Monday, August 3, 2015

7 Strategies To Reduce The Cost Of Finding Investors

cost-of-investors1 Most new entrepreneurs assume that great investors will find their startups based on the compelling solution the founders have created. It does happen once in a while, but usually only for entrepreneurs who have already spent money promoting their efforts, and a large amount of precious time connecting with their peers and the investment community.

Others spend money on mailing lists and investor contacts and “cold calling” a few thousand people, hoping to find someone willing to take a risk on an unknown company. As an angel investor, I believe this approach is a waste of time, since no honest investor is likely to seriously consider a request for money from a stranger. There are just too many scams.

Thus it behooves every entrepreneur to optimize their investment strategies early, based on time and dollar costs, as well as odds of success. In all cases, due diligence is recommended on every potential investor and angel group before spending money you don’t have, looking for money you need. Here are some key recommendations to get you started:

  1. Plan for adequate time to find an investment. Don’t wait until your startup is out of money before looking for an investor. Potential investors can sense a desperate entrepreneur, and see it as an indication of poor planning, more than an opportunity for a great bargain. Count on the investment process to take three to four months.

  2. Use initial feedback wisely to improve your case. Investors are buying your business, not your product. The right investor will have specific feedback on pricing models, distribution and market positioning to improve scalability. Listen and ask for that feedback, rather than debating it. Update your materials and message after every pitch.

  3. Don’t be discouraged if your first try is not a success. Finding the right investor is a bit like finding a spouse. Look for someone with the right chemistry and complementary insights. It’s unlikely to be the first investor you encounter, no matter how beautiful your story. In my experience, finding the right investor will take several months and rejections.

  4. Practice with advisors and friendly investors before tackling the big guns. As they say, you only get one chance to make a great first impression, so don’t pitch to a key angel group or venture capital team for practice. Investors are not interested in “mulligans” at this stage, since they don’t expect to provide money for restarts later.

  5. Don’t be a total unknown to every investor in a meeting. Through peers, social media or connections, make every effort to meet one or more of the investors before the actual pitch. Entrepreneurs who are not known by at least one investor are presumed to have not done their homework.

  6. Weigh the cost of every pitch against the potential return. You can’t pitch to every investor or group, so consider the odds, travel expenses and fees of every opportunity. Don’t be afraid to ask an investor group leader for its track record, sweet spot and connections to startups funded. Follow up to learn expected terms and process time.

  7. Temper your approach based on the stage of your startup.  If your startup has a proven revenue model, real customers and is ready to scale, approach the best investors even if it costs you more money. For new entrepreneurs looking for seed-stage help, concentrate on investors who know you or organizations with a vested interest.

In addition to the indirect costs, entrepreneurs are often surprised to learn that they may be asked to pay a direct fee to investor groups to cover research and meeting expenses, just for the slot to present their case. This practice has caused a rousing debate among both entrepreneurs and investors, with some calling it a scam, and others defending it as filter for serious businesses.

According to the Angel Capital Association (ACA), only about a third of its member groups charge any fee, and in all cases less than $500. Other well-positioned groups outside the ACA, such as Keiretsu Forum in Silicon Valley, charge up to $1,500. Registered investment brokers, who assist in business plan and presentation preparation, as well as sourcing investors, may expect a $10,000 retainer per month, as well as 5 percent of investor money raised.

Thus it always costs money to raise money, so plan ahead. I would recommend a budget of at least $10,000 to prepare documents for pitching, legal fees for term sheets and contracts, travel expenses and assistance fees.

Don’t believe the myth that finding outside investors is easy, an entitlement or even necessary. Even today, more than 90 percent of new businesses are bootstrapped. For determined entrepreneurs, there is always a way to earn the money and retain control, rather than face the biggest costs of finding investors: giving away part of your business.

Marty Zwilling

*** First published on Entrepreneur.com on 7/24/2015 ***


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Sunday, August 2, 2015

6 Startup Strategies That Turn Off Most Investors

exchange-of-ideas Don’t bash the competition. Every investor knows how vulnerable a new startup is to competitors, so investors always ask about your sustainable competitive advantage in the marketplace. How an entrepreneur answers this question speaks volumes about their knowledge of business realities, customers, confidence, and their ability to handle investor funding.

There is no perfect answer to the competitive advantage question, but investors are looking for how your offering will keep ahead of competition, not just at this moment, but throughout the life of their three to five-year investment. They are also seeking to find out how you handle one of the many tough questions that a new founder will get in today’s market.

A strong answer should be something like “Our product introduces a new lower-cost technology, which we have patented and trademarked, that makes us very attractive today, and will provide a wealth of additional products as we move forward.” That says you are competitive today, have a real barrier to entry, and the potential to remain ahead of the competition for a long time.

Based on my own experience as an angel investor, and feedback I get from many other investors, here are a collection of answers that we often hear instead, from the least credible to at least reasonable:

  1. Insist you have no competitors. Leading with this answer will likely terminate any further investment opportunity with this investor. He or she will assume your comment means there is no market for your product or service, or you haven’t looked. Neither speaks well for you or your startup. Even if you hedge by saying no direct competitors, we all know that existing cars are still big competition to your new flying automobile.

  2. Claim the first mover advantage. This is one of the most frequent responses I hear, and is rarely convincing. The problem is that startups have limited resources to keep them ahead of big companies. If your early traction highlights an opportunity they have missed, they can mobilize their huge resources and run over you. First mover advantages are only sustainable by large companies, or founders with deep pockets.

  3. Proclaim your solution as a paradigm shift. If you insist that your technology is so new and unique that it will disrupt your competitors and the whole market, investors will fear that neither they nor you can afford the time and marketing required to weather the change. They will likely decline on the basis that historically, pioneers get all the arrows.

  4. Highlight your world-class team as the secret sauce. Insisting that your team is better than any other, giving you a sustainable competitive advantage for the long term, will likely come across as naiveté or arrogance. Investors know that no startup has a lock on the best people and processes, and investors don’t deal with unrealistic founders.

  5. Declare that you will offer the product or service free. Free is a dirty word to investors, since they need a return on their investment. Perhaps you intend to collect money from advertisers, but this requires a large investment to get the audience you need before monetization can work. Facebook spent over $150 million before revenue.

  6. Intellectual property as barrier to entry. I like patents, trademarks, and trade secrets, so this answer is a better sustainable competitive advantage than the other five answers. Now all you have to do is defend your position, and we all know that patents can break a startup in court battles, and will have alternative implementations if the price is right.

Thus, there is no perfect answer to this question, so the best entrepreneurs see it as an opportunity to highlight their own advantages, rather than put down a competitor. Being negative is never the answer. For example, it’s tempting to say that your worst competitor has poor quality products, requiring costly maintenance, but it’s much better to say that you provide a five-year free warranty that no competitor can match.

After highlighting your best competitive features and your intellectual property barriers to entry, I encourage you to put on your humble face, and proclaim your determination to never stop improving your products and processes to out-distance competitors. You want investors to believe that you are a realist, but have the confidence and determination to win.

Investors know that winning in today’s highly competitive environment is more a mindset than a product feature. Competitor bashing is not a skill that you need to hone. I look for entrepreneurs that can sell themselves and their offering to discerning customers. Money from customers and investors is the same color.

Martin Zwilling


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Saturday, August 1, 2015

Prepare Now For New Rules For Customer Engagement

new-customer-engagement If you think your business has weathered the storm, think again. In addition to obvious economic challenges, the emerging generation of customers is determined to radically change the rules for customer engagement. Their expectations of relationship and personalization are taxing businesses today, and their power through social media will kill those who can’t or won’t comply.

An eye-opening list of insights was highlighted in a recent book, “Build for Change,” by Alan Trefler, Founder and CEO of Pegasystems. He makes a convincing argument that it’s time for every company to get prepared for the next customer generation, or your company is heading toward life support.

As a backdrop, he defines the evolution already in progress from current Gen Y customers to a more demanding and less tolerant state (Gen D) that will make them even quicker and more technologically able to demonize and destroy your business, if it won’t meet their norms of interaction, personalization, and purpose.

While I’m not so sure that I agree that these represent the ultimate apocalypse of customers, I do believe the solutions he recommends should be taken seriously by every entrepreneur. I summarize here my interpretation of his key points:

  1. Take heed of serious next generation customer expectations. More and more, I see evidence that customers want to be pulled to your company, rather than feel that you are pushing yourself on them. They are not hesitant to engage the crowd through social media and sites like Yelp to drive you from the marketplace. Your reputation can be compromised by one bad oversight, like the United Breaks Guitars experience.

  2. Don’t count on big data alone to save you. In reality, data today is only memory about past transactions. Responding to transaction trends without the proper context can lead to broken relationships. Your changes must allow them to discover something so awesome that they are excited, versus disgusted, that you seem to know who they are.

  3. Add context and intent to your customer analysis. Use aggregated data from social media, professional market research, public sentiment, and key influencers for change analysis. Going beyond data to get intent is common sense, more than technology. Intent goes both ways, so make sure your customers understand your business as well.

  4. Make sure all your processes are customer-centric. Most business processes today are driven by internal needs to cut costs and maximize quality. Customers want their interactions and transactions to be painless and personalized. It’s time to rethink every process from the outside-in, to be consistent with customer expectations.

  5. Upgrade to modern information technology tools. Too many businesses still tolerate archaic IT tools, or resort to rogue mashups developed to circumvent the approved tools. Only modern tools can assure you the best and seamless execution for every customer interaction. Traditional waterfall development and outsourcing won’t keep up with change.

  6. Rethink how you organize, train, and reward employees. The first step is to break the legacy silos and underground channels in the current organization, which usually means realigning executive leadership and roles. Integration of all groups is the key to an optimal customer experience, starting from the hiring process to pay for performance.

  7. Adopt new core principles to stay competitive and assure survival. These must include democratizing how you do technology, thinking in layers, and using modern analytics to optimize continually. Technology need no longer be only the realm of expert gurus, business professionals in each layer of the business can build solutions, and executives with analytics can continuously refine the high-definition view of the customer.

Your ability to meet the test of the ever more-demanding and less-tolerant customer, as well as the emerging swarm of new competitors, is dependent on your willingness and ability to change your thinking and your company. The challenges ahead are great, but the opportunities are greater. Don’t be left behind in the ashes.

Marty Zwilling


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Friday, July 31, 2015

8 Common Elevator Pitch Blunders, and How to Fix Them

emergency_elevator_phone Every entrepreneur needs a value proposition statement for his or her startup that can hook potential investors and partners in less than a minute -- the short time you might join them in an elevator on the way to their offices. This may sound easy, but every investor I know is frustrated by wasted time listening to rambling, emotional pitches that are not to the point.

Passionate entrepreneurs tend to talk on and on about their disruptive technology, their intent to change the world and free services, but if a business can’t provide quantifiable value to real customers, the dream will likely turn into a nightmare. The better you understand what makes an effective elevator pitch, the more likely you will attract investors and customers.

Here are the most common elevator pitch missteps I see often as an angel investor and advisor to startups, with some quick advice on how to address each:

  1. Insist on leading with the story of the company. You don’t have time for any story at this point. Until an investor hears about a real customer problem, and understands your solution, the background is irrelevant. There will be plenty of time for the details of your arduous journey later, but for now my advice is to postpone the story to a later meeting.

  2. Rely on marketing content and emotion vs. facts. It’s good to speak with passion and conviction, but only quantified facts make a business. Skip the fuzzy terms, such as nice to have and easier to use in favor of specifics, such as costs 50 percent less or increases productivity by 100 percent. Skip the sales pitch and avoid preaching.

  3. Build up for the punch line at the end. Always start with a hook to get the investor’s attention. Good hooks define a real problem, followed by a specific solution (not technology). For example, “I have patented a new LCD with double the intensity at half the cost, already proven locally, and I just need resources to scale for this market.”

  4. Highlight features rather than differentiators. Investors worry about competitors more than customer features. Your second sentence should acknowledge competition, but highlight your added value. For example, “Unlike all the other LCD providers, our patented high intensity light has no blue tint or glare that looks unnatural.”

  5. Focus on the solution and skip your team. Smart investors invest in people, even more than a great product. Thus your third sentence should highlight why you and your team are the right ones to support. For example, “As you may know, my team and I are uniquely qualified for this opportunity, based on our first successful startup with solar.”

  6. Try to talk fast and extend the time available. Limit your elevator pitch message to about 150 to 225 words in 30 to 60 seconds. Trying to cram 500 words into that first interaction will only antagonize the receiver, and potentially lose the key impact of a highly-focused message. Always exude energy, conviction and commitment.

  7. Neglect to ask for any specific next step. Obviously, you won’t close many investment deals in a minute in the elevator. Don’t forget to ask for a follow-up session to present your full pitch. Ask for an hour, but always plan on speaking for only 10 minutes to leave plenty of time for addressing questions and concerns.

  8. Come unprepared with no written documents. For investors, you always need to offer an executive summary of your business plan to show this is not a dream, and provide reinforcement of the message you have just delivered. If you have no business plan or investor pitch to back it up, and the investor asks to see it, you will lose your credibility.

In reality, a good pitch is not just for elevator meetings. It should be in the introduction section of your business plan, on the first slide of your investor pitch and the beginning of your executive summary. You will find it the best way to start every networking opportunity, and a key communication vehicle that everyone on your team should know and use.

An entrepreneur’s elevator pitch embodies the value proposition that is being brought to customers, as well as investors and partners. Don’t hide it behind too many words, an urge to stay in the spotlight longer or unbridled passion. Catch the elevator up to make it a business.

Marty Zwilling

*** First published on Entrepreneur.com on 7/22/2015 ***


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Wednesday, July 29, 2015

How To Build Your Resilience To Be An Entrepreneur

steve-job-change-the-world You can’t survive as an entrepreneur without resilience, because you are going to fail at least once, maybe multiple times. That’s the nature of trying something that’s never been done before. Resilience means not giving up, and being energized by what you have learned. As Thomas Edison said, "I have not failed. I have just found ten thousand ways that won't work."

If you need more evidence that great entrepreneurs survived through resilience, just look into the backgrounds of more recent entrepreneurs like Steve Jobs, Bill Gates, and Elon Musk. They all experienced multiple setbacks along the way, but they persevered to become some of the most well known and respected entrepreneurs of our time.

In a new book on the subject, “Stronger: Develop the Resilience You Need to Succeed,” by George Everly, Douglas Strouse, and Dennis McCormack, these experts on the subject of human behavior and resilience outline five key factors of personal resilience, which I believe every aspiring entrepreneur should understand and develop before initiating a startup:

  1. Maintain active optimism. Optimism is the mindset to expect the best outcome from every situation. This gives entrepreneurs the capacity to pivot from a failing tactic, and implement actions to increase success. The key to building active optimism is observing how others were successful in similar situations, and believing you can do the same.

  2. Courage to take decisive action. Decisiveness mitigates adversity, helps you rebound, take responsibility, and promotes growth. Building decisiveness requires eliminating fear, procrastination, and the urge to please everyone. Practice making decisions as a positive learning experience. Understand that any decision is usually better than no decision.

  3. Let a good moral compass guide you. We all need a guiding light when adversity strikes. The four points of honesty, integrity, fidelity, and ethical behavior work best in business and personal life. Solidify your moral compass by setting virtuous goals, keying off the norm of inspiring peers, practicing self-control, and celebrating every successes.

  4. Show relentless tenacity and determination. Decide that giving up is simply not an option. Learn that tenacity is self-sustaining when persevering actions are rewarded. Find tenacious role models, and garner the support of peers and friends. Great entrepreneurs become tenaciously defiant when told they cannot succeed. Then they get it done.

  5. Gain strength from the support of others. Interpersonal support is believed to be the single best driver of human resilience. In business, this means that the people you surround yourself with are crucial – team members, advisors, investors, partners, and peers. Avoid toxic people like the plague. Practice active listening and show appreciation.

Very few entrepreneurs are born with the resilience needed. Yet, it is something any startup founder can acquire as an advantage in the ever-more-competitive business world. A good part of it is fighting the urge to revert back to our comfort zones, and fall back into old habits. From the pain of failure comes wisdom, from fear comes courage, and from struggling comes strength.

Resilience also comes from paying attention to your own needs and feelings. Entrepreneurs need to engage in outside activities that they enjoy and find relaxing, to keep their body and mind fit to deal with the unending challenges of every business. In addition, it’s important to have a higher level purpose in life, such as insanely great design, to guide your resolve and your decisions.

The Steve Jobs story of resilience is a classic example of a higher purpose, woven into the five factors above, ultimately leading to success. His elegant design decisions may have failed him initially at Apple, but he went on to hone them at NeXT and Pixar, and finally won his legacy by coming back to Apple with winning innovative designs for the iMac, iPod, iPhone, and iPad.

Steve never gave up, and that’s the essence of resilience. That’s what I look for as an angel investor in entrepreneurs, and that’s what everyone looks for in a leader. What have you done lately to build and demonstrate your resilience?

Marty Zwilling


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Monday, July 27, 2015

7 Must-Have Attributes of a Super Startup Team Member

Teamwork and team spirit Every entrepreneur realizes that building a great team is critical to the success of his or her startup, but many don’t realize that it takes more than multiple qualified employees to make an effective team. It’s possible, or even likely, that a set of skilled individuals can result in a dysfunctional team, where contention, jealousy, lack of communication or work habits jeopardize results.

As a mentor to entrepreneurs, I recognize that it’s easy to spot a dysfunctional team after the fact, but it’s not so easy to spot the right attributes of new team candidates, in the context of existing members. The approach I recommend is to make sure all candidates and existing members exhibit the following team-centric attributes, in addition to a unique set of skills and experiences:

  1. Comfortable being challenged by associates. The attributes to look for in interviews and reference checks would include minimal ego, self-confidence and a willingness to work with others. Team members who won’t listen, immediately become defensive and react emotionally to all suggestions will quickly make your whole team dysfunctional.

  2. Enjoy a healthy level of conflict. The most productive teams regularly engage in some healthy friction and heated debates between team members, but are able to avoid the emotion and drama that negates the value of these efforts. That’s the way smart teams make real change happen. Remove team members who initiate unhealthy conflict.

  3. Commit to the team despite individual qualms. Commitment means a willingness to negotiate and support a team decision, despite personal qualms and some risk. People who are perfectionists are not usually good team players. Test new candidates for their reactions to hypothetical and actual past situations.

  4. Willing to take team accountability as personal. Accepting accountability means not making excuses for the team, and avoiding the fallback to highlighting personal performance. It also means coaching and challenging peers on the team on behavior leading to dysfunction, even when it means risking a friendship.

  5. Support the team view in external discussions. You need team members who will support team efforts and progress, despite customer challenges or questioning from executives. Non-team players are quick to jump ship, and defer support to a popular counter view, thus undermining the effectiveness of the whole team.

  6. Focus on team results vs. individual performance. Team members that exhibit more concern for individual status and results are doomed to failure. A critical role of the founder is to effectively communicate the collective goals, characterize progress in the context of the team and integrate individual performance results.

  7. Accept team relationships as personal as well as business. Effective teams get to know each other on a personal basis, and find opportunities to meet for lunch or an outside event as a team. If you find a team member who truly dislikes other members, or doesn’t trust them as individuals, the whole team dynamic will be compromised.

In my experience, a few entrepreneurs seem to actively discourage any real team synergy, perhaps due to a lack of confidence in their own abilities, too much ego or a desire to retain autocratic control over each decision. This is a self-defeating strategy, since cohesive teams will normally outperform any set of star individual performers.

Thus the ability to build effective teams is one of the key differentiators of a great entrepreneur that outside investors look for, and the validation of having effective teams in place is high on the list of due diligence items before investor funding is committed.

If you find you have a dysfunctional team at your startup, fixing it should be a top priority. If you are just now hiring, be sure to keep the team-centric attributes on the same plane with other qualifications. On either end of this spectrum, teamwork or lack of it can make or break your startup, independent of the strength of your business concept.

Marty Zwilling

*** First published on Entrepreneur.com on 7/17/2015 ***


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Sunday, July 26, 2015

8 Entrepreneur Principles For Managing Your Destiny

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

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

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

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

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

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

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

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

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

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

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

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

I assure you that if you follow these principles in your current career, and think like an entrepreneur, you will advance more quickly, get more done, and be a happier person. According to a classic study by the Wharton School of Business, entrepreneurs running their own business ranked themselves happier than all other professions, regardless of how much money they made.

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

Marty Zwilling


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