Wednesday, October 29, 2014

Entrepreneurs Thrive On The Learning Curve

Liz-Wiseman-Episode-49-Quote In today’s fast moving world of business startups, learning trumps knowing every time. What established businesses know through experience keeps them from looking for the new and innovative ways to do what they do better, cheaper, and faster. I’m convinced that’s why most mature companies are slowing down or buying their innovation through acquisition, rather than building it.

In her new book, “Rookie Smarts,” Liz Wiseman, one of the top thought leaders in business, amplifies this point as it relates to hiring and cultivating the curious, flexible, youthful mindset in keeping a mature company young and competitive, as well as keeping experienced employees more productive.

She outlines four distinct ways that business people doing something for the first time, whether they be entrepreneurs, or people in a new role in a larger company, tend to think differently than experienced veterans. With my focus on startups, I can translate very easily how her points lead to more innovation even in the entrepreneurial environment:

  1. Maintain an unencumbered mind. True entrepreneurs, like backpackers, are ready to explore new terrain, more open to new possibilities, and don’t get stuck in yesterday’s practices. They tend to ask the fundamental questions, see new patterns, and notice the mistakes of others. They are not afraid to act boldly, and tend to recover quickly.

  2. Seek out experts and return with ideas and resources. Startup founders need to be more like hunter-gatherers, seeking out experts and trying new ideas to address their challenges. They are not entrenched in their domain, and don’t look for data that confirms what they already know. They don’t hesitate to disseminate the knowledge to their team.

  3. Take small calculated steps, moving fast and seeking feedback. Experienced business professionals tend to take big steps, move at a comfortable pace, and are not on the lookout for changing conditions. Entrepreneurs have to be like firewalkers, take a risk, move quickly one step at a time, searching for milestones on the way to success.

  4. Improvise and work tirelessly while pushing boundaries. Great entrepreneurs, like pioneers, work hard, keep things simple, and focus on core needs. They don’t have a comfort zone or protocol to fall back on. They assume that new tools and structures will have to be built along the way. Progress on the learning curve is their satisfaction.

But even as an entrepreneur, you can fall back too quickly on prior experience, or settle into habits that are too comfortable. Here are some things we all need to do change perspectives and learn to learn all over again from time to time:

  • Transport yourself in time and place to your first professional role. Remember how you felt then, what you did, and how you approached work. Use this insight to reset your own thinking, and to provide great leadership guidance to other members of your team.

  • Multiply your expertise with additional experts. Avoid the temptation to jump in first, and consult other experts to bring new insights into the challenge at hand. Don’t give up until you have found new patterns to an area you thought you knew.

  • Reverse the learning role with new team members. By asking a junior colleague to mentor you, you will more likely hear new approaches or technologies and get new insights on your customer base or business challenges.

  • Expand your professional network to new groups. Actively look for people with views contrary to your own. As you change the stream of information and consider alternative views, your thinking will expand.

  • Take a step back and remap your terrain. Try to visualize your domain the way a newcomer would see it, without the filters you have already built in your mind. Map out the current players, rules of the game, cultural changes, and constituent alignments.

  • Swap jobs with a colleague for a day. Use the exchange to gain new business and customer insights, and to formulate the na├»ve questions that a newcomer might ask. The swap will be an exciting learning experience for both of you.

True entrepreneurs thrive on the experience of learning, maybe more than the experience of success. That’s why the best entrepreneurs I know can hardly wait for a chance to exit their current startup as it stabilizes, and start again down a less familiar but new learning path. Once you stop learning, you stop having fun, and you stop succeeding.

Marty Zwilling


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Monday, October 27, 2014

The Good, The Bad, And The Ugly Of Software Patents

software-patent-minefield I always advise software startups to file patents to protect their “secret sauce” from competitors, and to increase their valuation. The good news is that a patent can scare off or at least delay competitors, and as a “rule of thumb” patents can add up to $1M to your startup valuation for investors or M&A exits (merger and acquisition).

The bad news is that patent trolls (non-producing companies that make their money from licensing patents) can squeeze the lifeblood out of unsuspecting entrepreneurs, as exemplified by the recent mess around Lodsys suing small Apple IOS developers. This patent holding company has charged infringement and demanded royalties from every app developer for the iPhone and Android, for a feature most agree has been in apps for many years.

Yes, the software patent process is a mess. I say this with conviction even after I survived the process, and have a software patent pending. Consider this list of commonly recognized software patent flaws, as summarized from my research, Paul Graham’s “Are Software Patents Evil?” original essay, and the “Enough is Enough” emotional Lodsys article by VC Fred Wilson.

  • Process is onerous, expensive, and time consuming. Count on spending $10K to $20K per patent just for a USA application today, unless you do most of the work. Even after your application is accepted, the issuing process takes a lifetime in today’s technology (4-5 years). Then you need to repeat the process for every country of interest.
  • Patents have become a tax on innovation. A lot of companies, like Lodsys above, buy up software patents that are over-broad, and hold startups hostage after the fact, through royalties and litigation. They know that these entrepreneurs don’t have the skill or resources to defend themselves. Patents only help the big guys who want no change.
  • Software technology changes rapidly. Software changes fast and the government moves slowly. The USPTO has been overwhelmed by both the volume and the novelty of applications for software patents, and they can’t maintain a qualified staff. Patents currently last 20 years, which is way too long in the software business.
  • Patents granted that don’t meet the criteria. To be patentable, an invention has to be more than new. It also has to be “novel” and non-obvious. Moreover, patent law in most countries says that software “algorithms” aren't patentable. So lawyers routinely frame a software algorithm as a "system and method" to meet the criteria.
  • Valid patents have been overturned by unpatented prior art. Until mid-2013, the USPTO still operated on the doctrine of “first to invent,” rather than first to patent. This hit RIM (Research In Motion) a few years ago, and cost them $650M to recover. At least that shouldn’t happen again, as the US process is now consistent with the rest of the world.
  • Applying for a patent is a negotiation. As a result, lawyers always apply for a broader patent than they think will be granted, and the examiners reply by throwing out some of the claims and granting others. They don’t insist on something very narrow, with proper technical content.
  • Different rules around the world. What I have described so far is the situation in the US. In Europe, software is already deemed not patentable, and other parts of the world are somewhere in between. In some countries, software patents are not recognized, and in others they are not enforced. We need a global solution.

So what’s the answer? I would argue to simply eliminate the software patent – since software is an implementation and is already covered by trademark and copyright law anyway. Others put their hopes in patent reform legislation, to tighten the definition of software patents and targets trolls. This legislation seems stalled in its tracks for now, due to lobbying efforts of the bio-pharmaceutical industry, along with universities and trial lawyers.

Either way, new computational technology algorithms would still be patentable, as long as the algorithm meets the defined requirements for novelty, usefulness and inventiveness. I’m a big supporter of building and protecting a portfolio of real intellectual property, and maximizing your startup’s valuation, but it shouldn’t be just a legal game.

Marty Zwilling


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Sunday, October 26, 2014

Entrepreneurs Work On The Business As Well As In It

live_image_presentation Over 25 years ago, Michael E. Gerber wrote a best-selling business book called The E-Myth: Why Most Businesses Don’t Work and What to Do About It. The E-Myth (“Entrepreneurial Myth”) is the mistaken belief that most businesses are started by people with tangible business skills, when in fact most are started by “technicians” who know nothing about running a business. Hence most fail.

Some pundits argue that the E-Myth principle is now outdated, due to the instant access to information via the Internet, pervasive networking via social media, and courses on entrepreneurship at all levels of education. Perhaps an innate business savvy is no longer a requirement for starting a successful business.

Let me assure you that based on my experience, I’m not convinced. I still see too many businesses started by technicians who haven’t acquired the basic skills or knowledge, or still assume that business acumen is a minor part of the new business equation. I also see no evidence that the percentage of new business successes has gone up in the last couple of decades.

I believe that most entrepreneurs today, at least in the technology domains I frequent, still work in the business (“Technician’s Perspective”), rather than on the business (“Entrepreneurs Perspective”). Here are some key ways these views differ:

  • The Entrepreneurial Perspective asks the question: “How must the business work?” This perspective looks at the business as the product, competing for the customer’s attention against a whole shelf of competitors. The Technician’s Perspective asks: “What work has to be done?” In this view the product features, cost, and support are the key to success.
  • The Entrepreneurial Perspective sees the business as a system for producing outside results for the customer, resulting in profits. The Technician’s Perspective sees the business as a place in which people work to produce inside results for the Technician, producing employee income.
  • The Entrepreneurial Perspective starts with a picture of a well-defined future, and then comes back to the present with the intention of changing it to match the vision. The Technician’s Perspective starts with the present, and then looks forward to an uncertain future with the hope of keeping it much like the present.
  • The Entrepreneurial Perspective envisions the business in its entirety, from which is derived its parts. What’s important is the business as a whole: how it looks, how it acts, how it does what it is intended to do. The Technician’s Perspective envisions the business in parts, constructed from the bottom up, based on technical tasks.
  • The Entrepreneurial Perspective is an integrated vision of the world, where the customer need is an opportunity to make meaning. The Technician’s Perspective is a fragmented vision of the world, where customer satisfaction represents a series of problems to solve, with price, features, availability, and support.
  • To the Entrepreneur, the present-day world is modeled after a vision of a better way, one that will stand out with customers from all the rest in the past, and give the joy and satisfaction of success. To the Technician, the future is modeled after the present-day world, the model of past experience, and the model of getting paid for effort or results.

The challenge of every Entrepreneur and Technician is to maintain the right balance of views to get things done, win in the marketplace, and keep everyone happy. As startups grow, they quickly realize that they need a third personality, called the Manager, to build systems and processes. The Manager craves order, and often ends up cleaning up after the other two.

Perhaps someday our education system and other resources will facilitate everyone starting a business to have that balanced view, but I don’t see it happening any time soon. In the interim, I recommend you use social media and the Internet to find your alter-ego. Two heads are still better than one, to get the right business started, and get it started right, without worrying about the E-Myth.

Marty Zwilling


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Saturday, October 25, 2014

Answer These Ten Key Questions To Beat Competitors

change-the-model Change is hard. I see entrepreneurs every day who are trying to change the world with a new idea, and startups that are trying to survive their hyper-growth phase by changing processes to meet demand. In both cases, it’s easy for them to become frustrated and give up, since most have never been trained in change management, and don’t even know what questions to ask.

A while back, I spotted a new book for change management leaders in large organization, and I realized that many of the issues they face are the same as ones faced in every growing startup. Phil Buckley, in “Change With Confidence,” provides practical answer to fifty of the biggest questions that keep change leaders up at night.

Here are ten of the key questions that apply equally well to the world of startups and entrepreneurs, as they do to large organizations. If entrepreneurs answer these questions for their startup, they will definitely stay ahead of most of their competitors in the startup world:

  1. What is the “secret sauce” that my startup brings to the problem? Your passion is necessary but not sufficient to motivate real change. You need to quantify change results that constituents can see, feel, smell, or taste. Words alone, like “improved efficiency”, “paradigm shift,” and “breakthrough technology” won’t convince people to follow you.

  2. Who are the stakeholders who can most influence success? Stakeholders are key people impacted, or leaders who influence key people. For example, early adopters may be easily sold, but new technology product success really hinges on adoption by certain demographics, perhaps more influenced by celebrities or mommy bloggers.

  3. What do I need to know before I commit to deliverables? The last thing you need in a startup is a false start, where you can’t deliver on a product change deadline, or a new marketing channel. Deliverables and the resources you have to achieve them are two sides of the same equation. Make sure they match before you commit.

  4. How do I measure success? Define hard (data) and soft (anecdotal) metrics on the change, as well as on the quality of your leadership. That means you have to start with assessing the current state against the same metrics, before you can assess progress or change. Make sure metric results are available to the team, to keep them motivated.

  5. Will my proposed change actually achieve the desired outcome? It’s important to separate optimism and dreams from market realities. Ask yourself, “If I were an investor, would I support this effort, given the costs and promised returns?” Just because Google sales hit $1.5 billion in 4 years doesn’t mean any other startup can do it.

  6. How do I avoid scope creep? Expanding a project without additional time or resources is called scope creep. It takes a strong team and strong leadership to manage it. What works is a documented change request and review process, as well as quantification of resources required as well as anticipated incremental results.

  7. What does a good plan look like? A good plan is a written one, approved by all key players, which maps out all activities and provides a framework for leaders and team members to follow. Calibrate the plan with resources available to deliver it. Keep the plan simple, focused, and flexible.

  8. How do I know what resources I need? Without adequate resources to support your efforts, you will be faced with trade-offs that often lead to a poor transition to new ways and a burned-out team. What works is documenting early a fact-based resourcing plan, using credible sources, with a reserve allowance of 10% for contingencies.

  9. How do I prepare people to work in the new ways? Most important changes require new ways of working: a combination of new knowledge, skills, mind-sets, behaviors, relationships, and processes. Provide step-by-step job aids, training, and hiring for critical aspects of the new plan. Allow adequate time for this preparation before implementation.

  10. How do I reduce risk? A key aspect of mitigating risk is to first identify the risk elements before you start, and build in contingency plans, in case the risks materialize. Then establish trigger points to clarify when contingency plans need to be activated. This will speed up remedial actions and minimize damage.

Everyone learns and celebrates changes done well during startup hyper-growth from zero to a profitable business, and everyone loses when a promising but challenging startup fails. I hope these points illustrate that the best strategy for every startup evolution is to answer the key questions early, and don’t wait for the first crisis to think about risks and contingencies.

The ultimate objective of every entrepreneur and every team is to make change an opportunity for success, rather than an excuse for failure. When was the last time you approached change with confidence, rather than fighting it all the way?

Marty Zwilling


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Friday, October 24, 2014

Make Every Member Of Your Startup Act Like An Owner

people-entrepreneurs Every startup lucky enough to get some traction gets to the point where they decide to hire some “regular employees” for sales, marketing, and administrative tasks. Then they are surprised to see productivity and creativity take a big dip. What they should be doing is hiring only “entrepreneurs,” meaning people who think and act as if this is their own business.

This commitment to hire people who think like entrepreneurs, or instill an “owner’s mindset” in every employee, should be a high priority in every business. It’s what every customer looks for in every transaction. Most people will tell you this is impossible, but I found a book, “Army of Entrepreneurs,” by Jennifer Prosek, where she seems to have actually accomplished this.

I like how she was able to motivate, train, and reward employees, including the implementation of an incentive program to get every member of the team actively involved in generating new business. She also identifies the typical myths against using this approach, and describes how to overcome each one:

  • “Entrepreneurs are born, not made.” The reality is that all entrepreneurial skills are learnable skills. The entrepreneurial mindset is a function of motivation, priorities, and risk versus reward, all of which you set or enable by your leadership and example. Hire employees who have strong skills, with the motivation to learn new ones.
  • “Employees will care only about work they create.” This is really an issue of the quality of the people you hire rather than the management or compensation system. The key is to hire people with the right mindset, and communicate it daily to your whole team, by your actions as well as your words.
  • “Junior people shouldn’t be involved in new business.” This is the platitude of an obsolete corporate culture where you had to “pay your dues” in menial jobs before adding creativity or making decisions. In today’s marketplace, junior staffers are often the most intimately connected to the market, technology, and the customer network.
  • “Employees will lose focus on their work.” Old management models encourage employees to optimize their own task, often at the expense of the overall company objectives. There is new evidence that people want to understand the bigger picture, and business growth financial incentives will increase productivity, rather than lower it.
  • “Sales will be the organization’s sole focus.” Again, you get what you demand and reward. If sales are the only way to get rewarded in your organization, then sales will take precedence over other activities. Motivate for a spectrum of entrepreneurial behaviors, and you will see results.
  • “We don’t need to reward lead generation.” For a startup, you don’t have a recognized brand to bring in the leads. All businesses need to proactively seek leads, rather than simply attract them, with the creativity and initiatives of every employee rewarded for every contribution.
  • “There is too much risk associated with decentralized decision making.” When you have to move and change quickly to survive, centralized decision making is too slow. You become the bottleneck. If you train people properly, empower them, trust them, and they understand the business, your evolving business can become a revolution.

Every large company wishes they could harness the power of a thousand entrepreneurs within their employee ranks to re-create the exceptional business growth they once knew. Instead, for growth, most have resigned themselves to buying startups that exhibit these characteristics.

Thus, the last thing you need as a growing startup is a “regular employee.” Hire entrepreneurs like you, grow like an entrepreneurial company, and stand above competitors in the acquisition process to carry that fire forward. That’s a win-win for everyone in this new culture and new economy.

Marty Zwilling


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Wednesday, October 22, 2014

Ideas Are Only The Beginning Of Startup Innovation

google_innovation_ideas Most people think innovation is all about ideas, when in fact it is more about delivery, people, and process. Entrepreneurs looking to innovate need to understand the execution challenge if they expect their startup to carve out a profitable niche in the marketplace, and keep innovating to build and maintain a sustainable competitive advantage.

Everyone thinks they know how to make innovation happen, but I can’t find much real research on the subject. At the same time, myths about innovation are commonplace in business. Vijay Govindarajan and Chris Trimble, in their book “The Other Side of Innovation: Solving the Execution Challenge” have done some good work on this subject.

They take you step-by-step through the innovation execution process, in the context the ten most common myths about innovation, which I think makes their approach particularly instructive:

  1. Innovation is all about ideas. While it is true that you can’t get started without an idea, the importance of the Big Hunt is vastly overrated. Ideas are only beginnings. Without the necessary focus, discipline, and resources on execution, nothing happens.

  2. A great leader never fails at innovation. When it comes to innovation, there is nothing simple about execution. The inherent conflicts between innovation and ongoing operations are simply too fundamental and too powerful for one person to tackle alone.

  3. Effective innovation leaders are subversives fighting the system. Effective innovation leaders are not necessarily the biggest risk takers, mavericks, and rebels. The primary virtue of an effective innovation leader is humility. What you want is integration with real world operations, not an undisciplined and chaotic mess.

  4. Everyone can be an innovator. Ideation is everyone’s job, as are small improvements in each employee’s direct sphere of responsibility. Yet most team members don’t have the bandwidth or interest to do their existing job, and well as address major innovations.

  5. Real innovation happens bottoms-up. Innovation initiatives of any appreciable scale require a formal, intentional resource commitment. That requires the focus and resources from top executives to sustain, even initiate, relevant efforts.

  6. Innovation can be embedded inside an established organization. Some forms of innovation can be imbedded, like continuous product improvement, but discontinuous innovation is basically incompatible with ongoing operations.

  7. Initiating innovation requires wholesale organizational change. Innovation requires only targeted change. The first principle is to do no harm to existing operations. A common approach that works is to use dedicated teams to structure innovative efforts.

  8. Innovation can only happen in skunk works. Innovation should not be isolated from ongoing operations. There must be engagement between the two. Nearly every worthwhile innovation initiative needs to leverage existing assets and capabilities.

  9. Innovation is unmanageable chaos. Unfortunately, best practices for generating ideas have almost nothing to do with best practices for moving them forward. Innovation must be closely and carefully managed, during the 99% of the journey that is execution.

  10. Only startups can innovate. Luckily for entrepreneurs, many large companies are convinced that they must leave innovation to startups. Yet research suggests that many of the world’s biggest problems can only be solved by large, established corporations.

Everyone agrees that the goal of innovation is positive change, to make someone or something better. Entrepreneurs need it to start, and established companies need it to survive. The front end of innovation, or “ideating” is the energizing and glamorous part. Execution seems like behind-the-scenes dirty work. But without the reality of execution, big ideas may not turn out so well, even in startups.

Marty Zwilling


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Monday, October 20, 2014

Right Entrepreneurs In The Right Place Get Funded

startup-fundingI’m a strong believer that investors invest in people, before they invest in a business plan, or an idea. But I continue to learn that there are a host of other factors, maybe not even related to you or your business, that could keep you from getting the funding that you need. You may not have control over many of these, but it helps to know, for planning purposes, what is really happening.

Obviously, a key factor is always the state of the economy and the mood of the venture capital community. The good news is that both of these are looking up these days. According to the Silicon Valley Venture Capitalist Confidence Index® for the First Quarter 2014, the Q1 increase marks seven consecutive quarters of positive sentiment among Silicon Valley venture capitalists.

On the other hand, venture capital doesn’t get smoothly spread across the geographic and demographic landscape, and the number of active firms has dropped sharply. An older but still relevant study, published by CB Insights, Venture Capital Human Capital Report, summarizes a variety of characteristics for private early-stage Internet ventures funded in the US. The significant findings include the following:

  • Founders need to live in the right place. No surprises here. California (Silicon Valley), New York (NYC), and Massachusetts (Boston) are the places to be in the US for venture capital attention. Almost 80% of the funding handed out in the US consistently comes from these three locations.
  • Whites and Asians lead the race. 87% of funded founders are white, which is not too far above the US population of 77% white. More notably, the second largest group receiving funding was Asians, at 12%, despite comprising only 4% of the population.
  • All-Asian founding teams raise the largest rounds. Asian teams in California raised median funding rounds of $4.4M, significantly higher than the $3M raised by mixed or all-white founding teams. In other locations, the trend was more equal, even somewhat reversed in New York and Boston.

  • Wunderkinds don’t have the magic touch. The average age of founding teams getting funded is in the Gen-X 35-44 year age range. However, the highest median funding did go to those in age range 26-34 years old. Amazingly, no founding teams in the Gen-Y 18-25 year range received any funding in California.
  • Experience does count. Fully 39% of founders funded were formerly CEOs or had founded prior companies. Other common previous roles were executives in Sales, Marketing, and Product Management, all suggesting that VCs back experience.
  • More founders generally means more money. Overall the majority of companies have two or more founders, but over a third are led by one founder. More founders does not necessarily result in larger funding rounds, but the highest median funding generally goes to companies which have two or more founders.
  • Going solo works better on the East Coast. Co-founder companies are the norm in California, but 40-50% of the startups in New York and Massachusetts have only one founder. In New York, these solo efforts even raised more money, with a median of $4M.

If you don’t live in these corridors, don’t assume that you can simply incorporate in the state, or email your proposals there and be considered a local. At minimum, you need to get an introduction from a local player, or better yet, set up a local office and network there. Investing is all about people-to-people relationships.

If you are from outside the US, especially Asia, experts tell me that the focus is even more on relationships. George Wang, founder and chairman of the Beijing-based Chinese Professional Network (CPN), recommends that anyone from the West wanting to get involved in Chinese start-ups slow the pace down and “Spend six months and get to know the place and the people.”

If you need funding, focus first on the human side of venture capital, before you rush to pitch your plan. The evidence confirms that from a funding perspective, a successful startup is more about the right people being in the right place at the right time, versus the technology or solution.

Marty Zwilling


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