Sunday, October 4, 2015

Build Your Business By Accentuating Your Positives

positive-business Most of the entrepreneurs I know realize they have some bad habits, like maybe procrastination or not listening well, so they focus on dropping these. New studies indicate that a more productive approach would be adopting new good habits and behaviors that clearly move your business forward, like good time management and implementing customer recommendations.

These two approaches may sound similar, but actually require different skill sets. For example, learning to stop smoking may leave you with a gap to fill, but finding activities that remove your urge to smoke really gets you where you want to be. I recommend the following six techniques for capitalizing on good habits from the classic book “The Compound Effect,” by successful entrepreneur and writer Darren Hardy:

  1. Set yourself up to succeed. Any new habit has to work inside your life and lifestyle. If you want personal healthy think time at a gym, don’t find one that is thirty miles away, because you won’t go. For better time management, tell everyone that you will be closing the door to your office during specific times of the day, and ask for their support.

  2. Think addition, not subtraction. Instead of focusing on what you have to “sacrifice,” think of what you can “add in” to improve your business effectiveness. For example, most founders find that adding good customer discussions has a more satisfying payoff than just eliminating expensive marketing consultants.

  3. Go for a public display of accountability. Put your commitments of a new good habit, like rewarding good performance, on public display by announcing a recognition event to be held each week in the office. Now you will be motivated to follow through, and the whole team will give you the positive feedback you need to keep it going.

  4. Find a success partner. There are few things as powerful as two people locked arm in arm marching toward the same goal. If your bad habit is staying late at the office, link with one or more of your other key executives to retire to the gym at 5pm sharp three times a week. You will all get out of the office, feel better, and make more decisions.

  5. Use both competition and camaraderie. There is nothing like a friendly contest to whet your competitive spirit and immerse yourself in a new habit with a bang. It’s easy in a new business to inject a fun rivalry and a competitive spirit into improving your marketing programs, or improving production cycles.

  6. Celebrate each small step of success along the way. All work and no play is a recipe for backsliding. You’ve got to find little rewards to give yourself every week or every day, even something small to acknowledge that you’ve held yourself to a new behavior. Measure results and promise yourself a real pot of gold at the end of the rainbow.

Change is hard. That’s why so many people don’t either give up their bad habits, or adopt new good ones. Successful entrepreneurs are the extraordinary ones that make the changes anyway. They just do it, and keep doing it, and the magic of compounding rewards them handsomely.

Another challenge is that your brain is not designed to make you happy. It is programmed to seek out the negative and optimize survival, and is always watching for signs of “lack and attack.” That’s why every entrepreneur spends so much time worrying about failures, lack of customers, and competition. We have to teach our minds to look beyond these, through discipline and being proactive about what we allow in.

But learning and discipline without execution is worthless. In the big picture, the habits you develop and nurture shape your destiny. Little everyday habits will take you either to the life you desire or to disaster by default. Spend more time instilling good ones, and the bad ones will disappear for lack of attention, making you a more savvy and successful entrepreneur.

Marty Zwilling


Saturday, October 3, 2015

9 Entrepreneur Leadership Principles Worth Practicing

business-leadership-principles Entrepreneurship is all about leading – leading customers to a new product or service, leading a startup team to peak performance, and leading a new business to the market opportunity, while providing maximum return to stakeholders. Most entrepreneurs feel they have innate leadership talents, but struggle with how to nurture these abilities and measure their effectiveness.

Since I believe that a large part of leadership is personal confidence and initiative, I was drawn to a classic leadership book by Robert S. Murray, “It’s Already Inside.” His focus and belief is that anyone can nurture their innate leadership abilities, to achieve business and life success. The key is learning from the life lessons of others, something you never get in classrooms.

He hits many of the key lessons that I have learned from my own experience, and feedback from great leaders, in both large businesses as well as startups. These include the following:

  1. Practicing authentic leadership versus fake leadership. Authenticity requires honesty, self-awareness, and a selfless perspective. Authentic entrepreneurs lead through the power of personal influence, rather than coercion. Fakers rely on position, authority, and manipulation – leading to short-term gain and long-term loss.

  2. It all starts with a vision, but you have to execute. Vision provides direction so your startup won’t just flail about. As you communicate your vision to stakeholders, you will strengthen your own belief and get buy-in from them. But above all, leadership is defined by action. You have to execute to succeed, so trust yourself and start moving forward.

  3. The importance of critical thinking. Critical thinking is the ability to think clearly, rationally, reflectively, and independently. Critical thinking is not just accumulating information, and should not be confused with being critical of other people. Entrepreneurs need to practice critical thinking to be leaders, rather than following conventional wisdom.

  4. Leadership comes with building and nurturing the right team. Entrepreneurs not only have to pick the right team members, but have to continually communicate the vision, tasks required, and provide mentoring and feedback to each member. Don’t focus on the product, and assume the team will come along by osmosis.

  5. Pretend to be a customer or client of the business you lead. Successful entrepreneurs practice stepping back to look at their business the way customers see it for the first time. It obviously helps to ask new customers what they see. Then it takes humility to swallow your pride and your biases, and make improvements regularly.

  6. Coaching and mentoring are key to the leadership role. A good leader will make sure that each person is getting exactly what they need for their role and their maturity. Depending on the individual, the entrepreneur may look like a dictator, a high school coach, a mentor, or a country club host. People ignored see no leadership.

  7. The importance of listening well. More entrepreneurs need to practice leadership by walking around (LBWA), and truly listening to the people on their frontline, as well as listening to customers, partners, investors, and vendors. It’s hard to listen while you are talking, and many people seem adept at listening without really hearing anything.

  8. Time for solutions versus problems. It’s easy to become so overwhelmed by the day-to-day problems of running a business that you have no time to work on solutions or strategy that will give you greater leverage and long-term success. Ask each member of your team to be the CEO of his own problems, and you will take time for the solutions.

  9. Know when to overreact or under-react. Real leaders stay in control of their emotions, and use reactions to highlight a point. For example, startup leaders should probably overreact to values violations, and under-react to the next crisis. Always reflect before you react. You don’t learn that in the classroom.

World-class entrepreneurship will never be learned totally in the classroom. It takes hard work, lots of practice, and lots of mistakes. It takes focus to become both a student and a teacher of leadership. You will soon be amazed by how things start to fall into place, despite what you don’t know. That’s the innate leadership coming out. Enjoy it.

Marty Zwilling

*** First published on on 10/02/2015 ***


Friday, October 2, 2015

5 Unpleasant Startup Surprises and How To Recover

cash-register-empty By definition, every startup is predictably unpredictable, since new solutions have no proven track record, startups are usually building a new market, and the world around them is changing faster than ever. Yet, as an advisor to startups, I see some common disasters, and recommend some anticipation and recovery moves that can save every entrepreneur some painful time and money.

Five major elements of every business include your people, product, opportunity, money and marketing. While every entrepreneur needs to remain upbeat and optimistic on all of these, it is also smart to anticipate the worst case scenarios that are possible with each. Prepare ahead of time to prevent or head them off quickly, before it is too late, as events unfold:

  1. Key people let you down. In all startups, one of the key concerns and biggest disaster potentials is the loss or lack of commitment from principal players. The first rule to remember is the old saying, “an ounce of prevention is worth a pound of cure.” Hire carefully and slowly, with an overriding focus on skills, experience and commitment.

    Don’t rely on friends, family and interns. They may come cheaply but will likely cost you dearly when times get tough. When people problems arise, it is critical that leaders act quickly to visibly fix them, rather than ignore the problem or carry under-performers in lieu of replacing them. Use experienced recruiters to assess and strengthen your team.

  2. The solution fails to come together. Innovative products and services always take longer to develop than anticipated, and quality problems pop up where least expected. Delivery and cost milestones are missed, which derail marketing and rollout plans, de-motivate the supporting organizations, and drive costs into worst-case scenarios.

    Even though invention can’t be scheduled, detailed planning does work, both on the product side and the business side. Written product specifications and business plans pay big dividends. Bring in expert advisors and mentors to set initial goals, and build recovery plans. Make sure all new development is buffered, rather than stretch-oriented.

  3. The market changes faster than your startup. No matter how certain you are that your solution matches the market need, you probably missed it to some degree on first entry, or the market changed while you were building your product. Startups are all about change, but entrepreneurs can be slow to change, due to passion and stubbornness.

    Assume your startup will have to pivot at least once, so don’t let your team be caught off guard and devastated. Smart entrepreneurs have metrics for assessing their progress against milestones and regularly communicate new insights to the team. Update your plan at least once a month. Don’t wait for a crisis to drive change.

  4. The money runs out before revenues start. Almost every startup underestimates their costs, and waits too long to raise more money or implement “Plan B.” Managing cash-flow must be the number one priority of every entrepreneur. Write every check personally, rather than relying on a bookkeeper or administrative help.

    Again, expert advance planning is the key here for assessing the likely costs, as well as managing payables and receivables. Don’t allow your startup to “fail by success,” meaning too many orders delivered and inventory required for big customers, before their long payment cycle kicks in. To prevent this, build a buffer and line of credit.

  5. Word-of-mouth marketing doesn’t work. No matter how great your solution, it takes real marketing effort, content and investment to get attention these days. Many entrepreneurs assume everyone will feel their passion, and find and promote their solution with the same zeal as their friends and family.

    Thus every business plan needs specifics on cost and content for marketing, with measurements to assess progress. Innovation and creativity are just as critical for marketing as they are for solution development. Don’t wait for your worst case scenario where no customers show up, and expect that slashing the price will solve the problem.

Experienced entrepreneurs have learned that unpleasant surprises are the way of life in a startup, and a big part of the satisfaction is beating the challenges. It’s a lot more fun, and much less risky, to learn from the worst case scenarios of others rather than paying for every mistake every time.

Marty Zwilling

*** First published on on 9/23/2015 ***


Wednesday, September 30, 2015

8 Steps to Exit Your Startup With Pride And Profit

pamela-dennis Once an entrepreneur, always an entrepreneur. Although many won’t admit it, true entrepreneurs can’t wait to exit their current startup, and build a new and better one with their next great idea. In addition, current investors want to see every startup go public or be acquired, as an exit event, so they can get their due return for that investment which has been tied up for the last few years.

For these reasons, I always look for an overt exit strategy in every startup I might consider for an angel investment. As a mentor to many entrepreneurs, I also encourage an entrepreneur exit focus early, and I really like the specific steps outlined in the new book, “Exit Signs,” by Pamela Dennis, who has helped companies through this critical transition for decades.

Her focus is a bit more on mature companies, but I believe the following eight steps, paraphrased from hers, are especially applicable to every startup and the entrepreneurs who create them:

  1. Think about the end game as you start. Running a mature company is totally different from running a startup. Most startup founders don’t relish the thought of managing repeatable processes, greedy stockholders, and endless regulation reports. Yet they often fall into these roles by not proactively preparing themselves for any alternatives.

  2. Set a target personal destination and timing. The first step is clarifying your personal goals and the legacy you want to leave. Exiting this startup is not the end, and may be the beginning of something even better, like Bill Gates philanthropy, or your next plan to change the world. At minimum, you need to get an exit advisor to keep you on course.

  3. Set your startup health gauges and use them. New startup founders keep all the operating metrics they need in their head. If you intend to exit, or even if you don’t, it’s never too early to think what an acquirer or stockholder looks for to assess your business health. This all starts with building a culture and strategy that can survive without you.

  4. Tune up your startup value and salability. Even if you don’t have a formal board of directors, it pays to have trusted advisors who will give you regular unbiased feedback on your team strengths and weaknesses, financial and operating ratio norms, and an external view of current company valuation issues. Listen carefully and act accordingly.

  5. Build relationships with potential acquirers. The best sale or acquisition is a gradual one, where the acquirer gets to know you through formal and informal relationships. Don’t wait for a distress situation in the business or your personal life, and hope that the ideal acquirer magically appears. Keep a critical lens on payment options and tax implications.

  6. Mature your business processes and customer base. Secure your company’s sustainability through multiple revenue streams and customer sets, and solid core business processes. Build an exit-transition plan for yourself, and a plan to retain key talent on the team. Anticipate customer and valued-supplier reaction to any change.

  7. Build a positive data bank and presentation. Well ahead of any planned move, you need to assemble hard data to support your historical and projected performance and sustainability. Your valuation and salability depends on the credibility of this effort. Plan to spend 30-60 percent of your time away from running your business during this phase.

  8. Lead your way out rather than wait for a push. The win-win startup acquisitions and successful transitions to public companies are led by the entrepreneur, rather than happen passively. You need to proactively engage the right people, drive improvements where required, and pay attention to all the external and internal factors gating success.

According to Dennis, an astonishing 87 percent of small and mid-size business owners don’t have an exit strategy or plan, leaving them to die at their desk, or get pushed out on terms they don’t like. If you are like most entrepreneurs, who look forward to a life of pride and profit after their current startup, it’s time to take some steps to make a startup exit more than a wistful dream.

Marty Zwilling


Monday, September 28, 2015

10 Business Elements Required to Rise Above the Crowd

stand-out-above-the-crowd Too many entrepreneurs look for that one magic bullet -- an exciting new technology, perhaps, or their own determination to make the world a better place -- to override any shortcomings in their startup model. Yet, magic bullets are not sufficient to assure business success. If the elements of your business aren't expertly developed and aligned, even the best dream will be in jeopardy.

Common failures I see along these lines include: solutions that are "nice to have" but don't address painful problems; a business model that lacks a means for bringing in revenue; and a founder who has turned a blind eye toward his or her competitors.

Such failures ignore the essential business elements investors look for before committing to a startup. Here is my list of those elements, which every entrepreneur needs to develop before charging into the marketplace with high hopes and (sadly) a business that will likely get lost in the throng.

  1. An experienced and skilled team on board. Even the best solution won’t rise above the crowd unless it is driven by an equally outstanding team. In fact, most investors will assert that the team is more important than the solution in startup success. They look for a balanced mix of people with complementary skills, experience and determination.

  2. A large and growing market opportunity. Investors look for startups which can address large markets, meaning those larger than a billion dollars and growing at double-digit rates. Small markets tend to change more rapidly with the economy, and may be more easily influenced by fads and competitors with recognized brand names.

  3. A focus on a specific market segment. As a startup founder, you won’t have the marketing resources or brand recognition to appeal to all consumers. Instead, find and quantify the specific demographics of the subset that your solution best fits, and target all your features and messaging to those customers. Targeting multiple segments almost always weakens your business.

  4. A near-term customer value proposition. Customers buy solutions with value that's quantifiable to them today, meaning value which, compared to existing offerings, is half the cost or offers twice the productivity. Long-term value propositions to society, or paradigm shifts in technology, generate interest but don’t close sales in the time frame your startup needs to survive and prosper.

  5. Sustainable competitive advantage. Every solution has competitors and alternatives, or it has no market. Thus, it needs an advantage to rise above the crowd, such as a patent and trademarks, unique market positioning or support from industry partners. Too many competitors or a product with minimal differentiation makes a startup risky.

  6. Solution production and support. If your product is hardware, you need manufacturing, quality control and inventory. In all cases, you need customer support, formal processes and training in place. As an entrepreneur, make sure you understand your direct and indirect costs, staffing requirements, margins and metrics to make sure these elements are in place.

  7. Product distribution or service delivery. Physical products often require access to existing distribution channels. Website and smartphone solutions usually require referral partners and value-added resellers. If your scope is international, country-specific adaptations and translation are likely required. Smart startups have these in place early.

  8. Validated pricing and a sufficient revenue stream. Pricing needs to be set before rollout, based on the value delivered and the competition; pricing also needs to be tested with real customers. Free products may sound attractive, but every business requires at least one revenue stream to survive. An understanding of return-on-investment potential is critical to all founders and investors.

  9. An innovative marketing plan. Word-of-mouth marketing is usually just an excuse for no marketing and no money to spend. In the real world, marketing initiatives that go viral cost big money and effort for their innovation and execution. Investors look for specifics on sales channels, marketing collateral, social media initiatives and customer incentives.

  10. An understanding of cash-flow requirements. Many startups fail due to too much success too early, without the cash or investors to cover subsequent costs for manufacturing, inventory and receivables. Make sure your financial projections quantify the timing and amounts of cash infusions from investors. This will lead to investor-return calculations and exit strategies.

No single magic bullet can offset all these critical elements in any business. As an entrepreneur, you have the responsibility to build and execute a solid plan to turn your dream into a reality. In my view, if you adequately address the ten items outlined above, your startup will rise above those of at least 90 percent of your competitors. There is no better way to improve the odds for long-term success.

Marty Zwilling

*** First published on on 9/18/2015 ***


Sunday, September 27, 2015

Developing Leadership Skills: What You Need to Know

develop-leadership-skills These days, with the many Internet articles and new courses available, most new professionals readily cross the gap from lack of business knowledge to knowing, but many never make it over the knowing versus doing gap. Investors I know highlight this problem with the mantra that they fund founders and teams who can execute, rather than ones who just talk about their great ideas.

After many years of working in and starting businesses, I’m convinced that implementing new business ideas is much more difficult than coming up with the ideas. The first challenge is to overcome the natural human tendency to equate talking about an idea with actually taking action. The bridge from talking to knowing to doing is all about leadership, confidence, and initiative.

I found a good summary of the dynamics behind personal business leadership, and how to get there, in a recent book “Leadership Rigor!” by Erica Peitler, a well-known leadership performance coach. Here are the key principles she espouses, extended to leadership teams, based on my own background and mentoring new entrepreneurs:

  1. Learn to trust yourself and your team. Crossing the knowing-doing gap in a startup can create feelings of trepidation, fear, and embarrassing consequences of perceived failure. These are self-imposed barriers based mainly on your own negative self-talk. Learning to trust yourself is critical. Then you have to listen to and trust your team.

  2. Be patient and let the collective strength grow. Be aware of your anxiousness and practice self-management in being patient with yourself and team members. Resist the trigger of impatience. Slow down and trust the process, engaging the collective input of all. No one is the sole center of attention, so allow strengths to grow and unfold naturally.

  3. Take an escalation-of-risk approach. Start with a low-risk approach of discussion of your action plan in a one-on-one discussion with a trusted advisor. A more moderate-risk is to offer your plan to key team members, asking for feedback. Finally, the highest risk approach is to push your execution model directly on the whole team, and resolve issues.

  4. Take the fear out of team player decisions. It is easier to encourage team members to question current business processes and make innovative changes in an atmosphere of trust and safety. Getting beyond known limits requires courage from all, not fear. Driving the fear out of business pivots encourages thinking outside the box.

  5. Use metrics to support judgment in decisions. Metrics should be seen as guides, helping to direct and support good behavior, but not absolute measurements of good or bad judgment and wisdom. Metrics are necessary to acquire knowledge and turn it into action. What gets measured gets done. What is not measured is not seen as important.

These principles embody an incremental approach to the knowing-doing obstacles that entrepreneurs and their teams have to face head-on:

  • Overcoming the resistance of inertia. It’s easy for professionals to convince themselves that it’s okay to stay in the knowing stage a little longer while everyone strives for a greater level of confidence. Sometimes intellectual arrogance drives the conclusion that knowing is the most important thing, and almost the same thing as doing. It is not.
  • Taking risks and resolving unknowns is not comfortable. Individual and team leadership is about consciously demonstrating good business actions, in real time, through disciplined practice. Doing this will create experiences from which you and the team can learn and grow. Expertise requires iteration on learning, failing, and growing.
  • Fear of showing vulnerability. Every professional and team member has to get over the fear of showing others conscious incompetency in certain areas, and a willingness to struggle through the necessary learning curve to reach conscious competency. This is an important step in self-coaching, and in coaching others on the team.
  • Don’t let the memory of past actions limit thinking. Memory often serves as a substitute for thinking. Team members do what has always been done without reflecting. Business problem solving should mean drawing from past precedents, how things have always worked, and standard operating procedures, but not being constrained by them.

Professionals should judge their own competency, and that of team members, based on how well they perform, not how well they talk or how smart they seem. It’s easy to sound smart by being critical of the ideas of other team members, and it’s easy to make excuses about why a new proposal will not work, or why the present process is less risky than a new one.

Starting and leading a business is not rocket science. But is does require continuous decisions and sound execution. Thus the knowing-doing gap is one of the biggest inhibitors to success that I see. It’s time for every professional to take a hard look at themselves and their team to assess how well they stack up relative to the principles and challenges outlined here. All your competitors, investors, and customers are making the same assessment on you.

Marty Zwilling

*** First published on on 9/25/2015 ***


Saturday, September 26, 2015

7 Investor Term Sheet Demands Startups Need Not Fear

Mark-Cuban-Investor Most entrepreneurs looking for an investor can tell you how much money they need, but few have given much thought to what they are willing to give up for it. Perhaps they're way off in their valuation (usually far too high), or paralyzed by fear at seeing the other terms, because they have no idea what's normal, and what's worth a fight to the death (their startup's).

Investors, on the other hand, look at the money figure, and even the equity, as the easy part. What they worry about is a whole different set of issues, including how much control they will have over how their money is spent, what will happen when future investors jump in to dilute their position and how they will get some money back if things don’t go according to plan.

Still, no one wants the terms to be so complex that the deal never closes. The process should not be a game where investors and entrepreneurs are trying to kill each other, but one that defines a win-win arrangement: Both parties are protected and can work together with mutual respect in anticipation of a big win. Here is a summary of the key terms to expect on the term sheet, or the contract between the founder and investor:

  1. Consideration given for the money invested. In very early startups, which have no valuation, the term sheet may specify a convertible note. This is a loan with an option to convert to equity at a later date. For later investments, the price is equity, with a percentage of the owner stock to be assigned to the investor. Numbers in the 20 percent to 30 percent range are common.

  2. Type of stock assigned to the investor. Investors typically demand preferred stock, to give themselves certain voting and liquidation privileges over later shareholders. Even founder’s shares are common stock. Preferred shares are not possible with a limited liability corporation (LLC), so expect to convert to a C-corp to get an equity investment.

  3. Board of directors participation. Every investor would love to have a seat on the board, since that is where business control really lies. Smart entrepreneurs will limit these seats to one or two top investors, to keep the board size manageable, as well as to balance control with startup founders. A startup board of five or fewer members is optimal.

  4. Terms to prevent equity dilution relative to others. Investors always worry that later investors might come in at a lower valuation, effectively pushing out early investors. Accordingly, they include terms which allow early investors the right to buy shares at the new, lower price, or otherwise maintain their existing ownership share. This is normal and fair to all.

  5. Definition of investment delivery in "tranches." This simply means that the investor wants to deliver the cash in stages, dependent on the founder achieving specified milestones. Obviously, it reduces the investor's risk, but limits the flexibility of and increases the risk for the startup. Founders should negotiate this term away if at all possible, and get that cash now.

  6. Right to buy shares back from exiting investors. This “right of first refusal” allows existing owners to reclaim shares that are about to be sold to a new party, to prevent ownership fragmentation. Startup founders should insist on this option for themselves, and allow it for major investors. Venture capital investors normally insist on this option.

  7. Investor liquidation priority. Investors want a contract preference to get their total investment back first in any company sale, to prevent founders who are struggling from deciding to sell at a loss. If the company is sold at a profit, liquidation preference can also help them be first in line to claim their profits. Smart investors will insist on this option.

To achieve maximum negotiating leverage, you should approach investors with your own term sheet, and keep it as simple as possible, including no more than the common terms defined here. Another alternative is to adopt the “standard” term sheet of a local angel investment group, which typically will not include the restrictive terms that individual investors might start with.

Term sheets are something you can’t avoid. Yet they need not be a mystery or a yoke around your neck. If you take the time to understand the basics, and start looking for investors before you are desperate, the whole process can be fun and exhilarating, rather than a gauntlet of fear and pain.

Marty Zwilling

*** First published on on 9/16/2015 ***