New Entrepreneurs Think Investor Money is All Fun

The naïve entrepreneur thinks he can relax, after he finally cashes the check from a professional investor, but in reality that’s when the work and the pressure starts. His first reality reset is that now, maybe for the first time, he really has a boss, or several bosses, and often very demanding ones at that.

Angel and venture capital investors rarely just give you the cash, and stand back to wait for you to spend it the way you want. First of all, they are usually more experienced than you in your own business domain, so they have strong views on what it takes to succeed, and probably would prefer it done their way.

Secondly, they probably didn’t give you all the money up front, but made a good part of it contingent on meeting some milestones. Your startup is now part of someone’s portfolio, and here are a few of the ways in which you should expect to be monitored by your investors:

1. One or more seats on the Board. Maybe you had an informal Advisory Board before, but now you have a formal Board of Directors. That means you shouldn’t expect to make any strategic decisions or pivots without their approval. You should also plan for a formal presentation to the board each month, with many communications in between.

2. Manage to documented milestones. A normal part of a funding agreement is a set of accomplishments, with dates, that you are expected to achieve in order to remain in good standing and qualify for remaining distributions. These are not optional suggestions, so treat them as management objectives that will get you fired if you don’t perform.

3. Personal visits from key investors. Both angel investors and venture capital partners like to make personal visits to your facility or a regular basis, sometimes unannounced, to see how the business is running. You should expect to personally host these visits, and openly answer any questions or concerns that are raised. Do not delegate.

4. Number of proactive contacts from you. In addition to the visits, every investor expects to be contacted and updated proactively and judiciously on key decisions or issues. A quick way to lose investor confidence is to always wait for the investor to call, or inversely to call the investor incessantly for every minor decision.

5. Access rights to operational information. All investors have information rights which are detailed in the shareholders rights agreement. These are usually extrapolated to mean they expect you to share key operational data, such as the sales pipeline, vendor discussions, and quality issues, at any time. Don’t keep secrets from your investors.

6. Extra focus on cash flow. Remember, it’s their cash, so treat it like gold. Because you now have money in the bank, now is not the time to lease a lavish office building, or travel around the world first-class on company business. Pinching pennies like you did in the early days is still the only approach.

It is also to your advantage to keep track of how your company performance compares to others in the investor’s portfolio. You may think you are doing well, but if your numbers put you at the bottom of their ranking, you may need to decide that taking more risk is better than the risk of being cut from the pack.

On the other end of the spectrum, if you are one of the top performers, a VC may “encourage” you to take big risks and swing for a home run, even when a base hit or double would be a smarter move from your perspective. In other words, you no longer have full control, and you don’t need any surprises, just like the investor doesn’t want any.

The simple fact is that your whole world as an entrepreneur changes when you take someone’s else’s money, as outlined by Francine Hardaway in an earlier article. Do it with your eyes open. Investor relationships are like social relationships - sometimes it’s better to be alone than to wish you were alone.

Marty Zwilling

Every Entrepreneur Needs to Start With a Prototype

It’s a long way from an entrepreneur’s “idea” to a working product with a real market and paying customers. A necessary intermediate step for proof of concept, credibility with potential investors, and communication with your team, is a working prototype. Building a prototype should be an early and high priority task for every startup.

A prototype doesn’t need to look great, or be built to scale, but it better accurately translate your vision into something real and tangible. For less tangible products, like software, it should simulate the look and feel of the final product on relevant base hardware. Here are some key objectives to keep in mind when designing your prototype:

1. Validate the customer need and opportunity. I always hate it when I see startups invest millions of dollars in technology before they validate their ideas in the market, only to find that customers seem to be looking for something slightly different. Test your idea early in a form that is easy and inexpensive to modify.

2. Demonstrate to you and your team that your idea is implementable. No matter how strong your vision and theory, you won’t know for sure until you see it, that it really works. Even the best ideas often fail. Even when it works, key members of your team may not understand it all until they can touch and feel it.

3. Leverage the technology to change directions as needed. In these days of rapid change, almost every startup has to adapt their solution, business model, or target customer. A pre-production prototype will allow you to be adaptive without dire consequences.

4. Convince potential investors to take you seriously. Angels and venture capitalists are all about reducing the risk. Per the above points, if you have a validated a working prototype, investment risks are dramatically reduced. These days, if you don’t have a proven prototype, investors probably won’t even talk to you.

5. Early start on testing performance, materials, and quality. Work with the prototype will help you determine the best materials, like metal versus plastic, to assure acceptable performance and durability. Don’t wait for the final production model to find out that your product has a weak link in one of the common environments.

6. Basis for working with vendors to finalize costs, manufacturing, and marketing. After the market and product have been validated, the real challenge comes. You need to find vendors who can deliver in less cost and time than competitors, and build distribution and support channels. A prototype is the three-dimensional version of your vision.

There is nothing wrong with starting simple, engaging a friend who does mechanical design, or a student at a local industrial design school. In fact, many universities have expert professors, graduate students, and laboratories in all the key technologies, and they may be happy to do the work for you, if they can use it for class projects and Government Grant applications.

If you are ready for the next stage, it’s easy to find commercial resources on the Internet, like ThomasNet, a one-stop database of 650,000 manufacturers, distributors, and prototype developers, covering every state and country. There are new methods of prototyping, like stereo-lithography, which allow plastic prototypes to be made directly from computer drawings for a few hundred dollars, rather than waiting for injection molding at more than $10,000 per item.

Even at early stages, you can get invention support services from sites like Invention Home in Pittsburg. Just don’t get carried away here, and remember that the invention process is risky, with only a small percentage of inventions or products succeeding on the market. There is no magic, so don’t spend all your money assuming that these companies will guarantee your success.

Don’t skip the prototype stage for all the business reasons listed, and because it is a great way to explore possibilities, and have fun using your creative juices. The prototype is where you really bring your product idea to life, for yourself, as well as for everyone else.

Marty Zwilling

How to Survive the Dreaded Due Diligence Process

If your startup is great enough to get a term sheet from angel investors or a venture capitalist, the next step for the investor is to complete the dreaded due diligence process. This is the last step of the process, where surprises in the evaluation of the management team, documentation, and personnel problems can derail the investment.

Some startups do nothing to prepare for the due diligence process, assuming the people and business plan documents will speak for themselves. Others stage elaborate “training” sessions, to “assure” that everyone tells the same story. The right answer is somewhere in between.

I believe that proactive preparation for due diligence is a bigger job than the work for investor meetings, because your whole team is involved, not just you as the CEO. If there are financial anomalies, or someone on the team doesn’t know the current strategy, or is unhappy with you or the company, the investment will be jeopardized.

Even if you feel that all is well, here are some thoughts and actions I would strongly recommend:

• Whole team must know the plan. Make sure the Business Plan and all related documents are current, synchronized, and in the hands of every key employee. If everyone gives a different story, you have no story.

• Personnel situation is stable. Ask everyone to update their resume, and personally call probable references, so there are no surprises. You need to brief the investor ahead of time if there are career anomalies or personnel situations that could be a problem.

• Don’t surprise the team. Call a company meeting to communicate what is happening, and why. This is a good time for the CEO to present the final investor charts, and answer any questions from employees. All need to know who will be there and what you expect.

• Contact key vendors and existing customers. Explain that they may be called, and use the opportunity to check their satisfaction with your company and your product. Again, if you find problems you can’t fix, be up-front with the investor to avoid a surprise.

Depending on the availability of staff and needed information, the due diligence process generally takes 2–6 weeks to perform. During this time or earlier, you should also be doing your own due diligence on the investor, as suggested in a recent article on avoiding problem investors.

Here is a quick summary of the priorities normally covered by the due diligence process:

1. Evaluation of key players. This is the highest priority item. As a starting point, an investor will ask for resumes of the “key players,” and will then follow-up to verify that executives are experienced, honest, and committed. That means questioning each of these key players, and calling references or prior associates.

2. Validation of product. This will cover the technology, the current state of development, and customer satisfaction. Is it something consumers need or simply want, does it work, and is it ready to ship? What are the “kinks” or certifications that need to be resolved? If the product is in customer hands, expect some customers to be interviewed.

3. Size of the market. Having a great product or service is not enough. One of the criteria for a good investment is a large and fast growing “potential market.” Investors will talk to their own experts on the size of the potential market and the expected growth rate. They will also assess trends in the market and how current economic, political, and demographic conditions relate.

4. Sales and marketing strategy. This will involve an analysis of the company’s distribution channels, advertising, and pricing strategy. An investor will try to get an independent reading on competition, barriers to entry, price sensitivity, and what percentage of the market your company can expect to capture.

Remember, once investors contribute money to a company, a long-term relationship is created. Unlike a marriage, however, it may be very difficult, if not impossible, to get a divorce. Your objective is not only to survive, but also to make it an enjoyable win-win relationship.

Marty Zwilling

Ten Top Product Pricing Models for Startups

One of the toughest decisions for a startup is how to price their product or service. The alternatives range from giving it away for free (like Twitter), to pricing based on costs, to charging what the market will bear (premium pricing). The implications of the decision you make are huge, defining your brand image, your funding requirements, and your long-term business viability.

The revenue model you select is basically the implementation of your business strategy, and the key to attaining your financial objectives. Obviously, it must be grounded by the characteristics of the market and customers you choose to serve, the pricing model of existing competitors, and a strategy you believe is consistent with your future products and direction.

So what are some of the most common revenue models being used by startups today? Here is a summary, with some of the pros and cons or special considerations for each:

1. Product or service is free, revenue from ads and critical mass. This is the most common model touted by Internet startups today, the so-called Facebook model, where the service is free, and the revenue comes from click-through advertising. It’s great for customers, but not for startups, unless you have deep pockets. If you have real guts, try the Twitter model of no revenue, counting on the critical mass value from millions of customers.
   
   
2. Product is free, but you pay for services. In this model, the product is given away for free and the customers are charged for installation, customization, training or other services. This is a good model for getting your foot in the door, but be aware that this is basically a services business with the product as a marketing cost.
   
   
3. “Freemium” model. In this variation on the free model, used by LinkedIn and many other Internet offerings, the basic services are free, but premium services are available for an additional fee. This also requires a huge investment to get to critical mass, and real work to differentiate and sell premium services to users locked-in as free.
   
   
4. Cost-based model. In this more traditional product pricing model, the price is set at two to five times the product cost. If your product is a commodity, the margin may be as thin as ten percent. Use it when your new technology gives you a tremendous cost improvement. Skip it where there are many competitors.
   
   
5. Value model. If you can quantify a large value or cost savings to the customer, charge a price commensurate with the value delivered. This doesn’t work well with “nice to have” offerings, like social networks, but does work for new drugs that solve critical health problems.
   
   
6. Portfolio pricing. This model is relevant only if you have multiple products and services, each with a different cost and utility. Here your objective is to make money with the portfolio, some with high markups and some with low, depending on competition, lock-in, value delivered, and loyal customers. This one takes expert management to work.
   
   
7. Tiered or volume pricing. In certain product environments, where a given enterprise product may have one user or hundreds of thousands, a common approach is to price by user group ranges, or volume usage ranges. Keep the number of tiers small for manageability. This approach doesn’t typically apply to consumer products and services.
   
   
8. Competitive positioning. In heavily competitive environments, the price has to be competitive, no matter what the cost or volume. This model is often a euphemism for pricing low in certain areas to drive competitors out, and high where competition is low. Competing on price alone is a good way to kill your startup.
   
   
9. Feature pricing. This approach works if your product can be sold “bare-bones” for a low price, and price increments added for additional features. It can be a very competitive approach, but the product must be designed and built to provide good utility at many levels. This is a very costly development, testing, documentation, and support challenge.
   
   
10. Razor blade model. In this model, like cheap printers with expensive ink cartridges, the base unit is often sold below cost, with the anticipation of ongoing revenue from expensive supplies. This is another model that requires deep pockets to start, so is normally not an option for startups.

Your business model interacts closely with your marketing model, but don’t get them confused. Marketing is initially required to get visibility and access to the opportunity, but pricing defines how you will actually make money over the long term.

Overall, I’m a huge fan of the “keep it simple (KISS)” principle – customers are typically wary of complex or artificial pricing. Your challenge is to set the right price to match value perceived by the customer, with a fair return for you. It’s not a game show, so don’t guess - do your research early with real customers.

Marty Zwilling

Some Entrepreneurs Neglect to Enjoy the Holidays

It’s been a tough business year, but I hope you are all taking some time off this holiday weekend, to celebrate with the family. Even those of you who are not Christian and see Christmas as just another day should still enjoy the holiday spirit, take a break from work, and count your blessings.

Yet there will be some entrepreneurs can’t seem to make the decision to take a break. They forget that they became entrepreneurs, according to a poll by Startups.co.uk, for just this flexibility. Nearly 90% of respondents said decision-making freedom was very important, closely followed by more flexibility for a better work/life balance.

Related reasons, like personal satisfaction also ranked close behind, with 70% of respondents claiming it was a key advantage to running their own business. Only 32% of entrepreneurs cited money a key benefit of running their own firm. This indicates that lifestyle and satisfaction factors are often more important than financial ones.

As with everything in life, there are advantages and disadvantages to every choice we make. Choosing entrepreneurship is no exception. Beyond the obvious advantages mentioned above, there are some additional advantages that get mentioned often.

• High level of excitement. Entrepreneurs love the continuous challenges of a startup, and the satisfaction of tackling them. Some are so high on this life, that they hate the fact that they have to "waste" part of their life in sleep!

• Minimal rules and regulations. Work in a conventional job is often difficult to get done because of all the "red tape" and consistent administration approval needed. With a startup there are no rules, until you make them.

• Challenge of originality. A good entrepreneur feels the incentive to offer a new service/product that no one else has offered before. That’s the same challenge an artist feels on every new canvas, or every musician feels when composing a new work.

• Beat the competition. Entrepreneurs are driven to offer a new or better product at the same cost, or an existing product as a lower cost. Competition drives innovation, and innovation drives competition. The cycle never stops.

Of course there are some disadvantages that every entrepreneur knows all too well:

• No regular paycheck. Starting your own business means that you must be willing to give up the security of a regular paycheck. In fact, most startup founders work for no salary during the first year or two of company operation.

• Few benefits. There will likely be no medical and dental benefits, and no vacations or other perks during the formative years. Don’t expect a staff to do the accounting, handle correspondence, or even clean the bathrooms.

• Decision responsibility. All the decisions of the business must be made on your own, better known as “the buck stops here.” This may sound like an advantage, but is actually a major source of stress and loneliness for startup CEOs.

• Staffing challenges. Hiring and firing decisions are hard, and that’s just the beginning. Often times, you will find yourself working with people who "don't know the ropes" and require extensive coaching and assistance. Then you have to deal with the mistakes.

By definition, if you see the rewards here as outweighing the risks, you are an entrepreneur. So you should fully appreciate the right to decide to take some time off, and enjoy the family. Take time this weekend to savor the dream. You earned it, and you need the rest. Happy Holidays!

Marty Zwilling

Eight Tips to Help An Entrepreneur Just Say ‘No’

Entrepreneurs have to know when and how to say ‘no,’ and be good at delivering the message. All startup leaders are besieged with requests for their time, attention, talent, money, or influence, and sometimes even good requests won’t fit into the time and energy you have available.

Startups require focus, so you need to say ‘no’ to some things, in order to do the important things well. This is really the principle of displacement, which dictates that everything you do rules out other things that you don’t do. It’s impossible to do everything.

For most of us, having to say ‘no’ somehow feels like a rejection, so we hate to do it. Instead, too many entrepreneurs just say ‘yes,’ and regret it afterward. So here are some tips that I have accumulated over the years that can help you say the right thing the right way:

1. Give yourself time to think. Before responding with an enthusiastic ‘yes’ that you never meant, or a cryptic ‘no’ that will ruin a relationship, ask for time to mull it over. It’s acceptable business practice to say that you need to check your calendar first, or pass the request by other principles before deciding. Commit a date for the final decision.
   
   
2. Explicitly evaluate the pros and cons. First, make sure you understand the full implications of a simple yes or no response. Every ‘no’ answer reduces the likelihood of another opportunity along the same lines, while every ‘yes’ answer increases your workload and the probability of burnout on your long list of critical items.
   
   
3. Listen to your gut. Sometimes we say ‘yes’ because we love the excitement of a new idea, when our instinct is telling us that it implies many complex issues that we are not prepared to deal with right now. It’s a fact that our brain often stores relevant information that we might not be able to vocalize right now. Trust your judgment.
   
   
4. Negotiate a return consideration. Often people asking for favors don’t realize or consider the cost, so you shouldn’t hesitate to ask for a reciprocal favor. It may make that person re-think their need for your help, or you may actually get more than you give.
   
   
5. Make the ‘no’ a function of your constraints. Emphasize that the rejection has more to do with your priorities, budget limitations, and workload, rather than any inherent flaw in their request. In this context, encourage a return discussion as some specific point in the future, or with some specific variation.
   
   
6. Lead with positives when saying no. Mute the sting of rejection by rewarding the person for being aggressive and creative, while not directly accepting the contract or proposal. It may even be appropriate to give some reward, such as access to an alternative opportunity, or recognition in front of peers, to encourage the source.
   
   
7. Pick the right time and place. Pick the least stressful time of the day, or a private place where you can talk sincerely, and give full attention to any questions or discussion. Watch your body language and tone to eliminate the guilt and fear that often make the ‘no’ response harder on the sender than the receiver.
   
   
8. Be logical, calm, and concise. Choose your words wisely to avoid confrontation and a defensive or emotional reaction, but make sure the answer is clear and understood. No one wins when you say ‘no’ so softly or ambiguously that the other party reads it as a ‘yes’ or even a ‘maybe.’ Skip the detailed explanations.

People have learned the art of asking, so you need to learn the art of saying ‘no.’ Rid yourself of the fallacy that you must say ‘yes’ to be viewed as a leader. If the request presents a moral dilemma to you, your code of ethics should allow you to refuse, rather than lie to the other party, or agree to something you can’t deliver. Just say ‘no,’ and smile as you say it.

Marty Zwilling

To Run a Startup, You Must Stay in High Learn Mode

Being an entrepreneur these days requires an understanding of a thousand topics, many of which don’t even exist today in traditional learning vehicles, like schools and textbooks. The Internet and its information wave have changed everything – it’s the problem, with constant change, and it’s the solution, if you use it to navigate quickly and self-educate.

True entrepreneurs love to learn, unlearn, and relearn, whether they are 20 years old, or 60 years old. A new business means change, so they deal in change, and relish the journey. Usually it’s called initiative, dedication, and can-do attitude.

But under these words are some common principles that every entrepreneur needs to follow implicitly or explicitly, to keep up with change, and actually make change:

• Stay open to learning. Unlearning and relearning doesn’t require that you toss out any of your accumulated experiences or know-how. It just requires a relentless focus and willingness to do better things, and accept better ways of getting things done.

• Challenge your assumptions. Resist the instinctive urge to only use your proven assumptions. When you believe you know the best way to do something, you are less willing or open to unlearn it or try something new. Routinely check the Internet for alternate approaches.

• Strive to understand, rather than memorize. You have to understand why you do things a certain way, before you can hope to improve, or even recognize a new and better way. You have to understand why people need something they don’t have, before you can create it, or market it effectively.

• Share what you do know. The process of sharing what you know forces you to better understand it yourself. When I do mentoring and writing about current experiences, I realize all the things I don’t know, and this gives me more incentive to learn more.

• Never assume you can’t learn something. With the Internet, new things are much easier to learn than many years ago, when you had to wait for the textbooks and the experts. Perfecting your knowledge is like dealing with competitors, if you aren’t gaining on them, you are rapidly losing ground.

• Actively look outside the box. The Internet today, with its vast array of sources, and sophisticated search engines, is the perfect vehicle to take you out of your known realm, and allow you to make your own rules. Take the time to follow a couple of results you would normally discard, and you will learn something every time.

• Focus on relationships. Business relationships with people who know things is the only way to trump the Internet. Their expertise, and their ability to explain it, are a combination you can’t match any other way. You can’t know too many experts, and social networks are the new way to find them.

• Don’t be afraid to ask for help. Avoid the arrogance trap of never asking for help or asking for feedback. The more open you are to other input, the more accurate your sense will be of how other people perceive you, and which actions to unlearn. At least with the Internet, you can ask for help anonymously.

Entrepreneurs who depend on the ‘traditional’ learning process (schools, formal classes, practice problems, and risk-free iterations) are doomed in founding a startup. Either they never get started, they take too long, spend too much on experts, or they fail using obsolete methods.

Yes, our education system is part of the problem, still pushing the traditional learning process (which bores the kids of today), and our culture is part of the problem, where everyone assumes they will learn all they need in the first 30 years, and can relax and enjoy their leadership role after that. But if your business fails, you are the problem.

If you haven’t started yet, the first thing you need to learn is how to use the Internet effectively. If you are thinking classes and training, you are already in trouble. Try the Internet today – you can’t break it, and it won’t break you. You can ride the information wave, or be swamped by it.

Marty Zwilling

Six Tips to Maximizing Your Advisory Board Value

If you are an entrepreneur for the first time, or entering a new business area, it’s usually worth your time to assemble an Advisory Board of two or three executives who have travelled that road before. But if you select the wrong people, or use them incorrectly, the impact will not be positive for your company or your image.

For perspective, you need to remember that boards of advisors, unlike directors, have no formal power or fiduciary duties, but rather serve at the pleasure of you the business owner. But they are not likely to stroke your ego, or be cheerleaders. They need to tell you the truth about your business, good or bad.

Using them effectively requires real effort on your part. If you give and ask for nothing, you will get nothing. Used correctly, they will be your best advocates to investors, and can save you from making major mistakes. Here are some tips on using your advisory board effectively:

1. Select people who complement your experience. If your experience is primarily technical, get someone who has built a business. If your business is too small for a CFO, get an advisor with heavy financial experience. If the business area is new to you, find someone who has lived it. Balance is best.
   
   
2. Be specific on help needed. If you've chosen your advisory board members carefully, you're asking busy, successful people to carve even more time out of their schedule to help you. Let each one know how you see his/her expertise – it may be insight on trends, organizational advice, or funding connections. Set a fixed term, like one year.
   
   
3. Formalize the compensation. Most advisory board members sign up because the want to help you, not because of the compensation. Yet you should offer a small monthly fee and/or some stock options to show you are serious about the position. If you want out-of-town members on your board, you foot the travel expenses.
   
   
4. You need to drive to process. It’s smart to schedule a monthly Advisory Board meeting, with a formal agenda, as well as informal communication to keep everyone on the same page. Advisors can’t help you if they only hear from you once every six months. They expect you to initiate specific requests, rather than having to ask for updates.
   
   
5. Respect their time commitment. For a business executive, nothing is more annoying than a poorly run meeting where the presenter is unprepared, rambles, and wastes time. Make sure every meeting is facilitated well so that concrete action steps, deadlines and assignments result. Have someone take notes so that decisions are recorded.
   
   
6. Recruit the best for your real Board. Your Advisory Board is a pre-cursor to your Board of Directors, a bit further down the line. This is your chance to test commitment, chemistry, and contribution for that more formal position. It’s a great networking opportunity to expand your connections to include all their connections as well.

On the other hand, if you find your Advisory Board is a burden on you, or you find yourself hiding things from them, then you have the wrong people, or you are letting your ego get in the way. Members can provide a mirror so that you can see your company as experts see it, as long as you look in that mirror with eyes wide open.

If you are looking for someone to fill an operational gap, or to do product design, it’s usually more productive to look for a partner, employee, or consultant. These can help you when you don’t know what you don’t know, or to create what you don’t have.

If you use your advisory board to feed your ego, or correct your mistakes, you will likely be disappointed. Worse yet, your image as an entrepreneur will be damaged. That will inevitably spread through networking across the business community. You don’t need that kind of help.

Marty Zwilling

Sex Leads Entrepreneurs Who Think and Grow Rich

I was surprised when I read recently that Napoleon Hill, in his book “Think and Grow Rich” said that he looked at all the great entrepreneurs, and the one thing he found is that they all had a huge sex drive. On the business side, we all know that the sex industry is rife with entrepreneurs, so I wonder if there is a connection?

Implying a connection may be an over-simplification of Hill’s classic, but his chapter on “The Mystery of Sex: Transmutation” certainly goes into some depth about how the energy of the libido is often channeled by successful people to focus on achieving specific goals, creative, political, entrepreneurial or otherwise.

All this, and Hill wasn’t even writing about the entrepreneurs who founded and run businesses in the “exotic erotic” category. Considering that passion has always been a much vaunted trait for the founders of successful startups, it’s not hard to see a sublimated sexual drive at work.

In case you are assuming that this is an all male domain, a University of California survey not too long ago says that 70% of women check out pornography, 17% of women are addicted to pornography, and 13% of women check out pornography at work. And the number of women entrepreneurs in this industry is growing rapidly.

Let’s focus for a moment on the business elements of the porn industry, and what other industry startups and entrepreneurs might be able to learn from them. The underlying principle of any business -- whether it be online or offline -- is to build a business model that successfully generates revenue while limiting expenses.

In fact, this is one of the critical points to remember about the sex industry. You may not like the product it sells, but the fact is, the model used by the online pornography business is a proven commodity. For a very long time, pornography has proven to be successful in the offline world.

Online, the Internet is all about technology and using it effectively. And no one group has contributed more to refining Internet technologies than the porn industry. Developments in content creation, communications delivery, e-commerce, and security each underwent a trial by fire within the porn industry.

In the case of some technologies, such as streaming video, pornography delivery was one of the only initial places for its application. Not only did online porn entrepreneurs utilize some of these technologies, but they also understood their limitations and their business ramifications.

Successful porn entrepreneurs have pioneered new approaches to get people to give their credit card numbers and to visit their sites enough times to keep providing revenue. They introduced multiple interrelated web sites, cross-targeting, and exit interstitials well before any other online segment.

Although the online pornography industry has many helpful business practices for us to examine, it also has some bad business practices: things like spamming incessantly, having a billion exit interstitials on a site so it is impossible for someone to ever leave, and misleading people with "free" offers that still require payment via a credit card.

On top of all this, it turns out the adult entertainment industry is pretty much recession proof. Makes you wonder what kinds of innovations are going to flow down to us in the near future.

But I digress. Let’s get back to the concept of sex and the entrepreneur. You might assume that Hill’s concept of channeling sexual energy or ‘transmutation’ is a recent one, but he first published his classic book back in 1937, during the Great Depression.

Hmmm. I guess we all should take comfort in the fact that even though we live in a world of constant change, some things will always be the same.

Marty Zwilling

For Entrepreneurs, Success is Ideas With Follow-up

When someone introduces me to an “idea person,” I automatically jump to the down-side conclusion that this person doesn’t do follow-up. Of course there are people who are great at getting things done, but haven’t had an original idea in their life. Great entrepreneurs, like Bill Gates, are great at both.

I was with IBM in the early PC days when Bill worked with us to provide PC DOS and other software. He was relentless in his focus on getting a project done, and he always assigned himself the toughest tasks. At the same time, he was always pushing the limits of our business relationship with new ideas.

That’s the bar you should aspire to. I can think of several related aspects of starting and running a business where follow-up, or lack of it, can make or break your startup. Here are a few:

• Business networking. For entrepreneurs, effective networking is required to find investors, partners, and customers. It doesn’t work if you don’t follow up on networking opportunities, networking referrals, and ongoing networking relationships.
  
  
• Investor negotiations. Serious investors expect founders to have their homework done before the first interaction – documented executive summary, business plan, and financial model. They expect prompt formal follow-up to questions. Too many entrepreneurs try to talk their way through all of these.
  
  
• Product development. For a great idea person, the product details keep changing for the better, but nothing ever gets finished. Lists of project milestones and technical issues are created, but nothing happens on time, because follow-up on issues is missing.
  
  
• Time management. Some struggling entrepreneurs are totally event driven. They are too busy with the “crisis of the moment” to focus on follow-ups that may save a major customer, close a partner deal, or solidify a process that isn’t working well.
  
  
• Effective marketing. Guerrilla marketing preaches the importance of prospect follow-up if you even hope to succeed in business. If you collect business cards at a trade show, make sure all have follow-up within 72 hours, and at least three more times after that.
  
  
• Customer retention. More customers are lost to apathy after the sale than poor service or quality. Many experts suggest it costs six times more to sell something to a new customer than to an existing customer. A numbing 68% of all business lost in America is lost due to lack of follow-up after the sale.
  
  
• Professional relationships. How many people do you know who have a thousand emails in their inbox, or just a few awaiting follow-up for over a week from people who matter? These procrastinations jeopardize your integrity and your relationships.

Everyone likes to be pursued, rather than the pursuer. There’s a reason that many people say that the fortune is in the follow up. When you follow up properly with people, your reputation will benefit, your business will benefit, and eventually your pocketbook will benefit as well.

As an aside, I would suggest that you should never aspire to be a manager or an executive if you don’t do follow-up. You won’t be happy, and you won’t do a good job, because that’s what they do most of the time. The idea time for most executives is in the shower, or during other non-work activities.

So which is the most important, the idea or the follow-up? If you intend to be a great entrepreneur, you need both. But I know some very good ones built on great follow-up with incremental improvements to existing products. On the other hand, a great idea without a business plan is a non-starter.

Marty Zwilling

The Economy is a Poor Predictor of Startup Success

If you think "I better not start a startup now, because the economy is still bad" you will be making a comparable mistake to the people who thought during the dot-com bubble "all I have to do is a startup, and I'll be rich." In reality, what matters more is who you are, not when you do it.

Like Paul Graham says, I see startups succeed or fail every day based on the qualities of the founders. The economy has some effect, certainly, but as a predictor of success it’s a rounding error compared to the founders. If you're worried about threats to the survival of your company, don't look for them in the news. Look in the mirror.

Here are some pragmatic reasons from Paul and others to highlight why you might not want to wait for the next business explosion before taking the leap:

1. Alternatives are not as tempting. If your alternative is no job security, and low pay, why not work for yourself and build your startup? You'll be investing your time and energy into something with more potential upside in future. If you're talented and have always toyed with the idea of a startup, financially it makes sense to do it now.
   
   
2. More available talent. It's hard to hire good people because they already have a job. But in a poor economy that's not true -- companies have exploded and layed off everyone, even the stars. Check your business network for a great co-founder or a great designer.
   
   
3. Low cost infrastructure. Notice all the empty offices as you drive down the street? Make them an offer. Need less expensive advertising? Ad revenue is down as companies down-size marketing budgets. Negotiate, or use social networks, which are virtually free.
   
   
4. Competitors are vulnerable. They have higher overhead, long-standing bills, yearly advertising contracts and high office leases signed years ago. Their prices are high and hard to lower. They're eating cash. You have none of these pains; you're sipping cash with no overhead and lots of time to devote to coddling new customers.
   
   
5. Technology progresses. So for any given idea, the payoff for acting fast in a struggling economy will be higher than for waiting. Technology trains leave the station at regular intervals. If everyone else is cowering in a corner, you may have a whole car to yourself.
   
   
6. Markets don't "reduce headcount." As a startup, you have more control over your customer base. You’re probably not going to lose your customers all at once, even though they may drop off individually if they can no longer afford you.
   
   
7. Some investors are still looking. Everyone knows you're supposed to buy when times are bad and sell when times are good. A few investors actually think that way, so be there. You're an investor too. As a founder, you're buying stock with work.

The way to start in a down economy is to do exactly what you should do anyway: manage cash as tightly as possible. If you don’t quit, the most likely cause of death in a startup is running out of money. So the cheaper your company is to operate, the harder it is to kill. And fortunately it has gotten very cheap to run a startup.

The most popular day for starting a new company is the same as starting a new diet: Tomorrow. So take the leap today, not tomorrow. If you don’t get started now, the odds are you'll never start. If you are an entrepreneur at heart, don’t be doomed to a life of trudging through jobs, depending on someone else for salary and bonuses and health care and retirement, a life's work without ownership or upside.

You're better than that. That's why you're reading this blog. So go for it.

Marty Zwilling

Taking Other People’s Money Changes Your Life

By Francine Hardaway, Ph.D.

Taking other people’s money to fund your startup changes your life in ways you cannot predict. And many of those ways are negative.

I meet with dozens of entrepreneurs a week. No matter how they couch it, they are asking for money. They come to me wanting to know first, will I invest myself? Doubtful, unless I already know them really well, know the company really well, and have some spare cash. Those often don’t occur simultaneously.

Okay, then will I connect them to someone who will invest? At the very least (or perhaps it’s the very best), they ask me how to get ready for funding. What do they need to do?

I always tell them to forget it.

To someone laboring in a cash-strapped startup, money often seems to be the endgame. “When I get funded,” the entrepreneur thinks, “I can build a prototype, hire a development team, go to market, scale more quickly, and beat my competition.” All problems will go away.

Maybe. Maybe not. But there are some things that DEFINITELY come with other people’s money. They’re new and different problems.

1. A board. Many startups have an advisory board of sympathetic people with industry expertise, or people who enjoy mentoring, or people who donate a few services on the come. Once you take investment, you will also have a fiduciary board, with the responsibility of making the company successful. Some of those will be outside the company. Be careful they don’t outnumber your people. And that they don’t set your co-founders or key employees against you in meetings. If you can, keep an odd number of people on the board, people who support you, so the board won’t be deadlocked.
   
   
2. Deadlines and benchmarks. Few investors send you the entire check immediately. Most of them give you some money and withhold the rest until you have proven something. Those who give you money often take a board seat so they can watch you.
   
   
3. Financial controls and budgets. Most startups are terrible with systems for payables and receivables. But there’s an old aphorism that cash is King, and when you get a large sum, you think it will last forever, until it doesn’t. You have to make the money hold out until you have met that deadline, and if you miss the mark, you might never see the rest, even though the problem that kept you from meeting it was out of your control. It’s funny how investors can forget everything from technical glitches to supplier problems, to the earthquake that destroyed your factory.
   
   
4. Strange course corrections. Yes, it is now in vogue to say your startup can, or did, pivot. But when your investors decide that you are going to pivot and you don’t think that’s the right direction, the wrong investor can force you in a direction you didn’t want to go in, wasting time and money. Much of this depends on how “smart” the money is about what you are doing. Don’t ever take dumb money, even if you are starving.
   
   
5. Demands on your time. Investors are a time suck, because they need to be handheld. The worst investors are small investors. If you raise an angel round consisting of five investors who put in $100K each, that’s five people you have to answer to. Five phone calls every time things change direction, or something bad/good happens. That’s why there is an entire industry built around “investor relations.”
   
   
6. An early exit on your part. I have actually known one guy who has been ousted from the CEO job in not one, but two of his own startups, by investors who either wanted to bring in their own guy or even their own team.

I have known more than one who has been shuffled to another position whether for the right or the wrong reasons. Often these shufflings are good, because they bring in experienced management. But sometimes they bring in management with no industry expertise, and they destroy both morale and your vision.

Remember “The Social Network” movie about Facebook? Remember what happened to the alleged co-founders when Peter Thiel came in? Well, some of the people who considered themselves co-founders suddenly found out they weren’t!

Moral: Before you decide that it’s absolutely necessary to take outside investment, explore all the possible ways you can partner, outsource, affiliate, collaborate, or…heaven forbid, get customers.

Today’s article is presented by the founder of Stealthmode Partners in Phoenix, Arizona. She is a true angel investor, and has helped package and secure funding for many high-tech startup companies in the area. She has also created positioning and marketing strategies for dozens of growth companies. You can contact her directly at francine@stealthmode.com.

Ten Tips to Kick-Start Your Startup With Twitter

It seems like only a few months ago when I wasn’t sure if Twitter was relevant to my business, or if it would be a waste of time. Now I have over 280,000 followers on Twitter as StartupPro, and the business is fun as well as profitable. I’m now convinced that any entrepreneur can use it to kick-start their business, and build their brand as well.

First, I’ll try to answer the most common question I still get from business people “What is Twitter, really?” For business people, it’s a way to put out “sound bites” or tiny ads on the Internet, much like you see them in the mainstream media on TV, but without the cost, to your prime audience.

Actually they are “txt bytes,” like cell phone text messages in length, and they are broadcast to all your followers, or directed at select recipients. People can respond in the same fashion with personal requests or general comments. The important responses are real “business leads.”

A lot of people are doing some very innovate things with Twitter. I won’t cover those here, but I’ll offer some practical tips to get you started:

1. Offer something of value. Make the relationship a win-win. That means give before you expect to get – free advice, special promotion, pointer to useful information, or sometimes just friendly conversation. Show that you are a real person, sincere and trustworthy.
   
   
2. Search tweets for business leads. With Twitter Search, and a host of free tools on the Internet, you can mine the universe of all tweets for people needing your product or service. Set up filters to find them, and follow-up diligently and politely on every lead.
   
   
3. Use free tools to improve efficiency. Twitter’s native user interface is arcane. Use tools like TweetDeck to set up your control room, SocialOomph to spread out your responses, and WeFollow to find key players in your domain. There are many others.
   
   
4. Create separate account for business. If you like Twitter for personal notes to your friends, use another account for business activity. Your business account should have a name, picture, and tone that reflects your business brand and logo.
   
   
5. Become an authority in your area. One of the challenges of buying things on the Internet is to identify the quality sources from the scammers. Use Twitter to personalize your business, knowledge, integrity, and your leadership. People still buy from people.
   
   
6. Stay top-of-mind with experts. Seek them out, offer interesting links, respond to tweets, and post thoughts for conversation at least a few times a day. Twitter is not like email, where people diligently save and respond to every message. Stand out in the stream.
   
   
7. Follow potential clients. That’s how you tell your potential clients and customers that you exist. They will see you following them, check out your profile, and if you have something they can relate to, they will follow you back. This is “pull” marketing.
   
   
8. Increase size and quality of following. Never stop working to increase your following, by finding others, and improving your offering. A larger following means more credibility, which iteratively attracts more followers. Don’t be afraid to un-follow people who don’t fit.
   
   
9. Re-tweet for double impact. Adding ‘RT @username’ in front of the original tweet forwards it to your followers, and is a double win, if used selectively. It improves your value to your followers, and increases the audience and credibility of the original sender.
   
   
10. Cross link all your web profiles. Make sure people can find you from all directions on the Internet. Your website should have a link to your blog, your Twitter profile, LinkedIn profile, Facebook, and vice versa. This also improves your Google search ranking.

Twitter is merely a constant stream of absolutely current public communication. The good news is you can turn it on or off as often as you like, and mine the database at very low cost for useful information. Even big companies like Dell and HP use it to find customers, and claim million dollar returns. It’s a valuable resource for every startup. Tweet me if you need help.

Marty Zwilling

Get Credible Market Research Without a Consultant

Most startup founders know exactly what they want to design and sell, and they are personally convinced that everyone will buy one. Yet they often fail to realize that their view is likely biased, and will be instantly discounted by potential investors. Business plans with no “industry expert” data on your target opportunity size and growth are routinely rejected.

Your business plan must have an “Opportunity” section, where industry market size and growth projections are included. Within this section, investors look for footnotes referencing external sources, or quotes from notable domain experts. Absence of these raises a big red flag.

Yet most startup teams have no idea where to start, and what kinds of data to look for, in building this key section of their business plan. Is it possible to get this information with minimal cost? Let me offer a few suggestions which should allow you to do the work yourself:

1. Use Internet search engines. The Internet today is like the Library of Congress at your fingertips. Search on any product name for census data, online research reports, trade association publications, and online newspapers with relevant statistics. Look for growth and opportunity tables than can be copied and footnoted in your plan.
   
   
2. Visit your local university library. On or off the Internet, there are dozens of reputable market research reports available for purchase. To give you a look first, and often get the data you need, visit a university library where many of these are stocked for free access.
   
   
3. Check local economic development offices. Almost every county and municipality has an economic development office which features market research on popular market segments in your area. Also, this is a good place to ask for pointers to other sources.
   
   
4. Visit the local bookstore. Browsing in the business section of your local bookstore is a great way to do market research, while enjoying a cup of coffee. Information here is more current than your local library, and you might even buy a book for later research.
   
   
5. Purchase online reports for a fee. After exhausting all the free sources, go back to the Internet and order for a fee any additional report or association journal that you need. Credible sites include Gartner Group, Market Research Reports, and Frost & Sullivan.
   
   
6. Informal focus groups. In conjunction with some outside expert data, it is acceptable to add your own research, like setting up a small focus group and documenting results. Variations include online bulletin boards, telephone surveys, and direct-mail surveys.

There are two types of research you'll want to collect. The big-picture market opportunity data is called secondary. It consists of previously collected data like demographic information, industry trends and census information. Next, you need data as specific as possible to your product and your market. This is called primary research, and may include information that you generate yourself.

The information you discover will help you build a profile of your market and the industry. For instance, if you're developing a product for vehicle owners, you'd want to find out the number of vehicle owners broken down by gender, age, and geography. Then how much this market spends on vehicles, spending growth or shrinkage in the past 10 years, and industry projections.

Having no data to back up your opportunity and financial forecast is the kiss of death for any startup funding request. We all know that you can use statistics to prove any point you want, so just quoting data doesn’t mean your plan is sound. Certainly, paying more for the data doesn’t make it any more sound either, so check the low budget alternatives first.

Marty Zwilling

Investors Don’t Fund Startups Without a Good Plan

Too many entrepreneurs still believe the urban myth that you can sketch your idea on a napkin, and investors will throw money at you. Every investor I know is frustrated with the poor quality of the business plans they get. This is sad, since “how to write a business plan” is a frequent topic found in every business journal, and a common title in the business section of every book store.

What is the definition of a good business plan? In simple terms, it is a document which describes all the what, when, where, and how of your business for you, your cohorts, and potential investors. Forcing yourself to write down a plan is actually the only way to make sure you actually understand it yourself. Would you try to build a new house without a plan?

Make sure your plan answers every relevant question that you could possibly imagine from your business partners, spouse, and potential investors. That means skip the jargon and include explanations and examples. A plan that generates more questions than it answers is not a good plan.

Finally, hone the result into a professional document. Remember that you only get one chance to make a great first impression. Make sure it has a cover page, table of contents, headings, page numbers, and is organized logically.

Notice that I didn’t say anywhere that a good business plan has to be at least 20 pages, or have ten sections, or must start with an executive summary. These are good things, but I’ve seen great business plans that are ten pages, or have totally non-standard formats.

But, if you ask, ten sections is a nice round number, and would include the following:

• Executive summary
• Problem and solution
• Company description
• Market opportunity
• Business model
• Competition analysis
• Marketing and sales strategy
• Management team
• Financial projections
• Exit strategy

You can get free downloads of sample business plans from the Internet, and there are thousands of customized samples for sale highlighting every business area. I’ll even send you a free sample of my own business plan via email, if you drop me a note. You really need a business plan for you own efforts, even if external funding is not a requirement.

So what if you know that you simply aren’t a good writer, or don’t have the time or patience to write? No problem. That’s why they invented ghost writers, and came up with the concept that you can pay someone else to do it for you. A few thousand dollars is a small price to pay for a successful business, or for that $1M investment you expect the plan to entice.

The tougher case is where you really don’t understand the business you are about to enter, so you don’t know what to write. This is a recipe for failure that most investors and professionals can quickly see, so no investment will be forthcoming, and your startup will likely wither and die.

My advice here is to swallow your pride, and find a partner or give it away to someone who has the “domain knowledge” and the business experience to get you going. Your idea may be right, but dead right is not very satisfying to anyone.

Keep in mind that thoroughness and clarity of the plan are factors that will play key roles in successfully financing, starting, and operating your business. A great business plan is one that your team can learn from, attracts investors, and will guarantee your species a future. With no plan, I hope you have unlimited personal funds or at least a rich uncle!

Marty Zwilling

Five Elements of a Credible Startup Marketing Plan

It’s not uncommon for me to see a startup business plan “mission” to be the “premier brand” for their product, yet their marketing budget in the financials is trivial. This combination will almost certainly get your plan tossed by potential investors, who understand all too well the need and cost for marketing in today’s environment.

When questioned, founders usually mention word-of-mouth, viral marketing, and a top quality product. These founders need a reality check on what recognized brand names have spent to reach that threshold, and how long it is likely to take. Viral marketing costs real money these days, which usually means adding at least an extra zero to budget estimates.

Recent new brands like Facebook and Priceline.com each required over $50 million and several years to get to be premier brands. We know that existing big brands like Apple and Nike spend millions per year just to maintain their brand recognition. In fact, the average spent by Inc 500 companies for sales and marketing expense continues to hover around 10% of overall revenues.

My first recommendation then is to confine your “premier brand” comments to the long-term vision section of your business plan. Concentrate elsewhere on the near-term marketing activities (which are also expensive) for this round of funding. By the way, if the marketing section is missing or un-budgeted, you will also likely be “branded” as unfundable.

So what are some credible marketing and promotion steps you should consider for your startup? There are many more, but these should get you started:

1. Create a professional website and blog. With these, your business presence can look big and credible even when you are small. There are multiple low-cost website tools available, like Adobe Dreamweaver, which allow you to do your own work and save thousands of dollars, but a budget of $10,000 is a good starting point. A blog is critical, and essentially free (your cost is creating content).
   
   
2. Get exposure for your expertise. Use social media and Search Engine Marketing (SEM) to start. Create meaningful content and engage others online (free downloads, white papers, webinars, regular blogging). Put out regular press releases for search purposes and general visibility. Pitch your story to newspaper journalists, radio, and television news reporters who cover your local area or industry.
   
   
3. Do something unique to get customer attention. Promotions and free give-aways are all the rage these days. This step requires thought because you need to identify what can set you apart from your competitors and how to retain customers. Promotions that appeal to the wrong customers won’t help you.
   
   
4. Generate leads for your product. Gather leads online from your social media initiatives, mine your contacts, attend trade shows, and use lead-generation services. Here is an area where you need to be creative, and not just spend big money. For example, exhibiting at trade shows is very expensive, and usually not very productive. Figure out what is valuable to your audience.
   
   
5. Establish partners and referrals. Customers who enjoy doing business with you are more than happy to spread the word. Create referral marketing opportunities within your business community that maximize the potential for customer referrals. Find partners and channels which are complementary, and not directly competitive.

Good marketing often is the only thing that separates the successful startup from the not-so-successful startup. There is no doubt that marketing overall has become even more critical for startups over the past several years.

Despite the fact that social networking and other online processes are essentially free, good marketing still costs money. If your early-year budgets for marketing aren’t 10% of projected sales or more, plus an early kicker for setup, you are probably underestimating reality, and jeopardizing your credibility with investors.

Marty Zwilling

Be Sure Your Startup Has a Clear Value Proposition

By Joe Bockerstette

As an angel investor who has considered hundreds of startup opportunities, the concept of a value proposition may be the most misunderstood and taken for granted element that I see in newly formed startups. While entrepreneurs freely throw around the term “value proposition,” they rarely offer a thoughtful explanation for the “value” their business is providing and, more importantly, an understanding of who their real customer is and what valuable benefit their customer perceives they are receiving.

To address this gap, I’d like to discuss a basic value proposition definition below.

The value proposition is a short statement that clearly communicates the target customer, the customer’s problem and the pain that it causes, the unique solution that addresses this problem, and the net benefit of this solution from the customer's perspective.

Let’s consider each of the four elements of the value proposition definition above:

1. The target customer. Many entrepreneurs quote a large market size and impressive dollars spent in the market, but not many entrepreneurs can name specifically who will buy the proposed product or service, and how many of these customers exist. To identify a target customer, it helps to document a customer profile statement, identifying all of the traits known about the customer and what makes them different and unique from the larger market population. Out of this exercise comes a clearer understanding of what makes them a “target” customer. It’s not uncommon that a company serves more than one target customer, leading to a customer profile for each type.
   
   
2. The customer’s problem and the pain that it causes. Entrepreneurs should clearly articulate the customer’s problem that they are addressing in layman’s terms. The problem definition should also include a description of the level of pain it causes. This step is often overlooked, as entrepreneurs frequently assume a pain level that is greater than actually exists for the customer. This hopeful thinking comes from a lack of study and the development of empirical evidence that supports the relative importance of the painful problem. While the pain level can be expressed in dollars, what matters here is the extent to which the target customer desires that the problem be solved relative to current solutions. This step is critical to the potential of the startup enterprise. The more painful the unsolved customer problem, the greater the opportunity is for a startup’s success. Overestimating the pain level of a customer problem causes time, money and talent to be spent on a mission that leads to disappointment and frustration.
   
   
3. The unique solution that addresses this problem. Here, the startup is addressing the core purpose of its new business. What makes the solution worth pursuing? Why is the venture worthy of investment? What has the startup discovered that others in the market before it have missed? When its unique solution solves a customer’s painful problem better than all other available options, the startup has successfully cleared an important early hurdle to a successful venture. Again, evidence here is key. Demonstrating that a customer exists with a painful problem that the company solves better than anyone else makes for a compelling startup beginning.
   
   
4. The net benefit of this solution from the customer’s perspective. Here is where true potential is discovered. First, value is strictly perceived in the eyes of the customer. If the startup sees its solution as very valuable, but the target customer doesn’t, there is no foundation on which to build a company. Second, the benefit of the solution must be weighed against its cost and compared to all other options available to the customer. This is a critical element of understanding in considering growth potential and ultimate market capacity.

The value proposition is a primary foundation characteristic that I consider as an angel investor. When starting a new enterprise, entrepreneurs should offer a strong value proposition case, one that includes empirical evidence that demonstrates you know who your customer is, that they have a painful problem worth solving, and that you offer a unique solution that they perceive provides more net benefit than other available options.

###

Today’s article is presented by my friend Joseph A. Bockerstette, now living in Phoenix, Arizona, an active investor, business advisor, and a founding member of the Main Street Venture Fund. You can contact him directly at jbockerstette@me.com.

Ten Tips to Make Your Startup Website Memorable

Smart people only visit and buy from credible and memorable websites. In the past, if your startup had a website presence, the company was credible by definition. In today’s world, a website is necessary but not sufficient for credibility. Dreamers and gamblers have found out that if the website isn’t validated as credible, it’s probably a scam, and everyone loses.

Yet most startups I know experience the same shock of disappointment when they first open up their website to offer their “million dollar idea” product, and nobody comes. What validates credibility and makes your site memorable in the minds of consumers, and how much does it cost?

1. Put yourself on the site. People buy from people. Until the company name is a famous brand, you are the brand. No name, picture, address, or business history only convinces customers that you are hiding, located in an untrustable country, or don’t have a clue. They will exit quickly.
   
   
2. Show evidence of your expertise. Publish a daily blog, contribute to relevant social networks, and write a “white paper” on your technology. People respect people with relevant experience, so highlight your accomplishments, and the credentials you have.
   
   
3. Highlight personal and product testimonials. Third parties are always more credible sources than you are. Highlight interviews and reviews from recognized industry sources, and popular news sources. Include links to other sites showing your positives.
   
   
4. Create a positive online image. Show your visitors some evidence of community involvement and charity efforts. Offer something that is really free – with no strings attached to cause them to lose their trust. Set up an award, and show winners.
   
   
5. Link to recognized brands. If you can have an affiliate relationship with any recognized brand names, or any connection to publicly recognized experts, highlight these and provide links to their websites.
   
   
6. Advertising presence. The presence of a few related advertisements can actually improve your site credibility, since most credible sites have them. Of course, too many or obnoxious advertisements are especially harmful to a site’s credibility.
   
   
7. Join relevant business associations. Most will give you a membership graphic for your website, and an association link to give your business extra credibility. Don’t forget the local Chamber of Commerce and Better Business Bureau.
   
   
8. Provide a privacy and security statement. Display a logo like McAfee Secure or Privacy Label, in addition to specific policy statements on these subjects, to persuade your visitors and prospects to trust you.
   
   
9. Offer support assistance and guarantee. Publish the terms of your support, return, and replacement policies. Be consistent is their application, and provide contact information for both phone and email access. Follow-up for customer satisfaction.
   
   
10. Professional user-friendly site design. Studies have shown that consumers gauge credibility in large part based on the appeal of the overall visual design, including layout, typography, font size, color schemes, no broken links, and correct language usage. Don’t forget basic Search Engine Optimization (SEO) so search engines improve your ranking.

These are all minimal-cost survival marketing efforts. Beyond these, you will likely need to budget time and dollars (up to $50,000 is not unusual) for real marketing efforts to enhance your visibility and credibility, which include branding, promotions, give-aways, and free services.

In summary, a startup with no website, or a website with no credibility will kill your business. Use the tips outlined above during the first three months to get in the game, and count on much more time and money if you intend to stand out. Make your website not only credible, but incredible!

Marty Zwilling

Innovative People Laugh and Have More Fun at Work

I’m convinced that people who have fun at work are more innovative, as well as happier. I don’t have any big scientific studies to prove this, but in my considerable business experience, I haven’t seen many successes come out of a group of fearful pessimists or unhappy people.

As I was looking through the literature, I did find evidence that many strong business leaders, like John D. Rockefeller, knew how to laugh at themselves. Humble leaders with this trait seem to create cultures that don't take themselves too seriously; cultures willing to take risks; cultures capable of creating and supporting a greater number of ideas.

I can postulate several reasons why laughing and having fun at work might be linked with creativity and innovation. Here are a few:

• Escape the inhibitions. Laughing tends to remove inhibitions. Under the spell of inhibition, people feel limited and stuck. This is what we refer to when we say “thinking outside the box”. Encourage everyone to be open to new ideas and solutions without setting limiting beliefs. Innovation is more about psychology than intellect.

• Willing to make mistakes. People who take themselves too seriously are afraid to be seen failing. Failure while having fun is not usually seen as life-threatening. Expect that some ideas will fail in the process of learning. Rather than treating the mistakes as failures, think of them as fun experiments.

• Reset to a positive attitude. Under the pressure of a difficult problem, or if you are stuck on something, nothing innovative is likely to emerge. Do something fun to shift your thoughts back to the positive. Come back to the work problem with a fresh and more creative mind.

• Productive group activity. In teams, people feed off each other. A “downer” in a group takes the whole group down, whereas a fun person can bring the whole group to a more productive and innovative plane. This allows the group to “suspend disbelief” and really brainstorm new alternatives.

• Likely to be seen. Successful people surround themselves with people they enjoy and respect. If you are unhappy, or take yourself too seriously, you are less likely to get the attention and trust of people who can make a difference, or even recognize your innovative ideas.

• Likely to be heard. Communication effectiveness is the final hurdle for creativity and innovation. No matter how great your idea is, it won’t happen if it is not heard. People like to listen to fun people, and they close their mind to all the rest. If you want to be heard, write down the message and deliver it in a positive tone.

• Be perceived as a leader. By definition, people who project negativity are not going to be perceived as leaders. Nobody will charge a hill led by someone who says it can’t be done, or someone who emphasizes the risk of death.

Some people seem to want to make fun an enemy of business. I believe you will accept that premise only at your own peril. Fun is all about creativity, innovation, play, experimentation, progress, and seeing real things come to life. The most innovative people don’t see any dichotomy between work and fun.

So I encourage you to go out of your way this holiday season to nurture fun at work, as well as passion and motivation. Learn to pay attention to laughter. Where there is laughter, there is an idea that holds people's interest. If you don’t take yourself too seriously, the pleasant by-product is that work becomes more enjoyable, and your innovative side will be more visible.

Marty Zwilling

Some Angel Investors Have Not Earned Their Wings

A few angel investors have slipped or fallen from their lofty perch, so entrepreneurs must take great care to validate the character and reputation of every prospective investor. The entrepreneur’s tendency to be in a huge hurry to obtain the funding can end up being disastrous, and play into the hands of these less scrupulous investors.

Many entrepreneurs believe all money is created equal. As long as somebody recognizes their million dollar idea and writes them a check, the source really doesn't matter. In fact, most angels are pure, but there are some exceptions that may cost you more than an investment:

1. Shark angels. This is the ultimate bad guy whose sole intention of getting involved in early-stage investing is to take advantage of what they believe is the entrepreneur’s lack of financial and deal-making experience. If the term sheet process turns to pure torture, it may be time to respectfully bow out.
   
   
2. Litigious angels. The litigious investor will look for almost any excuse to take you to court. This type of investor never really focuses on the returns your company can deliver, but instead tries to make money by intimidation, threats and lawsuits. They know you won't have the resources to fight them, so they count on you "caving.” Keep your attorney close by your side.
   
   
3. Superior angels. A number of successful business people, some of whom become angels, develop the belief that they are destined for greatness because of their clear superiority over everyone else. These are usually overbearing, negative people who are hypercritical of every decision you make. Don’t be intimidated into bad decisions.
   
   
4. Control freak angels. This angel starts out looking like your new best friend. Once you are funded, he waits until you hit your first pothole and then points out “gotcha” clauses in your agreement that give him more control. This escalates into a requirement that he must step in to run your company himself. Only your Board can save you here.
   
   
5. Tutorial angels. The tutorial investor is not after control, but wants to hold your hand on every issue. The mentoring offer always sounds good up front. But after they write the check, it soon becomes apparent that their desire to be helpful 24 hours a day is a nuisance at best. Initially, your gratitude for their investment may prompt tolerance, but eventually the burden wears you down. Keeping your distance is the best solution.
   
   
6. Has-been angels. These tend to appear with every perturbation in the economy. They are usually high-flyers with a liquidity problem. They are still at the country club every day, but are now running up a tab. They will meet with you, and ask a thousand questions, but never get around to closing the deal. Learn to ask the closing questions.
   
   
7. Dumb angels. Wealth is not synonymous with business savvy. You can spot dumb angels by the questions they ask (or don’t ask). If they ask superficial questions or don’t understand business, a successful long-term relationship is not likely. But don’t forget that people with wealth usually may have some savvy friends to meet.
   
   
8. Brokers posing as angels. These people are all over the place, often posing as lawyers and accountants. They have little intent to invest in your company, and will eventually solicit you to sign a fee agreement to pay them to introduce you to actual investors. Brokers are often worth the fee, but don’t be misled about who is the angel.

How do you avoid most of these? Whenever possible, only accept investments from individuals in credible, professional angel investing organizations - not people who solicit you. Even then, do your own due diligence in the business community. Ask what other companies they've invested in, and talk to the CEOs of those companies to find out what kind of investor they've been.

Also, make sure your lawyer writes the initial investment document or term sheet - not the investor. This document should be standard for all your investors and not negotiated on a one-on-one basis. Watch out for any attempts to add clauses that can come back to bite you. Not all angels these days are even trying to earn their wings.

Marty Zwilling

Ten Executive Titles You Don’t Want in a Startup

It’s your startup, so you can give early partners any title you want, but be aware of potential investor and peer implications. VCs and angel investors like to see a startup that is running lean and mean, with no more than three or four of the conventional C-level or VP titles. More executives, or other more creative titles are seen as a big red flag.

In reality, startup titles should be more about the division of labor than an executive position. The most common ones I see and salute are CEO, CFO, and CTO. A few other credible ones would include Chairman of the Board (COB), Chief Operating Officer (COO) and Chief Marketing Officer (CMO).

Where the titles don’t fit the situation, investors start looking hard for other anomalies. Here are some pre-conceived notions about what non-standard titles in a startup, like the following, might mean:

1. Chief Inspiration Officer. This person may be an extraordinary communicator, who rallies employees, customers, and colleagues around the vivid future he sees. Or he may be the founder’s brother, idea person, or inventor, who can’t be bothered actually working on the nuts and bolts of the real business.
   
   
2. Chief Evangelist. This is a role made famous by Guy Kawasaki in the early days at Apple Computing. Evangelism marketing is an advanced form of word of mouth marketing (WOMM), now largely replaced by Facebook and Twitter. Unless your business is a religion, I don’t recommend it for a startup these days.
   
   
3. Chief Sales Officer (VP Sales). What you really need is a VP of Marketing and Customer Development, who can help with lead generation and honing the message, rather than an executive to manage a sales team and existing customers. See this anecdote by Steve Blank on how a hotshot sales executive can sink your startup.
   
   
4. Chief Brand Officer. Branding is indeed an important role within a startup, but the implied scope of the role is far too narrow. The more conventional VP of Marketing role should cover branding, as well as other marketing advertising, design, public relations and customer service requirements.
   
   
5. Chief Risk Officer. This role is most common in financial institutions, and it seems like it should apply well to startups, since they carry the highest risk of failure of any businesses. But here is another example of a role that everyone carries in a startup, so investors can’t imagine paying anyone uniquely to do that job.
   
   
6. Chief Human Resources Officer (VP Personnel). This is a fancy title for a personnel manager in a large corporation who keeps track of all the hiring and firing, and has a staff to build job descriptions and personnel policy documents. In a startup, that’s your job as founder, and it’s a job you can’t afford to delegate.
   
   
7. Chief Diversity Officer. Diversity is generally only an issue in large organizations, and if your startup is that large, investors will definitely be nervous. In general, I’ve not known diversity to be a problem in startups, especially if Gen-Y is part of the team.
   
   
8. Chief Information Officer. All the IT work in most startups is done by a college intern, or the owners son. Assigning them the title of CIO seems like a bit of overkill, especially these days of serious “cloud” computing.
   
   
9. Chief Legal Officer. Also known as General Counsel, this position is an expensive one to fill and maintain. If your business is managing contracts and patents, it makes sense, but the CLO for most startups is LegalZoom on the Internet.
   
   
10. Chief Security Officer. Here is another role that shouldn’t be so large in a startup that it needs to be a full-time task, separate from other executive roles. Frankly, the CSO role has always sounded like the warden at a prison to me, so I would be hesitant to recommend it, even to a large business.

What other strange titles have you seen? In all roles, a startup needs executives who are comfortable with daily chaos and change, rather than defining and following a repeatable formula for success. In addition, you are looking for executives who don’t need a title to get things done. They should get their satisfaction from building their business, rather than building their title.

Marty Zwilling