Try Biotech for Blockbuster Startup Opportunities

In addition to the “green” sector, which I outlined a few weeks ago, I see biotech as one of the places where startups can always go for real opportunities. Recession-proof products with innovation continue to come from the biotechnology industry. Plus, it was the top industry attracting VC money in the most recent quarter of 2010, with a total of $944 million.

In its most general sense, biotech is used to refer to any sort of technology that uses biology or other medical technology to accomplish its end. It includes the use of microbes, or life processes, to produce materials and products that are useful to mankind.

Two top-notch analysts in this area, Eric Schmidt and Ross Muken say in Forbes “True innovation and products with a more durable revenue stream are coming from the biotechnology side of the industry,” They argue that biotech drugs treat life-threatening diseases - so recessions barely dent sales growth.

The hot areas of research today are cancer, AIDS, diabetes, heart disease, neurological diseases, immunological diseases, viral infections and tissue regeneration, where there is a high degree of incidence in the population.

Success in these areas will ensure a faster return on investment in R&D and licensing efforts. An alternative is to start a niche company with an orphan drug that, if successful, is protected from competition for several years. There is always money around for the right team and the right plan, and I believe biotech is a good area to start from.

If you are looking for the ideas on top of the list, I recommend you start with one of the following hot areas of biotech. Each one has the potential of annual sales more than $1 billion, which puts it in the new “blockbuster" drugs category:

• Metabolic disorders. "Metabolic syndrome" is the politically correct term for patients who are obese, diabetic, and face increased risk of heart disease. Now that half of the U.S. population is technically obese or overweight, an effective diet pill has become the Holy Grail of drugs.

• Vaccines. With new products to prevent cervical cancer, avian flu, and the common cold, vaccines are back in vogue. There are many other novel vaccines now on the table for development, ready for entrepreneurs who can license and commercialize them.

• Infectious diseases. Now that HIV has been transformed from a death sentence to a chronic disease has turned the infectious-disease-drug market into a multibillion-dollar industry. The next frontier is an effective treatment for Hepatitis C. Current drugs have terrible side effects and only "cure" 50% of patients.

• Lowering blood cholesterol. Drugs in this category are commonly called “statins.” They not only control blood cholesterol, but also stabilize plaque and prevent strokes through anti-inflammatory and other mechanisms. This is a huge need as the population ages.

Another biotech subcategory with opportunity is new medical devices. A friend of mine, a distinguished physician and surgeon, happens to manage a small private investment fund seeking early stage companies with new medical devices that have an established market. If you know a hot new startup in this area, I’m interested.

There’s never been a more exciting time to be a biotech startup. People tell me that “Big Pharma” companies have nearly $100 billion in cash that will keep buyout offers large. There are plenty of Holy Grail areas to focus on. How can you argue with this logic? Now is the time to jump in.

Marty Zwilling

Ten Top Rules of Successful Entrepreneurship

In these tough economic times, more and more people are turning to entrepreneurship as an alternative to traditional employment. I applaud this trend, but caution all of you thinking this direction to approach entrepreneurship with your eyes wide open. It is not for everyone, as the entrepreneur’s path is fraught with challenges.

Many experts have tried to clearly lay out the criteria for success in a way that allows you to judge your own situation and your own temperament, and make a rational decision before starting down this path. One of the best summaries I have seen is a new book by Bill Murphy, Jr., titled “The Intelligent Entrepreneur,” which outlines the ten rules of successful entrepreneurship, as follows:

1. Make the commitment. Entrepreneurship can be learned. But you have to be committed to the process of building your own thing and the act of creating something, rather than just coming up with an idea. It will likely take several ideas, with the learning process of failing on a couple, before you can call yourself a successful entrepreneur.
   
   
2. Find a problem, then solve it. Rather than finding a new idea first, try finding a problem first. Problem solvers make successful entrepreneurs. Idea people are dreamers, who often don’t enjoy the hard work of a solution in a specific timeframe to make money.
   
   
3. Think big. Thing new. Think again. In other words, make sure your solution will scale up. Professional investors will tell you they look for business plans that can credibly project revenues of at least $20M within five years, or they won’t justify an investment.
   
   
4. You can't do it alone. Have a support team of people you know and trust. An idea person and a problem solver make a great team. Successful entrepreneurs have to work well with people, whether they be partners, investors, employees, suppliers, or customers.
   
   
5. You must do it alone. But the dichotomy is that there are things that you have to do alone. “The buck stops here.” You have to be decisive, accept responsibility, and provide the vision. Vision is not a group-think activity. Sometimes decisions have to be made quickly, and with very little hard data, so you need the confidence in your gut.
   
   
6. Manage risk. Without risk, there can be no innovation. Not every idea can, or will, be a winner. Fear of failure will kill innovation, but reckless disregard for risk will kill a business. The successful entrepreneur is able to find the balance between these two extremes.
   
   
7. Learn to lead. In a startup, the entrepreneur leader has to do two things. First, drive the business creation process, and secondly, inspire all the others. The others include the rest of the team, investors, and customers. That means hands-on leadership and effective communication.
   
   
8. Learn to sell. Don’t believe the old myth that “if we build it, they will come.” Selling is a learned skill, and takes effort, just like building a product. Everyone in your startup, especially the entrepreneur, needs to understand sales, and needs to be a salesman.
   
   
9. Persist, persevere, prevail. Experts say the prime cause of failure in business is quitting too soon. The successful entrepreneur never gives up, and uses creativity to overcome all obstacles, including personal, financial, and technical ones.
   
   
10. Time, not money, is the key resource. Entrepreneurship is a lifestyle, not a job. Be prepared to play the game for life. There are no quick fixes, or quick get-rich solutions. Learn to manage and balance your time; it’s the one thing that belongs to you alone. Great entrepreneurs have a life outside of work, and find time to give back.

Reporter Bill Murphy compiled his book based on three real-life success stories of Harvard graduates, all of whom proved the points by their failures as well as successes. There is no magic here, but I believe these rules can shorten the learning curve and increase the success rate for every budding entrepreneur.

Marty Zwilling

Six Entrepreneur Skills That Angel Investors Love

I’ve noticed that some entrepreneurs seem to have no trouble attracting investors, while others with a great business plan struggle with it. The reality is that angel investors are humans, and personal traits often make or break the relationship, even before the investment is considered.

On the top line, angel investors look to invest in entrepreneurs that have an almost unwavering passion and sense of urgency. In the business, this is commonly called “fire in the belly.” If you don’t have it, you probably won’t succeed, even with funding.

Of course, this has to be in concert with a variety of visible characteristics that indicate that you as the entrepreneur have the attitude and practical skills to make it happen. Here are some key ones they look for:

1. Talks and writes well. Can concisely explain the unique, compelling value of the proposed venture in written terms and in oral presentations (elevator pitch), recognizing that some investors rely more on one than the other. Listens before answering questions.
   
   
2. Networked and connected. Successful entrepreneurs already have a visible network of trusted suppliers, potential customers, partners, and even investors. These are critical to any venture. A successful track record with previous investors is a home run.
   
   
3. Full disclosure attitude. Clearly willing to provide details of weaknesses as well as strengths of the proposed venture, and the challenges ahead You must be willing to welcome the participation of the angel investor in the company, at least at the advisory level.
   
   
4. Values intellectual property. Convincingly presents a patent, trademark, or other “secret sauce” that can create equity value, not just current cash flow for the owners. This has value now, and is critical for maximum value in a merger or acquisition.
   
   
5. Not in a heated rush. Calm and self-assured, rather than desperate. Can show milestones achieved, as well as planned, which indicate rational expectations. Allows sufficient time to find capital, including due diligence time for investors.
   
   
6. Realist. The best entrepreneurs recognize and accept things as they are, and react accordingly. They are quick to change their direction when they see that change will improve their prospects for achieving their goals.

At the stage during which the angel is normally investing, the entrepreneur may be all the angel has to go by to decide whether the deal is worth pursuing. The technology or product may be at an embryonic stage. There may not be any customers to talk to in order to evaluate the market need.

The investor, in order to eventually be successful, has to spot not only winning technologies but winning people, and all investors have a slightly different view of what a winner looks like. So, of course, they try to guess the internal traits, like honesty, dedication, vision, intelligence, and leadership based on external traits listed above.

If you think you want to be your own boss and run your own business, look in the mirror to see if you have the right traits to be an entrepreneur. Better yet, ask a real friend, who won’t just tell you what you want to hear. We can’t change you, but you can change yourself, if the current pain level or the future reward is high enough.

Marty Zwilling

Startup Failure is a Positive Step Towards Success

If you haven’t had a failure, you aren’t pushing the limits. If you are really an entrepreneur, you are a risk taker and less cautious by nature, so failures should be expected. Wear you startup failure as a badge of courage. Don’t go after failure, but embrace it when it does happen and grow from it.

People who are afraid of failing should not become entrepreneurs. They can't overcome the psychological fears of making a mistake, and are afraid of losing money. They are better off keeping their day job. Successful entrepreneurs, on the other hand, tap into the positive power of failure. Here are three examples:

• Steve Jobs was fired by Apple Computers in 1985, the company he helped to create. He went on to acquire Pixar, made it a success, and then came back to reinvent Apple as a very successful consumer products business.

• Dean Kamen, the creator of the Segway Human Transporter, several successful biomedical device businesses, and holder of 440 patents, jokes that his biggest failure is “that I have too many to talk about.”

• Thomas Edison invented the electric light bulb, central power generation, and the phonograph, but failed in his effort to extract low-grade iron ore from sand. He brushed this off, and went on to many successful media and transportation businesses later in life.

According to investors I know, serial entrepreneurs who have failed at least once are more likely to get funding from them, compared to entrepreneurs with a perfect track record. Investors know that founders often learn more from a failure than they do from a success, so don’t be so quick to delete a failure from your bio. Serial failures, on the other hand, send a different message.

A failure can be a milestone on the road to success, if you celebrate that failure for what the mistakes taught you – and use the experience to move to the next idea. Here are three points of learning that many famous failures emphasize:

1. Accept responsibility, don't spread the blame. It’s easy to blame partners, investors, customers, and the economy. If you blame someone else, you'll never learn from your mistakes. Remember, you volunteered to be the entrepreneur, so you are not the victim.
   
   
2. Capitalize on the good relationships you found. In every bad deal, there are always some good people. Many entrepreneurs have taken on one of these as a new partner, and gone on to make millions of dollars. The good investors will fund you again, and the good customers will gladly take your next offering.
   
   
3. Study and profit from your mistakes. Mistakes are priceless lessons, so you should learn from them, rather than run from them. Making mistakes and becoming smarter is the job of an entrepreneur, while not making mistakes is the job of an employee.

Failure is not usually a single event, but a collection of mistakes and circumstances that add up to test the patience of the founder. Failure combined with a strong sense of business ethics can motivate and produce innovation, while failure due to a lack of ethics can lead to desperation. Certain types of failures, like failures of integrity and ethics, are harder to recover from.

Failure, even multiple failures, can be the first stage of a very successful journey. Success usually comes to those willing to keep coming back. Resilience and agility are really the only sustainable edge in business. So when you experience your first failure, just give up your ego, let it go, and get back to work smarter on your next success.

Marty Zwilling

Which Social Networks are for Entrepreneurs?

Social networking is indeed the new business networking. But you need to understand the different cultures to make it work. For example, my personal interest is entrepreneurs, and MySpace is for tweens. Me going to MySpace is sort of like your parents crashing your high school prom – everyone is uncomfortable and neither side has any fun.

Since I’ve been lurking around the various social networks for the last year or so, I’ve learned a few things, so I thought it would be helpful to clue you in on current networking cultures, and how they map into the business networking scene.

Every social network, including MySpace, claims to be a mecca for business people to network and sell products. That’s a necessary part of their hype to build followings and compete in the numbers game. But the reality is that each has a different style and some unwritten rules.

Here is my characterization of the social networking scene, as it relates to business networking for entrepreneurs and startups:

• Twitter. Believe it or not, this is my favorite for entrepreneurs. It is the melting pot of 75 million young and old members, business, personal, and celebrities. It’s the Internet version of the old daily newspaper, with serious news links, celebrity gossip threads, and business people of all sorts looking for information and leads. Entrepreneurs can find like-minded people here.

• Facebook. Here is the big gorilla of social networks, now exceeding 500 million members worldwide. It was built by Gen-Y, but it has now grown far beyond that. Facebook has groups like “Facebook for Business,” and millions of Fan/Business Pages, so be there or be square. Just don’t expect anything too technical.

• LinkedIn. This is the “old guard” of 60 million professionals, mostly populated by experienced executives and serious marketers. There are groups like “Applied Entrepreneurship”, where discussions get animated about the value of patents, and the legality of MLMs. Gen-Y will not feel comfortable here, but it’s an important business information source for entrepreneurs.

• MySpace. As I mentioned earlier, this network is dominated by musicians and tweens. Yet they have groups for “Entrepreneurs” and “Business Networking”. I tried business discussions here, with no response. This does seem to be the forum for “get rich quick working from home,” but it’s not the place for most real entrepreneurs.

• All the rest. (Ryze, Plaxo, Orkut, Ecademy, Bebo, Friendster, etc.) There are dozens of other social/business networking sites out there, some regionalized, and some are special interest boutiques. For example, Orkut is most popular in India and Asia, while Ryze is popular in Europe.

Before you decide to build your own perfect match, combining the best of all of these, consider these sobering statistics. The four major sites above all worked for several years before they saw any revenue, and have required investments of $50 million or more to build their brand. Viral marketing costs real money, to pass that magic million member mark, before your advertising revenue will even pay the rent.

My advice is to join one or two to check for value, rather than trying to do them all. It’s just like joining only one or two business groups in a new town, rather than trying to be active in all of them. You will be surprised at the number of valuable people connections, and the real leads you will get for your business. You have to give as well as take, listen as well as talk. Observe the social graces, and have fun!

Marty Zwilling

Penthouse Relationships Lead to Business Success

In the world of entrepreneurs and startups, top floor relationships are everything. You can’t start a business alone. You need partners, team members, investors, vendors, and customers. But people don’t realize that all relationships are not the same. There are people you only recognize on the street, business friends, and then close friends whom you can always count on to help.

Tommy Spaulding, in his new book, “It’s Not Just Who You Know,” categorizes relationships into five levels, like floors of a building, and identifies the attributes of relationships at the different levels. More importantly, he talks about the actions required to build a network of contacts at the highest level. He also defines the five floors of relationships as follows:

1. First floor – meet and greet. This is where most business relationships start and remain. You need something specific from the other person – a loan, or product order, or help solving a problem. After you get what you want, you move on, with no giving or commitment.

2. Second floor – begin sharing some information. But it’s very basic information, the type you dispense out of social obligation or because it’s a job requirement, not because you’re offering some insight into who we are. Many people call these “close” friends, but in reality there is no trust, feeling, or giving going on at this level.

3. Third floor - emotional comfort level that goes beyond facts. You feel safe enough to voice opinions, discuss perspectives and share feelings in making decisions. In business, positional authority remains the primary guiding force at this level, and most business relationships stay at this level or below.

4. Fourth floor - real, same-page connection. This level allows for conflict and resolution with no hard feelings. Here you get the introduction of “netgiving” as well as networking. Friends to the end talk about what’s important to them and aren’t afraid to discuss private matters.

5. Top floor – penthouse dwellers feel the other person’s state of mind. They become confidants, advisers, and cheerleaders who understand each other’s needs and drives. Vulnerability, authenticity, trust, and loyalty are off the charts. It’s a relationship based more on giving than on getting. There’s only room for a few relationships at this level.

It’s often said, “it’s not what you know, it’s who you know.” In business, there is another dimension, the level of your relationship, and the level of trust and giving established. Of course, relationships seldom fit neatly into a given level. They’re far too dynamic, and may even move up and down floors like an elevator.

I recommend that you use the top floor or penthouse as the reference point to think about your own business relationships. How many do you have at the top level, and what are you doing to actively develop more? Are your “close” business friends actually at the top floor, or merely at the second floor? Can you count on them for a real help or a big favor?

Tommy insists that building meaningful relationships, without sacrificing integrity or treating other people as a means to an end, will always help you achieve your goals and move beyond them, personally and professionally. These relationships must be based more on giving than on getting. That kind of giving gives you more than you could possibly imagine.

All relationships require hard work, patience, understanding, as well as tactics and strategies designed to make them blossom, just as you have tactics and strategies for marketing, selling, advertising, production, distribution, and customer service. Thus relationships are the basis for all the other keys to business success.

Marty Zwilling

Six Actions to Solidify a Startup Sense of Urgency

In today’s business startup environment, if you don’t move fast, you get run over. Without a sense of urgency, people and businesses just can’t move fast enough. Speed is the driver because customers have a zero tolerance for waiting, and there are always competitors gaining on you.

John P. Kotter in his book, "A Sense of Urgency," delves into the how-to required of entrepreneurs on that first step, avoiding pitfalls along the way. He is convinced that increasing the sense of urgency is the toughest of the steps necessary for effective change.

Urgency is not frantic activity born of excess energy, anger, or frustration. These do result in high activity levels, but results will be slow in coming and often misdirected. Here are some more positive steps to increasing a true sense of urgency, according to Kotter:

1. Behave with urgency every day. Always demonstrate your own sense of urgency in meetings, interactions, memos and e-mail, and do so as visibly as possible to as many people as possible. You are the role model for everyone in your organization. If your tone or actions lack urgency, it percolates quickly to everyone, and you reap what you sow.

2. Consistently communicate urgency. Urgency is a set of thoughts and feelings, as well as a compulsive determination to move and win now. Aim for the heart, not just the mind. Look for the element of every story that will compel employees into action. Make employees feel empowered, not stressed, to buy into the need for urgency.

3. Create action that is relentlessly aimed at winning. Make sure your actions are exceptionally alert, and focused on success. Show some progress each and every day, and constantly purge low value-added activities. Be quick to reward the winning actions of everyone on the team.

4. Bring the outside in. Be on the lookout for compelling data, people, video, websites and other important messages from outside the company. Strive to connect internal activity with external happenings and challenges. Highlight competitor wins in the marketplace, and continually challenge your own team to do better than competitors.

5. Find opportunity in crisis. Always be alert to see if crises can be a friend, not just an enemy, in order to destroy complacency. Think of crises as potential opportunities, and not only dreadful problems that automatically must be delegated to the damage control specialists. But don’t assume that crises inevitably will create the sense of urgency needed to perform better.

6. Deal with the urgency-killers. Remove or neutralize all the relentless urgency-killers, people who are not skeptics but by their actions keep a group complacent or create destructive urgency. Examples are people who are always “too busy” or stretch every task delivery beyond reasonable limits.

One of the main obstacles to a sense of urgency is complacency, which often sets in after a success. When the CEOs and employees are riding high on a wave of profits, complacency can creep in unnoticed. It's easy to hand out rewards and praises without looking down the road and outside the box. Eventually a competitor comes along to trample you into the dust.

Another frequent obstacle is the false sense of urgency. The enemy of urgency is a full appointment calendar, when everything becomes urgent. Here you need flexibility, smarts, and guts to reprioritize less important tasks, or purge them altogether.

Finally, eliminate fear, both fear of failure and fear of success. Fear thrives in an environment where people get punished for mistakes and discouraged from experimenting. Fear of success means people worry that success will bring uncomfortable or distasteful changes.

So my challenge to each of you is that you wake up each day with a sense of urgency both at work and in your personal life, and practice the recommendations above. Constantly critique your business and look for opportunities to improve. Lead by your actions, and the team will follow.

Marty Zwilling

More Startups are Getting Less Venture Capital

Startups and entrepreneurs need to be realists. You need to accept the fact that the down economy over the last couple of years has changed the way in which venture capitalists see the world, so you should adjust your strategy and expectations in dealing with them.

While the amounts were down, the number of startups that took slices of the pie went up by 9 percent (780 total), perhaps signaling that investors are trying to be more economical with their funds. Despite the third-quarter funding drop, though, funding for the full year still looks to be higher than it was in 2009.

So the venture process isn’t dead yet, despite all the rumors. But the amount invested did decline 7 percent to $4.8 billion in the July-September period, compared with $5.2 billion invested during the same three-month period in 2009, according to the National Venture Capital Association (NVCA).

There is no doubt that many VCs are still holding onto their cash while they wait for conditions to improve — a lemming-like mindset of cash conservation that won’t help pull us out of the downturn. Many of the large endowments that invest in the venture industry have seen their net worth plummet. The market is coming back, but it is still well under water.

So what can you do to optimize your chances of getting a chunk of the money? Here are some recommendations I have heard from the experts:

• Move your company to Silicon Valley or Boston. VCs have pulled closer to home and hunkered down. Like angels, they like to touch and feel their investments. About half of the VC dollars and deals come from these two corridors, so it helps to be there.

• Move your company to China, India, or Israel. Amazingly, it you can’t be where VCs live, the next best thing is to be way out in the new frontiers of investment. Overall, venture capital investment fell in the United States last year but rose elsewhere. This is called overseas speculation in big growth opportunities.

• Get in a recession-proof sector. Many sectors where VCs have traditionally made the biggest home runs have faded or matured. These include chips, computers, software, telecom, and the Internet. Last quarter winners were clean tech, biotech, and medical.

• Personal networking is key. Unless you know a VC personally, the chance of getting them on the phone and pitching them, before they have had a chance to look over some kind of summary, is zero. An entrepreneur should use advisors to find someone "on the inside" who can make personal introductions to investors.

• Hone your executive summary. Once introduced, your best entre is hitting the VC with a well-honed executive summary. Here are the “big four” that must be in the summary - what you do and what space you are in, how you make money, your competitive advantage and your funding plans.

Make no mistake, the first priority for VCs this year will be to provide more monetary support towards existing investments and companies, As a result, young, innovative companies are being hit hard. Many believe that investing in new technologies and paradigm shift products is too risky a move in today’s down economy.

The upside of the down economy is that it opens prospects to obtain great deals. Luckily, some VCs feel that the best time to invest is during a struggling market, when both valuations and competition are at an all time low.

I believe that startups and venture capital firms that struggle but survive in 2010 will emerge stronger in 2011, making that a year of recovery and renewal in the investment world. Be there.

Marty Zwilling

Five Steps To Social Media Success for Startups

Everyone is talking about how social media can help you jumpstart your business at no cost, and experts are springing up on all sides to help you do it at a high cost. So who do you believe, and what are the keys to success for your startup?

I’ll put my money on one of the originals in the social media marketing game, my friend Lon Safko, who just published his Second Edition of the bestselling book, “The Social Media Bible.” In the book, and in his popular lecture series, he says you can do it yourself, and  outlines five steps to success, which I have adapted a bit for startups as follows:

1. Analyze existing media, social media, and your demographics. Before you start, analyze existing media, demographics, and new social media alternatives for a fit to your rollout campaign requirements. Factor in the fundamental shift to ‘pull’ marketing taking place across the world in media and advertising. Then set your goals.

2. Understand the basic tools – the social media trinity. Blogging (Wordpress), micro-blogging (Twitter), and social networks are the trinity. Key social networks are Facebook (500 million consumers) and LinkedIn (60 million professionals). Get to know the five W’s of these and others – who, what, where, when, and why. Pick your fit.

3. Integrate your strategy into the trinity. Social media does not stand alone; it must be integrated into a balanced marketing strategy. Content is still king, so do the proper homework on what you blog, and the quality of the messages you deliver via social media. Put your social network links on your stationery, business cards, and email.

4. Assess and commit the resources required. At this point you need executive buy-in, decide what you do personally, assess your staffing and out-sourcing requirements, and commit the budget. This is the time to get creative, run pilot projects to look at ROI, and educate the whole team on objectives and activities.

5. Implement metrics and analytics. You can’t manage what you don’t measure. Determine the proper measurement tools and set up the measurement process. Only then can you determine your ROI. Manage your expectations, and analyze every marketing channel. Lather, rinse, repeat.

The best attribute of social media tools is that most of them are free. The down side is that many of them are limited, or have poor quality, and they come and go each day. You need to allocate a few minutes a day, or every week, to researching via blogs and websites like Tech News World the latest recommendations and reviews. This is not something you can learn once and forget about.

With social media, a key element of success is focus on the message. Never “sell” or push out your message like conventional advertising. The trick is to listen first, add something of value to the conversation, and pull the customers to you because they trust you and want more. According to Lon, the keywords to remember are to be “sincere, authentic, and transparent.”

Now is the time to capitalize on this fundamental shift in power to the customer, who now has real control over your brand message. Companies now have to communicate, rather than just pontificate. Customers see what their peers are saying about you in blogs and product reviews, and how you respond to these, and this impacts their decision more than any advertisement.

But above all, don’t forget to observe your competition and their social media activity. Luckily, you can see and measure online most of the things they can, and see which things work, and which ones don’t.

Finally, remember that it takes time to establish and optimize your presence on social media sites. Use the five steps listed here to leverage your time effectively, stay one step ahead of your competitors, and enjoy the success that social media can bring your startup.

Marty Zwilling

Avoid Hiring Pitfalls When Staffing a New Venture

By Ernst Gemassmer

Hiring the right people into the right positions of a new company is critical to getting funded, and the right people are as critical to success as the funding. Yet the hiring process in most small companies is usually haphazard, and low priority compared to all the other work that needs to get done.

The solution is to make this function one of your highest priority tasks, and formalize the process to avoid the following common hiring mistakes:

• Desperation hiring without a plan. Too often, you need a person “yesterday,” so you hire the nearest warm body, without proper consideration of strategic skills required, or how this hire fits into your overall staffing requirements. My recommendation is to hire the core executive team first, and charge them will building their own team.

• Poor position definition. The responsibilities of every position need to be clearly defined, realistic, and appealing. Make sure you are not looking for a set of skills and competencies that can’t usually be found in a single person. If the expectations or the salary range are unreasonable, you won’t get good results or a happy employee.

• Inadequate candidate sourcing. Going to Craig’s list may be adequate for some roles, but your rolodex and networking are the best source for C-level executives. Save the executive search firm for later, but make sure your search process can yield a robust list of candidates with the qualifications you need. Saving costs at hiring time can cost you a fortune through years of poor and unhappy performance.

• Hiring process that starts and stops. Without the proper priority and a formal timetable, your hiring process loses momentum and the results are unpredictable. Good candidates quickly recognize and avoid potential employers who never respond, cancel interviews, and can’t make a decision. Poor prospects have fewer choices so they wait.

• Skip the background and reference checks. It’s easy to be so impressed by a mirror-image candidate, or so pushed for time, that you skip the reference checks. Unfortunately, your gut-feeling may be a setup for pain later, when you find out the candidate talks a great story, but never delivers, or is highly skilled but unable to work with customers.

• Slow to correct staffing mistakes. In the heat of battle, to complete your initial staffing, every executive makes some staffing mistakes. For example, you may have overlooked a person’s professional shortcomings because of a close friendship. When you realize that you have made a mistake, address the issue in a polite, confidential but firm manner, and then encourage everyone to move on.

• Hire without consideration of team culture. You should focus on developing a ‘team spirit’ around the fundamental beliefs and objectives of your emerging company. If your team spirit and culture are developed through Friday afternoon beer bashes and open work hours, people from other work cultures will have a hard time fitting in and performing. A good practice for startups is to have every senior manager interview all significant new hires to ensure that they fit the culture of the new company.

As a startup, your future is all about the people you have on your team, and the people you hire. You need the very best to maintain that competitive edge. It’s normal to make some mistakes, but you need to minimize these by at least avoiding the common pitfalls, and realizing the importance of the staffing process. Then proceed with cautious urgency and make quick changes when warranted.

Today’s article is presented by one of the founders of our Startup Professionals team, Ernst H. Gemassmer. He resides on the West Coast, and has long helped entrepreneurs there, as well as providing turn-around assistance as interim CEO, and International coaching. You can contact him directly at ernst@startupprofessionals.com.

Building a Startup is Like Prospecting for Gold

Startups are tough. For every entrepreneur and every gold prospector, there are more opportunities to fail than to succeed. Yet experts say that quitting too soon is a prime cause of failure in both endeavors. No one knows how many business founders quit digging when they are only three feet from the gold.

Way back in 1937, an author name Napoleon Hill first released a classic book called “Think and Grow Rich,” which started with a real story of a man named Darby prospecting for gold, who gave up on his dreams of becoming rich, a mere three feet from a major gold vein.

A more recent Napoleon Hill Foundation follow-on book, “Three Feet From Gold – Turn Your Obstacles into Opportunities!” by Sharon L. Lechter and Greg S. Reid,  highlights the similarities of those economic times with the ones we have today. It also demonstrates that the driving principles for entrepreneurial success haven’t changed all that much either.

While this book is not specifically about entrepreneurs, the motivational and leadership concepts discussed certainly apply. Here is a sampling of quotes from the book which don’t need any commentary from me for you to understand their business applicability:

• A dream is just a dream until it is written down. Only then does it become a goal.
• Before great success comes, you will surely meet with temporary defeat.
• There is a big difference between believing in something and knowing it.
• Focus on your people more than your profits.
• Work your strengths, hire your weaknesses.
• Capture the leaders, corner the market.
• Whether the glass is half full or half empty depends on where it began.
• Success simply comes from going from failure to failure without loss of enthusiasm.
• Find and use your advantage, or someone will take it away.
• To succeed you must have “stickability.”
• Stay on your toes. Focus on the job at hand.
• Run from people with negative attitudes.
• Success is the reward for setbacks.
• Sometimes the worst situations turn out to be the best opportunities.
• There is a difference between being interested and being committed.
• Goals are aspirations until they become real. Then they become responsibilities.
• Every wealth creator is crystal clear about two things: a vision and a mission.
• Success simply comes from going from failure to failure without loss of enthusiasm.
• Many receive good advice, yet few profit from it. Will you?
• Sometimes you have to step back and look at your situation from a different angle to find a different solution.
• The most successful people are the most accessible people. The most successful people want to teach others how to become successful.
• You need two types of courage – First, the courage to get started. Second, the courage to not quit!

In fact, these quotes are all from successful business leaders of the current generation who are sharing how they have been able to persevere and keep their fire of passion burning, despite adversity – how by not giving up, they were able to allow their miracles to happen.

The message for you, if you are ready to receive it, is that there is a roadmap to success for everyone. If you are willing to work with mentors, peers, and your team, it only takes a few weeks to cultivate a good habit. After that "we first make our habits and then our habits make us."

In my experience, the real measure of an entrepreneur is his determination to “never give up.” I suggest that all of you can discover your own special gifts and keep moving forward, never giving up or quitting. A real entrepreneur would never stop digging three feet from the gold. Would you?

Marty Zwilling

Eight Action Items to Make Your Startup Bankable

A common question I get is “How do I get a bank loan to fund my startup?” The default answer is that it probably won’t happen, because most banks just don’t make bank loans to startups. The failure rate is just too high, and startups typically don’t have the assets or revenue stream to back up the loan. That’s why angel investors are so sought after by entrepreneurs.

In my experience, some startup founders do overcome these odds, but you need to be realistic and do your homework. Here are some tips and rules of thumb to improve your odds and help you understand when a bank loan or line of credit is possible, and how to get it:

1. Write a good business plan first. Approaching a banker without a business plan, and asking for money, is a sure way to be rejected and leave a bad first impression. Pay particular attention to the financials, and have a CPA friend review for reasonableness before presenting.

2. Clean up your credit rating before you apply. Good credit ratings, both personal and business, are essential to getting a loan or line of credit. This is just common sense, since every loan has a repayment schedule, and your credit score reflects your track record of paying bills on time.

3. Pick a business domain that is squeaky clean. Certain business sectors have historical high failure rates and are routinely avoided by banks and investors. These include food service, retail, consulting, work at home, and telemarketing. Also, don’t expect enthusiasm for your gambling site, porn site, gaming, or debt collection business.

4. Show a significant personal investment. Most loan programs, and most investors, want to see that you have “skin in the game’ before helping you. If you have nothing at risk, your own level of commitment is suspect. As a general rule, your investment should be at least 20% of total projected loan requirement.

5. Demonstrate an ability to repay from revenues, not collateral. Bankers will insist that you have collateral to back the loan, like equipment, or even your home. They actually prefer to see that you have a revenue stream to repay the loan, since they don’t want to own another home. The most conservative ask for two years of positive cash flow.

6. Demonstrate experience in starting a business, ideally in this domain. Bankers, like investors, fund people rather than ideas. Your idea alone will not get you a loan, but your experience running businesses may get you a loan, even if not intimately related to the current proposal.

7. Conduct meetings at your site, not at the bank. You have an advantage if you can get them on your turf, and even get several key employees to tag-team the presentation. If you are a startup operating out of your garage or basement, you are likely too early in the cycle to get banks interested.

8. Eliminate your salary from the use of funds. Most startup founders don’t take a salary for the first year or two, since most investors as well as bankers won’t give you money so that you can pay yourself. The most positive use of funds is to buy raw materials to build product for existing customer orders. In fact, customer orders are great collateral.

Even if you can’t meet all these criteria, it’s definitely worthwhile to utilize the free services of the Small Business Administration (SBA) and SCORE in the US to get their help in preparing for the loan option. They have contacts with the more “startup friendly” banks in your area, and might even be able to arrange a “loan guarantee” if you meet some of these criteria.

In all cases, the loan option should be investigated before looking for an angel investor, since the “cost” of a loan is usually considered less than giving up a large share of your company equity and control to angel or venture capital investors. I’m told that 21 companies on the Inc 500 list started with bank loans, so you can do it too.

Marty Zwilling

Listening to Customers is Becoming a Lost Art

It seems like many entrepreneurs are becoming so technology addicted to their iPhones and email that they forget to listen to what their customers want, or even forget to ask. Attention spans have compressed to seconds, and face-to-face conversations, with the hugely important body language, are avoided in favor of texting and anonymous Internet surveys.

It shouldn’t surprise you that a recent Harris survey found that a quarter of all Internet users think it’s okay to stay online during sex. Slightly more said it’s okay to be “plugged in” during their honeymoon, and eight percent think it’s alright to surf the web during religious services. I can’t imagine any of these people taking the time to listen to their customers.

In fact, really listening to customers happens so rarely these days that you can actually gain a competitive edge just by doing it. Here are some tips on how to do it effectively, for those people on your staff who may have forgotten how:

1. Don’t confuse customer needs with your needs. When you are selling, your entire focus should be on figuring out what your customers want, and giving it to them. Resist the urge to sell them on your way, just because it matches your offering, or you think it’s more supportable. Win the business, build the relationship, then talk about alternatives.

2. Meet or talk to your customers in person, and provide feedback. Instead of using the technology to avoid customer contact, use it to make personal contact via the phone or Skype, anywhere in the world. Impersonal email surveys and computer voice response units cannot convince your customers that you are listening.

3. Keep your pride and ego under control. Pride in your hot new product line may tempt you to tout it’s features, before you really listen to customer needs. When your ego talks, you will quickly be seen as disingenuous. If the customer isn’t contributing 60% or more of the conversation, not enough listening is going on.

4. Don’t ask questions that start with “why.’ This kind of question will usually make the customer immediately defensive, so neither party will be listening, and the relationship will suffer. Always ask open-ended questions that encourage a dialogue, rather than one-word answers.

5. Never ridicule or dismiss a response. Customers instinctively know when you can’t wait to give your view without truly reflecting on the message, and this is interpreted as not listening. You should always ask questions with a curious, inquiring and interested tone, and pause thoughtfully before answering or moving to the next question.

6. Good listeners respond to broad comments with probing questions. Preprinted customer feedback forms, or a fixed set of questions, are not the best way of getting customer needs. Good interviewers think on their feet and go where the discussion leads them, rather than stick to a script.

7. When you use social networks, keep a personal touch. Social networks on the Internet provide a great opportunity to convince customers you are listening, if you do it right. Post enough feedback to prove you are listening, on a timely basis, with a sense of humor, be authentic, and don’t shout down critics.

Listening has always been important in any relationship, and in business it’s more important than ever because customers have more options than ever. Outbound marketing statements are perceived as clutter, and too many are filled with doubletalk.

Also, with the technology today, whether you listen or not, customers will make themselves heard. If you don’t care, or can’t convince your customers that you listen, you can bet they will find a competitor who does.

Marty Zwilling

Track the Ten Elements of Value for Your Venture

By Akira Hirai

We can measure success in many ways. In business, one important measure is the value of the company. That’s because a company’s value is a composite of all of the quantitative and qualitative factors that comprise a company: revenues, expenses, risks, growth prospects, quality of the management team, competitive advantages, strength of the intellectual property, and so forth.

In general, we want to do the things that increase the value of the business, and we want to avoid doing the things that reduce it. The problem is that we often lose sight of the big picture, and get mired in everyday distractions.

One useful technique for keeping your eyes focused on what really matters is Cayenne Consulting’s Venture Value Scorecard™. It’s human nature to prioritize the metrics that get measured, so the simple act of keeping track is often enough to have a significant positive impact.

The Venture Value Scorecard is a one-page summary of your company’s achievements and assets: the factors that contribute to the value of your organization. It should be updated monthly so that you have a regular reminder of where you’re making progress, and where you may have become complacent.

You can structure your Venture Value Scorecard any way you like (you can download our free Venture Value Scorecard Template here), but I suggest organizing it around the following key elements of value:

1. People: A strong team is obviously central to value creation. Your Venture Value Scorecard should highlight your recent successes in recruiting highly qualified team members to fill the most important gaps in your organizational structure. You can also use this space to keep track of innovators (R&D personnel) and rainmakers (sales & marketing personnel).

2. Products: You obviously can’t create value without a viable product (or service) to sell. This section of your Venture Value Scorecard should summarize the important advances you have made recently in research and product development.

3. Customers: A company’s only sustainable source of cash is sales, so you need to keep track of your business development efforts. You should inventory your best accounts and prospects, as well as the status of any pending major sales.

4. Partnerships: Relationships with larger firms not only confer legitimacy to your business; they can be an important source of intellectual property, distribution channels, and marketing clout. You should document the status of your partnership negotiations so that you can easily gauge progress.

5. Competitive Advantages: Your ability to create value depends on your ability to grow and protect your market share. This requires the continuous development of competitive advantages, whether through intellectual property, new innovation, exclusive distribution partnerships, key endorsements, brand building, corporate culture, or other factors. Keep track of what you’re doing to develop and enhance your sustainable competitive advantages.

6. Net Income: The five factors listed above all contribute to something that is directly measurable: net income. Part of your Venture Value Scorecard should be devoted to summarizing your income statement. Detail isn’t important; tracking your progress is. Items that paint a big picture include revenue by major product area, cost of goods, and operating expenses by category. If you have a lot of non-cash items such as amortization or depreciation, or if you have unusually long receivables cycles, you should also include adjustments to reconcile net income to cash flow.

7. Assets: Your assets add to your venture’s value, so any recent or pending changes in your assets should be recorded in your Venture Value Scorecard. These assets include things like cash (say, from a pending investment), facilities, inventory, and other property.

8. Liabilities: Your liabilities detract from your venture’s value. Any recent or expected reductions in your liabilities should also be recorded in your Venture Value Scorecard.

9. Risks: Unexpected events can kill a firm (of any size), and can therefore detract from its value. This is an opportunity to demonstrate that you recognize the greatest sources of risk facing your company, and that you’re taking prudent steps to mitigate the greatest hazards. Use your Venture Value Scorecard to summarize your major risk management initiatives.

10. Other: Every company is different, so you’ll need to customize the Venture Value Scorecard for your own circumstances. I suggest you try to figure out the 3-5 key metrics that are used to judge the health of companies in your industry, and keep track of these somewhere in your scorecard.

As noted earlier, your Venture Value Scorecard should be updated monthly. Keep an archive of your old scorecards. That way, you can go back and review the progress you’ve made. I think you’ll be pleased by the momentum you maintain by keeping score.

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Today's guest blog is by Akira Hirai, founder of Cayenne Consulting, a firm that helps entrepreneurs prepare for the fund raising process by developing strategies, business plans, financial forecasts, and presentation materials. His website is http://www.caycon.com.

Nine Keys to the Best Social Media Metrics for You

If you are an entrepreneur these days, or trying to grow an existing business, everyone is telling you that you need to use social media. There are many ‘experts’ out there telling you how to do it, or even offering their services. But very few are talking about how to measure your results, and the right metrics for optimizing your marketing environment.

Jim Sterne, who has written six books on Internet advertising, marketing, and customer service, tackled this complex world of social media metrics in his recent book titled "Social Media Metrics." He has one of the first books on this subject, and he breaks the process down into nine steps, as follows:

1. Get focused and identify goals. Social media is the realm of public opinion and customer conversations. If you don’t have a clear idea of why you are there, anything you measure will be useless. He suggests you begin with the “big three” business objectives of higher revenue, reduced costs, and improved customer satisfaction.

2. Get attention and reach your audience. Measuring message delivery in social media is a lot like measuring it in classic advertising, so classic metrics apply. With social media, it is also important to identify how many people see your message as remarkable. That leads to the extra reach of word-of-mouth, commenting, and telling their friends.

3. Measure respect and find influencers. Your task now includes reaching the people who are key influencers, and understanding their impact. Therein lies the multiplier effect. Your message multiplier velocity and reach are the signals that your offerings have the right scope, spread quickly, and resonate with your target audience.

4. Track the emotional sentiment. Counting is fine, but analyzing the outpouring of millions of souls can reveal attitudinal shifts. Tracking public sentiment over time provides invaluable insight and gives you the chance to stay right on top of changes in the marketplace and your organization’s brand equity.

5. Measure customer response and action. If they read it and like it, do they click through to your web site, or engage with your organization in new and different ways? Action is when people are drawn into a profitable and sustainable relationship with your company. That’s where the money is.

6. Get the message from your customer. With the customer in control, you need to make sure you are getting the right message from the right people at the right time. That’s real-time market research, and you need to measure how well you are hearing it and acting on it in your business strategy planning.

7. Drive business outcomes and get results. Now it’s time to cycle back around to measuring what sort of business impact your efforts are having. Measure to see if you have an increase in revenue, a lowering of costs, and improvement in customer satisfaction. Then it’s time to re-examine your goals to look beyond the “big three.”

8. Get buy-in from your colleagues. Some executives are slow to understand and embrace new communications methods. Use your results to convince them that social media is a vital part of your marketing mix, and deserves the resources necessary for proper implementation and measurement.

9. Project the future. Start now to look at where social media will be in two to ten years, and prepare for it. Don’t let the changes takes your organization by surprise, or allow your organization to be the last to implement and measure you in the new world.

The tools to help you with all these actions are still evolving. You can scan the Internet for the many offerings to gather data, but the evaluation of the ‘why’ behind the results is still largely manual. That’s the insight you need to support your efforts to reach higher performance goals. The sooner you find these insights, the quicker you can make better decisions to positively enhance your bottom line.

Marty Zwilling

Go Green With Ten Startup Triple Bottom Line Ideas

For those of you looking for startup ideas that are hot today and recession proof, consider anything to do with saving energy, sustaining the environment, or solutions to the global warming problem. These are especially good for Gen-Y (millennials) who have the passion, or every Gen-Y “wanna-be” (over 25 but not yet fulfilled).

Especially during a recovering economy, these will get you extra attention with investors, as long as basic business principles are not forgotten. Doing the right thing has to be profitable and competitive if it is to be sustainable.

Here are ten themes to get your mind rolling:

1. Reduce, reuse, recycle. Figure out how to recycle profitably your old cell phones. Come up with a responsible way to dispose of old medicines. Generate energy from the stuff you recycle.

2. Sustainable agriculture. Eliminate poisons from insecticides, weed killers, and other common products as well as the use of sprays in agriculture, and reduce dangerous chemicals in the food source.

3. Wildlife and resource conservation. Replant deforested areas to improve air quality, and restore indigenous forests. Protect wildlife to restore natural selection and the natural environment.

4. Renewable energy. Harvest renewable energy sources to power your home; sell that renewable energy back to your utility company site and build your dream eco-home; minimize your fossil fuel use; and more.

5. Alternative transportation. The alternatives here range from wind-powered battery-electric vehicles, to concentrated solar powered, geothermal-powered, tidal powered, wave-powered, to nuclear powered vehicles for different roles across the world.

6. Hyper-efficient appliances. Residential technologies – heat pump water heaters, new air conditioners, programmable thermostats, lighting, electronic appliances.

7. Organic food. This can be done both as big business and on a relatively small farm; and the third, help in hunting and gathering food for oneself.

8. Healthy fast food. Make visits to fast-food restaurants healthy rather than the culinary equivalent of "impulse buys."

9. Save the global environment. Global warming, air and water pollution, and reducing energy usage are just the beginning.

10. Green construction. I’ve heard many ideas for greening your house and your business, from minor improvements - such as what paint to use - to major ones, such as how to choose and install solar electric panels.

There are programs out there to help businesses green their practices in a way that works with, and often enhances, the bottom line. There's a phrase in green-talk, "the triple bottom line" which encapsulates what it takes for a business to be truly sustainable - economy (profits), ecology (resource management), and equality.

The last refers more to the social issues of green businesses today. It's all about how a thriving business can enhance the community it is located in. Go green, and make it a triple bottom line – for your business, the economy, and the environment.

Marty Zwilling

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Culture Counts in Every Business, Large or Small

By Roger S. Robinson, Ph.D.

Can an intangible like a company’s culture make a difference in your business? That is a tough question. After all what is culture? And can it impact your bottom line?

The concept of culture really entered the world of business through Peters and Waterman’s “In Search of Excellence.” They defined it in terms of successful organizations permeated with strong and sustaining systems of beliefs. Later authors have refined this definition to include a company’s character, its deeply entrenched perspective that influences the way that organization develops new ideas, weighs options, and responds to changes in its environment.

Perhaps a simpler way to think about culture is to think of it in terms of how an organization makes choices, how it develops its values, its ethics, how it trains, recognizes and rewards its associates, its spirit, and not to be overlooked, how it treats its customers - both internal and external. In other words culture can be thought of as the ideology of the organization (Mintzberg).

Clearly this concept sounds good, but does it really matter. Given the nature of various industries, both large and small, data on this issue is hard to come by. But are there lessons that can be learned?

The airline industry is one example that comes to mind. Its attractiveness from the point of view of Wall Street is low. Costs for entry and for modernization are high. Competition is high, profitability is low, especially low when compared with some of the new, hot industries such as those burgeoning in the high-tech arenas. In terms of analysts such as Michael Porter of Harvard, the bargaining power of buyers, the customer, is high. The customer has many alternatives, there is low buyer loyalty, decisions by customers are easy to make.

In other words it is hard to be different in this, the airline industry, Yet one company has been able to differentiate itself from all the other airline carriers - Southwest Airlines. And they are so successful they may soon become the largest airline in the US.

Yes Southwest does feature low costs to the consumer and none of the standard frills like meals, travel agents for reservations and baggage connections transfers, but they are also the most efficient with the lowest operating costs in this industry. Their service performance is perceived as extraordinary. Their on time ratings are excellent. They have the fewer complaints filed against them with the FAA then other airlines.

But the thing that most clearly differentiates Southwest from all of their competitors is culture -Southwest is a fun place to work and for many a fun airline to fly. Employee turnover is extraordinary low. Productivity is high - even pilots have helped with luggage and turnaround if needed. There has never been a layoff nor a labor shutdown in their history. Once you have a job with Southwest, it is yours for as long as you want. Lifetime employment is implicit. Employees are involved and empowered and rewarded for their performance and for innovation.

Southwest’s success is based on many things, not the least of which is that it is a place where there are a lot of people who take pride in what they are doing. As noted above this is a fun place to work and that spirit, that culture has made this airline over the past 35 years the most consistent profit performer in this mature and difficult industry.

Are there lessons here? If nothing else, focus on the attitude of your associates, your employees and how they interact not just with your customers but also with each other. What really matters is how you train, trust, treat them - how you recognize them, reward them - how you value them. Not to be ignored is how you lead them. Consider the model your behavior factors into this equation. As Herb Kelleher, former Southwest CEO, noted in a past Wall Street Journal article, “You have to recognize that people are still most important. How you treat them determines how they treat people on the outside.”

My conclusion is, not just for the airlines, but for virtually all businesses, culture counts. After all when you spend your money, don’t you want to do it where you are well treated, where you enjoy yourself, where your expectations are exceeded? And especially where you have fun.

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Today’s article is presented by my friend Roger S. Robinson, Ph.D., President of KnowHow, Inc, counselor to small businesses through SCORE, and author of Basic Business Planning for Entrepreneurs. You can contact him directly at roger_knowhow@yahoo.com .

Ten New Elements of Openness in Startup Leadership

The emergence of social networking and the Internet has caused a new focus and value on “openness,” which leads to a new element of leadership, called “Open Leadership.” The mantra of open leadership is “Be Open, Be Transparent, and Be Authentic.” This is counter to the traditional business premise of “control,” so many companies are still pushing back.

Charlene Li, in her latest book “Open Leadership,” attempts to show leaders how to tap into the power of the social technology revolution and use social media to be “open” while still maintaining control. She outlines her ten elements of the basic framework and vocabulary of open information sharing and open decision making:

1. Explaining: creating buy-in. This element is sharing information through the new video, audio, and interactive media about, and the logic behind decisions, direction, or strategy with the goal of gaining buy-in to the idea so everyone is working toward the same goal.

2. Updating: capturing knowledge and actions. New publishing tools, like blogs, collaboration platforms, and even Twitter provide updates that are easily available. These have the added benefit of being searchable and discoverable.

3. Conversing: engaging in a dialogue with others. Employees can share best practices with customers on social network platforms and customers can help each other. When done well, an organization’s online community can become a competitive advantage.

4. Open microphone: encouraging participation. Everyone and anyone is welcome to contribute through new collaborative tools with no preconditions. Search, combined with ratings and reviews become key in separating the useful from the rambling.

5. Crowdsourcing: solving a specific problem together. The goal here is to grow the sources of new ideas and gather fresh thinking to create a new product or service. It can also be for solving everyday problems, like logo design or open source code.

6. Platforms: setting standards and sharing data. Ebay is an example of open standardizing on how items are listed and how transactions are handled, enabling millions of individual sellers. Common platforms enable open data access at any level.

7. Centralized. The key challenge of making centralized decision making more open is to open up information sharing in both directions, so that those in power have the right information and also have the commitment to share it back out to the organization.

8. Democratic. Increasingly, voting is used to allow people to choose from a set of equally viable options, with the result is that employees feel a greater sense of ownership in the process. This is also becoming prevalent in decisions with customers on products.

9. Consensus. Social technology tools now allow this process to be done quickly and less chaotically, with tremendous buy-in from everyone affected. This process works well in today’s extremely flat and non-hierarchical startup organizations.

10. Distributed. This is a hybrid of all the preceding decision processes, in that it pushes decisions away from the center to where information and knowledge actually reside, typically closer to the customer. This mode requires more discipline and planning.

I’m still waiting to see how all this works out in real life. The challenge is to be open without abdicating all control, or spiraling into chaos. Hopefully, by embracing social media rather than banning it, leaders can transform their organizations to become more effective, decisive, and ultimately more profitable in this new era of openness in the marketplace. What do you think?

Marty Zwilling

Founder’s Stock is Simple, but Watch the Details

In reality, so-called “founder’s” shares are simply common stock, issued at the time of startup incorporation, for a very low price, and normally allocated to the multiple initial players commensurate with their investment or role. But that’s only the beginning of the story.

These shares are allocated and committed, but not really issued and owned (vested) until later. Typically, vesting in startups occurs monthly over 4 years, starting with the first 25% of such shares vesting only after the employee has remained with the company for at least 12 months (one year “cliff”). Vesting always stops when an employee leaves the company.

Even though the class is common stock, founders can negotiate special vesting and other terms as part of their stock restriction agreement upon venture investment. Here are some typical special terms for founder’s stock:

• Negligible par value. Since founder’s shares are usually issued at the time the company is incorporated, they essentially have no par value. As the company builds value, shares allocated later for employees or partners will have an appropriate price.

• Vesting starts now. Most founder vesting is not subject to the one year cliff because founders should already know and trust each other. Thus, most founders will start vesting their shares from the date they actually started providing services to the company.

• Acceleration clause. They might also have special terms in the case of termination or demotion that accelerate vesting. These have less to do with the type of stock and more to do with who the person is and how strategic they are to the organization.

• Stock survives investment. While most employees would see their vesting rest when the “Series A” round closes, a founder might retain some percent of their shares. Everyone wants to minimize dilution of shares, so special clauses are often included.

Unfortunately, founders often make the mistake of waiting until they have received a strong indication of interest from an investor before they decide that it is time to incorporate. Forming a company so close in time to raising capital can create a significant tax issue.

For example, if founders issue themselves stock for one cent per share when they form the company, and then within a short period of time outside investors jump in at $1 or more per share, it might appear in an IRS audit that the founders issued themselves stock at significantly below the fair market value per share.

The difference in value between what the founders paid and the fair market value of that stock based on actual sale to outside investors will be characterized as compensation income resulting in what could be significant tax liability to the founders.

The way to avoid this risk by filing an “83(b) election” with the IRS within 30 days of the purchase of your founder’s shares and paying your tax early on those shares. Failing to file the 83(b) election is common mistake of founders that you should avoid.

There should be no tax concern for a founder investing more of his own money any time in the process. All the tax concerns relate to "outside" investors coming in shortly after incorporation. Valuation has very little meaning until an outsider invests.

So my advice is to incorporate and allocate founder’s stock as soon as you are starting real work on the company, but at least six months before you anticipate any outside investors. But don't incorporate too early, as investors will measure your growth and progress since the incorporation date. Several years of apparent inactivity since incorporation will make it look like there is a problem with you or with the company.

Of course I have to add my caveat that I’m not a lawyer, and these comments do not constitute a legal opinion. See a qualified business attorney if you anticipate multiple investors or a complex company structure. Don’t let a positive investor decision take the joy out of your future.

Marty Zwilling

Five Strategies to Break a Startup Terror Barrier

One of the biggest impediments to starting a new venture is the “terror barrier,” as popularized by Bob Proctor, a 75-year-old millionaire and world renowned entrepreneur. This is the imaginary barrier that always seems to appear at the critical point where we would step out ahead of peers or competitors, but fear causes us to stop short.

Everyone has a comfort zone, or level of risk, where they feel in control. The problem is that if you stay in that comfort zone too long, you don’t learn and achieve new objectives. According to Bob, all growth takes place outside that comfort zone, and the edge of that zone is called the terror barrier.

If you want to be an entrepreneur and start a new business, you must be willing and able to break through your terror barrier. If you hope to succeed with any real “new” opportunity, you must be willing to learn new skills, set high goals, and get out of your comfort zone.

Overcoming the terror barrier requires first a passion for the new dream, willingness to take a risk, and determination to never quit. In addition, it helps to have a few specific strategies, outlined by Ingunn Aursnes a while back, to help you push through:

1. Reconfirm how you have dealt successfully before with terror barriers. Everyone has had to deal with terror barriers, since the day you were born. Convince yourself that this one is only incrementally larger, not a huge jump. Contemplate the things that have worked before for you, and things that cause you to go off track.

   Some people procrastinate, make excuses, or feel real fear. We all have our “security blanket,” like sessions with a trusted friend, classroom training, or prayers to reduce the pain and keep us moving forward.

2. Set specific goals, rather than rely on a generic dream. Make the goal increments small, so you can see yourself making each step, rather than face a step the size of a mountain. Create a picture in your mind of you achieving your end result, like you getting a Nobel prize for curing cancer, or relaxing on a beach with no more money worries.

   Then write down and prioritize your goals. If they are not written down, they don’t exist and it’s easy to forget the real meaning behind them. But don’t be overwhelmed working out the details and all the steps required just now. Work on one step at a time.

3. Take the first step toward your first goal. You never get anywhere until you start. It doesn’t have to be a big step, but it has to be in the right direction. Put a stake in the ground, and start measuring how far you have gone. Remember that everyone takes one step backward for every two steps forward, so setbacks are normal bumps.

   Everyone learns more from failures than from successes. Moving forward, accomplishing goals, is a process rather than a continuous motion. After the first step, the second is easier, and after the first goal gives you confidence, the second will be easier.

4. Recognize the terror barrier and see it as a growth opportunity. Take satisfaction in widening your comfort zone, the opportunity to learn, and the progress toward your goals. Use your mentor or support organization to get you over the hurdle, and celebrate the success.

   For team members, don’t forget your responsibility to help other members over their terror barriers. Helping others is the best way to forget your own fears and build the satisfaction of leadership as well as learning.

5. Iterate the process, picking up confidence and momentum along the way. The more you persevere and keep moving in the direction of your goal, the easier it will seem and the better the results you will achieve. Even if the terror barriers get tougher, they will seem easier as momentum helps you achieve more of your goals.

People who avoid facing the terror barrier, or who back away easily, are actually falling behind, and they will quickly become less confident, less determined, and less happy. You want the spiral to go the other way, toward greater levels of success, ability to achieve greater goals, and to be a successful entrepreneur. Follow these steps and put your terror barriers behind you.

Marty Zwilling

Search Engine Marketing - No Panacea for Startups

Probably every one of you who has a business and a website have been approached through email or personal contact, and asked to spend money on Search Engine Marketing (SEM). For most, it sounds like a magical process or a scam, with the experts spewing so many acronyms.

Search engine marketing is simply buying advertising for your business from Google or another search engine company. Their computers then cleverly merge your ads with search results only when users search words imply an interest in your products. If you sell widgets, and a user is searching for widgets, your ad will appear on the same page as the search results for widgets.

This is NOT the same as Search Engine Optimization (SEO). SEO is not placing ads, but tuning your website so that it is more highly ranked by Google, and featured in the first page of results, not in an ad beside the results. SEM is sometimes called “buying your way into search results.” Both have the same end goal of getting people to your website.

With SEM, the goal is for the search user to not only see your ad, but to click on it to get to your website (click-through), and buy your widget (conversion to sale). In this context, there are many parameters and concepts you need to understand before you buy advertising:

• Cost per impression (CPI). This cost model is the most like traditional newspaper and television advertising, where advertisers pay for each ad appearance or page-view (impression) on a search result page, even if the user pays no attention. For Google, this is pay per impression (PPI), or pay per mille (PPM) per thousand impressions.

• Cost per click (CPC). In this more popular model these days, advertisers do not pay for each appearance of the ad, but only when a user clicks on an ad and is redirected to the advertiser website. For sites displaying the ads, this is called pay per click (PPC).

• Cost per action (CPA). Another alternative was added a couple of years ago to mitigate the problem of people clicking just to get paid (click fraud). It pays only if a customer clicks through AND takes a further action (conversion), such as buying a product or filling out a web form. The display side is called pay per action (PPA) or pay per lead (PPL).

• Keyword research and budget forecasting. All these models start with the advertiser choosing the right search keywords to match user searches. Popular keywords have higher costs. SEM experts charge you to research, analyze, and estimate hit ratios, to optimize your success and set a campaign spending budget for you.

• Campaign setup and ad copy writing. There are many additional variables that the inexperienced marketer may not even think to consider: competition and positioning strategies, budgeting, match types, search and content syndication, and ad copy testing, as well developing the best ad wording and layouts.

• Tracking and performance reporting. Advertising is all about getting the most results for the least cost. You may be getting great traffic, but poor conversions. Other SEM experts will track your campaign from click to transaction, providing you with detailed reports on and return on investment (ROI).

If you do all these things right as the advertiser, you will make money from selling your product. If you do all these things right by displaying other people’s ads on your website or blog, you will make money from advertising – like Google and Facebook, who offer services for free, and still make millions in revenue.

But either way, it requires big numbers to work (traffic), click-through rates are small, and the pay per click is tiny. Until your traffic is in the millions of page-views per month, don’t expect to live off the conversions or other people’s ads. That business model doesn’t compute in the startup stage, but that’s another story.

Marty Zwilling

Gen-Y and Startups Lead the Recession Recovery

Every dark cloud has a silver lining. Driven by the recent recession, smart entrepreneurs of all ages are jumping into the fray with new ideas, new recovery strategies, and discarding outmoded business models. I see it most in the newest generation of entrepreneurs (Gen-Y), who were shocked out of entitlement into action by the recession.

Donna Fenn, in her recent book “Upstarts! How GenY Entrepreneurs are Rocking the World of Business,” seems certain that Gen-Y will lead the charge, trounce the recession, and be big winners. She describes a new generation of entrepreneurs that is highly collaborative, quick and alert when it comes to new technologies, and hell-bent on changing the world in general.

Upstarts! examines and analyses this entrepreneurial revolution to reveal critical lessons every Gen-Y entrepreneur and marketer must learn. But the insights I see from her book and elsewhere are equally applicable to startup founders of all ages, and businesses of all ages. Here are five key recession recovery strategies that both of us recommend:

1. Pursue repeat business. As I mentioned in a previous article, it's far less expensive to nail down repeat business from your existing customers than it is to land new ones. Now is the time to reap the benefits of those good customer relationships that you've been cultivating. Viral marketing campaigns to lure new customers will cost you big money.

2. Focus on your core competency. Examine every cost center in your business. Maybe it’s time to outsource that call center operation, or complex manufacturing setup. Look for operations that are hogging resources without generating significant revenue. With a concentrated point of focus, your company might be well positioned for growth this year.

3. Snap up top talent. Past layoffs at big companies mean that there's a surplus of great employees on the market now. Examine your pool of higher-paid contractors and freelancers. Now is the time to bring on board those people who would have been inaccessible in a better economy.

4. Respond rapidly to market shifts. The economy is almost certainly having a profound impact on your customers: they may have altered their purchasing habits, or found themselves with entirely different needs. It's your opportunity to respond to those shifts. These are chances to broaden your product line, change distribution, offer new services.

5. Look for hidden sources of revenue. Sometimes your best source of new revenue is right under your nose, like services revenue in support of your products. One entrepreneur in Fenn’s book had a proprietary technology to efficiently manage vendors which works so well that she is now marketing it to other companies for a transaction fee.

Most companies I know agree that the recession is teaching them the art of laser-like focus, and compelling them to make better decisions, to become more frugal, and to initiate systems and procedures that will help position them for economic recovery. Simply deciding to lay low and “tough it out” is not a winning strategy.

I agree with Donna that this recession has actually been a good “wake-up call” for many in the new generation – it has forced them to face the reality of hard knocks. Similarly, it should be a wake-up call for the rest of us, or we will be overrun by young entrepreneurs with their burning desire to control their own destinies.

But I’m convinced that you don’t need to be an “Upstart!” to trounce the recession. Use your experience and your expertise to lead the way, or you will be left in the dust. The first step is to execute your own recession recovery strategy. Or don’t you even have one?

Marty Zwilling