Saturday, January 20, 2018

5 New Venture Deliverables Put You Ahead Of The Crowd

audience-entrepreneursAs a mentor to startups and new entrepreneurs, I continue to hear the refrain that business plans are no longer required for a new startup, since investors never read them anyway. People cite sources like this recent Inc.com article “5 Reasons Why You Don't Need a Business Plan,” or my own blog discussion on this subject, “Situations Where A Business Plan Does Not Add Value.”

Let me be clear – business plans are never “required,” they should never be written “just for investors,” and if you sold your last startup for $800 million, most investors will not ask for a written plan for the next. On the other hand, if you are a first-time entrepreneur, the discipline of building a business plan will dramatically improve your success odds, and your odds of finding an investor.

For aspiring entrepreneurs, or if your last startup failed, it’s all about standing out above the crowd of others like you, and demonstrating your readiness. There is no crowd of successful entrepreneurs. Here is my outline of key deliverables that could convince me that you are a cut above the “average” entrepreneur that approaches me with nothing but a dream and a prayer:

  1. Personal video introduction with elevator pitch. Successful startups are all about the right people with the right stuff. In a two-minute video clip, you can introduce yourself, show your passion and the engaging personality you need to win over customers, partners, and employees. Net out the problem and your solution in the first 30 seconds.

  2. Executive summary glossy. For the more traditional investor, or for that chance meeting in a real elevator or meeting, you need a two-page brochure (two-sided page). The challenge here is not to see how many words you can get onto each side, but how you can make this so engaging in layout and content that an investor will ask for more.

  3. Investor and strategic partner pitch. A perfect size is ten slides, with the right content, that can be covered in ten minutes. Even if you have an hour booked, the advice is the same. I’ve seen a lot of startup presentations, and I’ve never seen one that was too short - maybe short on content, but not short on pages. Pitch your company, not your product.

  4. Written business plan.  Disciplining yourself to write down the plan is actually the best way to make sure you actually understand it yourself. Would you try to build a new house without a plan, if you have never done it before? In simple terms, it is a 20-page document which describes all the what, when, where, and how of your new business.

  5. Financial model.  Most new entrepreneurs tend to avoid the financials of the business, and as a result are badly surprised by cost realities, and can’t answer investor questions. I suggest a simple Excel spread sheet loaded with your revenue, cost, and margin targets covering the first five years of your business. Investors will expect it for due diligence.

Thus you see the business plan is only one of five elements of a package that every aspiring entrepreneur needs to build to stand above the crowd, in your own level of understanding of your business. You need it for communicating to your team, finding strategic partners, or soliciting investor funding from friends and family, angel investors, VCs, and crowd funding.

The ability to communicate effectively is critical to standing above the crowd. Good communication is not talking louder and longer than others, but practicing active listening, and providing a package of other elements to effectively to back up your words. Make yourself unforgettable, in a good way. This means adding value before, during, and after every interaction.

Believe it or not, there are many people in the entrepreneur crowd with outstanding ideas, but building a business is more about execution. If you have built a successful business before, you don’t need all the components above to convince anyone, including yourself, that you can do it again.

Even including repeat entrepreneurs, statistics continue to show that the overall failure rate for startups within the first five years is greater than 50 percent. The real objective of “standing above the crowd” is to give you as an aspiring entrepreneur every chance to end up in the winning group, rather than the crowd of losers.

Starting without any written plan elements may seem easier, but is not the way to win.

Marty Zwilling

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Friday, January 19, 2018

7 Guidelines For Funding New Research & Development

141010-F-DF892-703As an advisor to new business owners, and an occasional angel investor, I see new business proposals daily, many seeking investors to fund early research and development (R&D) of a new product idea. Unfortunately, most entrepreneurs don’t realize that the words “research” and “development” are red flags to investors, and all such proposals are routinely discarded.

Although it may seem counter-intuitive, angel investors and venture capitalists (VCs) are looking for solutions that are already complete, with some real market traction, that need funding to be scaled to a large market, with potential for rapid growth and a large return. Funding new product research and development is just too risky, with a large time delay before any return is likely.

In fact, there are people and organizations amenable to very early stage opportunities, so my advice is target your proposals to the right people to match the stage of your effort. Broadcasting or repeatedly hitting the wrong people is not only is a waste of time, but it kills your credibility with those investors later when you really may need their help. Here are the guidelines I recommend:

  1. Recruit friends and family at any stage. People who know you, trust you, and believe in you above all else are always candidates for requesting an investment. In the trade, this category of investors is called friends, family and fools (FFF), and is the primary source of funding for entrepreneurs with no prior track record in business or technology.

  2. Look to academia and the government for basic research. If you are looking to fund a technology study, before any specific commercial product can be considered, you need to focus on relevant large organizations with deep pockets. Sources include government grants, universities, and large enterprises searching for next generation products.

  3. Find private fund incubators for technology pilots. If you project is more in the applied research stage, ready to solve practical problems, but haven’t yet named a final product, the investment sources should be extended to include large private and public fund initiatives, such as AMA IBM Healthcare or Environmental / CleanTech Projects.

  4. Explore crowdfunding for the prototype stage. Funding for commercial product prototypes is still R&D in the eyes of most VC investors, but in business areas with large consumer opportunities, this activity will catch the eyes of crowdfunding investors. It’s still considered high risk for investment, since manufacturing and quality issues are likely.

  5. Target specialized VCs for the certification stage. These days, almost every new product is not deemed scalable until it has been certified as meeting a multitude of quality and agency standards, including the Environmental Protection Agency (EPA) and Food & Drug Administration (FDA) clinical trials. Industry specific VCs may jump in at this stage.

  6. All professional investors love the scaling stage. Solution development at this stage is the process of scaling up for manufacturing and marketing rollout. The technology is now embodied in a replicable solution, and has been sold to at least one customer. Your fundability with investors now depends on traction and perceived execution capability.

  7. Reinvest early returns to expand the product line. Even for mature startups, there is always a need for further product development and research to compete and diversify the business, and investors understand this. But to prevent confusion with basic R&D, these costs should never be called out as a major category in your use of funds to investors.

Fortunately, in many attractive business domains, including mobile software, Internet apps and ecommerce, the cost of product development is at an all-time low. Developers are finding powerful tools to build mobile apps and websites for a few thousand, rather than millions of dollars. They don’t need the long research and development cycles of a new technology.

Thus smart entrepreneurs often find personal funding for solution development, and save investor funding pitches for the larger scaling-up marketing costs later. Build solutions, not technology, and don’t waste your time and credibility talking to angels and VCs until you have something of interest to them.

Marty Zwilling

*** First published on Inc.com on 01/04/2018 ***

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Wednesday, January 17, 2018

8 Elements Of A Mindset For Success In Your Business

dollar-success-businessMaybe starting a new business isn’t your passion, but in these days of rapid change, where everyone is dealing with uncertainty, I believe that thinking and acting like entrepreneurs will help you get ahead in any profession. In simple terms this means taking control of your life, going after something you love to do, and taking action. Stop letting life decisions happen to you.

As a long-time mentor to aspiring entrepreneurs, I’ve been convinced for some time that good entrepreneurs have the right mindset, and the right attributes, to be good at anything they want. Starting a new business is actually one of the toughest things that anyone could aspire to, since it always involves making decisions and progress in uncharted territory, with no one to follow.

So how do good entrepreneurs do it, and what do they do that everyone can learn from? I saw some good insights in the classic book “Own Your Future,” by Paul B. Brown, who has been studying and writing about business leaders for many years for Forbes, BusinessWeek, and Inc.

He offers a collection of lessons regarding how entrepreneurs think and act, which relate equally well to almost any profession or lifestyle. I’ll summarize a few of his principles here as examples, and I’m adding a few from my own experience:

  1. Use act, learn, build, and repeat to move forward in increments. The entrepreneurial approach is to decide what you want, take a small step toward that goal, pause to see what you have learned, build off that learning, and iterate the process. Other people often seem to bounce around randomly, and be the unhappy victims of other people’s actions.

  2. Embrace smart risks, but don’t be reckless. Smart entrepreneurs work extremely hard to find smart risks, like really large opportunities, but limit potential losses, because they know that success is an iterative learning process, with many pivots required. Other people never take risk, or let their passion overcome them to bet the farm on a long shot.

  3. Avoid overthinking yourself, leading to no action. When the future is unpredictable, as it is today, action trumps thinking. Action leads to evidence, in your job or in the market, which is the best fodder for new thinking. If all you ever do is think, you can gain tons of theoretical knowledge, but none from the real world, and make no real progress.

  4. Nurture relationships with people who can really help. Entrepreneurs build listening relationships with peers, mentors, and investors who may not even be social friends, and ask them the hard questions they need grow their business. Other people think relationships are only for personal and social use, and only mention work while venting.

  5. Find and sell your unique competitive advantages. Successful entrepreneurs focus on amplifying their strengths, while many people focus on eliminating their weaknesses. Everyone needs to sell themselves with the same fervor that entrepreneurs sell their product or service. If you don’t highlight your competitive advantages, no one else will.

  6. Focus on problems you can solve and who is your target. A key step in selling yourself or your product is to identify your customer, and focus on value that you can deliver to that customer. Don’t discourage yourself by broadcasting your value to the wrong people, or not doing your market research on the problem they need solved.

  7. Always see the glass as half-full, rather than half-empty. Maintaining and projecting a positive attitude is critical to career and personal progress, as well as business growth. How many people do you know that always focus on their setbacks, rather than their progress? Every hiring manager, as well as investor, reads your attitude carefully.

  8. Generate energy, rather than sucking it out of others. Your actions must always create positive energy for those around you, or people will hasten to get away from you and your business. Entrepreneurs learn this early, to keep their team and customers motivated. You need to do this, to keep your lifestyle and your career moving forward.

I assure you that if you follow these principles in your current career, and think like an entrepreneur, you will advance more quickly, get more done, and be a happier person. According to a recent article and many others, entrepreneurs running their own business still rank themselves happier than all other professions, regardless of how much money they make.

More career planning and more education is not always the answer, especially when the future is as unpredictable as it is now. Embrace entrepreneurial tactics, assume control of your lifestyle and career, and take action today to assure your own success. Are you still thinking about it?

Marty Zwilling

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Monday, January 15, 2018

10 Keys To Finding That Perfect-Fit Business Partner

Building92microsoftIn my experience, the initial idea for a new product usually comes from a single entrepreneur, but the implementation plan for a new business requires a team, or at least a co-founder. The reason is that any one person rarely has the bandwidth, interest, or skills to manage all the tasks required to build a business. Thus I find that two heads are usually better than one in a startup.

Way back in the early eighties, I had the privilege of working with Bill Gates and Steve Ballmer, when Microsoft was still a startup. I realize now that these two were near-perfect co-founders, with Bill having the technical passion, and Steve bringing the business experience from his prior stint at Procter and Gamble. Their skills and interests were complementary, and their trust in each other was palpable.

The challenge is how to find that elusive perfect-fit partner. As a mentor to aspiring business owners, I often get asked to find that partner for them, since founders are usually too busy with their solution. I always laugh, and ask them if they want me to find a spouse for them as well, since the right partner requires many of same attributes of chemistry, values, and passion.

I may indeed be able to mention a couple of possible names from my meeting with others, but I believe that finding the right co-founder or partners is more critical than any other task for a new entrepreneur, and it needs to be done personally. Thus I always recommend a common series of steps that I have seen working for other entrepreneurs:

  1. Write a partner description for that ideal co-founder. Take a hard look at your own business strengths and weaknesses, and write down what partner skills and experiences would best complement yours. Your best friend, spouse or a family member is the least likely candidate, so don’t start there. Seek input from seasoned investors and peers.

  2. Network to find co-founders as you network to find investors. In fact, your ideal partner may also be an investor. Many of the same venues, such as industry conferences and entrepreneur forums are useful for both. Online, it pays to join entrepreneur and investor groups on social media, and build relationships with people meeting your criteria.

  3. Explore matchmaking sites for business partners. Co-founders are business partners for startups, so don’t be afraid to join and explore sites such as FoundersNation, StartupWeekend, and CoFoundersLab. Also start a discussion on the wealth of business blogs frequented by entrepreneurs, where you can make your interests known.

  4. Support local university entrepreneur organizations. University professors and student leaders always know a selection of top entrepreneurs, alums or staff members who are just waiting to find the perfect match for their own interests, skills and ideas to change the world. Support local activities and you support yourself.

  5. Look for a partner from a different culture or background. In today’s global economy, your ideal partner may be half way around the world, from a different geography and business culture. Every startup infrastructure is flush with smart people from all cultures, many of whom may be ready and able to bring new energy and creativity to your startup.

  6. Re-connect to strong associates from prior assignments. If you were impressed with someone’s drive and capabilities in a prior work role, now is the time to connect again to check their interest and availability, or recommendations they may offer. Use caution to avoid employer conflicts of interest and non-compete clauses.

  7. Relocate to a more lucrative geography. Finding a high-tech co-founder in the middle of Kansas may be a long search. There’s a reason that Silicon Valley and Boston are hubs for high-tech startups. These areas may have not just your co-founder, but also the robust ecosystem your startup needs for investors, programmers and customers.

  8. Explore candidate values and goals outside of work. Co-founder chemistry and interest matches are best explored outside the office. Find some common hobbies or sports to get acquainted before giving away half your company. Business partnerships are long-term relationships, so take your time getting acquainted before closing the deal.

  9. Jointly define major business milestones and key deliverables. This process is the ultimate test of a true shared vision and working style. Building a startup is hard and unpredictable work, and people get busy, so now is the time to jointly commit. If you can’t work as a team now and easily agree, it probably won’t happen at all in the future.

  10. Negotiate and document roles early, including who is the boss. No matter how equal you all are, there is only room for one at the top to make the final decision on hard issues. Especially when everything feels good today, don’t be hesitant to ask the hard questions of each other. Investors and stockholders expect only one chief executive officer.

There are so many challenges in a startup that no founder should try to go it alone, as you need someone to share your successes, and help you recover from the inevitable setbacks. When you find someone that works, I’m betting you will be together on your next startup, and the one after that. Great teams persevere, and success breeds success.

Marty Zwilling

*** First published on Inc.com on 01/02/2018 ***

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Sunday, January 14, 2018

5 Strategies To Capture Sustainability Opportunities

Sustainable_development.svgAs I have said many times, the cost of entry for an aspiring entrepreneur has never been lower, and the total wealth of opportunities has never been larger. Today you can start a new web site business for as little as $100, produce cheap smart phone apps, or lead the effort to tap the multitude of opportunities brought by capitalizing on our concern for dwindling natural resources.

A while back, I focused on the new sharing economy, so this time I will highlight how a shortage of something, like natural resources, should be seen by an aspiring entrepreneur as a wealth of new startup ideas. I was inspired by the classic book, “Resource Revolution: How to Capture the Biggest Business Opportunity in a Century,” by Stephan Heck and Matt Rogers.

Based on their work in CleanTech and sustainability, Heck and Rogers outline five strategies for existing companies to apply to current practices and processes for dramatic efficiency improvements in the use or production of resources. I have recast these strategies here for new entrepreneurs and startups, who thrive on change, to show the wealth of opportunities for them:

  1. Substitute new materials for scarce natural resources. Entrepreneurs have huge opportunities to deliver higher-performance materials at lower cost, like carbon fiber for steel. These will not only save some weight, but build better vehicles, and improve the environment. Consider the startup MarkForged, which takes carbon-fiber to a 3D printer.

  2. Eliminate waste throughout existing processes. Mature companies often lose sight of scrap and changeover time in existing systems. Entrepreneurial minds can more easily see energy, water losses, and inefficient material usage. For example, a startup named Dirtt has been able to take reusable building components to a whole new level.

  3. Upgrade, reuse, or recycle every product. Make every product a natural loop, from creation to use to recycle to reuse. The tighter the loop, the greater the value captured and the stronger the competitive differentiation. Reusing a phone, like the ecoATM story, is more valuable than reusing a chip, or just extracting the gold and silver.

  4. Optimize existing product efficiency, safety, and reliability. Sadly, cars are parked 96% of the time, and shipping containers takes lots of space while empty. You don’t have to be an aspiring entrepreneur to see opportunities for improvement. Startups like Uber for cars, and Staxxon for containers are already there, but these are only the beginning.

  5. Move physical products and services into the digital realm. Steve Jobs has led the way here, by turning music, movies, cameras, and flashlights into apps. The opportunity is to reinvent whole products and whole industries, making things ten times better in the process. This not only saves scarce natural resources, but adds value to the economy.

Relative to all these principles, the “big three” of scarce natural resources consist of land (food), water, and energy. The stark reality is that the people and businesses of the world need to produce more with less in all these areas, while eliminating wasteful practices and policies. The effort has started, but there is still a huge need in all areas.

A key fact for both startups and existing businesses is that we have more than 2.5 billion people in developing countries to support who need to be moving out of poverty and into industrial and service occupations by 2030. This number almost doubles the number who have already moved into the middle class and urbanized. These will be your customers, and your competitors.

Overall, with all these opportunities, entrepreneurship is perhaps the most scarce and valuable natural resource in today’s society, for driving economic growth and social development. So now is the time to invest in all natural resources, by supporting aspiring entrepreneurs, in support of the opportunities they are mining. It’s a higher calling than one more social media platform.

Marty Zwilling

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Saturday, January 13, 2018

6 Hurdles For Going Public Through A Reverse Merger

stock-exchange-reverse-mergerWith the current strong economy, as an active startup mentor, I’m seeing a new surge of entrepreneurs and startups, with the commensurate scramble for funding. There just aren’t enough angel investors and VCs to go around. Thus I’m getting more questions on new mechanisms, like crowd funding, or going public through the side door as a reverse merger.

A reverse merger is the acquisition of an already public company (usually a dormant shell) to avoid the Initial Public Offering (IPO) process and cost, to quickly get your startup on a public exchange for fund raising through visibility and selling stock. It sounds like a great way to raise money, but here are some of the challenges you need to consider before trying it:

  1. Make sure the shell you choose is squeaky clean. The image of shell companies has long been tarnished by true stories of lawsuits and “pump and dump” schemes. I recommend you work only with financial and broker organizations who have done the due diligence required, and who have a track record of success.

  2. It takes real money to get into the game. The cost of the shell, plus the cost of navigating the process, can now easily exceed a half-million dollars, depending on the shell company, according to The Labrecht Group, a law firm based in Irvine, California and Salt Lake City. This approach is not for entrepreneurs already out of money.

  3. Being a public company isn’t cheap or easy. Is your startup really ready to play in the corporate world? It better be an established company, with millions of dollars in annual revenue and profits, following generally accepted accounting, reporting, and audit procedures. A PwC survey averages the burden of public companies at $1.5M a year.

  4. Increased jeopardy and less fun for the entrepreneur. The increased exposure and opportunity of a public company comes with a higher risk to you and your Board with severe civil and criminal penalties for regulatory mistakes and non-compliance. These looming constraints can turn your startup dream into a nightmare, all to increase funding.

  5. Reverse mergers may not get your startup on the Nasdaq. Most public shells ready for sale are not listed on a national securities exchange, but are instead traded in a less glamorous setting, such as the OTC Bulletin Board. Of course, they can be renamed and moved, but that may negate the cost and time advantages originally sought.

  6. Make sure that your team can motivate shareholders. The reverse merger process itself doesn’t raise any capital. That still requires a business team and story that continually motivates stock brokers and public stockholders. You may no longer have the option of investing all earnings into growth, or servicing your special corporate cause.

Yet reverse mergers are not all bad. Even the New York Stock Exchange did one with the acquisition of Archipelago Holdings via a "double dummy" merger way back in 2006 in a $10 billion deal to create the NYSE Group. Some people believe that reverse shell mergers may soon become the preferred IPO approach for emerging high-growth companies.

In fact, the number of companies taking the side door into a public exchange seems to be getting larger, and it has become the legal but still controversial and risky choice for Asian companies seeking to go public in the American market. Being public makes the company more visible to shareholders and potential acquirers, and provides a presumption of future liquidity.

Other than raising money, the reverse merger may be the quickest way to get you to other benefits of a public company. These include the ability to offer meaningful stock options to employees, the use of liquid shares to purchase other companies, and the credibility and public access to information you need to attract key customers and suppliers.

In summary, a reverse merger, or going public through the “normal” IPO process should never be seen as just a way to fund your startup. It is a strategic decision that may indeed attract more funding, but also will likely change the culture and focus of your company, and your role from an entrepreneur to a corporate executive. What price are you willing and ready to pay for funding?

Marty Zwilling

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Friday, January 12, 2018

10 Startup Strategies To Minimize Cash Flow Disasters

cash-flowThe “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 recent Motly Fool report, the challenge is very real, since around half of all businesses fail in the first five years. Only one-third make it past their tenth anniversary. The problem is that professional investors (angels and venture capital) want a proven business model before they invest, ready to scale, rather than early projections and product development.

My first advice for new entrepreneurs is to pick a domain, such as online web sites and smart phone apps, that doesn’t have the sky-high up-front development costs. 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 real revenue flows. 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. Get a loan or line-of-credit. This is a most 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, but there are notable exceptions. Nevertheless, it’s an option that doesn’t cost you equity.

  4. 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.

  5. Use crowd funding to build reserves. 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. 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.

  6. 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.

  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 (25 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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