Monday, March 27, 2017

6 Ways To Attract A Flock Of Angels To Your Venture

flock-of-angelsFundraising is brutal. Actually, according to Paul Graham of Y-Combinator fame, “Raising money is the second hardest part of starting a startup. The hardest part is making something people want.” More startups may fail for that reason, but a close second is the difficulty of raising money.

A while back, I outlined “10 Tried-And-True Strategies For Funding New Ventures” for startups, listing angel investors as alternative six. I still get a lot of questions on these mysterious and often invisible investors, so here is another attempt to bring them out of the ether.

By definition, an angel investor is not an “institutional investor.” Venture capitalists (VCs) are paid to invest other people’s money, and measured on the rate of return they get. Angels are typically high net worth individuals who are investing their own money, for a wide range of motives.

So “good” angels are ones with motives that are consistent with what you bring to the table. This means they usually invest in people who have the right “chemistry”, and areas of business they already know. They tend to work locally, so they can “touch and feel” their investments.

Angel investors also tend to limit the size of individual investments to $250K or less. If you need more, you need VCs or a flock of angels. So how do you find those good angels?

  1. Use personal networking. The best angels you will find are the ones who know you personally, or know a member of your team or advisory board. If a potential investor gets to know you BEFORE you are asking for money, your credibility and investment probability will be improved by an order of magnitude.

  2. Entice angels to play along. Of course, angels are really mortals. They want to make a difference. Asking an angel to work with your company in an advisory role is a great way to establish a relationship that may lead to a cash investment. If you impress the angel, it will likely make her at least an archangel (advocate) when it comes to funding.

  3. Court local angel groups. Since angel investors most often focus only in their own geographic area, it’s most effective to court the local group, or even make a guest appearance with an archangel. If you can earn an archangel's confidence, he or she will invite you to pitch the group, and you'll have an edge in the voting.

  4. Mine national databases. If you are still alone, submit your application to the leading online website national databases of angel investors, Gust (USA) and National Angel Capital Association (Canada). These sites have arrangements with hundreds of local groups and individual investors that you might otherwise have missed.

  5. Remember angels beget angels. That means that once you get the first one, he or she becomes your best advocate for finding more. Investment angels don’t like to travel alone, so they will bring in others if they can (it’s called share the risk).

  6. Don’t forget passive angels. These are angel investors who are private, meaning they don’t go to meetings, but will invest if someone they trust brings them an attractive opportunity. Find the right investment advisor, or member of your advisory board, and the “match-making” will happen.

Remember that angels have a culture all their own, and it pays to understand how to deal positively with them after you find one. There are some books out there to help, like the one I published a while back with Joe Bockerstette “Attracting an Angel - How to get Money from Business Angels and Why Most Entrepreneurs Don't”, and an old standby “The Art of The Start”, by Guy Kawasaki.

Even if you follow this recipe, you are likely to find that fundraising is a brutal challenge. But if it results in a good angel or two watching over your startup, you will definitely be one step closer to heaven.

Marty Zwilling

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Sunday, March 26, 2017

6 Reasons Why The Google Leaders Were An Exception

Google_page_brinI tell entrepreneurs that Google was an “exception” to all the investment and startup rules, but I’ve always wondered what it takes to be an exception. Since every business is built by unique individuals, I’m totally convinced that exceptional people are the key to an exceptional company.

To check out the Google founders, and because I still see so many business plans that are modeled after Google (more search engines, and more billion dollar growth models), I had to take a look at the classic book about them, called “Inside Larry & Sergey’s Brain,” by Richard L. Brandt. It didn’t disappoint me.

This book was not sanctioned by Larry Page and Sergey Brin, so it’s not a love story. All the controversy is highlighted, but the message still seems to be that these guys were and are exceptional in their efforts to build a company. Here are some lessons from the book that all entrepreneurs should wish they could emulate:

  1. Independently outstanding, but complementary founders. Larry is the primary thinker about the company’s future direction, and weighs in heavily on key hiring decisions. Sergey, a mathematical wizard, is the arbiter of Google’s technological approach. Both have a deep sense of moral values and ethics, and work well together.

  2. Unique business tactics. Technology alone does not make a great company. Business tactics do. Google developed the most profitable form of advertising anyone had ever seen, ads selected real-time based on search terms. They focused on small advertisers looking for bargains. The model was a perfect fit for the Internet Age.

  3. Survived phenomenal growth. In 2003, just four years old, sales hit $1.5 billion, profit was $100 million, and it had taken over some 80 percent of the world’s search queries. Google now employs about twenty thousand people. Most founders don’t survive this kind of growth and change, but Larry and Sergey are still a well-balanced machine, with a net worth of over $20 billion each.

  4. Loved and hated at the same time. Larry and Sergey have been wickedly clever. They break the mold. They challenge old industries and make a lot of enemies. They’re ruthless businessmen. Yet through it all, they’re idealists, believers in the power of the Internet to make the world a better place.

  5. Surround themselves with the best people. Early on, they were able to get money from the likes of Andy Bechtolsheim and John Doerr. They convinced Eric Schmidt to take the reins with them for growth as interim CEO and current Executive Chairman, and had Dr. Larry Brilliant for the philanthropic arm for several years. Amazing.

  6. Continue to think big. According to the book, both founders continue to think big. Some of their ideas are as flighty as space travel; others are as grounded as the DNA that makes them who they are. No one proclaims to know where its leaders will take Google next, but everyone expects more great things.

Even the pros should probably pay attention here, to sharpen their game and to improve the accuracy of their assessments about people in general, as well as Google’s motivations and intentions. I think Larry and Sergey have shown a relentless focus on innovation that puts them miles ahead of competitors on all fronts.

I challenge each of you, as you reflect on your own vision and entrepreneurial plans, to take a lesson from Larry and Sergey. Do you have the intestinal fortitude to walk away rather than be “corrupted by financial interests,” or to ignore conventional wisdom and follow your own instincts? If so, then you too may be the exception that even the best and the brightest will line up to support. This world needs more exceptional people. Act like one and you too may be one.

Marty Zwilling

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Saturday, March 25, 2017

7 Rules For Turning Business Conflicts Into Win-Win

conflict-managementMany entrepreneurs are not prepared for conflict, or actively avoid it. Their vision, passion, and focus are so strong that they can’t imagine someone disagreeing, much less fighting them to the death. But the reality is that startups are composed of smart people, with emotions as well as intellects, working in close proximity under much pressure, so conflicts will occur.

In fact, most business conflict is constructive and should be embraced in steering through the maze of innovation and change that is part of every successful business. Surround yourself with “yes” people, and you may feel good initially, but the brick walls no one mentions will hurt later.

On the other extreme, constant and unmanaged conflict will quickly drive your startup to be dysfunctional. Here are a few simple rules of thumb toward constructive conflict resolution that I espouse, as summarized from the classic book by Peter T. Coleman, “The Five Percent: Finding Solutions to Seemingly Impossible Conflicts:”

  1. Know what type of conflict you are in. The first step is to assess whether the conflict is win-lose, win-win, or mixed (some competing and some shared goals). Each of the three types requires different strategies and tactics. Learning how to identify and respond to each type is central to success. Try a good business mentor to get you on the right track.

  2. Not all conflicts are bad. Most often, conflicts present us with opportunities to solve problems and bring about necessary changes, to learn more about ourselves and the business, and to innovate – to go beyond what we already know and do. Avoid the ones that are irrelevant to your startup, but don’t hesitate to engage in the others.

  3. Whenever possible, cooperate. Research has consistently shown that more collaborative approaches to resolving win-win or mixed-motive disputes (the majority of conflicts) work best. Therefore you should always approach conflicts with others as mutually shared problems to be solved together.

  4. Be flexible. Try to distinguish your position in a conflict (“I need a raise”) from your underlying needs and interests in the relationship (“I want more respect for my contribution”). Your initial position may severely limit your options. Creativity and openness to exploration are essential to constructive solutions.

  5. Do not personalize. Try to keep the problem separate from the person when in conflict (do not make them the problem). When conflicts become personal, the rules change, the stakes get higher, emotions spike, and the conflict can quickly become unmanageable.

  6. Meet face-to-face and listen carefully. Meet in a neutral location, and work hard to listen to the other side in a conflict. Accurate information is critical, and careful listening communicates respect. This alone will move the conflict in a more friendly and constructive direction. Don’t mistake sending text messages and emails as listening.

  7. Be fair, firm, and friendly. Research shows that the process of how conflicts are handled in usually more important than the outcomes of conflicts. Always attempt to be reasonable, respectful and persistent, but do not cave in. Find a way to make sure your needs are met.

Applied correctly, these methods can move most business conflicts in a positive and satisfying direction. But Coleman asserts that there are five percent that will always be “intractable.” These usually involve issues that won’t ever be resolved in the workplace, and should be avoided, like politics, religion, personal enmity, and cultural biases. Your best bet on these is not to engage.

For the rest, you must engage (avoidance just hardens positions and delays the consequences), and you must bring closure to the argument or conflict. Closure in business should include formalizing the result in a written document, with clearly outlined terms and activities, and follow-on milestones as required.

The most successful entrepreneurs are creative and skillful in handling conflicts, and actively seek constructive conflict with key stakeholders. The result is better decisions, more consensus, and better communication. In business, as in life, real change rarely happens without some pain. Learn to deal with it.

Marty Zwilling

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Friday, March 24, 2017

7 Ways to Use Data and Analytics for Strategic Change

analytics-strategicMore than ever, businesses need to take full advantage of automation, data, and analytics to run their business more productively and competitively. Yet, in my role as a small business advisor, I still see many founders and executives who see data and analytics primarily as a measurement device on current results, rather than using it to evolve the business strategy and direction.

Certainly it’s important to optimize current operations, but in this age of rapidly changing demands and competitors, it’s more important change quickly as the market changes. I was reminded of the critical need to change, and how, in a new book, “The Caterpillar's Edge: Evolve, Evolve Again, and Thrive in Business,” by Sid Mohasseb, former head of KPMG’s Strategic Innovation Practice.

Mohasseb details a set of insight boosters to channel your change decisions, and using data and analytics differently are among the key ones:

  1. Commit that data and analytics will drive strategic decisions. View and leverage data as an asset for future decisions, not just a measure of past actions. The first step is to get the data and analysis to all the right people. Strategic decision makers need to see the data, in addition to marketing and sales. Ask for analysis rather than reams of data.

  2. Always remember it’s about the problem, not the solution. Don’t start with finding what you want – having a specific end in mind assumes you have knowledge of the future. Recognize that the problem and needs will shift. Let the data and the analytics suggest the questions you need to ask, not the answers. It’s the begin point, not the end.

  3. Control your urges to solve first and justify with data later. To gain new insight, always look to disprove yourself. Allow your conventional assumptions to be challenged. We all have the human tendency to read data as supporting our own biases. Be sure to get multiple views of insights and implications from advisors that you trust.

  4. Avoid getting only a filtered view of the world. Too much reliance on automated filtering may result in missing key issues and rehashing the problems framed up in the past. Sometimes a look at the raw numbers, in addition to trend reports, will trigger a new question, and lead to insights otherwise overlooked. Seek a variety of analysis tools.

  5. Keep up on the details, but don’t miss the big picture. Using big data and analytics is a balancing act – some people get bogged down in the details, and ignore the bigger messages, while others miss short-term corrections that can make a big difference. Make sure you have team members covering both domains, to balance your decision input.

  6. You are the business scientist, to balance data scientists. You can delegate the technology infrastructure issues and decisions to the CTO or CIO, and data gathering and cleansing matters to the new chief data officers, but don’t delegate your business strategy role. Your tech guys may know how to read data, but you must read the market.

  7. You don’t need to be exhaustive in capturing all signals first. Start now to recognize and evaluate signals and changes from a growth, risk, and efficiency perspective. Be acutely aware of the value exchange dynamics between stakeholders, and sensitive to the urgency of reading changes before competitors, rather than following the crowd.

As important as it is to add insight boosters, you also need to change any addictions you have to traditional planning processes, fixed budgets, and reliance on ultra-optimistic revenue projections. Your team needs to know that it is safe to experiment, and failure is not a toxic result. Use data to unleash and reward the power in your team for imagination, action, and innovation.

As author Mohasseb indicates, you have to be able to evolve your business as quickly and smoothly as a caterpillar evolves into a butterfly, so that you can soar with the wind. Don’t be one of the many small businesses I see that crawls along at a snail’s pace, and ultimately gets stepped on by the competition. Keep your eye on the data and the analytics.

Marty Zwilling

*** First published on Inc.com on 03/07/2017 ***

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Wednesday, March 22, 2017

9 Ways To Spot An Opportunity For A New Business

smartphones-opportunitiesAs an advisor to startups and entrepreneurs, I often hear the myth that all new businesses must start with a great idea. I have to disagree. I believe the best entrepreneurs start by finding a large opportunity, and only then use good ideas to capitalize on that opportunity. The best opportunities are recognized from painful needs, plus a growing population of customers with money to spend.

For example, technologist entrepreneurs often come up with a new device or application, just because they can, and assume everyone will want one. Social entrepreneurs pitch me their latest idea for eliminating world hunger (producing algae), but may forget that really hungry people probably don’t have any money. It takes a real selling opportunity to sustain a business idea.

I just finished a new book, “The Entrepreneur’s Playbook,” by Leonard C. Green, which supports my view, and is full of practical advice for aspiring entrepreneurs, including easy ways to identify sure-bet opportunities, most not requiring any invention, before you finalize your innovative business idea. Here are some approaches that both of us recommend to get you started:

  1. Take a basic product and make it special (upgrade). Premium bottled water (Fuji), expensive coffee (Starbucks), and gourmet cookies (Mrs. Fields) are examples of what were once pedestrian products that have driven successful new businesses. Sometimes you need to take a commonplace item, like a cup of coffee, and make it an “experience.”

  2. Offer a no-frills version of a high-end product (downgrade). For example, Southwest Airlines eliminated all the frills that usually come with an airline ticket, and now they are a market leader, being copied by the majors. In supermarkets, everyone today knows that generic brands often offer more value and quantity, without giving up key ingredients.

  3. Find products that seem to fit together (bundle). Instead of requiring people to shop and pay for related items, combine them into one package. Today’s smartphones are more attractive than a separate phone, camera, computer, and software packages. Sometimes just including training and installation makes a product more attractive.

  4. Break existing bundles into separate packages (unbundle). This is obviously the inverse of the bundle approach. Home computers have long been offered in unbundled as well as bundled hardware and software, to allow for a lower entry cost and flexible configuring versus simplicity. Long-term warranties are now unbundled from appliances.

  5. If a product sells in one area, transport it to another. Importers/exporters make their living this way with products from different parts of the country or the world. The same concept resulted in the birth of franchises, which are essentially proven business models transported to new locations. The Internet is a business for transporting web services.

  6. Expand a narrow product offering to the mass-market. A popular incarnation of this approach today is to take an Internet-only product into brick-and-mortar retail for access to a much larger audience. The same concept applied to every startup which test-markets its product in a local area, then scales the business for national or global access.

  7. Take a broad-appeal product into a niche. With the widespread popularity of social media, I now see many businesses looking at niche market interest groups, such as sites for travelers, hunters, cancer support, and crafts. In television, this is called narrow-casting, to gear specific channels to a special audience, like golf, old shows, or history.

  8. Maximize the selection of products offered (think big). This approach brought us the “big box” stores, including Walmart, Lowe’s, and Home Depot. Online, the same concept has been implemented by Amazon and Alibaba. It allows customers to complete their shopping in one place, and businesses get the value of volume and common processes.

  9. Focus on in-depth expertise and support (think small). This is the inverse of the “think big” strategy, which you see at your local hardware stores, with knowledgeable and friendly support staffs. They specialize in the depth of their selections that a true connoisseur demands. Online sites now advertise customized designs and personal fits.

It shouldn’t be hard to see from these examples the wealth of business opportunities available without inventing a totally new product or technology. Thus I continue to tell entrepreneurs that business success is more about the execution, and the quality of the team, rather than the idea.

Also, by looking at the size of the opportunity, you can take a calculated risk, rather than close your eyes and step into the total unknown. Calculated risks are less likely to be fatal, and more likely to be fun and profitable. Think about it before you send me your next business plan to change the world.

Marty Zwilling

*** First published on Huffington Post on 03/20/2017 ***

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Monday, March 20, 2017

5 People To Avoid In The Search For An Ideal Investor

people-to-avoid-as-investorsEvery entrepreneur seeking funding loves the challenge of getting customers and investors excited, but dreads the thought of negotiating the terms of a deal with potential investors. They are naturally reluctant to step out of the friendly and familiar business territory into the unfamiliar battlefield of venture capitalists from which few escape unscathed.

In reality, a financing negotiation is not a single-round winner-take-all game, since a “good” deal requires that both parties walk away satisfied -- with a win-win relationship. Brad Feld and Jason Mendelson, in their classic book “Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist” emphasize that there are only three things that really matter in this negotiation: achieving a good and fair result, not killing your personal relationship getting there, and understanding the deal that you are striking.

To be an effective negotiator, I agree that you first need to quickly identify and adapt to your opponents negotiating style. Feld and Mendelson identify the five most common negotiating styles that you will see on both sides of the table, and talk about how you can best work with each of them:

  1. The Bully (aka UAW negotiator). The bully negotiates by yelling and screaming, forcing issues, and threatening the other party. They usually don’t understand the issues, so they try to win by force. Unless this is your natural negotiating style, their advice is to chill out as your adversary gets hotter.

  2. The Nice Guy (aka used-car salesman). This style is pleasant, but you always feel like he’s trying to sell you something. While he doesn’t yell at you like the bully, it’s often frustrating to get a real answer (need to talk with the boss). For these, be clear and direct, and don’t be afraid to toss a little bully into the mix to move things forward.

  3. The Technocrat (aka pocket protector guy). This is the technical nerd who can put you into endless detail hell. The technocrat has a billion issues and has a hard time deciding what’s really important, since to him everything is important for some reason. Make sure you don’t lose your focus and fight for what you really care about.

  4. The Wimp (aka Marty McFly). You may be able to take his wallet pretty easily during the negotiation, but if you get too good a deal it will come back to haunt you. You have to live with him on the Board and making decisions. You may end up negotiating both sides of the deal, which is sometimes harder than having a real adversary.

  5. The Curmudgeon (aka Archie Bunker). With the curmudgeon, everything you negotiate sucks. He may not yell, but he’s never happy, and keeps reminding you how many times he has been around the block. If you are patient, upbeat, and tolerant, you’ll eventually get what you want, but don’t expect to ever please him.

Secondly, you should never walk into any negotiation blindly without a plan. Know the key things that you want, understand which items you are willing to concede, and know when you are willing to walk away. When determining your walk-away position, you need to understand your best alternative to agreement, and have a Plan-B (bootstrapping, competing investor, or more time).

Another key preparation is to get to know the investors you will be dealing with. Do your homework on the Internet and through contacts to find out their strengths, weaknesses, biases, curiosities, and insecurities, Knowledge is power, and that can be used for leverage.

On the other hand, when negotiating a financing for your company, you should never present your term sheet first. Always wait for the investor to play his hand. Next, make sure you listen more than you talk. You can’t lose a deal point if you don’t open your mouth. Finally, don’t lose sight of the deal as a whole, by being forced to a decision linearly on each point in isolation.

If you are the least experienced person around the negotiating table, it’s time to hire a great lawyer to help balance things out. Remember, your lawyer is a reflection of you, so check their reputation and style, as well as their win-loss record. The financing is only the beginning of a critical relationship, and a small part at that. Don’t work so hard at winning the battle that you lose the war.

Marty Zwilling

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Sunday, March 19, 2017

10 Writing Tips To Get Maximum Impact From Any Plan

business-plan-writingIf you want people to invest in your idea, then my best advice is first write a business plan, and keep it simple. Don't confuse your business plan with a doctoral thesis or the back of a napkin. Keep the wording and formatting straightforward, and keep the plan short. For minimum content, see my original article “These 10 Key Elements Make a Business Plan Fundable.”

The overriding principle is that your business plan must be easy to read. This means writing at the level of an average newspaper story (about eighth-grade level). Understand that people will skim your plan, and even try to read it while talking on the phone or going through their e-mail.

But don't confuse simple wording and formats with simple thinking. You're keeping it simple so you can get your point across quickly and effectively to team members and investors. With that in mind, here are some specifics that bear repeating, updated from a classic article on simple plans by Tim Berry:

  1. Keep the plan short. You can cover everything you need to convey in 20 pages of text. If necessary, create a separate white paper for other details and reports. The one-page Oprah plan is a good executive summary, but it’s not enough to get the investment.

  2. Polish the overall look and feel. Aside from the wording, you also want the physical look of your text to be inviting. Stick to two fonts in a standard text editor, like Microsoft Word. The fonts you use should be common sans-serif fonts, such as Arial, Tahoma or Verdana, 10 to 12 points.

  3. Don't use long complicated sentences. Short sentences are the best, because they read faster, and reader comprehension is higher in all audiences.

  4. Avoid buzzwords, jargon and acronyms. You may know that NIH means "not invented here" and KISS stands for "keep it simple, stupid," but don't assume anybody else does.

  5. Simple straightforward language. Stick with the simpler words and phrases, like "use" instead of "utilize" and "then" instead of "at that point in time."

  6. Bullet points are good. They help organize and prioritize multiple elements of a concept or plan. But avoid cryptic bullet points. Flesh them out with brief explanations where explanations are needed. Unexplained bullet points usually result in questions.

  7. Don’t overwhelm the plan with too many graphics and flashy colors. Pictures and diagrams can effectively illustrate a point, but too many come across as clutter.

  8. Use page breaks to separate sections. Also to separate charts from text and to highlight tables. When in doubt, go to the next page. Nobody worries about having to turn to the next page.

  9. Use white space liberally, spell-checker, and proofread. Include one-inch margins all around. Always use your spell-checker. Then proofread your text carefully to be sure you're not using a properly spelled incorrect word.

  10. Include table of contents. No investor likes searching every page for key data, like executive credentials, or exit strategy. Most word processors these days can automatically generate a table of contents from your section headings. Use it.

Investors hear from too many entrepreneurs that envision a great business opportunity, but don’t have any written business plan at all. They think they can talk their way to a deal. It won’t work. On the other end of this spectrum are entrepreneurs who present long product specifications with a few financials at the end. This is a failing strategy as well.

If you're not the type who can connect with people based on a simple message, told succinctly, then hire someone who can. In fact, simplicity and readability is one of the most effective strategies for selling even the most complex proposal. A business plan that is easily understood and looks professional is already half sold. Simple is not stupid.

Marty Zwilling

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