Monday, May 25, 2015

These 8 Groups of People Will Never Start a Business

wannabe-entrepreneur Every entrepreneur I know is dismayed by the number of friends who approach them with a line such as “I have an even better idea that will change the world, and one of these days I’m going to get around to starting my own business.” I always wonder what is more important to them on an ongoing basis than changing the world, since their startups usually never materialize.

With the cost of entry to be an entrepreneur so low today, the common excuse of “lack of funding” doesn’t get much sympathy from me. People can build great ecommerce sites with free tools, smartphone apps in their spare time and use crowdfunding to bypass the dreaded angel funding and venture capital penalties. There must be something deeper that slows people down.

So if you have a great idea, and funding isn’t an overwhelming challenge, what are the real reasons that the world is filled with so many “wannabe” entrepreneurs that never get around to starting up?

Based on my own experience mentoring real entrepreneurs and likely candidates, there are at least eight categories of non-starters. I’m sure you will recognize someone you know, maybe even yourself, in one of the following groups:

  1. Enjoy the dreaming, but not the implementation. These are people who often call themselves “idea people,” who like to talk about their vision and leave the implementation to some lesser beings. In my experience, there are a wealth of good ideas out there, and the harder part is converting the dream into a profitable business.

  2. Unwilling or unable to acquire business implementation skills. Our culture propagates the myth that business skills, like rocket science, can only be learned in a classroom or lab. In today’s world, with a pervasively connected and constantly updated Internet knowledge base, online self-learning is always available and more productive.

  3. Irrational fear of failure or embarrassment. Everyone has some fear of the unknown, and that’s a good thing for survival. Successful entrepreneurs are ones who overcome their fears and manage some risk and failures as a part of the learning process. Others are debilitated by their fear, avoid risk at all costs, and never start.

  4. Equally irrational fear of dealing with success. We have all seen people on the cusp of success, who seemed to intentionally undermine their momentum, only to fail near the finish line. Of course, too much early success can kill a business, but real entrepreneurs are certain that they can grow and learn from success, just as they do from failure.

  5. Insist on perfectionism, rather than pragmatism. I know very talented inventors who have been working on the same technology for 20 years, and still want to do more research to make sure it’s perfect before selling a product. In today’s rapidly changing market, perfection is a fleeting and impractical objective. Pragmatists create a minimum viable product (MVP), test it in the market and iterate to success.

  6. Unable to maintain their focus and resist distractions. “Focus” is the key to success as an entrepreneur. A business that tries to do too many things for too many markets will likely excel at none and discourage all potential customers. Focus means keeping priorities straight, separating important from urgent, organizing and delegating.

  7. Substitute excuses for accountability and responsibility. Excuses are efforts to rationalize failure after the fact or justification for never starting. The best attribute of a real entrepreneur is acceptance of the fact that “the buck stops here.” There are always alternatives, pivots and creativity to overcome any obstacle.

  8. Simply not a self-starter, leader or decision-maker. These are the products of the industrial revolution, who wait for others to tell them what to do, and love to find fault and play the victim.  When you adopt the entrepreneur lifestyle, it’s up to you to set the pace, stay positive, be the model and lead the follow-through.

If you expect someone else to make your decisions and bear the risks and responsibilities of implementation, then “one of these days” will probably never come for you. So my view of what it takes to be an entrepreneur is simply to adopt the right attitude and full accountability. People who want it bad enough will get around to it. How long will you be a “wannabe” entrepreneur?

Marty Zwilling

*** First published on Entrepreneur.com on 5/15/2015 ***


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Sunday, May 24, 2015

8 Processes Define A Business Rather Than A Hobby

drone-business-or-hobby As a startup investor, I often see business proposals looking for funding that really look like expensive hobbies looking for donations. I recognize that entrepreneurs tend to substitute vision and passion for formal processes, but no discipline or process in building something new is a sure way to spend money, rather than see any return and build a self-sustaining business.

I’m not suggesting that you model your startup after the complex corporate organizations you hated in your last job, but there are at least eight key functions and activities that every investor expects to find in a startup proposal with any real potential to change the world. Each of these requires some ongoing effort, so I expect at least a rudimentary process associated with each:

  1. Record of spending and business assets. I still see entrepreneurs who spend money and time for months on a new business idea without any separation of personal and business funds, and any formal accounting system for their new business. This is the first business process that every startup needs, that I wouldn’t expect to find for a hobby.

  2. Managing to specific goals, priorities, and a plan. Technologists building cool new platforms, just because they can, won’t find investor interest. Entrepreneurs need to document a process of responding to a market need, sizing opportunity, assigning a specific business model, and planning for marketing, sales, and customer satisfaction.

  3. Solution development and delivery. Products and services for a business need to be attuned to customer requirements, cost and quality tradeoffs, with milestones for pricing and completion. Typically some production and delivery is outsourced, requiring formal contracts and documentation. Hobbies are developed ad-hoc, driven by personal needs.

  4. Preparation and management of funding. Even if you are not requesting outside funding, I would expect a clear process for sourcing and managing the investment you plan to apply. External investors expect a documented business plan, with clear targets on funding needed, use of funds, revenue projections, return potential, and exit strategy.

  5. Team building status and plan. Solo entrepreneurs, with a team of helpers, will be assumed to be a hobby rather than a business. I recommend every startup plan for at least two or three decision level team members, and at least a couple of highly-qualified external advisors. Show that you have a process to hire, fire, and train others as required.

  6. Formalize the use of tools and information technology. Productivity and repeatability is the hallmark of a good business, whereas a hobby usually assumes everything is custom built and personal. I look for business startups to already have their website up and running, administrative tools purchased, and basic procedures automated.

  7. Customer receivables collection and vendor payments. These are critical processes for any business, so they need to be implemented even before investor requests are sized or solicited. For progress and success assessment, each of these needs some metrics defined, a training plan, and responsibility assignments within your team.

  8. Marketing, sales, support, and service operations. I’m assuming that most of you will see these as intuitively obvious elements of a business, but not needed for a hobby. Yet I continue to get funding requests that never mention any specific plans or costs to be associated with these elements. No mention usually means no plan and not competitive.

For all of these, your objective should always be a minimum viable process to start, with the expectation that each will be enhanced and pivoted as you learn from customers and competition that works and what doesn’t. The key is to be proactive, rather than assuming that you can react to each crisis as it happens. Customers today are easy to lose, and expensive to replace.

It’s a myth in the startup world that not having processes makes you more competitive. In my experience, no defined process means unable to respond in a timely fashion, unpredictable quality, and high operating costs. None of these are attractive to investors, and jeopardize the success of even the best initial idea. A hobby may take your idea to a product, but a startup has to take the idea to a business.

Marty Zwilling


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Saturday, May 23, 2015

9 Key Tests For Innovation Potential In Your Startup

innovation-potential The entrepreneurs I see are always talking about “disruptive innovation” ideas, but the plans I read are more often linear extensions of a current hot offering, like one more social network with the best of Facebook and Twitter, one more dating site dimension, or another “must-have” accessory for smartphones. Perhaps hard questions need to come before ideas, rather than after.

This approach was highlighted in a recent book by Warren Berger, “A More Beautiful Question,” which makes the case for the power of questions to spark breakthrough innovations. He and I agree that the most creative, successful business leaders tend to be expert questioners. They master the art of inquiry, raise questions no one else is asking, and find powerful answers.

Berger suggests nine key questions, which I have adapted for entrepreneurs and startups, from his focus on existing companies. Every smart entrepreneur needs to ask himself and his team these questions before charging down the road to meet the other ninety percent of his peers that fail:

  1. What business are we really entering? Many aspiring entrepreneurs, especially engineers, are focused on their invention or technology, and never consider the challenges of entering the business realm until too late. Hydrogen auto engines, for example, have tremendous advantages, but haven’t cracked the bureaucracy of government regulations, the power of existing energy companies, and big auto biases.

  2. Why have other smart people failed on a similar idea? All too often I hear the refrain that big existing players, like Microsoft or IBM, are too fat and slow to be real competitors. While these companies do have their challenges, they also have some of the smartest people out there. You need to question strongly why these failed on your innovation.

  3. What will happen if we build it and no one comes? The “unthinkable” questions need to get asked before the crisis. Customers always have alternatives, most notably continuing to do what they do today without you. Asking the hard questions early will force more thinking outside the box, and improve the potential for real breakthroughs.

  4. What if we could become a cause and not worry about profit? Every startup should start with a set of values that would fit the definition of a good cause. The new age of consumers, and the new age of young employees want to align themselves with good cause principles. Figure out what you are against, as well as what you are for.

  5. How can we create the best test, and assume the need for pivot? Your first offering will likely be a learning experience, rather than a run-away success. Plan to make it the best experiment that you can, with metrics to focus on the “why,” as much as “what.” Create a safe environment for your team to question every aspect of the offering.

  6. If we brainstorm in questions, will lightning strike? Collaborative thinking in problem solving and early planning is essential because it brings together multiple viewpoints and diverse backgrounds. Innovation flourishes when diverse ideas and thoughts are aired. Tackle the startup unknowns by generating questions instead of generating solutions.

  7. Will anyone follow if we initially embrace uncertainty? Entrepreneurs are normally all about giving answers, not admitting uncertainty. They are reluctant to take advantage of questioning input from outside advisors, investors, and even friendly customers. Business leaders from Google, Netflix, and others have uncertainty built into their DNA.

  8. Should our mission statement be a mission question? The declarative mission statement is usually seen by the team as non-questionable, thus limiting business thinking. In these dynamic times, it may be appropriate to take that static statement and transform it into more open-ended, fluid mission questions that can still be ambitious.

  9. How do we create a culture of continuous inquiry? The first mistake is not wanting a culture of inquiry, in today’s age of continuous change. Some leaders and entrepreneurs don’t want to continually explain and rationalize their actions. The challenge is to reward questioning by your actions, culture, hiring, and the way you treat customer feedback.

If you want more specifics as well as the theory behind it, I recommend Berger’s book as a practical system of inquiry that can guide you through the process of innovative questioning, helping you find imaginative, powerful answers and building the culture of continuous innovation.

Disruptive innovation is always hard, and takes a very special breed of entrepreneur who is willing to ask the hard questions, as well as listen to tough questions from advisors, team members, and customers. How effective are you and your business in asking more “beautiful questions” and sparking the breakthrough ideas you need to survive?

Marty Zwilling


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Friday, May 22, 2015

How To Stay Fully Charged As A New Entrepreneur

Tom_Rath_Bestselling_Author New entrepreneurs routinely jump into a startup with a full charge of passion and energy, but often find themselves drained of both after a few months by the workload and challenges. As a result, burnout and loss of passion are consistently listed among the top causes of startup failure, according to many studies. The challenge is find ways to continually recharge along the way.

Of course, this same challenge extends well beyond the entrepreneur, into all walks of life and work. I just finished a new book, “Are You Fully Charged?” by human relations expert and bestselling author, Tom Rath, which explains well the three keys to energizing all your life pursuits. These keys are meaning, interactions, and energy.

Based on my experience working with early-stage startups, I agree with Guy Kawasaki, that those entrepreneurs who set out to make meaning in the world (a positive change) create the companies that will most likely be successful. I have extrapolated Rath’s eight insights on making meaning as key focus principles that every new entrepreneur should take to heart:

  1. Create meaning with small wins. Celebrate small wins by asking yourself what can you do today to make a difference? Real meaning is made up of many small differences, such as a design breakthrough, new business model, a truly satisfied customer, or an excited team member. Take a moment to enjoy each of these and get recharged.

  2. Pursue life and meaning, as well as a solution. Finding meaning is driven from within, through new learning and overcoming challenges. Every startup has a wealth of these opportunities. Successful entrepreneurs often admit that they enjoyed the journey more than the destination. Meaning does not happen to you – you create it. Don’t wait.

  3. Make your startup a purpose, not just a business. Strive to see the work you do to build a business as the way to make a difference in the world. Make sure your team understands your shared mission, meaning, and purpose. Making meaning is making your life, and the lives of others, stronger as a product of your efforts.

  4. Find a higher calling than cash. Happiness does not scale up with income. Studies show that doubling your income might increase happiness by 10 percent. In addition, focusing first on money will kill meaning. The more you focus your efforts on others, the easier it is to do great work without being dependent on money, power, or fame.

  5. Ask what the world needs. You create meaning when your strengths and interests meet the needs of the world. One of the rightful critiques of all the “follow your passion” advice is that it presumes you are the center of universe. A better way is to explore the most pressing needs in your social circles, organization, and the worldwide community.

  6. Don’t fall into the dreams of others. If you walk only in the path of others, your own image disappears. Be sure you create your own shadow, spending some time each day engaging in activities that energize and recharge you. Also plan to spend more time around specific people who energize your work and less around those who don’t.

  7. Take the initiative to shape the future. If you want to make meaning in the world, your ability to do so will be almost directly proportional to the amount of time you spend initiating instead of responding. Being busy is often the antithesis of working on what matters most. Usually you have to focus on less to do more.

  8. Work in bursts, paired with time to recharge. This can mean focus for 45 minutes, followed by a break for 15 minutes. Short breaks allow you to refresh yourself and work with purpose. Try to remind yourself daily why you do what you do, and if you don’t like what you hear, it’s time to change to something that has more meaning for you.

In an author survey of 10,000 people, only 20 percent admitted to spending much time doing meaningful work yesterday. Only 11 percent reported having a great deal of energy at work. Clearly, most entrepreneurs are operating well below their capacity, and could be more effective in building their business or making new meaning in the world. If you are one of these, then it’s time for you to change before you burnout and disappoint everyone, including yourself.

Marty Zwilling


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Wednesday, May 20, 2015

10 Ways Entrepreneurs Foster Team Accountability

Elon_Musk_in_Mission_Control_at_SpaceX Getting things done effectively in a startup requires total individual and team accountability. You can’t afford excuses and multiple people doing the same job. In my view, “taking responsibility” is the core element behind accountability. Many people hear responsibility as an obligation, but I hear it as “the ability to respond.”

Unfortunately many people don’t have the ability to respond, because they lack confidence in themselves, or simply don’t have the skills required. Therefore an entrepreneur’s first requirement is to hire or team only with people who are accountable (already have the confidence and skills you need) – training them on the job is prohibitively expensive when you have minimal income.

Even with the best people, accountability must be nurtured, since it can be killed more quickly than it can be grown. Here are some characteristics of current business leaders, including Elon Musk, who foster responsibility and accountability, and keep it growing:

  1. You need to walk the talk. Above all else, you as the founder or executive have to be a role model of accountability. You need to exemplify the “buck stops here,” and never play the blame game. Reward accountability consistently and often.

  2. Communicate continuously. You need to make sure that your team members understand your expectations, and you need to proactively listen and understand the expectations of all stakeholders. Frequent and consistent communications, both verbal and in written processes, are required. Take away the “I didn’t understand” excuse.

  3. Measure objectively. Goals and objectives must be unchanging and measurable, based on results, with benchmarks for comparisons. Accountability assessments must be based on facts, not distorted by opinions, politics, and desire for power. Frequently changing expectations does not lead to accountability.

  4. Give control before expecting accountability. A sense of responsibility and accountability requires a sense of control. If several levels of approvals are needed for a specific decision, no one will feel accountable, and no one can be held accountable. Real delegation is required.

  5. Align functional groups with business goals. If key inputs are not under the control of the proper group, then they will cede accountability as well. If your sales group is measured on profitability, but is required to process leads from outside sources paid by volume, you have a conflict where everyone loses.

  6. Manage up the line and support your team. You need to be the sponsor and the advocate for every member of your team. Team members who take risks through accountability need to see your overt support up the line, with no blame and no scapegoats.

  7. Provide timely feedback on performance. High performance teams need immediate and useful information on how to improve, as well as regular full performance reviews, individually and as a group. Help people, including yourself, look in the mirror and see reality.

  8. Conduct humiliation-free problem analyses. Getting to the source and fixing problems should never be a “name and shame” game. Leaders need to provide safe havens where difficult issues can be discussed without assigning blame. The goal should always be to solve problems, not hurl accusations.

  9. Provide tools to support accountability. No tools and no data lead to total subjectivity and biased interpretations. Absolute dependence on tools leads to abdication of personal responsibility. Provide adequate tools, but trust the people.

  10. Differentiate accountability from entitlement. Accountability is hard, so no one is entitled to be right every time. Don’t punish people for making a mistake, but make it clear the mistakes have consequences, sometimes painful ones, that we all have to live with. Higher responsibility means more work and more skills needed.

Many executives subscribe to the misguided notion that you can hold people accountable. This is usually a ploy to control others and hand off responsibility, without being accountable yourself. People need to make themselves accountable, and accept the consequences of their actions. Remember that you are the model, and what goes around, comes around.

Marty Zwilling


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Monday, May 18, 2015

8 Ways To Maximize The Value Of Your Startup Stock

Common_Stock_1933 When an entrepreneur first incorporates his or her business, he or she may find him or herself the proud owner of 10 million shares of common stock, commonly called founder’s shares. It’s disconcerting for most to realize that these shares are initially worth nothing, and the challenge is to get that value up as quickly as possible, without losing it just as quickly to investors, lazy partners and taxation.

This is where things get technical, but the principles are really quite simple. Every entrepreneur needs to understand the following basics, to be addressed at company formation, as they engage a qualified attorney to draw up the paperwork:

  1. Allocate founder’s stock commensurate with commitment. Even though initial stock has no value or market, it is extremely valuable in dividing entity ownership between multiple co-founders, commensurate with their investment, contribution and role. Startup owners need to assume a three to five year wait for a liquidity event, such as acquisition or going public, before they can cash out. At that time the original split makes all the difference.

  2. Make sure the government waits for a stock sale to collect taxes. In the U.S., every entrepreneur should incorporate early and file an 83(b) election with the IRS within 30 days of founding the company. Failing to file, or waiting to incorporate until a first investor arrives, is a common mistake, and will lead to a nasty tax bill when you can least afford it.

  3. Spread stock issuance over an earning period. This is the purpose of a vesting schedule, which issues allocated stock over time. Typically, vesting in startups occurs monthly over four years, starting with the first 25 percent of shares vesting only after an owner has remained active for at least 12 months (one year cliff). Key founder vesting should have no cliff.

  4. Retain the right to reclaim stock from anyone leaving the startup. To retain control, the original founder must reserve the right of first refusal to buy shares back at cost from a partner who decides to leave early or stop working. Otherwise, people with no ongoing effort (“free riders”) will own the value growth that you are adding after their departure.

  5. Minimize your own loss of ownership as major investors contribute. This is called stock dilution control. While new equity owners always have to get it from someone, actual re-allocation of existing shares should be based on a formula to maximize the value of your remaining founder shares.

  6. Accelerate your own vesting if pushed out or the startup is acquired. Don’t lose the value of stock not yet vested if your startup is bought out before the normal vesting schedule comes to a close. If new investors want to replace you as the founder early, make sure this action triggers an accelerated vesting clause as well.

  7. Facilitate an upgrade of founder’s common to founder’s preferred. Investors typically demand preferred stock to give them more control and first payouts, but these advantages can be at least partially offset (up to 20 percent) if you plan ahead. The acceptance of this option is now common, even though introduced only a few years ago.

  8. Limit board seats and manage member selection criteria. More board members is usually not better for the startup. Target no more than five members, with at least two being founders. This allows the entrepreneur more influence in controlling dilution of his or her shares, investment terms and acquisition decisions.

Every entrepreneur has heard the stories of a startup selling for millions of dollars or going public with the founder being squeezed out of all the gains. This situation only can be prevented by incorporating early, avoiding negative tax situations and managing your shares like gold. Founder’s shares are just paper when you get them, and it’s up to you to turn them into a gold mine.

Marty Zwilling

*** First published on Entrepreneur.com on 5/8/2015 ***


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Sunday, May 17, 2015

10 Steps For Entrepreneurs To Drive Real Innovation

business-innovation How is it that only a few business leaders and entrepreneurs seem to drive exceptional results and disruptive innovation in this rapidly changing market economy (marketquake)? These few seem more adept at executing market and technology turns, not just incremental evolution. They consistently take bold steps to stay ahead of the curve, often contrary to conventional wisdom.

Steve Jobs of Apple may have been the most visible example of this ability to “see around the corner,” but others often mentioned include Richard Branson (Virgin Group), and Howard Schultz (Starbucks). Most of you could suggest one more, but not many.

While searching for some structure that could facilitate learning the process, I came across a book by G. Shawn Hunter, “Out Think,” which offers a step-by-step outline for executives to achieve this stage of creativity. It suggests that they need to shed outmoded management and organizational biases, to foster an atmosphere where disruptive innovation becomes the norm.

Here is my summary and interpretation of the ten steps that he outlines for driving the disruptive innovations that entrepreneurs and startups all dream about:

  1. Establish the engine of leadership (trust). A classic IBM Global CEO study listed integrity and trust in the top three characteristics leaders must have in today’s business landscape. These are about being true, honest, and authentic with others, inside and outside the company. Without trust, no one will ever follow even the best innovators.

  2. Provoke with questions, not answers (inquiry). Peter Drucker once said “The most serious mistakes are not being made as a result of wrong answers. The truly dangerous thing is asking the wrong question.” Exceptional outcomes don’t come from standard answers to pre-defined questions by conventional leaders.

  3. Mine the organization for expertise (exploration). Identify individuals within the organization who have led innovation over many years, as well as newer employees that share the same vision. Just as importantly, you have to deal quickly with innovation blockers, including bureaucrats, power mongers, and skeptics.

  4. Dream well – you may find yourself there (aspiration). Aspiring to greatness requires uncovering and exploring truths – including hidden truths – and sharing them with others. The most innovative leaders expect the best of everyone, and develop the guru in others. Emulating perceived heroes and role models can lead to realizing your own aspirations.

  5. Embrace new kinds of risk (edge). Finding the “edge” is similar to “finding flow,” being “in the zone,” or being “in the groove.” These are states conducive to heightened engagement, accelerated learning, and creativity. These states allow deep curiosity, exploration, and highly focused activity to occur, leading to disruptive innovation.

  6. Collaborate to innovate (connection). To create a culture of innovation, leaders must first create a culture of collaboration. That means engaging and inspiring the creative talents of others, respecting employees’ ideas, and bringing new insights into group decisions. With collaboration, differences add up to more than the sum of the parts.

  7. Borrow prior and current brilliance (mash-up). By constantly mashing up prior ideas, applications, and outcomes, powerful new combinations emerge that have value to customers. Find people who deviate positively from the norm, intentionally destabilizing the work environment, and foster moderate creative tension that can spark innovation.

  8. Get moving or accept the consequences (action). Action counts – not words – especially when that action is novel and unique. Once you are in motion, actually producing something, people will respond, contribute, collaborate, and spread the word, driving energy and awareness your way. Innovation does not come without action.

  9. Make it your own (signature). A signature innovative solution is born of the core identity of those who have joined in the innovation journey, executed with the unique personalities of participants. Signature innovation is not easily copied or pirated, because it comes out of a truly unique cultural identity within a team.

  10. Connect with “why” (purpose). In any endeavor, there must be a purpose behind it if we are to receive maximum enjoyment, fulfillment, and a deeper sense of our own role in its achievement. Many companies and leaders now reinforce and demonstrate a commitment to responsible behavior that goes way beyond profit and individual gain.

Exceptional innovation or “seeing around the corner” does not come from closing your eyes and jumping into the unknown. It comes from a focus on learning and following the processes proven by other great entrepreneurs and leaders. Even creativity alone is not enough to deliver real innovation, unless it is teamed with the tendency and tenacity to execute. How well are you executing on the drive to exceptional outcomes in your business?

Marty Zwilling


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