Free Startup: An Insider's Guide to Launching and Running a Business by Kevin Ready Page B

network of online sites similar to Match.com. On one of the home pages, one of our guys did a rework of the layout, with large images of happy people that would randomly change out each time you visited the page. The layout looked great and people liked it. Our conversion of traffic from visitor to member went up a small percentage with the new design.
    A few weeks after this new interface went live, we got a phone call, followed by a letter from a legal firm: “You are using our unlicensed images—remove them or be taken to court.” They sent a detailed list of the “borrowed” images that were being used on our site. The guy who had redone the site had decided not to properly license the images he was using and instead just downloaded them and put them in the layout. We were looking at potentially thousands of dollars in attorney fees and civil penalties in court, so what looked like a time- and money-saving shortcut ended up taking executive time to respond in emergency mode, as well as a potential capital-draining sortie into an unnecessary and unproductive legal quagmire. Not good at all. I would have fired the guy who did it, but he was my business partner. Bad boy! As it was, we were able to diffuse the situation. We immediately removed the images and were lucky that they were not interested in pursuing the matter.
    In an exploratory venture, we started a business producing products in China and selling them nationwide in the United States. Our first trans-Pacific freight container of products ended up being unsellable because of a claim of trademark infringement from a competitor. I will never forget what our contact at the Chinese manufacturer said: “We just make the product. It’s not our responsibility to check and make sure it’s legal to sell it in your country.” Touché. Just imagine a warehouse full of product, and not being able to sell it. A word printed on the stuff was registered as a trademark by somebody else. It hurt. A lot. We ended up letting the competitor send over a truck and load up every last crate and take it from us. At least they paid for the shipping. We felt grateful to be done with it.
    The lesson is this: intellectual property is important. Avoid any easy or obvious landmines, but remember that if you are visible enough, people will come after you whether you have done anything wrong or not. Just have a good lawyer and be ready to invest money in your defense.
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    Control the Money
    Don’t depend on any one connection point to your customers (or their money) too heavily. Don’t depend on any one mechanism (like a single credit card merchant account) to funnel your money.
    If you have money flowing into a merchant account, or another payment account that third-party agencies have access to, never leave any amount of money there. Always put it in another account as soon as each deposit is made.
    Back in the days when we were running the social networking firm, we charged around $30 per month for people to join. (This business was very similar to Match.com.) After a year or so, we had nearly a million registered users—not all of them paying—but only after a long process of gathering members a few at a time at first, then by the hundreds, and then by the thousands per day.
    This business model was based on the concept of rebilling . We would charge a new member for an initial membership, and then in subsequent months the same amount would automatically be rebilled on their credits cards until they cancelled. This meant that our income would tend to increase every month, since most members would stay with us for at least six months.
    I was in Japan over the Christmas break when I got a call from my business partner, Sterling, who was manning the fort back in the United States. He was not in a good mood. He had checked the company mailbox on Christmas Eve and found that we had been sent a cancellation letter from our merchant account underwriter. We were losing our