Monday, June 27, 2016

6 Principles for Personal and Business Success

success-personal-businessThe startup lifestyle is known to be stressful and challenging, but it’s also meant to be satisfying and fulfilling, with you as the entrepreneur in control of your own destiny. Unfortunately, it doesn’t always work out that way, based on my many years of experience with entrepreneurs and advising startups. The business can be successful, while the entrepreneur feels like a failure.

As an example, I know one highly driven startup founder whose business is growing at a reasonable pace, but the entrepreneur regrets the toll it has extracted from his family, his health, and his ability to relax and enjoy the fruits of his labor. I know several other CEOs that were pushed out of their own successful companies by investors, leaving them feeling like failures.

The challenge is not to let success come without personal satisfaction, or at the expense of the ones you love. To do that, you need to follow a set of personal principles that drive your business principles, not the other way around. Here are some key ones that I espouse:

  1. Define your personal goals and purpose early. Your personal goals should drive your business goals, not the other way around. You will never be satisfied or happy if you are not true to your core beliefs, personal interests, and a higher purpose. Write down your goals, and then take ownership to make them happen and feel the satisfaction.

  2. Focus on strengths rather than fixing weaknesses. If you don’t see business as one of your strengths, you likely won’t be happy leading a startup. Many technologists refuse stubbornly to let anyone else take their invention from a product to a business, assuming they can easily fix their business weakness. Both they and the business end up suffering.

  3. Create some short-term milestones on the path to your dream. Dreams alone won’t make you happy or successful, so start early in defining and executing against a set of milestones to celebrate progress along the way. Satisfaction is not a one-time event at the end of your career; it’s a series of good feelings driven by results along the way.

  4. Be honest with yourself about practicing what you preach. Many business executives can give a great talk to their team about sustaining their health and maintaining a balanced family life, but they let the business override their own needs. Similarly, don’t compromise your own ethics and integrity for the sake of your business.

  5. Don’t stop believing, learning, and growing as a person. The world of entrepreneurs is ever-changing, so if you aren’t learning and changing, you are falling behind. In business, setbacks must be seen as normal and expected challenges, not as indications of failure. Successfully recovering from problems should be a key source of satisfaction.

  6. Take satisfaction from team success, at work and at home. Being an entrepreneur is not a one-person show, so accept that fact, and build a team that can complement you and support your weaknesses. If your business and private teams are motivated and satisfied, their happiness will radiate to you. A motivated team is a successful one.

An over-arching principle for success and satisfaction for every entrepreneur is respect – for yourself, and in business respect for every customer, investor, and employee. Another generic attribute close behind in value is persistence. No amount of talent or genius can take the place of persistence.  Many experts believe that one of the top reasons for startup failures, as well as personal failures, is simply giving up too early.

In fact, people giving up on unsatisfying corporate careers is one of the primary sources of entrepreneurs. Most don’t realize that the same satisfaction and success principles apply in both worlds – and ignoring them in both will have the same negative consequences.

Switching from either lifestyle to the other will give you a whole new set of challenges, but it won’t automagically bring you happiness, satisfaction, or success. In either case, I’m a believer that you make your own success. Now is the time to start.

Marty Zwilling

*** First published on Entrepreneur.com on 06/17/2016 ***

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Sunday, June 26, 2016

5 Reasons Startups Need Revenue As Well As Users

twitter-growthSome analysts argue that revenue drives growth, while others say user growth drives revenue. Both have worked. Google reached $1B in revenue within five years of incorporation, and now has a market capitalization of over $400B. Twitter showed no focus on revenue in the first five years, but was able to parlay 500M users into a $22B public company, now growing revenue.

Every startup dreams of achieving that milestone, when they can focus more on scaling the business and enjoying their earnings, rather than fighting for another investment infusion. Most are still confused about the right priority. Should they focus on increasing revenues and profitability, or entice more and more users with “free” services, to increase their valuation.

Traditionally, it was simple. A business only achieved critical mass by becoming cash-flow positive. Revenue growth (top line) then had to be converted into profit growth (bottom line), before a business was deemed to be self-sustaining and worthy of public investment.

It’s only been in the last ten years that social media companies, like Facebook and Twitter, have achieved market valuations in billions of dollars, while clearly sacrificing revenue to gain users. In my view, the pendulum is swinging back, with investors looking more for the traditional indications of business integrity, stability, and growth:

  1. Some element of organic growth is a good thing. The purest form of capitalism has always meant charging a fair price and making a fair profit. Re-investing profits to grow the business is organic growth. The concept of free goods and services to get you hooked, financed by deep pockets, or advertising, seems marginally ethical to many.

  2. Long-term stability requires revenue growth and profit. Most modern investors still look for a business model that embodies a gross margin over 50%, and a net margin in the 20% range. A healthy business, ready to scale, has been doing this for a year or more, with an existing customer set generating a non-trivial and growing revenue stream.

  3. High customer loyalty and high team passion. Startup productivity is embodied in key ratios, including low cost of customer acquisition, high retention, and high revenue per employee. High customer churn and lackluster team members are still indicators of a high-risk investment opportunity, to be avoided by both public and private investors.

  4. Growing appreciation for the value of the solution provided. These days, you need customer evangelists who see the value and will pull in their friends through viral actions to keep the business growing. Too many of the high user growth startups have been fads, and numbers can go down as fast as they go up, as per Friendster and MySpace.

  5. Understanding competitive early mover requirements. First movers in a new space need users more than revenue to maintain market share, so investment pitches need to highlight this priority in requests for funding resources. More complex and defensible businesses should highlight their organic drive to profitability and brand leadership.

Unfortunately, the Internet and heavily funded startups have nurtured a customer expectation of free web services and free smartphone apps. In these domains, it is now difficult to monetize at all until you have a large critical mass of users. In these cases, growth scaling is important, both before and after revenue flow begins. The business plan must reflect both growth phases.

Thus even after a startup has achieved a critical mass of users, the expectation of long-term revenue growth and profitability does not go away. Twitter is facing this challenge right now, as the large majority of public investors expect a near-term financial return on their investment, every quarter of every year.

So a higher focus on user growth may be necessary early, but is never sufficient. If you are in it for the long run, don’t forget the basic business principle that if you lose money on every customer, you can’t make it up in volume.

Martin Zwilling

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Saturday, June 25, 2016

Checklist For Becoming A More Effective Team Leader

team-leader-businessEntrepreneurs need to be effective team leaders, since no one can transform an idea into a product and a business without some help. Unfortunately many founders I work with as a mentor are experts on the technical side, but have no insight into leading a team. But fortunately, team building is a skill that can be learned and practiced, for those willing to put in some effort.

The only real alternative is to find a co-founder who can build and lead the team, while you focus on the product. Otherwise, in my experience, the startup will fail. The importance and the specifics of practical team leadership were re-confirmed to me recently in a recent book, “Unlocked,” by Robert S. Murray, who is a recognized expert in the field of business leadership.

I recommend his checklist as a starting point for developing team connections and building engaged team members as a key step in becoming an effective team leader, even if your team is spread all over the country:

  1. Consciously reduce time spent on outside activities. You won’t be viewed as the team leader if you spend most of your time on activities that are not relevant to your team. Being visible and engaged on a random part-time basis, due to other jobs, won’t do it. If your team has trouble finding you, you won’t make productive connections.

  2. Be compulsive about scheduling time for your team. Even busy entrepreneurs need to schedule regular and predictable times which will be devoted only to working and interacting with the team. Possibly an hour in the morning and an hour in the afternoon may be enough, if you make it happen consistently.

  3. Maintain a weekly “huddle meeting” with the entire team. This can even be done remotely via Skype, but it’s important that every team member attends. You need to listen as each summarizes their accomplishments for the last week, and their plan for the week ahead. Leadership is making sure they have resources and understand the strategy.

  4. Have monthly reviews with each team member. Team members need and crave feedback, much more frequently and informally than the annual performance review. I recommend scheduled monthly 30-minute informal checkpoints, as well as quarterly updates on objectives and performance. Ask what you can do for them in every review.

  5. Practice leadership by walking around (LBWA). I personally have found this to be one of the most effective ways to find out what is going on, as well as an opportunity to provide feedback on strategy and direction. Go for walks every day and stop at people’s desks. Ask them what is going on, both in the team and outside of work. Listen.

  6. Recognize team members for individual efforts. Communicate individual results as well as team results to everyone. Most leaders don’t say “thank you” enough. Recognition in front of peers is often more motivating that monetary awards. This is the time to talk about wins with customers and what is coming on the horizon, and the team role in each.

  7. Be real and authentic in every interaction. If you are not, your team will see right through it and you will be worse off than if you stayed locked up in your office. Make sure you’re treating all team members as you would want to be treated. Be genuinely interested in learning something new every day from your team, and they will follow you.

The value of startup teams with the founder as an effective leader is many times the value of many strong individuals working independently. It’s not only your connection with the team, but their connection with each other that is critical. Only a dedicated leader can spot those special powers in each member and then build a well-oiled team which can win the startup war for you.

The result is not only more productivity, but also a startup where everyone loves to contribute, and the whole team feels the energy and satisfaction of accomplishing your dream. Now your personal leadership becomes business leadership, which can actually change the world.

Marty Zwilling

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Friday, June 24, 2016

8 Ways To Pivot Your Business To Kickstart Growth

pivot-businessEvery entrepreneur I know starts out with a strong conviction that their solution is a perfect match for their target market, and yet almost every one later admits a need to “pivot” before finding their groove. Course corrections, or pivots, are normal for new ventures, so expect them and don’t make excuses. Failure is the unwillingness to learn and change based on better information.

Few entrepreneurs know that even the most successful startups had pivots, which rarely get mentioned. For example, you probably never heard that both Facebook and YouTube started out fully intending to be dating sites, but pivoted to something more unique when they found that dating had already become an over-crowded market. Their pivots were early but real.

The types of pivot are innumerable, but there are some more effective ones that I think every early startup should contemplate on a regular basis during their early growth period. Here is my list, based on my own experience as a startup advisor, talking to other angel investors, and derived from the lean startup principles of venture advisor and entrepreneur Eric Ries:

  1. Strip the solution down to a focus on a key feature. No solution can be everything to everyone, but your initial passion can make it feel that way. This confuses customers, and dilutes your marketing impact. I would call this the “less is more” or the “keep it simple” pivot. After initial traction, there is plenty of time to bring back more features.

  2. Add that “grabber” feature to make your solution stand out. Solutions that integrate all the features of multiple products, like Facebook and Twitter, rarely get broad visibility. You need a new and innovative addition to get customer attention, and stand out above competitors. Existing users are trained by use, and rarely move for usability alone.

  3. Hone your definition of target customer demographics. Facebook was aimed initially at college students, later aimed at consumers in general, and more recently found a lucrative growth path with businesses. Pivots thus are a normal and necessary process in expanding the market, and recognizing cultural shifts as well as kick-starting growth.

  4. Switch to a more attractive and lucrative business model. Often entrepreneurs start with a direct-to-customer business model, but learn that many domains only work with distributors or value-added resellers. Other popular business models to try include the subscription model, the razor-blade model, and free solutions supported by paid ads.

  5. Change competitive positioning and pricing to improve traction. Many high-margin, low-volume startups are forced to consider the price-volume tradeoff. Of course, a move on price also puts them in the realm of new competitors, including e-commerce vendors and big-box stores. You can’t be on both ends of this spectrum at the same time.

  6. Consider alternative technology platforms for the solution. Sometimes a startup has to pivot to a new technology to stay competitive or improve margins. Other domains like transportation have found the need to pivot, to meet environmental directives and alternative forms of energy. The world around us changes quickly, even for a startup.

  7. Adapt to an emerging customer need or pain. As economic conditions change, and government regulations evolve, businesses are motivated to seek new tools and processes for risk reduction and continued growth. It can be extremely valuable to pivot the focus of your new software technology tool from productivity to compliance.

  8. Position your business as a social enterprise versus commercial. I see many young entrepreneurs with a passion primarily for social change, who don’t realize that changing the world costs money. The best are able to keep their social focus while pivoting their business strategy to make money. These two objectives are not mutually exclusive.

To me, a pivot is as natural in a startup as seeking outside funding or shuffling executive roles to better match founder strengths and weaknesses. You don’t wait for a crisis to start thinking about it, and you need not hide your pivots for fear of showing weakness. The sooner you recognize the need to make a change, the less it costs, and the greater the return. Are you still hesitating?

Marty Zwilling

*** First published on Entrepreneur.com on 06/15/2016 ***

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Wednesday, June 22, 2016

Traction Metrics Seed Real Startup Funding And Growth

Hiriko_1Almost every entrepreneur looking for outside investors has heard the annoying rejection, “You are just too early – come back when you have more traction.” That should make you wonder - how do you measure traction in a metric? If it’s so important to investors, perhaps you should be using traction to measure your own progress, independent of a need for additional funding.

According to most experts, business traction is evidence that somebody really wants your product. It’s business momentum, independent of whether you have a product delivered, proven the business model, or significantly penetrated the opportunity. Admittedly, it’s not as precisely defined as financial ratios, but every savvy business person recognizes traction when they see it.

While thinking about the parameters of traction, and how to measure it, I was impressed with a new book, “Scaling Lean: Mastering the Key Metrics for Startup Growth” by Ash Maurya, a serial entrepreneur, and creator of the one-page business modelling tool Lean Canvas. I like his set of action items, and have added a few of my own for measuring early traction leading to growth:

  1. Turn initial customer goals into measurable traction metrics. These need to go beyond the traditional revenue, cost, and volume metrics which may not yet have data, and can mislead you about real customer acceptance. Early examples would include website traffic, positive reactions from potential customers, and blogger support.

  2. Build outside relationships with media and analysts. It’s never too early to build relationships with industry analysts, influential bloggers and the media, and show how these have grown over time. These show real traction even before you ship a product through heightened anticipation and pre-orders. Visibility increases over time are traction.

  3. Build an inside advisory board of influencers and experts. Customers and investors alike measure traction by your formal advisors. If Bill Gates has agreed to be on the board of your software startup, that’s major traction, even with no paying customers. In addition, advisors of this caliber will accelerate growth by experience and connections.

  4. Validate every key element of your business model. Use experiments to test every element of your business model – cost, price, marketing, sales channel, customer acquisition cost, lead conversion rate, and lifetime value. Traction is the measure of how many of these have been validated, and their projection to your business valuation.

  5. Show increasing acceptance by major consumer outlets. Traction starts with calls returned, positive expressions of interest, signed letters of intent, and contracts in place. Each of these should be measured and celebrated internally, as well as communicated to investors and other constituents. Continued activity drives momentum and growth.

  6. Benchmark your business progress as a customer factory. The job of every startup is to make customers. Like a factory, it starts with attracting potential customers, creating delivering, and capturing value from these customers, to creating happy customers out the door. These customers bring in many new ones as traction and growth multipliers.

  7. Define known growth constraints and breakthroughs. Growth constraints would include staffing shortages, funding needs, quality problems, and sales coverage. Traction is the removal of a constraint, and the identification of the next bottleneck. A useful traction metric is how many constraints have been removed, with resolution times.

  8. Show evidence of growing and unsatisfied customer demand. If you have orders in hand from recent trade shows that you can’t satisfy without funding, that’s traction that will appeal to any investor. If the rate of order arrival has doubled over the past month, that shows traction, momentum, and growth. Use these metrics rather than hide them.

Don’t wait to be surprised too late by conventional revenue metrics indicating passion has masked a lack of early traction. Define realistic traction metrics to validate your business goals and funding needs.

Talking longer and louder to me as an investor or advisor won’t convince me you have more traction, and it won’t add anything to your bottom line. Traction and growth are not about emotion.

Marty Zwilling

*** First published on Forbes on 06/14/2016 ***

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Monday, June 20, 2016

7 Attributes of An Entrepreneur's Startup Dream Team

Eric_Schmidt_GoogleThere is a common belief in the angel and venture capital community that you put your money on the best team, rather than the best idea. Thus the top priority of every entrepreneur who wants funding should be to build and highlight their “dream team” of co-founders, executives and advisers, to attract the biggest and best investors. Solo entrepreneurs rarely find an investor.

In my angel investor mode, I often find myself flipping to the “management” section of a business plan, even before I read the solution description and opportunity. Imagine my lack of excitement if that section is missing, or it’s basically a list of names and titles that I don’t recognize. To win, you need to tell your best story and highlight how the team hits any and all of the following points:

  1. Prior entrepreneurial wins and losses. Building a startup business is not the same as corporate executive experience, so prior titles in a big business may actually be seen as a negative. On the other hand, having failed in an earlier startup may be an advantage, if positioned properly, and some learning is evident. Focus on prior results, not titles.

  2. Business credentials and functional coverage. If your team has a depth of expertise in software, that won’t help you get funding for a new hardware solution. Even if your product is a technological marvel, I look for balanced strength on the team in finance, marketing and operations. Fill in gaps with expert advisors to make it whole.

  3. Team members have investor relationships. Investors talk to each other and they love warm introductions to up-and-coming entrepreneurs. Investors are usually smart business people who love to be asked for guidance and direction, before they are asked for money. Do your networking with investors well before the funding pitch.

  4. Executives exude confidence and energy. Investors all know that the startup road is long and hard, so they look for people who have put and will continue to put “skin in the game” -- time, sweat equity, and money. They look for passion and optimism and more importantly, the willingness to listen, learn and get things done.

  5. Able to communicate on every level. It starts with having a vision and an ability to get the message across in your elevator pitch, in a written business plan and one-on-one with potential investors. Fundable entrepreneurs have to feel comfortable talking and listening to engineers, financial people, marketing and especially customers.

  6. Relish the challenges of problem solving. Startup leaders have to be relentlessly resourceful in overcoming obstacles and competition. Investors look for “street smarts,” or examples that didn’t come from a school book or a corporate process. When pitching to investors, weave in real-life stories of your best past creative solutions.

  7. Not afraid to make a decision. Investors are wary of “equal partners,” who may jeopardize a timely decision. They want to see decisions based on logic and backed up by emotion, rather than the other way around. They want to hear what you learned from the last economic downturn and the last funding shortfall.

Ironically, investors see funding opportunities correlated to past successes, rather than future success dependent on funding. Thus, it’s more important to highlight what you have done that demonstrates your team’s potential, rather than talking about how great it will be in the future. Investor focus is on facilitating the scaling of a startup, after you have proven the business model.

If you are new to the entrepreneur funding game, like Google founders Larry Page and Sergey Brin were back in 2001, it pays to bring in a CEO such as Eric Schmidt to find investors, who was well-known to the investment community for his accomplishments at Sun Microsystems and Novell. Now, of course, Page and Brin have that same credibility with their successes at Google.

Dream team startups rarely just happen -- they are the work of a diligent entrepreneur, who understands personal strengths and weaknesses and are not too proud to ask for help and offer a chunk of their startup equity in return. Even if you are not looking for external funding, the same team principles apply, since you are your own biggest investor. Build your dream team early.

Marty Zwilling

*** First published on Entrepreneur.com on 06/10/2016 ***

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Sunday, June 19, 2016

5 Steps To Avoid Solutions Looking For A Problem

future-virual-realityTechnical entrepreneurs love their technology, and often are driven to launch a startup on the assumption that everyone will buy any solution which highlights this technology. Instead, they need to validate a customer problem and real market need first. Don’t create solutions looking for a problem, since investors ignore these, and customers other than early adopters may be hard to find.

Exciting new technologies these days range from the easier to use social media software platforms I see almost every week, to new transportation models, like consumer space travel and hydrogen fuel autos. These founders all seem to be pushing their technology, rather than highlighting their solution to a painful need. Customers buy solutions, not technology.

In fact, outside of those few early adopters, technology by itself has negative value to the majority of potential customers. Most people are wary of change, and know that new technologies take time to learn and stabilize, so customers prefer solutions based on tried and tested proven technologies. Smart entrepreneurs build market-driven solutions, per the following principles:

  1. Size the opportunity and customer interest first. Your passion isn’t enough to create a market. If there is a growing opportunity, an accredited market research group like Forrester or Gartner will already have data to quantify your excitement, and help make your case. Prototype your solution for customers, and discount friends and family.

  2. Look for customer willingness and ability to pay. Just because users support your free trial doesn’t mean they will pay for the solution. Nice to have does not motivate a revenue stream. Technologies that cure world hunger may find that that hungry people don’t have money, and government agencies as customers are a very long sales cycle.

  3. Limit the features and complexity. Technologists tend to add more features, just because they can. More features usually means more complexity in operation and support. The best solutions, from a customer perspective, are able to mask the technology with a very simple and usable interface that focuses on their problem only.

  4. Take a hard look at alternatives and competitors. New technology does not necessarily make better solutions. If you claim no competition, investors may perceive that you have no market, or you haven’t looked. Neither is positive. Customers may be perfectly happy with existing alternatives and competitors.

  5. Work in a familiar domain, on a problem you have experienced. The most successful entrepreneurs tackle problems that have caused them personal pain, in an area they know well. Every business domain looks simpler to outsiders who have no insights into the complexities that increase your risk.

None of these principles is meant to imply that technology is not important in building new solutions. In fact, some technology leaps are so great that they enable a whole new class of products, or a whole new market. These are called disruptive technologies or the next big thing, in the sense that existing markets or economies of scale are disrupted by the scope of change.

Examples of solutions from disruptive technologies include the appearance of personal computers, smartphones, the Internet, and the first social media platforms. Even for these, which can indeed change the world, the aforementioned principles still apply, in conjunction with a couple of additional considerations:

  • Time frames for acceptance are longer and the risk is higher. Based on history, the acceptance period for major technology changes is much longer than innovative evolutionary changes – sometimes taking 20 year or more for pervasive acceptance. Investors thus tend to shy away from these startups, meaning you need deeper pockets.
  • Disruptive technologies require customer education to create a new market. Customers tend to think linearly, so existing customer feedback is unlikely to lead to, appreciate, or pay quickly for the new solutions from world-changing technology. This means more time and money for viral marketing, product iterations, and promotions.

So the more you emphasize the technology of your offering, the more you need to be prepared for increased costs, reduced investor interest, slow customer acceptance, and a longer wait for any return. On the other hand, the longer-term impact and return of disruptive technologies is likely to be huge, if they survive the early challenges.

My recommendation for first-time entrepreneurs, and the rest of us who don’t have deep pockets, is to focus on customer problems that are causing pain today, and customers who are willing and able to spend real money on a solution.

You will more likely get the investor resources you need, the guidance from existing experts, the opportunity to hone your business skills, and the confidence from success. Then when you sell your first company for several hundred million, you will be ready to tackle that favorite disruptive technology leading to the next big solution to change the world.

Martin Zwilling

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