always wanted his kids to learn his native language. There is no better place to learn a language than the native country! I asked him about health care cost. Apparently, quality health care is much cheaper there than the United States. Getting quality health care for his family will not be a problem.

Most importantly, it’s John’s dream to start his own business. I’m a big believer that everyone deserves a chance to take a risk once during life time to pursue what he or she is really interested in. A lot of people don’t have the courage or the resource to give themselves a chance. John might lose some money, but he has the rest of his life to earn the money back and more. What’s more precious is the experience of doing something he really wants and cares.

I told John that he might fail, but I’m pretty sure he will not regret.

Do you agree with me? What would you do?

Related posts:

• Anatomy of a business start-up – ScooterGirls Inc.
• The Hot Dog Guy
• Is starting a company in Silicon Valley stupid?

Excellent resources:

• Own Your Own Corporation: Why the Rich Own Their Own Companies and Everyone Else Works for Them (Rich Dad’s Advisors)
• Small Time Business Operator, 10th Edition: How to Start Your Own Business, Keep Your Books, Pay Your Taxes & Stay Out of Trouble (Small Time Operator)
• Virtual Assistant, The Series: Become a Highly Successful, Sought After VA
• The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It

Today, I want to share with you a few demand generation lessons I learned from Amazon Fresh.

To generate more sales, a retailer has a few options:

• have existing customer buy more each time
• have existing customer buy more frequently
• acquire new customers

When I received the first delivery from Amazon Fresh, we also received 3 things that made us surprised and delighted:

• they sent us beautiful flowers to welcome us as first-time customer.
• we ordered 1 box of Cheerios, but they sent us 3 boxes. The additional two boxes were "surprise gifts".
• they included a 10% off coupon for our next purchase.

The nice surprise gifts of flowers and extra boxes of Cheerios serve as "nice gestures". It helps to retain us as customer so that we will continue to order from Amazon Fresh.

Amazon Fresh’s price is about 5% above regular grocery stores. And they charges $5 delivery fees for orders less than $75. With the 10% coupon, they essentially removed the barrier for us to order again.

Additionally, we also received two coupons for us to give to our friends:

• coupon #1 is a free grocery sampler for any first-time customer
• coupon #2 is a 10% off discount for any first-time customer

I’ll certainly give the coupons to my friends. I’m happy to help my friends. My friends will enjoy the savings.

It’s a win-win-win situations for all parties.

As a result, Amazon Fresh will acquire a couple of new customers.

Just think about the viral effect — every new customer will refer a couple of new customers.

Absolutely brilliant demand generation strategy.

Related posts:

• GeekMBA360.com publishes How to get a job at amazon.com: A definitive Guide
• Is Amazon Fresh the future of grocery shopping and more?
• The Hot Dog Guy
• Why Amazon.com bought its way into casual gaming

Excellent resources:

• Lead Generation for the Complex Sale: Boost the Quality and Quantity of Leads to Increase Your ROI
• World Wide Rave: Creating Triggers that Get Millions of People to Spread Your Ideas and Share Your Stories
• Marketing Metrics: 50+ Metrics Every Executive Should Master
• Customer Loyalty: How to Earn It, How to Keep It
• The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value

In this economy, a lot of start-up are struggling. VC firms have the upper hand in negotiation. In a lot of cases, the deal terms are very unfavorable to existing stock holders as well as employees.

The problem is that in a lot of start-ups, the senior management teams are not very honest and upfront about stock options. Even in the case of massive stock dilution, senior management teams would still get some incentives unknown to the rank and file employees. Senior management team’s interests are not necessarily aligned with employees’ interests.

If you’re considering joining a start-up, or you’re working for a start-up now, you should have answers to the following questions.

1. How many shares of stock options have been granted to you? What’s the total number of shares outstanding in the company? Based on these two pieces of information, you can calculate roughly what % of the company you own. What matters is the percentage, not the absolute number of shares.
2. What’s your strike price?
3. How many rounds of financing has the company had so far?
4. As a whole, what % of the company is owned by employees?
5. In the most recent round of financing, what’s the liquidation preference for the investor? What’s the preferred participation (2X? 3X? or more?) for the investors? These two things could be really damaging for the employees. They allow VC to “double dipping” when the company is acquired.
6. How much cash does the company have on hand?
7. What’s the company’s burn rate?
8. What’s the company’s total revenue, profit, and net cash for the most recent year? What’s Year Over Year growth rate for these four metrics. How does the growth rate comparing to similar companies in the industry?
9. Is there any public company comparable to the private company? What kind of revenue multiple does the public company has? What kind of P/E ratio does the public company has?

If the company refuses to reveal above information to you, you should think hard if you want to join them.

Start-up is hard work, the risk is high, and probability of hitting a home run is very low. You deserve to know the facts and make an informed decision.

Play hard ball. Make sure you know what you are getting yourself into.

Related posts:

Is starting a company in Silicon Valley stupid?

If you haven’t read part I, please read “We have lost our beautiful home, our new cars, and in some respect, our dignity, but … “ an inspirational story of two Michigan mom entrepreneurs first.

GeekMBA360: After you came up with the business idea, how did get started?

We actually did write a business plan. At the top, we wrote to "Glorify Christ in all we do". When I tell you that our faith has increased through all of this, it is no exaggeration. There have been countless times when there was no way for us to make it, and He made a way.

We had no cars and my husband needed to get to school. We were feeling hopeless, and then suddenly we were given a used van for free. Not just a car, but a van that fit all 6 of us! Pretty coincidental, eh? My husband hasn’t had work in a very long time, and yet, we are together, comfortable, and doing well. The Lord is carrying us and we are trusting him. I guess that for some people, like myself, it takes being knocked on your butt, to wake you up and realize that you can’t do it all yourself. It was only when there was nowhere else to turn and I was filled with fear and desperation, that I turned to Him. I am so happy that I did.

There was no initial funding for SUDS. We used a portion of our grocery budget to buy the ingredients that we needed. It was a gamble, but we are prepared to work hard and make it pay off. I already had background knowledge into the beneficial qualities of specific butters and oils from before. So we started with ingredients from the grocery store. We made our first test bars with Olive, Coconut, Safflower and Palm Oils.

We started thinking about scents that we love and the colors and designs that would coordinate with them. Samantha and I are all about style, so we have found this to be very exciting. We made a few batches in every scent, until we found the recipe and design that we were looking for. We want SUDS bars to feel good, smell good, and look good. It is also important to note, we never test on animals……. only friends and family

GeekMBA360: You take care four kids full-time. How is your day like to joggle kids and starting a business

Hectic, crazy and wonderful!

I am very aware of how quickly time flies. Before I know it, the kids will have moved on and it will just be Chris and I. That thought is always with me and it helps me to treasure even the most hectic of days.

I try to wake up a couple hours before anyone else in the house and I do my soaping in the kitchen. I can usually get a batch done before anyone wakes up and then another batch when the baby is napping, or after he goes to bed in the early evening. I tend to the kids all day and check the website and my emails off and on throughout the day.

Samantha is juggling the business and a family of 4 as well, so she operates very much the same way that I do. The only difference is that she is much more of a night owl. Where as I love to soap before dawn, she is up soaping very late into the night. Between the two of us, we have SUDS operating nearly 24 hours a day! I am not going to lie though, with everyone home, working during their summer break is difficult. I am admittedly looking forward to school starting!

GeekMBA360: What’s going to happen next for SUDS Handmade Soap? Where can we buy it?

The most important thing for SUDS now, is getting our name out there. We have a unique and beneficial handmade product, but we do not have the funds to pay for marketing. We will be attending craft shows throughout Michigan and we are open for business on our website www.shopsuds.com. We are also really excited to be building up a fan base now on Facebook.

Our ultimate goal is to have a brick and mortar SUDS shop as well as be operating online. We would love to meet our customers face to face and be able to make our soap in the same building that we are selling in. It is a dream of ours to be set up in a way that allows our customers to see our soap making process from start to finish.

Consumers believe that they are buying soap at the grocery store but, more often than not, they are actually purchasing what the FDA considers beauty bars. Unlike soap, these bars are actually detergents, made up of synthetic chemical and petroleum products. The ingredient lists are often quite difficult for any normal person to pronounce.

When real soap is made from scratch, a natural occurrence takes place. Glycerin is created. It is a wonderful, natural, and healthy moisturizer. It is a necessary component of healthy, elastic skin. Glycerin naturally moisturizes the skin and keeps it’s healthy glow. Everyone wants their skin to feel soft, smooth and moist and it is glycerin that makes it happen.

Here is the thing…..the big commercial soap manufactures know all of this about glycerin also. During their manufacturing process, they actually extract the glycerin from the soap and replace it with detergents and chemicals. Why do they do this? Because they can then process the glycerin into other products like hand and body lotion, creams, balms, and other moisturizers. That’s right… they actually remove it from their soaps just so they can sell you an additional product. They then sell you a second product that contains what you should have had in the bar of soap you used in the first place! Now that you are out of your bath or shower, you must apply their additional product to make your skin feel soft, or suffer dry and itchy skin. This is pretty sneaky on their part, but it has worked, and they have the profits to prove it.

I do not want to bash other companies, but I think it is very important that consumers are educated about the products they are buying. If handmade soap is what you are looking for, it is important to understand the difference between melt and pour and cold process soaping. The difference is that while it, technically, can be considered handmade, or handcrafted, this is a misleading term. Melt and pour soap base is not made from scratch. The soap base is purchased, then melted down and the fragrance and color is added. The soap base is then poured into molds and cooled. It can then be sold immediately upon cooling. It takes much less time and much less skill to make melt and pour soap. This is the great attraction and the reason that I, originally, started out making melt and pour soap myself. On the other hand, real soap, made from scratch, is made with fresh butters and oils. Upon pouring, it must continue to cure for weeks to reach it’s peak. It is a true exercise in both skill and patience and, in my opinion, it is in a totally different league. That is why I am willing to work so much harder to do soap from scratch instead.

GeekMBA360: A lot of folks are struggling in this economy. Some of them are thinking about starting their own businesses. What advice do you have for them?

My advice is the same advice that rang in my ears when I initially decided to become an entrepreneur.

Use what you know and do something that you love. Beyond that, I would like to say something to all of the families that are struggling in today’s economy. You are not alone. Hang on to each other, support one another and have faith. We can all get through this.

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Excellent resources

• Rich Dad’s Before You Quit Your Job: 10 Real-Life Lessons Every Entrepreneur Should Know About Building a Multimillion-Dollar Business
• The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It
• How to Make Millions with Your Ideas: An Entrepreneur’s Guide
• "This business has legs": How I Used Infomercial Marketing to Create the$100,000,000 ThighMaster Craze
• Own Your Own Corporation: Why the Rich Own Their Own Companies and Everyone Else Works for Them (Rich Dad’s Advisors)