Monday, July 6, 2015

8 Business Name Mistakes That Investors Hate to See

Delete "MISTAKE" Every new baby gets a name before it is introduced to the world, and yet some entrepreneurs continue to send me business plans with TBD (to be determined) in place of a business name on the front page. They don’t realize that the name they choose, or lack of it, sets an initial perception of the business that may override all of its value. Your business name will have the same impact on potential customers.

Just as with names of people, there isn’t any ultimate right or wrong, and every name has unique implications in different cultures, economies and markets. Names can imply strength, value, connection or friendliness, or they can set opposite tones. As you search for that perfect name, it pays to avoid the key mistakes that we investors and business naming experts hate to see:

  1. Trivial names and acronyms are not sticky. Your spouse’s initials may be meaningful and memorable to you as a company name, but won’t get you very far in business. In this world of information overload, you need a name that will remain memorable and meaningful for years to come, even after trends change and your startup has pivoted.

  2. Tricky spellings send customers to competitors. Today, everyone expects to find you online, and competitors quickly learn to route all misspellings of your business name to their sites. Use conventional spelling, or phonetically consistent spellings, rather than the cute variation that implies a double ententre and amuses all your friends.

  3. Nonsense phrases and non-words are tough to brand. These may be easy to trademark, but there are few plans strong enough, or companies with enough money, to make Google and Xerox recognized brands. Most startups don’t have the resources, and should be more humble in starting with a name that customers will recognize.

  4. Every extra syllable or special character makes it harder. Two syllables seems to be the optimum for a business name, especially if it can be easily turned into a verb, such as Facebook or Twitter. Hyphens, special characters or mixed case in the name only invites the misspellings and memory problems mentioned earlier.

  5. Beware of international and cultural implications. Even if you have not thought of going international, remember that every website on the Internet is visible around the world. Do your research to be sure you will not be embarrassed by a name that has negative or obscene implications in another culture or language.

  6. Don’t limit future expansion possibilities. Business names that have specific geography references or product implications will come back to haunt you as the market changes or new growth opportunities emerge. Changing the name later and rebranding is a very expensive proposition, and takes a long time.

  7. Your desired name is not available on the Internet and/or social media. These days, before you adopt a company name, you need to make sure you can secure the domain name for your website, the trademark is not taken and the name is available on all the social media sites that your customers might frequent. Confusion will cost you customers.

  8. Skip the new wave of domain name suffixes. Even though the standard .com or country suffix can now be replaced by virtually any word, including .bank, .sport, or .coke, I don’t recommend it yet for startups. While these may sound attractive in defining your company name, they still don’t have full recognition by most customer segments. At best, they should be reserved as alternates, with website redirects to forestall competitors.

In all cases, I recommend that you spend some time building a short list of three to five names that satisfy your objectives, but avoid the shortcomings above, and try them out on potential customers, peers and advisors. Feedback from friends and family is the least valuable, since they have the same biases that you do.

If you choose a name, and realize based on early results that it was not the right one, it’s smart to change the name immediately, rather than hope to overcome the limitations with more marketing. Changing your branding is always hard, but it’s one of the most common pivots that startups make. It will cost you some money and time now, but not changing your name will likely cost you your business later.

Marty Zwilling

*** First published on Entrepreneur.com on 6/26/2015 ***


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Sunday, July 5, 2015

10 Startup Practices That Usually Lead To Disaster

AT_YOUR_OWN_RISK Starting a new business is a serious undertaking. Yet many aspiring entrepreneurs I know approach it as a fun project, get-rich quick scheme, or perhaps an expensive hobby. Others quit their day jobs and commit everything to their new passion, without regard for their own well-being, or the welfare of others around them. Neither of these approaches bodes well for success.

As an entrepreneur, you need to start early to implement the discipline and business practices that will lead to success. Even though everyone has an opinion on good early stage practices, I was impressed with the actionable blueprint in a recent book by Scott Duffy, “Launch! The Critical 90 Days From Idea To Market,” focusing on the first few steps that determine long-term success.

Duffy emphasizes the often overlooked personal side of entrepreneurship, including balancing finances, relationships, and your health. I am paraphrasing here, based on his book, ten of the top failures we both see in the early stages of entrepreneurship, followed immediately by recommendations to mitigate losses from each of these items:

  1. Take the largest risk to get the biggest return. Startups always involve risk, but should not be risky. Every business move should be planned and well thought out, with milestones set in advance. Processes should be in place to ensure that even if something does not go as planned, you, your family, and even your job are secure.

  2. Let your passion drive your cash flow projections. Moderate your optimism. That means coming up with revenue and expense assumptions that balance your natural optimism and determine how much cash the business will really need. Then take your revenue projections and cut them in half. Now take your expenses and double them.

  3. Your idea will attract the funding you need. Assume that raising money from investors to get started will be difficult, unless you have a track record in business, or friends with deep pockets. Will key funding be your family’s entire nest egg, or just half? Are you going to bootstrap, or borrow from personal assets?

  4. Pretend your family doesn’t matter. Discuss the plan and the costs with your spouse or significant other. It’s essential that the two of you be in agreement on key milestones and how much to put on the line. It is better to risk less and be on the same page than to risk more and have your spouse worried and resentful day after day.

  5. Mix personal and business funds. Put your risk capital into a separate checking account before you start. Once you see it moved from your savings account to an account tied to risk, it becomes real. You now have a clear financial framework to help you make better decisions, and you will act more strategically, less impulsively.

  6. Use personal credit cards for business. Keep your personal credit cards separate from the business. You need to do this as a way of tracking, accounting, and leveraging business payments and expenses for tax purposes. Never commingle personal and business funds. Remember that credit card cash advances are very expensive loans.

  7. Keep business expenses in the bottom desk drawer. Hire a bookkeeper or setup a QuickBooks chart of accounts on your first day in business. If you don’t set up a system early, you will spend tremendous amounts of time and energy going back trying to reconstruct business transactions, for you, your investors, and tax preparers.

  8. Don’t formalize the business until you get revenue. Have an attorney set your business up as a Corporation, by the books, before the first transaction. We live in a very litigious society, so you need to at least protect yourself from liability. Set aside money to create a proper legal entity and get business insurance. It is not just about you.

  9. Strive for success before thinking about your own payback. Being unprepared for success is the fastest way to lose your first million. It is important to constantly expand your understanding of how investments work, so that as your business grows and spills off cash, you are able to manage personal profits.

  10. Hedge your bets by starting several initiatives or products. Decide to launch one business or product at a time. The best route to success is not to spread your energy and focus on ten things, hoping one will work. Give that one focus everything you’ve got, or you will likely not have the resources to anything well.

Obviously, avoiding all of these errors won’t guarantee success and won’t save you if you don’t have a viable offering or a viable business model. Being an entrepreneur may start with passion and an idea, but turning that idea into a great business is all about smart execution. Don’t let a million dollar idea turn into a million dollar loss, for lack of proper discipline, personal balance, and business execution.

Marty Zwilling


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Saturday, July 4, 2015

7 Ways To Balance Business Versus Personal Goals

independence-day-usa I know some entrepreneurs with successful businesses, and others who seem to have a great relationship with their family, but I can’t think of many who have both. Some people would argue that these two successes are mutually exclusive, but I’m not convinced.

Individually, they both take focus, commitment, and a variety of skills, all the strengths of a good entrepreneur. Assuming a person wants both a family and a business, the challenge is to achieve a balance that can satisfy both. This July 4th Independence Day Holiday in the USA is a good time for all of us to do a reality check on our own efforts.

From my observational experience, as well as my personal struggles on both sides of this equation, here are some of the key parameters of that balance:

  1. Start with a solid family and business foundation. A successful business won’t lead to a great family relationship, and vice versa. Don’t assume that your focus will change once your startup gets past the initial struggle. Keep in mind that your loved ones often see your business enthusiasm and energy as negative reflections on them.

  2. Be realistic about what brings happiness to you. Many entrepreneurs, especially women, gravitate to entrepreneurship because they see it as the way to balance work and family demands. That could mean they are forgoing happiness on the business side. Some men want a family relationship, but the business is what makes them happy.

  3. Find fun things in and out of work that are high priority. These don’t have to be expensive or hard-driving activities like sports competition. They can be simple in nature, like being present for school engagements, or regular Friday night “date nite” with the spouse. Practice consistency with “fun” and “high priority” elements.

  4. Assess your ability to compartmentalize the two roles. Achieving a balance requires an ability to put aside the burdens of work at the end of the day, and giving your full focus to important relationships. Separation of work and home are fuzzy for an entrepreneur, and it’s easy to find yourself on duty 24/7. Can you find the off switch on your cell phone?

  5. Be accountable for decisions you make. Remember, as the entrepreneur you are in control, and the business is not. Don’t let the urgent crisis of the moment become the priority of your life, to the detriment of your balance. Keep in mind that the sacrifices you make for the business also impact your family.

  6. Say “NO” and “YES” with equal frequency in both roles. Be honest in how your decisions will affect others in either role. Be in control of your priorities. The first step is to track yourself on these responses. Most people don’t recognize that they may have a habit of being negative in one role, and positive in the other.

  7. Communicate well and often at your business, as well as with family members. You need to keep an open mind and listen effectively to people in your business, and to people who are in your relationships. Pay attention to body language, emotion, and time spent speaking versus listening. Talking is not communicating.

Most people consider entrepreneurship as a lifestyle, rather than a job. Being married is a lifestyle, and raising a family is a lifestyle. Recognize that it’s harder to balance two lifestyles than it is balance a job with your real lifestyle.

Also mixing business with pleasure is one thing, but mixing business with family yields an altogether different, and often volatile, dynamic. Running a family business or “FamilyPreneurship” is even more difficult, and can derail or splinter cherished relationships.

Before you conclude that entrepreneurship is your chosen lifestyle, make sure you understand the balance it will require, and make sure those around you are prepared to accept that balance. A failure in this regard will likely cause you some fireworks you hadn’t anticipated.

Marty Zwilling


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Friday, July 3, 2015

6 Reasons Smart Entrepreneurs Think Twice Before IPO

Philippine-stock-market-board The visibility of Google, Facebook and a few others continues to propagate the myth that the ultimate objective of every entrepreneur should be to take their startups public via an initial public offering at the earliest opportunity. Everyone thinks this is the route to become the next billionaire like Mark Zuckerberg.

In reality, this option is a nightmare that can bump you out of the driver seat, dilute your equity and create a business entity you can’t control. For financial reasons alone, an IPO is a statistically rare phenomenon, happening just 275 times in 2014, out of almost 500,000 startups. Many of these may still fail spectacularly, such as Webvan and Pets.com.

As an advisor and mentor to startups, I try to make sure entrepreneurs understand both the pros and cons of an IPO as an exit strategy. Facebook, for example, ended up raising almost $16 billion through its IPO. It’s hard to imagine any other investor mechanism that could have raised that much money. On the other hand, Zuckerberg signed up for a lifetime of challenges:

  1. Large personal and corporate liability exposures. As a public company executive, your management style, and even your personal life, is subject to extensive scrutiny by stock analysts and stockholders. Violations of integrity and accepted business practices is malfeasance and can result in corporate and personal fines, and even prison terms.

  2. Extensive government reporting and compliance rules. To prevent another Enron scandal, public companies and their officers are measured against strict and growing government rules for reporting and compliance, popularly known as Sarbanes-Oxley, or SOX. Private companies are largely exempt from these reporting requirements.

  3. Doubling or more of overhead expenses. These new reporting and compliance rules require expensive new processes, systems and consultants. When including lawyers and a chief compliance officer, many experts argue that the costs can quadruple those of a private company. That extra money raised better kick-start your opportunity.

  4. All strategy and operational moves become public. Every public company has to answer to thousands of public stockholders now, rather than just a few private investors. This is a huge communication requirement, as well as a tremendous disadvantage in flexibility and dealing with competitors. The public is not an easy master to satisfy.

  5. Public expectation of growth every quarter. The pressures to maintain a profitable and steep growth curve, vs. reinvesting returns in new markets, are very frustrating to entrepreneurs who get their satisfaction from the flexibility of a startup in addressing new opportunities. Even perceived weaknesses can dramatically impact company valuations.

  6. Control moves to external directors and the public. Private companies typically have an internal board of friendly owners, unlikely to be pressured by the media to consider an unfriendly tender offer from another major player in the market. Even with private equity and private acquisition transactions, control stays internal to the principals.

Of course, there are cases where a new technology or medical startup needs that huge financial infusion to build the infrastructure needed for real growth, so the rewards are worth the risks and costs. In the long run, building a global company with the relatively unlimited public resources is still only possible by starting with an initial public offering and giving up your startup.

For every entrepreneur, I recommend first a personal assessment of your goals and strengths. If you enjoy the challenges of a startup and being in charge of your own destiny, you probably won’t survive the move to a public company, and you certainly won’t enjoy it, even if it makes you and all your friends rich. Greed is not an easy master to satisfy either.

Marty Zwilling

*** First published on Entrepreneur.com on 6/24/2015 ***


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Wednesday, July 1, 2015

Mistakes To Avoid With A Startup Board Of Directors

board-room Most entrepreneurs avoid setting up a board of directors for their new business unless or until they sign up an investor who demands a seat on the board. That implies that a board of directors has no value to the founder, and is just another burden that to be assumed for the privilege of attracting outside investors or going public. In my view, nothing could be further from the truth.

Especially for entrepreneurs who have not built and sold companies before, and need this startup to be an attractive acquisition or IPO target in a few years, I can’t think of a better way to enlist outside experts and keep them motivated to help you meet the challenges of a startup. High-performing startups today are the ones that use every resource at their disposal.

Of course, if the board is set up or used incorrectly, the impact can indeed be more negative than positive. In her new book “Corporate Concinnity in the Boardroom,” board expert Nancy Falls outlines the most common mistakes with boards, and I believe several of these apply to startups as well as to more mature companies as follows:

  1. Having too many or too few board members. Size does matter. I recommend three or five members to start (an uneven number prevents tie votes). Too many members are difficult to schedule and manage, and cost too much. Less than three is not a board. Members should be compensated, starting at one percent of stock or a small retainer plus expenses per quarter. Their value will be well worth the investment.

  2. Avoiding outside independent directors. Outside directors bring new input to the table that offers invaluable context to your hyper-focused inside officers. The objective is a balance of skills and interests to optimize the growth and success of the business. Friends and family may tell you what you want to hear, but not what you need to hear.

  3. Expecting the board to always support management. A small number of board members have to represent the divergent views of all constituents (be a representative democracy). In fact, the primary function of the board is to be the boss for the CEO, setting clear goals, measuring performance, and providing business governance.

  4. Having the wrong management representation. In startups, where the CEO is usually the founder and major shareholder, it is normal for the CEO to chair the board. At most, one other senior insider would be appropriate, but a board that is dominated by insiders or family members with minimum business experience is generally not effective.

  5. Maintaining too little diversity. As globalization and the shifting demographics of markets and the workforce make startups more dependent on diversity, a board built on homogeneous relationships has the inherent risk of insularity. Pick your outside directors, not only on ownership or relationship, but also on experience in the world you know least.

  6. Failing to establish adequate structure. Every board needs a playbook to bring clarity to the roles and responsibilities of the board itself. Board rules and governance policies should be articulated in writing and voted upon. The board should meet at a minimum of four times a year with a quorum present, or more often for critical issues.

  7. Lacking commitment and trust in board recommendations. A culture of mutual trust, respect, and commitment must be set from the beginning and from the top. Board members in constant conflict can kill your company more quickly than any market forces. Members don’t need to all like each other, but they do need to respect one another and be committed to working together for the betterment of the business.

If your startup is not quite ready for a formal board of directors, then I would recommend you start with the less formal advisory board. An advisory board is a small group of mentors that have specific industry knowledge and connections and bring their consultative expertise to the CEO in much the same way as a formal board, but without any formal roles or associated liabilities.

Thus the biggest mistake any new entrepreneur can make is to believe that a board of advisors or a board of directors will only slow them down. It’s never too early to bolster your leadership strength with experienced partners inside the organization, and professional advisors who can take the larger view. It’s a complex competitive world out there, and learning is a full-time role.

Marty Zwilling


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Monday, June 29, 2015

7 Ways To Turn Team Conflict Into Positive Results

business-team-friction The best startup teams don’t shy away from some healthy friction and heated debates between team members or founders. That’s the way smart people with innovative insights make real change happen. Yet we all know that there is a fine line here, beyond which heated debates generate so much emotion and drama that the entire team becomes dysfunctional.

The obvious challenge is to channel these interactions in a way that maximizes their value to the startup as positive results, without letting them slip into a non-productive or even toxic mode. An equally important challenge is to maintain a culture that rewards engagement, since many people are uncomfortable challenging the views of others.

For feedback of any type to be effective, there can be no quick judgment of right or wrong. Yet it certainly is possible for team members to not deliver feedback well, or for the receiver to accept it poorly or even ignore it. Either of these problems turns conflict into unhealthy friction, which can be avoided with the following initiatives:

  1. Be the one to ask the right questions. By asking open-ended and relevant questions, you allow team members to feel that you respect them and are debating their ideas rather than judging them because of their views. By default, this role falls on the entrepreneur or a senior team member to establish a culture of openness to innovation and change.

  2. Make team debates a managed rather than ad hoc process. Pick an appropriate forum for questions and debates, such as weekly quality-review meetings, rather than water-cooler gatherings. Make sure the discussions are facilitated and limited in scope and time, to prevent wandering off subject and redundant discussions.

  3. Don’t allow titles and roles to limit the communication. A large perceived power difference will change the dynamics of any feedback discussion or debate. Less experienced team members will only really communicate with peers, and maybe their direct manager, while executives may interact more with mentors and outside experts.

  4. Constrain debates to neutral and non-confrontational language. Make all feedback constructive and non-emotional, and avoid personal judgments and labels, such as lazy or inept. People tend to listen and accept feedback more readily if it is couched around recent relevant activities and clarifications.

  5. All members must provide a balance of positives and negatives. Always include positive recommendations when pointing out problems. Team members who consistently provide only negative arguments will be discounted and will poison the problem-resolution process. Everyone must be perceived as participating for maximum impact.

  6. Eliminate indirect and second-hand feedback and arguments. Team members who highlight comments from people who are not present create unhealthy friction. Always stick to the facts that you know, your own observations and available published sources, rather than quoting anonymous industry experts. People are wary of second-hand data.

  7. Keep the discussion focused on business rather than personal. Disparagement of a team member’s character is always inappropriate and toxic. Don’t mix observations about work issues with revelations about private relationships, or activities outside the work environment.

By definition, startups are dealing with uncharted territory and change. As an investor, when I meet a team that exhibits no conflict, I conclude that either the founder is a tyrant, or the team is weak. Neither of these alternatives bodes well for long-term success. On the other hand, excessive and unmanaged conflict is debilitating and unproductive.

As an entrepreneur, you can’t survive alone, and you can’t make every decision alone. The best entrepreneurs surround themselves with people smarter than themselves, ask the right questions, coalesce and learn from the input, and motivate the team forward to success.

Have you worked lately on your ability to rise above the conflict?

Marty Zwilling

*** First published on Entrepreneur.com on 6/19/2015 ***


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Sunday, June 28, 2015

4 Entrepreneur Types That Survive Best In The Hunt

Diorama_cavemen Most entrepreneurs believe they are “different,” but they can’t quite understand how. They usually explain it by insisting that they are driven to follow their passion, need to be their own boss, want to get rich quick, or want to change the world. I now believe that the roots of the difference may go back more than 10,000 years, when hunting and farming became two different lifestyles.

The classic book, “Hunting in a Farmer's World: Celebrating the Mind of an Entrepreneur,” by serial entrepreneur and business coach John F. Dini, tied together several threads I have often seen in my own experience of mentoring and helping aspiring entrepreneurs. Dini makes the case that entrepreneurs are hunters, while the rest of us (large majority) are farmers.

This is not a statement of good or bad, right or wrong, but just an explanation of why some people see and do things one way, and others do it another way. In business, entrepreneurs hunt for new innovative solutions to problems, new ways of beating competitors, new markets, and new customers. Farmers are the management that comes after the hunt, to build repeatable processes, do seasonal planning, and make sure all employees are well-fed and trained.

All this made more sense to me as Dini defined the types of entrepreneurs into four categories. Within each of these types, I can easily highlight strengths and weaknesses that we both see every day in startups:

  1. Technicians. The good news is that technicians are entrepreneurs who have previously learned a skill or job so well that they can do it without a manager. The bad news is they may not be good at managing people, or even managing basic business. Technicians can become true hunters when they learn to provide for both employees and family.

  2. Inheritors. These are former employees who find themselves thrust into owning a business, due to family ties or evolution. Unfortunately, most inheritors have been farmers for too long, or never had hunting instincts. The best ones learn to be hunters, or revert to that mode, allowing their business to grow and change with the requirements.

  3. Acquirers. Entrepreneurs who are willing to acquire an existing business, and believe they can make it a better business than previous owners, are clearly hunters. Farmer acquirers, who want to manage a proven opportunity, with no change, buy a franchise. Hunter franchisees move on quickly, or end up owning the entire franchise system.

  4. Creators. These are the ultimate hunters. They build businesses as their lifestyle, not as a job. They love the continuous hunt, for investment capital, resources, talent, and new markets. Only a few of these slide into farming, as the company grows in employees and products. The remainder usually exit within five years, to start the process over again.

In addition to the right type, there are clearly traits that every aspiring entrepreneur should recognize as critical for business success and happiness:

  • Creativity. Hunters thrive on the challenge of the unknown. They look at every situation as a puzzle that has an answer. Success at any level always brings a new set of problems. Hunters live for solutions and change. Farmers live for repeatable processes, minimal risk, and predictable results to feed the family.
  • Tenacity. Hunters never quit. There are no defeats, only setbacks. Success is always just a little further down the road. “Never” is not an option. If a solution doesn’t work, there is always another, then another, and another. Farmers are easily frustrated by setbacks, and count on “leadership from the top” to give them new fields for growth.
  • Business sense. Hunters need “street smarts.” If you are looking to create a business, you better have a strong “gut feeling” or “third eye” for business that goes beyond the usual five senses. Farmers have a narrower view of what is required, to optimize quality production, customer satisfaction, or close a sale.

There once was a time in mankind’s history when almost everyone was a hunter, for survival. Our civilization has evolved now almost to the other extreme, where the vast majority of the people in business are farmers (managers and employees). For those of you who have the hunter gene, or the yearning to learn, the time has never been riper to be an entrepreneur. How long has it been since you have taken a hard look in the mirror?

Marty Zwilling


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