Monday, July 21, 2014

9 Ways To Inspire Your Startup Team To New Heights

contagious-leadership-habitsStartups provide business leadership with new products, services, and new revenue models, but leadership startups can only be built by entrepreneurs who are leaders themselves, and incent leadership in the team around them. Leadership which incents other people to be leaders is called “contagious leadership.”

John Hersey, in his book “Creating Contagious Leadership,” describes nine required skills or habits for inspiring a contagious leadership culture within a startup, as well as within other types of businesses, or even life in general. He and I believe that leaders have to make the overt decision to acquire these skills, and don’t have to be born or trained into them:

  1. Spotlight leadership acts of others. This is the habit of focusing attention, directly or indirectly, on leadership efforts and accomplishments of another team member or group. For managers and non-contagious leaders (contained leaders), the spotlight seems to always be on themselves.

  2. Cultivate positive character qualities. Contagious leaders have a habit of highlighting effective choices about “how” things were accomplished, and not just “what” was accomplished. It’s not just about the numbers, but how character played a role, and who made the right decisions along the way.

  3. Provide in-depth recognition. Don’t just articulate specific actions that deserve praise. Contagious leaders tell Harry why and how he did a good job, whereas managers and contained leaders just say “Good job, Harry.”

  4. Emphasize strengths, leading to greatness. Conventional managers focus on people’s shortcomings and point them out as often as possible. Contagious leaders nurture the habit of recognizing others strengths, and help them extrapolate these to greatness.

  5. Communicate often and effectively. The habit of constantly exchanging information, thoughts and feelings openly and honestly builds morale, enhances productivity, and fosters contagious leadership. Too many managers “tell ‘em only what they need to know and not a moment before they need to know it.”

  6. Provide an unobstructed vision. Contagious leaders foster the habit of focusing actions on a clear and sensory-rich picture of the desired result. Managers tend to have only a vague picture of where the company is going, so they are unable to share a coherent vision with others.

  7. Really touch people’s lives. Nurture the habit of truly knowing your most valuable asset – people. Managers avoid any real, deep involvement. Most don’t know if the people reporting to them are married or single, or anything about them. Contagious leaders know their people personally and do things for them, not because it’s good for business, but because they truly care.

  8. Passionately support your people. Managers are always controlled, rather than being fully committed and willing to take a risk. Contagious leaders are quick to support their team, and always stick up for them, even in the face of adversity.

  9. Mentor a permission mentality. Contagious leaders mentor their team to always assume they have permission to do things their way. They try to extend the concept of contagious leadership, rather than constrain it. Managers want a staff of imitators and followers. They want people to do what they want, and to do it their way.

In summary, leaders are not the same as managers. Managers focus on the process, while leaders focus on the people. Leaders influence people to make things happen, rather than tell people to make things happen. Contagious leaders create a culture that inspires everyone to be fully engaged in the startup. The result is that your whole startup will be the leader.

Marty Zwilling


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Sunday, July 20, 2014

When Are Business People Entitled To Be Entitled?

startup-funding-entitlementWhere did this sense of entitlement in our business culture come from? I’ve written about this before, but I was reminded again a while back at a conference for startups when an entrepreneur started berating investors for not funding early-stage startups. It sounded to investors like me that they felt a funding entitlement for their startup idea. Of course, I’m sure entrepreneurs sense that many investors feel entitled to deals with no risk. It’s bad news either way.

As a society, we seem to think we've evolved to the point where we can fashion a large portion of existence according to how we wish it to be. We notice what we like and what we dislike, so we work to make society match our dreams. Somehow, these dreams and wishes have morphed in many people’s mind to an entitlement.

In later-stage businesses, entitlement is evident when employees treat customers with indifference, or feel they are entitled to their job by merely “showing up for work.” Here are some examples of people rationalizing their entitlements, especially when the fantasy serves to owe them money or power:

  • “I put in more hours than most of the people here, so I expect a bonus.” A bonus should be all about results, not time worked. We all know people who seem to be always present and always working, but don’t produce results. People with entitlement expect bonuses because it is bonus time, not because recipients earned them.
  • "We deserve our high pay since it was the other division that failed." We heard this from many of the Wall Street groups that survived a few years ago only with government bail-outs. A company succeeds only if all the teams succeed. That’s the way capitalism works. Being really good at what you do doesn’t matter if your firm is broke.
  • "The pay seems to be the same whether I work hard, or hardly work.” No business can afford to reward mediocrity or less. Watch for the signs of entitlement and let it be known that the behaviors associated with entitlement will not be tolerated. Executives need to show up be the model, communicate the model, and enforce the model.
  • "I did my job, so don’t expect me to jump when customers complain." Employees don’t see a connection between how the experience a customer receives today influences their feelings about buying from the company in the future. Make sure they understand the sense of urgency to address customer satisfaction and market needs.
  • “I give my all to this company, so I deserve healthcare coverage.” Health care is a need, like water or food, and not a right. And like water or food, it isn’t free. Every company needs to promote equity among all employee levels, and relate benefit levels to profit levels. But demanding benefits that sink the company is not the answer.
  • "Someday this business will be mine anyway." How many family businesses have met their demise because of this entitlement view? When heirs grow up believing that no matter how they act, the business will be theirs to run, they often end up with no business to run. Furthermore, once that seed is planted, it's very difficult to stop it.

Entitlement beliefs that are left unchecked lead to selfish, even more entitled expectations. Most psychologists believe that entitlement comes from a deep inner belief that the world is not fair. In some age group, this feeling can be rationalized as perhaps derived from an early life where parents gave them everything, and they now expect the world of business to do the same.

We’ve got to remind everyone, employees, entrepreneurs, and investors, that true success and leadership is built on a foundation of personal responsibility and self-discipline. Companies which feel entitled about their position in the marketplace will lose, and entitled employees will kill a company.

Few things frustrate me more than dealing with people who feel they are entitled. Everyone shares the challenge of changing our business culture of entitlement into a culture of merit. I do believe everyone is entitled to pursue success. No one is entitled to be entitled.

Marty Zwilling


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Saturday, July 19, 2014

Smart Entrepreneurs Know Customer Buying Moments

customer-buying-momentsToday’s customers are much more in control of their buying decision, as they have more choices and more information than ever before. Almost instantly, via the Internet or on their smartphone in the store, they can find the lowest price alternative or their favorite features, without waiting for push marketing or listening to your best sales person.

This can be an advantage to startups who don’t have the resources and brand awareness of mature businesses, if they understand and position themselves to win in the decisive moments of the new customer buying process. These decisive moments, and how to respond, are outlined in Robert H. Bloom’s recent book, “The New Experts: Win Today's Newly Empowered Customers.”

Bloom is a widely known expert on managing business growth, and he starts by summarizing the three key weapons of current customers, which include an instant summary of choices, prices, and features. His research indicates that they don’t have any old-fashioned customer loyalty, and they want precisely what appeals to them at the moment, preferably customized just for them.

New startups actually have a flexibility advantage over more mature businesses in anticipating and reacting to the four key decisive moments that Bloom outlines and I have observed in the new customer buying process:

  1. Survive the now-or-never moment. You only get one chance to make a great first impression. If you can’t get a positive customer perception at this first moment, you will likely never get another chance – with so many other alternatives. The key to winning in that moment is to think like a buyer, not the seller. Build a relationship and trust quickly.

  2. Win the make-or-break moment. You win here by getting the customer immediately engaged, and keeping him there, by knowing their interests and expectations better than any competitor or alternative. Avoid the extended period of evaluation and negotiation during which the customer will likely move to other transaction alternatives.

  3. Sustain the keep-or-lose moment. The buying process is just the beginning of the customer experience, and it has to remain a good one throughout the time that your customer actually uses your product or service. Great startups manage to continually improve the relationship through outstanding follow-on support and service.

  4. Capitalize on the multiplier moment. Of course you want your customer to come back, but the best ones also become your evangelists in bringing their friends to you, and broadcasting their positive experiences to the world through social media. This is a key moment where your customer acquisition costs go way down, and your profits go way up.

This new world is all about empowered customers. As an entrepreneur and startup, you should love this environment and cater to it. Many existing businesses see it as a big problem, and can’t adapt easily. That’s your chance to step in and compete at every moment of the customer buying process, usage experience, and follow-on events.

As you bring on employees to facilitate your growth, they have to embrace the new reality. Empowered customers required empowered employees, and your internal business processes have to be aligned with the same principles and the same smartphone and Internet technologies. Make sure you adopt the right hiring practices and training to keep your team responsive.

Then you have to trust the team to think and act proactively on behalf of your vision and mission. Of course, both you and they will make mistakes, which are the best learning experiences. Continuous innovation and change are the keys to staying current, reducing complexity, and delivering the winning customer experience to keep you ahead of the competition.

What most companies don’t realize is that businesses don’t drive customer trends anymore, customers drive business trends. Consumers are well aware of the latest technologies, and their expectations are usually ahead of even the most forward-thinking startups. It’s up to you to understand and capitalize on the decisive moments of empowered customers, or you will become a “has-been” before you even start.

Marty Zwilling


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Friday, July 18, 2014

How Much Should You Get For Your Invention Idea?

technology-inventionEvery inventor seems to think their invention is worth a million dollars, but I haven’t seen anyone pay that much for one yet. In fact, I often have to tell aspiring entrepreneurs that their inventions have zero value, at least not until they are put in the context of a business plan, with qualified people committed to executing the plan. Early-stage ideas fall in the same category.

Don’t get me wrong. I have the greatest respect for inventors and idea people who think outside the box to envision and create solutions never before seen. But I have also learned from experience that there is often quite a distance between a great invention and a great business. A business is about making money, while inventions are more about spending money.

According to a Harvard Business Review article, many people in history, famous for their inventions, such as Thomas Edison, were entrepreneurs who only later were remembered as inventors of the products they commercialized. In fact, entrepreneurs will always tell you that the invention was the easy part, and building an innovative business was the real challenge.

Of course, it helps to have innovative technologies before you start building a business. In other words, inventions are necessary but not sufficient to create real value for investors and customers. So what do investors look for in qualifying you for that million dollars you need to take your invention from your garage to the market? Here are some reality checks you should apply:

  1. It takes a business team to build a business. If you have been working alone, perfecting your idea, with no new business track record, your best strategy is to license the technology to a company or team with real business experience. You may get that million dollars someday in future royalty payments, but don’t expect anything today.

  2. Commercialization requires infrastructure. Many great technology solutions, such as hydrogen engines for cars, look great on paper, but are extremely difficult to make into a business. The value is tied to infrastructure outside your control, such as a pervasive network of fuel stations, trained service facilities and new government regulations.

  3. You need a viable business model and customers. Investors expect proof that your invention can be manufactured in volume and can justify a sales price at least double the cost to a large customer set that has money to spend. I see too many technology solutions to world hunger, where constituencies don’t have money to sustain a business.

  4. Take a hard look at the alternatives. Just because your technology is “cool” doesn’t mean that it solves a painful problem that customers are willing to pay for. People like to complain about global warming and the plastics pollution problem, but they may not be ready to buy alternative energy at twice the price, or change bad habits for global gain.

  5. Lock in your sustainable advantage. Technology limited to a single product is seldom enough for a business. A long-term advantage usually also requires intellectual property, such as a patent, trade secret or trademark. Investors look for technologies that can spawn a family of products, rolled out over time, for continuous innovation.

  6. Experts and market research agree you are first. Just because you haven’t heard of anything like your invention doesn’t mean you are ahead of the pack. Even a patent search won’t uncover work in progress that may be well ahead of you in the business cycle. Test your idea with experts, scientific journals and trade publications.

  7. Truly disruptive technologies carry an extra burden. Investors realize that big changes in technology usually take a long time, several false starts, and more money than expected to commercialize. They, and most customers, really are quicker to adopt evolutionary rather than revolutionary products. Early adopters are not a big market.

Ultimately, you need to remember that customers buy solutions to problems from business people they trust -- they don’t buy technology from inventors. If you really want your invention to change the world, maybe it’s time to give it to a proven entrepreneur and split the ownership of a new company. The million dollars will come in due time.

Marty Zwilling

*** First published on Entrepreneur.com on 7/11/2014 ***


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Wednesday, July 16, 2014

Kickstart Your Startup Credibility With A Prototype

Alan_Kay_prototype_DynabookThese days, everyone wants to be an entrepreneur, pitching their latest and greatest new idea, and looking for someone to give them money. Angel investors, like me, have long figured out that asking to see the prototype is a quick way to separate the ‘wannabes’ from serious players. Talk is cheap, but entrepreneurs who show you a working model of their idea know how to execute.

In reality, it doesn’t take a huge investment of money and time to build a prototype today. If it is hardware, look for one of the ‘makerspaces’ such as TechShop, with all the tools you need to make almost anything yourself. Software products and apps can be quickly wireframed with free tools like MockFlow, or even Microsoft Powerpoint to lay out the key screens.

Here are the key objectives that you can achieve by building a prototype, which are really the reasons that investors and partners will give you a whole new level of credibility as they evaluate your startup for potential funding:

  • Something you can touch and feel helps validate opportunity. When you wave your arms and describe your future product, everyone sees what they want to see, and it looks great. With a realistic prototype, you can get more accurate feedback from customers on their real need and what they might pay, before you invest millions on the final product.

  • Quantify the implementation challenges. Many ideas I hear sound great, but I have no idea if they can be implemented. Building a prototype at least allows both of us to ask the right questions. Visions and theory are notoriously hard to implement. A prototype has to be real enough to be convincing, without looking like science fiction.

  • Give yourself time to pivot without dire consequences. It doesn’t matter how certain you are of your solution, it’s probably not quite right. Every entrepreneur has to deal with the realities of constant change in today’s market, and it’s much easier to pivot the pre-production prototype than to dispose of unsellable inventory.

  • Show investors that you are committed, and past the idea stage. Without a prototype, most professional investors won’t take you seriously. In reality, the process of designing, building, and validating a prototype does dramatically reduce the risk, and allows everyone to hone in on the real costs of going into production.

  • Reduce the time to production and rollout. For both software and hardware technology, multiple iterations are usually required to achieve production quality and performance. Time is money, and may be your primary competitive advantage. Don’t spend your whole development budget, before finding that you need another iteration.

  • Support early negotiation with vendors and distribution channels. A three-dimensional prototype is always better than just a documented specification when negotiating contracts for manufacturing, support, and marketing. As a startup, you need all the leverage you can get.

If you are not comfortable or skilled enough to build a prototype yourself, it’s time to find and engage a co-Founder who has the interest and background to at least manage the work. You should never outsource the management of your core technology. At worst, maybe you can find a trusted friend to guide you, or a nearby university with expert professors and the proper tools.

Of course, there are many commercial resources available on the Internet, including the Thomas Registry, which is an online database of 650,000 specialty manufacturers, distributors, and prototype developers, across every state and country. There are also a wealth of invention support sites, like InventorSpot and IntellectualVentures.

Unfortunately, working with any of these outside services is hard to manage, risky in results, and some have developed a reputation for taking advantage of unsuspecting entrepreneurs. The amount of money you spend on their services is never an indication of potential success. There is no magic formula for success while inventing. Proceed with your wits about you.

Overall, building a prototype is still a great way to bring your idea to life, for yourself, your team, investors, and future customers. Your target cost expectation should be one-tenth of the total commercialization cost, with the assumption that it will be throw-away. Even still, I can’t think of a better way to validate your solution early, and get credibility with the people who count.

Marty Zwilling


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Monday, July 14, 2014

10 Entrepreneur Alternatives To Investor Funding

Gold_bullionThe “valley of death” is a common term in the startup world, referring to the difficulty of covering the negative cash flow in the early stages of a startup, before their new product or service is bringing in revenue from real customers. I often get asked about the real alternatives to bridge this valley, and there are some good ones I will outline here.

According to a Gompers and Lerner study, the challenge is very real, with a majority of new ventures that don't attract investors failing within the first three years. The problem is that professional investors (Angels and Venture Capital) want a proven business model before they invest, ready to scale, rather than the more risky research and development efforts.

My first advice for new entrepreneurs is to pick a domain that doesn’t have the sky-high up-front development costs, like online web sites and smart phone apps. Leave the world of new computer chips and new drugs to the big companies, and people with deep pockets. For the rest of us, the following suggestions will help you survive the valley of death:

  1. Accumulate some resources before you start. It always reduces risk to plan your business first. That includes estimating the money required to get to the revenue stage, and saving money to cover costs before you jump off the cliff. Self-funding or bootstrapping is still the most common and safest approach for startups

  2. Keep your day job until revenue starts to flow. A common alternative is to work on your startup on nights and weekends, surviving the valley of death via another job, or the support of a working spouse. Of course, we all realize that this approach will take longer, and could jeopardize both roles if not managed effectively. Set expectations accordingly.

  3. Solicit funds from friends and family. After bootstrapping, friends and family are the most common funding sources for early-stage startups. As a rule of thumb, it is a required step anyway, since outside investors will not normally consider providing any funding until they see “skin in the game” from inside.

  4. Use crowd funding. The hottest new way of funding startups is to use online sites, like Kickstarter, to request donations, pre-order, get a reward, or even give equity (coming soon). If your offering is exciting enough, you may get millions in small amounts from other people on the Internet to help you fly high over the valley of death.

  5. Apply for contests and business grants. This source is a major focus these days, due to government initiatives to incent research and development on alternative energy and other technologies. The positives are that you give up no equity, and these apply to the early startup stages, but they do take time and much effort to win.

  6. Get a loan or line-of-credit. This is only a viable alternative if you have personal assets or a home you are willing to commit as collateral to back the loan or credit card. In general, banks won’t give you a loan until the business is cash-flow positive, no matter what the future potential. Nevertheless, it’s an option that doesn’t cost you equity.

  7. Join a startup incubator. A startup incubator is a company, university, or other organization which provides resources for equity to nurture young companies, helping them to survive and grow during the startup period when they are most vulnerable. These resources often include a cash investment, as well as office space, and consulting.

  8. Barter your services for their services. Bartering technically means exchanging goods or services as a substitute for money. An example would be getting free office space by agreeing to be the property manager for the owner. Exchanging your services for services is possible with legal counsel, accountants, engineers, and even sales people.

  9. Joint venture with distributor or beneficiary. A related or strategically interested company may see the value of your product as complementary to theirs, and be willing to advance funding very early, which can be repaid when you develop your revenue stream later. Consider licensing your product or intellectual property, and “white labeling.”

  10. Commit to a major customer. Find a customer who would benefit greatly from getting your product first, and be willing to advance you the cost of development, based on their experience with you in the past. The advantage to the customer is that he will have enough control to make sure it meets his requirements, and will get dedicated support.

The good news is that the cost for new startups is at an all-time low. In the early days (20 years ago), most new e-commerce sites cost a million dollars to set up. Now the price is closer to $100, if you are willing to do the work yourself. Software apps that once required a 10-person team can now be done with the Lean Development methodology by two people in a couple of months.

The bad news is that the valley’s depth before real revenue, considering the high costs of marketing, manufacturing, and sales, can still add up to $500K, on up to $1 million or more, before you will be attractive to Angel investors or venture capital.

In reality, the financing valley of death tests the commitment, determination, and problem solving ability of every entrepreneur. It’s the time when you create tremendous value out of nothing. It’s what separates the true entrepreneurs from the wannabes. Yet, in many ways, this starting period is the most satisfying time you will ever have as an entrepreneur. Are you ready to start?

Marty Zwilling


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Sunday, July 13, 2014

Think Hard Before Jumping From Corporate To Startup

jumping-off-a-cliffI talk to many people who have spent years struggling up the corporate ladder who dream of jumping ship and becoming an entrepreneur. I hasten to tell them that every job move is fraught with risk, but the move from employee to entrepreneur is on the high end of the risk curve. It’s a big jump, especially in today’s economy, so do your homework first on this one.

According to an article in the Harvard Business Review a while back, “Five Ways to Bungle a Job Change,” there are at least five common missteps that professionals make when moving to a new job. I will assert that each of these has a comparable relevance for those of you contemplating leaving a company employee role to create or join an entrepreneurial startup as follows:

  1. Not reality checking your dream. In moving to a new company, the questions to ask are expectations, financial stability, cultural fit, and role responsibilities. All of these apply directly to starting your own company. Test your “dream” startup plans on some experienced entrepreneurs to get a reality check before you leave your current job.

  2. Leaving for money. Remember, the grass always look greener on the other side of the fence. More money in the short term is unlikely as an entrepreneur. In fact, most startup founders pay themselves no salary for the first year or two, and investor money is hard to find. I tell new entrepreneurs not to quit their “day job” until they have real revenue.

  3. Going “from” rather than “to”. If you are desperate to get out, you may just be lurching into entrepreneurship, only to find it more stressful and unsatisfying. People who feel competent but unsatisfied or bored in their current job make better entrepreneurs than people who feel overworked, under-appreciated, and over-stressed.

  4. Over-estimating yourself. Search consultants say that many job seekers have an unrealistic view of their skills, their prospects, and their culpability. If you have had problems with several companies, you may be part of the problem. That part will be amplified in any startup, since you are now the company, so the blame stops with you.

  5. Thinking short term. Moving from an employee to an entrepreneur is a lifestyle change, as well as a career change. Don’t make the misstep of assuming it is a short-term move to riches, or an escape from a problem. Starting a business is hard work, requires a lot of learning, and only pays off in the long term.

These missteps are obviously inter-dependent. When people overvalue themselves, they are prone to stress from job performance feedback and dissatisfaction with compensation. This leads them to jump, without real consideration of the fit and opportunity, into the entrepreneurial world, where they could be even more unhappy.

Every employee needs to evaluate these challenges, since the average baby boomer will have switched jobs 10 times, according to the U.S. Bureau of Labor Statistics. The days are gone, when we commit early in life to a lifetime career with one company, or a lifetime of entrepreneurship. The business landscape is changing rapidly these days, so we need to be willing to change as well.

A good question to ask before finalizing a change is “What if I’m wrong?” Be ready to cut your losses and move on. Jumping repeatedly to another bad situation is not the answer. In every case, take a hard look at your real strengths and weaknesses. Be willing to listen to an advisor or mentor on how others perceive you, and be willing to correct for those weaknesses.

The most important element is to understand for yourself what elements of a job role are the most satisfying to you, and what constitutes a healthy work-life balance for you. You spend most of your adult life at work. Life is too short to let career missteps make it unhappy.

Marty Zwilling


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