Location-Based Services are a Bonanza for Startups

These days, I’m hearing more and more about Location-Based Services (LBS) as the next big opportunity for startups. So far, it’s just another mobile phone app that tells people where there friends are (Foursquare and Facebook Places), but it’s poised to be a lot more. Internet marketers see it as a better way to target consumers, and even retarget them to close a sale.

But entrepreneurs need to look more broadly than this to tracking, navigation solutions, safety, security, local business search, and payments. Beyond mobile phones, the same concepts can be applied to embedded systems, portable navigation devices, and laptops. Before long, the opportunities will be even greater from mining this data to reveal further insights.

As outlined by Adam Holden-Bache recently on Social Media B2B, I’m convinced that business-to-business has more money and more untapped opportunities, along the following lines:

• Strategic partnerships. If your B2B contacts are frequenting other non-competitive local businesses, LBS data could point you to more lucrative business partnerships. “Coopetition,” or strategic cooperation with a competitor is another angle.

• Sponsorships and advertising. If your B2B contacts check-in regularly at certain types of locations (entertainment venues, stores, etc.) then you may want to consider potential sponsorships or advertising opportunities with that business or venue.

• Incentives or rewards. Knowing what your contacts like to do will give you insight on ways you can reward them. If you see a large percentage of your contacts checking into coffee shops each morning, you may want to consider gift cards as a possible reward for an upcoming incentive program.

• Event marketing. Are you seeing a lot of your contacts attending certain business events? Whether it’s a local tweet-up or a major conference, this knowledge could be useful to help you plan what events you should sponsor or where you should set up your next booth.

• Lead generation. Identify potential new relationships. See who is checking into your business. See who checks into your competition. See who checks in to the business events that your existing contacts attend.

• Thought leadership. If you know your contacts’ real-life interests, you could use that information in your marketing efforts. Here we tread on that fine line between value delivery and individual worry about privacy invasion.

• Branded entertainment. Leave tips where your contacts go (maybe similar to what History Channel does on Foursquare). Create a trip in Gowalla (see what Whole Foods or Toms Shoes is doing) or create a society in Whrrl (check out USA Today’s society).

• Understand the competition. Understand how users are physically interacting with your competition, and if so, what they are doing before and after those visits. If you notice any trends, you may be able to position your brand to cut-off a potential visit before it happens.

• Stronger nurturing and relationship building. During lead nurturing, you could use LBS data to better understanding your contacts’ interests and use that to your advantage. LBS data can not only give you information to drive the relationship, but you can also use it to identify your sales reps with similar interests and partner them with the prospect.

If you think location-based services are a long way from mainstream, take a look at the new research from a Microsoft survey that LBS may be poised to follow in the footsteps of the ATM, which took some time to dispel safety and privacy concerns on its way to being universally accepted. They claim 51% of the people surveyed around the world have already used LBS.

Juniper forecasts that by 2014 the global opportunity for LBS will reach $13 billion, and Global Industry Analysts projects that by 2015 the global LBS market could be $21 billion. These numbers and the B2B applications are more than enough to catch the attention of venture capitalists and angel investors. All you need to add is an innovative idea and viable business model.

Marty Zwilling

Don’t Be Fooled by Investment Scams For Startups

After you have heard a few startup success stories, like Google, Facebook, and Microsoft, you may be tempted to invest some money yourself, maybe by pooling your funds with other investors who claim to have a great track record. My advice is to leave the investing in startups to the professionals (or friends and fools).

First of all, despite a few visible blowout successes, the odds of a payback from investing in startups is very low (that’s why VCs look for 10X returns to cover failures). Most investors agree the odds are better buying traditional public stocks, or even commodities. Even the hot new “crowdsourcing” companies springing up have yet to show any significant returns to investors.

Secondly, there are many scammers out there who look and act just like Bernie Madoff, even though he is safely tucked away in prison for the next 150 years. Most frauds are not on the scale set by Bernie, but even a few thousand dollars lost would hurt you and me as much as a few million did for some of his victims.

So what can you do, and what are the “red flags” to look for as you do your due diligence before pooling your money with other investors, or accepting money for your startup from investors? Here are some common sense tips:

1. Get financial statements and verify. Every reputable investment firm is registered with FINRA and files regular reports with the SEC. Look for these and investigate thoroughly to check the truth of every statement about the company. Ask for references, and call or visit previous “successes” of the company to verify experience and satisfaction.

2. Avoid “insider deals.” The Internet has just made it easier and faster for vultures to feed on entrepreneurs tempted by the possibility of an “inside deal.” Someone you don’t know promises you an “inside” deal. Why would a stranger pick you out to make rich? Does that make any sense?

3. Listen for “unnamed sources.” If all current investments are with “sensitive” clients, who are unnamed or unable to be contacted. Remember the old newspaper publishing rule of “All facts must be verified by two independent sources.” People claiming to be unbiased may actually be paid promoters, large stakeholders, or company insiders.

4. Any mention of “offshore.” Watch out if someone has a complex plan involving offshore bank financing or gemstones or oil leases in Iran to make you rich. Why get involved in a complicated scheme you don’t understand, when there are plenty of opportunities that are legal and you can understand.

5. Sounds too good to be true. The age-old wisdom here is that if it sounds too good to be true, it’s not true. I continue to be amazed at the fact that the Secret Service still gets 100 calls per day from victims of the Nigerian unclaimed cash scam alone. What are these people thinking?

Here are a few questions you should ask that might allay any remaining qualms, or convince you to run immediately:

• How much am I paying in commission or fees?
• Have you personally been involved in any arbitration cases or lawsuits?
• How do you get paid? By commission? Amount of assets you manage? Another method?
• Have you or your firm ever been disciplined by the SEC or a state regulator?

Unfortunately, in the startup and investment business, we are trained to rely on networking, connections, and professional integrity for many decisions. Remember that people who run scams may be highly polished and sophisticated, and can wrap their con games in such an air of legitimacy it may be hard to see the truth.

Don’t assume you are safe now that Bernie is out of the picture. If you have evidence of fraud, don’t be too embarrassed to contact the Securities and Exchange Commission. If others had done this sooner, his clones wouldn’t be out there today looking to help you out (of your money).

Marty Zwilling

Ten Questions to Ensure a Viable Business Model

You can’t succeed in business without an operational model that delivers value to customers at a reasonable price, with an underlying cost that allows you to make a profit. There are no “overrides” – for example, businesses don’t thrive just because they offer the latest technology, or because everyone wants to be “green, or because their goal is to reduce world hunger.

I expect that should seem intuitive to all entrepreneurs, but every investor I know has many stories about startup funding requests with major business model elements missing. The most common failures are solutions looking for a problem, lack of a defined market, and giving away the product.

There are dozens of sources to help you construct your business model, and a good example is a recent book by venture capital investor Elizabeth Edwards, simply named “Startup,” which is really designed as a handbook for launching a company for less. I support her assertion that a business model consists of at least the first seven of the following ten basic elements:

1. Value proposition. What is the need you fill or problem you solve? The value proposition must clearly define the target customer, the customer’s problem and pain, your unique solution, and the net benefit of this solution from the customer's perspective.

2. Target market. Who are you selling to? A target market is the group of customers that the startup plans to attract through marketing and sales their product or service. This segment should have specific demographics, and the means to buy your product.

3. Sales/Marketing. How will you reach your customers? Word-of-mouth and viral marketing are popular terms these days, but are rarely adequate to initiate a new business. Be specific on sales channels and marketing initiatives.

4. Production. How do you produce your product or service? Common choices include manufacturing in-house, outsourcing, off-the-shelf parts. The key issues here are time to market and cost.

5. Distribution. How do you distribute your product or service? Some products and services can be sold and distributed online, others require multi-level distributors, partners, or value-added resellers. Decide whether the product is local or international.

6. Revenue model. How do you make money? The key here is to explain to yourself and to investors how your pricing and revenue stream will cover all costs, including overhead and support, and still leave a good return.

7. Cost structure. What are your costs? New entrepreneurs tend to focus only on product direct costs, and underestimate marketing and sales costs, overhead costs, and support costs. Test your projections against actual published reports from similar companies.

8. Competition. How many competitors do you have? No competitors probably means there is no market. More than ten competitors indicates a saturated market. Think broadly here, like planes versus trains. Customers always have alternatives.

9. Unique selling proposition. How will you differentiate your product or service? Investors look for a sustainable competitive advantage. Short-term discounts or promotions are not a unique selling proposition.

10. Market size, growth, and share. How big is your market in dollars, is it growing or shrinking, and what percent can you capture? Venture capitalists look for a market with double-digit growth, greater than a billion dollars, and a double-digit penetration plan.

Investors will want to understand your business model very well and very early. They don’t want to hear your customer sales pitch, which naturally avoids any discussion of how much money you intend to make, and how many customers you expect to convince. Giving that pitch to investors will only frustrate both you and them.

A viable and investable business model is one of the first things you need to highlight in your business plan. In fact, without a business model, your startup is just a dream.

Marty Zwilling

High Burn Rates Result in Short Startup Runways

Cash is the fuel of every startup. Your burn rate is the rate at which that money is being spent, and allows an estimate of how long you can go before refueling (runway). That refueling is when you will need more investment, or when you will break even and begin that steep profitable growth curve.

Investors look at your burn rate to see how efficient and effective you are at running the business. It continually amazes me how two startups, seemingly comparable in stage and objective, can be so far apart in their burn rate. One can build a new website application for $10,000 per month, while another is burning $50,000 per month. Which would you bet on?

For obvious reasons, you need to keep your burn rate low. Investors assume it will only go up with more funding. Here are some principles on how to do that, and help your startup to prosper and live another day:

• Measure it and manage it. As a rule, you need to review your burn rate every month, and manage it every day. The components are simple - expenses and income. If you don’t have any income, the job is even simpler, be ruthless about controlling expenses. Think twice, at least, before committing to any big outlays, and add up small ones.

• Include buffer when you raise money. The cost of giving up more equity early is often more than offset by the increased flexibility to recover from mistakes. Your startup will require more money than you expect, and the cost of going back to the well is very high. It takes time, the well may be dry, and you look bad for not getting it right the first time.

• Pay people with equity or future revenue. When I was interviewed for my first startup CEO job, I was expecting a $150,000 salary, but instead was offered an opportunity to contribute $50,000 to the business, and work for equity only. Great strategy. Another one to avoid cash burn for software development is a contract for percent of future revenue.

• Do it yourself and barter for services. Do you really need that full-time assistant, regular bookkeeper, and big-name attorney? There’s tremendous leverage in learning to use Microsoft Office, QuickBooks, and how to Google for sample contracts and the latest tax changes. Be humble and offer to clean all the offices, if you can use one for free.

A good rule of thumb for most startups is a burn rate of less than $50,000 per month. For example, a web-based startup should be able to operate for a year if they raise $500,000 from the founders or angels. This will equate to 2 working founders (taking no salary), hiring a 5-person development team for a year.

The cash will be burned on the team salaries and operating expenses of the startup, and should provide enough runway to build an initial product, get a few customers, and an initial revenue stream. That will position the startup to raise a venture round at a favorable valuation.

Always make sure you’re putting the money in the right place. That may mean waiting till you have a product before you add salespeople. Or manufacturing some product inventory to sell, before acquiring office furniture that makes you feel good. Focus precious cash only on producing revenue for your startup business.

Of course, a projected burn rate can’t account for expensive mistakes and unusual challenges along the way. For these, you need a little reserve and a lot of luck. Be forewarned that taking out loans and accumulating debt is not a long-term solution to the cashflow challenge. It’s too easy, and it bites you in the end.

Controlling your burn rate is the only way to get the confidence and resources to ramp up your startup business the way you want. If you forget to check and manage this compass within your new business, you could run out of cash before you reach breakeven – and find yourself managing the ashes.

Marty Zwilling

Startups are Media Companies Building a New Brand

The days are gone when a techie or a genius could build things in his garage and customers would find and buy the product, based purely on the “wow factor” of the technology. New technologies are everywhere today. People have seen so much that they aren’t impressed anymore, and fully expect the impossible to appear tomorrow.

They are overloaded by the media with amazing advertising messages, and people now realize that you can’t believe anything you see in pictures, and even videos can be edited to deliver any message. In fact, we are all media companies now, with our cell phones, computers, and professional-looking publishing tools.

Thus customers and partners rely more and more on personal engagement with people. Social media, like Facebook, allow them to convince themselves that they are engaging on a personal level, even when they aren’t. They definitely look for more personalization, and more “me, myself, and I” in the message.

David L. Rogers talks about this phenomenon in his book, The Network is Your Customer: Five Strategies to Thrive in a Digital Age, and suggests some strategies to improve your perceived engagement level. I’ve focused these more towards startups and entrepreneurs:

1. Show a personal face. Engage customers by showing a personal side and an authentic voice in digital content rather than the objective and authoritative voice of an institution. That means a startup should never use the old-fashioned anonymous website, with no names, addresses, or personal pictures. Show people you are an engaging real person.

2. Focus on each particular segment and need. Focus on niche audiences and their specific needs and interests, rather than trying to engage every possible customer with the same content. Use the power of available tools to provide video, interactive, and highly targeted messages to each segment of your audience, and each business partner.

3. Try branding yourself, not selling a product. Offer a story, entertainment, or a compelling idea that you can link convincingly to your brand, rather than trying to sell products or services directly. People buy from people, and in a startup, you are the brand. Sell yourself as the expert, and business sales will follow.

4. Offer utility to each audience member. Provide content and interaction that helps solve a problem or answers a critical information need for your audience. Avoid the abstract value calculations that don’t apply to the segment you are addressing. Use the power of the new media to deliver the right message to the right customer at the right time.

5. Make it an enjoyable experience. Use the interactive, goal-based play of online games to engage customers for fun, education, and relationship-building. People today are used to multitasking, and have very short attention spans. Keep the messages short and sweet.

As the digital media continue to evolve, you have to change your content rapidly to keep up. Shorter books, for example, transfer better to phones and other modern reader devices. Links and interactivity become more important as high-speed Internet access becomes pervasive on more devices and appliances.

The key is an ongoing “engage” strategy, producing relevant, sensory, and interactive content that is at the heart of your customer networks. So start now to think of your startup as a media company, rather than an outsourcer of advertising from some anonymous experts. If you can build a product, but not a brand, then you are not quite ready to start a business today.

Marty Zwilling

Entrepreneurs and Inventors Need Each Other

In my experience, inventors aren’t interested or aren’t very good at building a business, and entrepreneurs aren’t usually good scientists. These people need to find each other, and can jointly make a great team for a new startup.

Historically, it’s also not often that a good inventor was also a good entrepreneur. Some now argue that even our entrepreneur heroes, like Thomas Edison, really cheated on the invention side. Only a few great entrepreneurs of today, like the young Bill Gates, seem to have elements of both sides. Even he had some great help from Steve Ballmer, a real marketing guy, and others.

I’m convinced that this is because the personal characteristics required for these two jobs are quite different. For example, here are a few of the attributes that come to mind for a good inventor:

• One idea, one focus. They have perseverance, based on strong personal conviction that something is possible. An inventor has to know precisely how things work. Inventors build solutions to a problem, and they relish in the success of having solved the problem.

• Good with details. If you have ever written a patent application, you know it’s all about details, linkages, and causes vs. effects. Good inventors love to diagram out all the details, algorithms, and get their reward from finding new ways of getting things done.

• Creative and artistic. You have to give the creator some resources, time, and throw in some food once in a while, and a “completed design” will appear in due time. Then they are done. They hate sales, and don’t understand what making a profit even means.

• Realistic if not pessimistic. Every inventor, programmer, musician, and artist will tell you that you can’t schedule invention. They won’t commit to a completion date, and always dream of an unlimited budget. They expect many attempts will be required.

Entrepreneurs, on the other hand, have a complementary but different set of strengths and weaknesses:

• Lots of ideas, can’t focus. Most good entrepreneurs are idea people, and can flood you with ideas. The reason they can't focus is that they haven't yet flushed out all of the half-baked ones. When teamed with someone who can focus, things work, and a lot of wasted effort is avoided.

• Likes the big picture, not good with details. An entrepreneur always has a “vision” of a bright future. But many fail, or have lots of stress because they don’t like to deal with the details. They tend to leave the details to others, who don’t have the vision or the skill, so the business suffers.

• Good at starting a business and selling. Every entrepreneur reads everything they can find on running a business, maps out all the steps in their head, or explicitly on paper (business plan). They love talking about their business and their product, and dream of having millions of customers.

• They exaggerate and are too optimistic. Exaggeration, pipe dreaming and denial are the tools and comforts of the trade of entrepreneurism. The psychological source of this "always at the edge" may be an addiction to adrenaline, the pleasure/high of "pulling it off" at the last minute, or the high that victory brings.

For a successful business, it takes the discipline and creativity of an inventor, as well as the vision, planning, and optimism of an entrepreneur to create customer value. So if you’re an entrepreneur, find yourself a frustrated inventor and likely both of you can find more success and happiness.

Marty Zwilling

Startup Goals Have Value Only if You Achieve Them

Before you as an entrepreneur can hope to successfully start a new business, you need to set some goals and milestones to lead the way. It’s easy to talk in the abstract about all the possible applications for a new technology, but you don’t have a viable business plan, until you have specific targets on what you will produce, when, and how.

Yet many people avoid these specifics out of fear of the unknown, or set some totally unreachable goals. I’m a believer in having a healthy disregard for the impossible, but it does help to have a structured path to get there. Only when you have conceptualized your idea into realistic goals can you move on to prepare an implementation plan.

Yet even the best entrepreneurs are not sure why they succeed or fail. As a result, they blame failures on the wrong things, and are surprised when they can’t reproduce successes. Heidi Grant Halvorson, Ph.D., in her new book “Succeed: How We Can Reach Our Goals,” outlines some great recommendations around goal setting in general, and I’ve adapted them to the startup environment as follows:

• Formalize your goals. Setting a goal requires the conceptualization of an idea into a structured thought, and formalizing that thought into one or more goals. For a startup, that formalization is a business plan. It’s hard to know when you have arrived, if you never figured out and declared where you are going.

• It’s about execution. Most of the time, startup founders know what needs to be done to reach a goal, but just don’t manage to actually do it. Focusing on execution is essential for success, whether it be for business or personal goals. Action trumps thinking, especially when the future in uncertain.

• Seize the moment. Given how busy most entrepreneurs are, and how many goals they are pursuing at once, it’s not surprising that most routinely miss opportunities to act on a goal, because they simply fail to notice the opportunity. Startups who move swiftly get traction with customers and investors.

• Know what to do. Once you’ve seized the moment, you’ve got to figure out exactly what you’re going to do with it. This is why experience in your business domain, and experience running a startup are so valuable to investors. Everyone can learn, but it takes time, and goals are jeopardized with time in this rapidly moving world.

• Put your shields up. Goals require protection – distractions, temptations, and competing goals can steal your attention and your energy, and sap your motivation. Entrepreneurs need to focus on creating value for their customers and investors, and be sure to spend time on critical business issues, rather than the current crisis.

• Know how you are doing. Achieving a goal also requires careful monitoring. If you don’t know how well you are doing, you can’t adjust your behavior or your strategies accordingly. Check your progress frequently against milestones and financial projections of the business plan.

When you create goals in business, no matter how unrealistic they might seem, you are deciding that they are possible and that you are going to find a path to meeting them. To make this happen, you need all the motivation you can muster, and all the guidance from experts, to achieve success in these goals, and achieve your long-term dreams.

It probably means stretching beyond your comfort zone, by developing creativity if you are mainly practical, and mastering the art of execution and organization if you are mainly creative. Also, you need to really believe that you can achieve your goal, even if it’s taking longer than you planned. Don’t concentrate so hard on reaching your goal that you lose sight of why you set it in the first place. Enjoy the ride.

Marty Zwilling

Ten Quotes That Indicate Your Arrogance is Showing

Lack of confidence in your self, your product, and your startup is a surefire recipe for disaster. At the other extreme, too much confidence or arrogance can kill you just as fast. It’s always painful when a startup fails, but as a mentor to founders, I would hope that you can learn from these failings and not stumble on the same issues. I’ve written about these before, but since I see them so often, I thought it might be worth reiterating:

1. “Business plans are for dummies.” Some startups think business plans are only for investors. In reality, you should do a business plan primarily for yourself, as it forces you to think through all the elements. If it’s not written down, you can’t measure it, and thus you can’t manage it. Also written plans are much more effective communication to your employees, lawyers, accountants, and other key players in your rollout.

2. “If we build it, they will come.” The hot term these days is “viral marketing”, meaning we won’t do any marketing, but our product is so great that everyone will know about us anyway by word of mouth and through Internet social networks. In most cases, viral marketing only begins to work after you prime the pump with several million in real marketing over a couple of years.

3. “We have no competitors.” VCs and angel investors hear this one all the time. The investor view is that if you can’t find any competitors, either you are not being honest, or you haven’t looked, or there isn’t any market for your product. Your funding request will likely go into the circular file.

4. “More features than anyone.” Just because you included all the features of Facebook, MySpace, Twitter, and LinkedIn in your new social networking product, doesn’t mean everyone will love it. In fact, quite the opposite usually happens, due to complexity and work to switch. Investors like laser focus on a market-need causing real pain.

5. “Microsoft is too big/slow to be a threat.” Usually the reason the big companies are no threat is that the market is too small. Competing with IBM, Microsoft, and other large companies is a very difficult task. Entrepreneurs who utter this line are kidding themselves. They may think it's bravado, but investors think it's stupidity.

6. “We have the first-mover advantage.” That’s probably the soft way of saying, we don’t have a patent or any “secret sauce” for a competitive advantage. Unfortunately, a startup with no brand name and no intellectual property is a sitting duck for the big slow company, as soon as they see you gaining a bit of traction. Sleeping giants do wake up.

7. “No need to risk my own funds.” This is usually seen as the difference between involved and committed. Investors expect the founder and other principals to have “skin in the game,” over and above “sweat equity.” If you and your friends are trying to play Donald Trump, don’t expect other mere mortals to carry the risk load for you.

8. “We’re funded, now we can relax.” Quite the opposite is really true. Now the real work starts to build a sustainable business. Now you have to manage to budgets and timelines, and avoid the temptation to splurge a bit on office space or too many new employees.

9. “It’s the market, stupid.” It’s great to have a passion about a favorite new toy you invented, but just because you love it doesn’t mean the whole world will love it. Another variation on this theme is the person who creates a “solution” from technology, and then makes up a “problem” that it will solve. There is no substitute for understanding the market, and sizing the opportunity, before you climb out on a limb.

10. “Me, myself, and I.” I recently watched a promising startup I know wither and die for lack of funds because the founder refused to consider stepping aside as CEO in favor of a more experienced candidate, as a condition of a $1M VC investment. I reminded him that he could easily “kick himself up to Chairman”, but he wanted it all, and let ego take precedence over good business sense.

You probably think these are so obvious that they are clichés. I wish that were true, but I still see them happening every day. The most successful startup founders are never too busy to listen to the market, listen to their advisors, stifle their ego, and enjoy the ride. It’s a lot more fun than the alternative.

Marty Zwilling

Learn What Customer Focus Really Means in Sales

All the experts these days are talking about the increasing need for customer focus and maximizing sales. Typically entrepreneurs and even professional sales people think this means more emphasis on the customer selling process, when in fact it means spending more time understanding the customer buying process (view from the customer).

According to Kevin Davis, as outlined in his latest book “Slow Down, Sell Faster!” and a related article, the single biggest mistake people make is that they try to close the sale too fast. They arrive at the end of their "pitch" just as the customer is beginning to recognize they have a need! They leave the scene just as the prospective customer begins shopping around for a solution by looking at the competition. Not good.

Assuming you are serious about becoming more focused on your customers, and realize that a fast sales pitch doesn’t mean more sales, here are some tips from Kevin that every entrepreneur needs to understand even before attempting their first sale:

1. Work to understand how your customers will buy. "What are the steps of your customer's buying process?" When the product is simple, and there is no competition, buyers can make a quick decision. But these days, that is rarely the case. Thus most customers need to do some research and learn more first. You need to think about a purchase from the customer's viewpoint, and be there for him.

2. Define the steps of your sales process in customer terms. Understanding buying is where selling should start. Get very clear and specific about the steps customers take as they move through their buying process. Replace your "sales process" labels with "customer actions," which then become the objectives for your team when they call or meet with customers.

3. Manage the pipeline based on where customers are in their buying process. What should matter to you is not where you are in their sales process, but where the customer is in their buying process. Ask, "What actions has the customer taken thus far?" And, "What action should they take next, and by when?" The answer to these questions provides you with a better understanding of the true status of the sales opportunity.

4. Map out who will be involved in the buying decision, and what step they are at in the buying process. If the buying decision is complex, you need to determine what factors are working for you in the sale, what factors are working against you, and what you can do to put yourself in a better position to win. Don’t get ahead of your customer.

5. Focus on the most influential decision makers. Often the real buy decision is not made by the person doing the interaction. Find the C-level executives behind the scenes, or the key influencers, or the personal relationship connections that can override simple price and benefit arguments.

6. Provide coaching early in the sales process; avoid last minute interventions. We’ve all heard the complaint about the executive "riding in on a white horse" to save the day and close a deal. The end result of this white-horse ride is often three-fold: white knuckles for the salesperson, a bigger discount for the customer, and lower profit for the company! What kind of win is that?

Speed is important in getting to multiple decision makers quickly, identifying what is important to each player, and knowing where each player is in the buying process. After than, it’s time to slow down and stay in sync with each customer’s buying process.

Customer focus has nothing to do with your selling process, whether the customers are individual consumers, or large company buyers negotiating a complex transaction. The key is to put yourself in their shoes, and lead them through their own process. Customers want to buy from leaders, not pushers. What a novel way to exceed your customer’s expectations!

Marty Zwilling

Startups Get No Help From an Investment Bank

The name “investment bank” somehow always sounded like a place where I could somehow deposit my investments, and maybe even earn a little interest. Then I learned that these banks really negotiate investments and collect fees on the transactions, sort of like commercial banks do with loans to businesses. None normally work for or provide funds for early-stage startups.

Many investment banks even call themselves “boutiques.” As near as I can tell these are smaller ones, who don’t sell clothes, but typically sell companies and securities in a particular set of industries. All investment banks have to be staffed by licensed specialists, called broker-dealers. Very confusing.

None of these investment banks offer traditional banking services, as you would expect from one of the following:

• Retail banks
• Commercial banks
• Credit unions
• Savings and loans

As startup founders, you first need to deal with one of these banks, probably a commercial bank. Commercial banking is also known as business banking. That would be almost any bank that provides checking accounts, savings accounts, and money market accounts to businesses, and also makes loans to businesses. It may be the same physical bank that you deal with for your personal account, except in the personal context it is called a retail bank.

Most retail and commercial banks offer investment services to their customers, but these services have nothing to do with investing in your business. Typically, their service is to help you invest in stocks, bonds, or mutual funds, much like independent financial advisors.

A few, like Silicon Valley Bank (SVB), actually do provide management services to startups, invest in startups, or provide early-stage venture capital, but that is not called an investment service and is part of a function called Emerging Technologies, or sometimes Private Equity.

So unless your business is well established, and ready to sell or go public (Initial Public Offering - IPO), you should steer clear of investment banks. Officially, the investment banks mission is to raise money for companies by issuing and selling securities in the capital markets, and providing advice on transactions such as mergers and acquisitions.

Investment banks normally charge fees consisting of three components. There is an upfront or monthly retainer, and maybe a closing fee, of at least several thousand dollars. In addition, they will likely take between 3% and 10% of any capital raised. For these fees, they will develop a business plan, solicit investors, and negotiate term sheets to a closing.

Another service of investment banks is the buying and selling of “derivatives,” which many believe to be some arcane financial products to dodge government regulators, encourage foreign currency speculation by pension and mutual funds, disguise risky gambles with AAA Standard & Poor’s ratings, and avoid capital gains taxes for wealthy individuals.

After the banking fiasco surfaced a couple of years ago, resulting in the failures of Bear Stearns and Lehman Brothers, investment banks seem to most of us more like a place to avoid, rather than a place to entrust with the keys to our investment livelihood. I’m not sure whether derivatives per se were the problem, or the fact that they were often backed by worthless subprime mortgages.

Startups looking for an Angel investor, or a Venture Capital investment usually realize that neither of these sources of funds normally has any connection with a bank. Yet every business needs to have a good relationship with a bank, for day to day operations. I guess it’s no wonder that banks are struggling these days with their public image. Their message and mission is confusing, even to professionals. As your business evolves, don’t let that happen to your own message.

Marty Zwilling

Ten Golden Insights From Successful Entrepreneurs

Entrepreneurs are a notoriously stubborn (some say confident) group of people, so I see many of them making the same mistakes that predecessors have made. Thus I’m convinced that it’s useful for all of you to step back from time to time, and listen to some sage advice from people who have been there and enjoyed success.

Recently, as I was perusing a new book by Robert Jordan, titled “How They Did It: Billion Dollar Insights” I saw some wisdom and inspiration that made sense. All the quotes come from entrepreneurs who have built and sold at least one $100 million company. Of course, you can always argue that each was just in the right place at the right time, or was lucky, or had a rich uncle to get them started, but it would be smarter to listen to the messages:

1. You need enough capital and a little more. “Everything isn’t going to go well in the first couple of years, and you need to get to cash flow positive. You don’t want to be going back for a second round when everything isn’t going well” (J William DeVille, Health Personnel Options).

2. You need to see the glass half full, rather than half empty. “You have to have the perspective and the personality that, when these bumps, mountains or doglegs happen, you don’t focus on everything that’s wrong. You continue to be optimistic and to move forward to solve the problems” (Bonnie Baskin, ViroMed Laboratories, AppTec).

3. Surround yourself with great folks, and it gets a lot easier. “You’re very hesitant to fire your first employees, but a lot of times the company outgrows their abilities or takes on a different direction. I tell everyone that the only constant around here is change” (David Becker, Virtual Financial Services).

4. You can be a leader without being the best at everything. “Like in basketball – you don’t need to be the best outside shooter or the big guy. You can play a role. Working with others, giving people credit. Give and take. Knowing how to make hard decisions” (Jeff Aronin, Ovation Pharmaceuticals).

5. Execution is everything. “Even if you start a business with the wrong idea or too many competitors, you can out-execute all the other ideas in the right market. What I mean by execution is the ability to do what you’re setting out to do and then being able to zig when the market zags” (Dick Costolo, FeedBurner).

6. You learn more from bad times than from good. “You learn more from complaints than from compliments. I always discount compliments I get from customers because I think a lot of times they’re just being nice. The complaints – those are real” (Jim Dolan, The Dolan Company).

7. At some point, you need to let go of control. “Many founders think they need to be in control even when the company has evolved beyond them. You need to know your limitations and, if necessary, find people who are more adept at running the company and taking it to the next level” (Tony Faras, MGI Pharma).

8. You are who you hire. “If the person who hired you is smart and nice, the people that person hires will be smart and nice. If the person who does the hiring is smart and a jerk, you’re going to end up with a log of smart jerks” (Ron Galowich, First Health).

9. A business needs momentum. “You try to think ahead and be sure that whatever surprises come up, you are prepared to move ahead aggressively and positively. The last thing an entrepreneur wants when starting a business is to lose momentum” (Bill Bantz, Pathogenesis).

10. Ship early and iterate. “Get some kind of product out early so that you start getting feedback from customers. Don’t put all your eggs in one basket because you’re doomed if that launch fails. With feedback you can hone your products” (Roland Green, NimbleGen)

Robert interviewed a total of 45 successful entrepreneurs responsible for $41 billion in value, so this is just a sample of the insights he found. I certainly don’t advocate that you take all the advice you hear from these leaders, but it always pays to listen for a nugget that fits your case. Underneath every nugget, there’s likely more buried treasure hiding. Go for the gold in your company!

Marty Zwilling

Five Common Mistakes in Jumping the Corporate Ship

Many people, especially those who have spent years struggling up the corporate ladder, dream of jumping ship and becoming an entrepreneur. But every job move is fraught with risk, and the move from employee to entrepreneur is on the high end of the risk curve. This is a big jump, especially in a down economy, so do your homework first on this one.

According to an article in the Harvard Business Review a while back, “Five Ways to Bungle a Job Change” there are at least five common missteps that professionals make when moving to a new job, and I will offer the comparable relevance for those of you contemplating leaving a company to initiate or join an entrepreneurial startup:

1. Not doing enough research. In moving to a new company, the questions to ask are expectations, financial stability, cultural fit, and role responsibilities. All of these apply directly to starting your own company. Test your “dream” startup plans on some experienced entrepreneurs to get a reality check before you leave your current job.

2. Leaving for money. Remember, the grass always look greener on the other side of the fence. More money in the short term is unlikely as an entrepreneur. In fact, most startup founders pay themselves no salary for the first year or two, and investor money is hard to find. I tell new entrepreneurs not to quit their “day job” until they have real revenue.

3. Going “from” rather than “to”. If you are desperate to get out, you may just be lurching into entrepreneurship, only to find it more stressful and unsatisfying. People who feel competent but unsatisfied or bored in their current job make better entrepreneurs than people who feel overworked, under-appreciated, and over-stressed.

4. Overestimating yourself. Search consultants say that many job seekers have an unrealistic view of their skills, their prospects, and their culpability. If you have had problems with several companies, you may be part of the problem. That part will be amplified in any startup, since you are now the company, so the blame stops with you.

5. Thinking short term. Moving from an employee to an entrepreneur is a lifestyle change, as well as a career change. Don’t make the misstep of assuming it is a short-term move to riches, or an escape from a problem. Starting a business is hard work, requires a lot of learning, and only pays off in the long term.

These missteps are obviously inter-dependent. When people overvalue themselves, they are prone to stress from job performance feedback and dissatisfaction with compensation. This leads them to jump, without real consideration of the fit and opportunity, into the entrepreneurial world, where they could be even more unhappy.

Every employee needs to evaluate these challenges, since the average baby boomer will switch jobs 10 times, according to the U.S. Bureau of Labor Statistics. The days are gone, when we commit early in life to a lifetime career with one company, or a lifetime of entrepreneurship. The business landscape is changing rapidly these days, so we need to be willing to change as well.

A good question to ask before finalizing a change is “What if I’m wrong?” Be ready to cut your losses and move on. Jumping repeatedly to another bad situation is not the answer. In every case, take a hard look at your real strengths and weaknesses. Be willing to listen to an advisor or mentor on how others perceive you, and be willing to correct for those weaknesses.

The most important element is to understand for yourself what elements of a job role are the most satisfying to you, and what constitutes a healthy work-life balance for you. You spend most of your adult life at work. Life is too short to let career missteps make it unhappy.

Marty Zwilling

Great Entrepreneurs Master Reflective Thinking

Startups and entrepreneurs are drowning in the information overload, where the volume of data created is like a new Library of Congress every 15 minutes. That creates a huge gap between data and meaning, and makes quick decisions and action ever more difficult. We all need to take a little more time to think.

On the other end of the spectrum, some people “over-think” things to the point of inaction. Acting without thinking, and thinking without action, are both deadly to a startup. The challenge is to find the right balance, and to make the thinking deep and reflective thinking.

In his new book, “Consider,” Daniel Patrick Forrester talks about how some successful entrepreneurs, like Bill Gates, former CEO of Microsoft, force some think time in their schedule by abandoning the office for a cabin in the woods every few months for some reflective thinking. Others simply reserve an hour every morning for private thinking, despite a densely packed schedule.

What are the issues and questions that these successful leaders reflect on within their own organizations, and related to their own behavior? Here is a summary as put forth by the research from Mr. Forrester:

• Control we assert. While none of us can stop the flow of data and the creation of content that swirls around us, we can control how we structure the moments that arise and our responses. As leaders, the control we assert in problem solving sets a tone that will be followed by the whole organization.

• Level of attention given. Now we work in a state of giving our “continuous partial attention” to issues before us. While not all matters require deep thought, we find the ones that do are afforded equal footing with ones that don’t. We must come to a conclusion about the consequences of giving only partial attention to top initiatives.

• Type of communication used. If email or text messaging is the default way you interact, then you have already declared where it sits in your hierarchy. While technology allows for speed and immediacy, it doesn’t usually convey the texture and empathy of face-to-face interaction that is key to many important issues.

• Value of disconnected short dialogues. In many ways, problem solving has devolved into a series of dialogues that take place across digital transmissions with occasional face-to-face interactions. Failure to think deeply about forward-looking events and big ideas will come at a cost.

• Time booked for your thoughts. With the tethering to technology that happens to us throughout the course of a day, it is clear that we treat time with our thoughts as a low-level priority. Even if you can’t book a week away to thin, it isn’t hard to book a meeting with yourself, when you are off-limits to everything but your thoughts.

• Reflecting before delivering messages. When people demand immediacy from you, do you consider how the people on the other end will receive it, before you dash off a message? Sometimes multiple crafting and editing iterations are required as you think about the ramifications. Is an electronic message even the right answer?

Think-time and reflection don’t just happen when we are alone. Startups will inevitably engage in discourse and dialogue through meetings. You need to insure effective discourse in meetings (“thinking out loud”) by making sure there are no negative consequences to dissent and debate. Otherwise meetings will be perceived as a waste of time by the people who count.

While technology and the Internet allow you to act and react more quickly than ever before, you need more than ever to consider decisions reflectively before making them. In addition to solving problems the right way, make sure you are solving the right problems.

Marty Zwilling

Eight Types of Intelligence Make the Entrepreneur

I’ve long believed that entrepreneurs are different. We all know successful entrepreneurs who dropped out of school, and people with high IQs that cannot manage a business. I used to call this “street smarts,” but recently I found a better explanation, called multiple intelligences. Successful entrepreneurs always seem to have several good intelligences.

The theory of multiple intelligences was developed way back in 1983 by Dr. Howard Gardner, at Harvard University. He suggests that the traditional notion of intelligence, called the Intelligent Quotient (IQ), is far too limited. Instead, he now has broad acceptance for at least eight different intelligences that cover a broad range of human potential. These include:

1. Linguistic intelligence (“word smart”). Linguistic intelligence is the ability to think in words and to use language to express complex meanings. Linguistic intelligence is the most widely shared human competence, most evident in poets and novelists. It is also evident in entrepreneurs writing good business plans and convincing investors.

2. Interpersonal intelligence (“people smart”). Interpersonal intelligence is the ability to understand and interact effectively with others. It involves effective verbal and nonverbal communication, sensitivity to moods and temperaments, and the ability to understand multiple perspectives. Entrepreneurs particularly need interpersonal intelligence.

3. Intra-personal intelligence (“self smart”). Intra-personal intelligence is the capacity to understand oneself, and to use such knowledge in planning and strategy. Intra-personal intelligence involves not only an appreciation of the self, but also of the human condition. It is evident in psychologists, spiritual leaders, and business leaders.

4. Bodily-kinesthetic intelligence (“body smart”). Bodily kinesthetic intelligence is the capacity to manipulate objects and use a variety of physical skills. This intelligence also involves a sense of timing and the perfection of skills through mind–body union. Inventors and people providing mechanical products need this intelligence.

5. Logical-mathematical intelligence (“number/reasoning smart”). Logical-mathematical intelligence is the ability to calculate, quantify, and think logically. This intelligence is usually well developed in mathematicians, technologists, and computer programmers, and is usually associated with traditional IQ.

6. Naturalist intelligence (“nature smart”). Designates the human ability to discriminate among living things as well as sensitivity to other features of the natural world. I believe that good entrepreneurs use this to discriminate among consumer needs, and pick the most marketable products to offer.

7. Musical intelligence (“musical smart”). Musical intelligence is the capacity to discern pitch, rhythm, timbre, and tone. This intelligence enables us to recognize, create, reproduce, and reflect on music interests and needs, as demonstrated by composers, conductors, musicians, vocalist, and sensitive listeners.

8. Spatial intelligence (“picture smart”). Spatial intelligence is the ability to think in three dimensions. Core capacities include mental imagery, spatial reasoning, graphic and artistic skills, and an active imagination. Sailors, pilots, sculptors, painters, and architects all exhibit spatial intelligence. It’s easy to see how this is important to entrepreneurs.

Robert L Schwarz once said “The entrepreneur is essentially a visualizer and an actualizer. He can visualize something, and when he visualizes it he sees exactly how to make it happen.” That’s a combination of intelligences many people don’t have. If you have it, flaunt it, and enjoy your successes.

Marty Zwilling

Seven Characteristics of a Committed Entrepreneur

We’ve all heard the old joke “In a bacon-and-egg breakfast, the chicken is involved, but the pig is committed.” This quote epitomizes the true essence of commitment. We all know at least one self-professed entrepreneur who claims to committed, but seems to treat it like a part-time hobby, won’t put any personal skin in the game, and is quick to give up when things are tough.

There are no middle roads to real commitment, and if you are not ready to fully commit to all the rigors of a startup, you are better off sticking with your current role. For your calibration, here are some characteristics you will recognize in a truly committed entrepreneur:

1. Actively seeks leadership and responsibility. Many people need the comfort of following, rather than leading. When things go wrong, it’s then easier to point to someone else as the scapegoat. As an entrepreneur, the promises anyone makes on your behalf are yours. You need to be ready to accept “the buck stops here” and make it work.

2. Exhibits surging raw ambition. Successful entrepreneurs are generally ambitious and confident in their abilities. They may have many ideas, some of them are more workable than others. Failure is viewed as a learning opportunity, so it’s no disaster that some ideas don't actually get done the first time.

3. Minimum positive feedback required. As I’ve said in previous articles, it’s lonely at the top. If your psyche is one that needs regular positive feedback, and a commensurate paycheck, to stay motivated, you need to find a real job rather than an entrepreneurial one.

4. Social life is not the highest priority. If you find yourself unable to clear your head of work-related thoughts at the end of the day, that’s committed. Social relationships are important, and you do need to blank out work from time to time, but if social priorities are at the top of your list, you probably won’t enjoy the role of entrepreneur.

5. Comfortable with unpredictable working hours. Some people need a predictable schedule, for family reasons, or just peace of mind. Entrepreneurs need to be flexible, and assume there will be long working hours. If you are annoyed rather than exhilarated at the long or unpredictable schedule at your startup, you are involved but not committed.

6. Vacation is an interruption. Most entrepreneurs I know can’t remember the last time they had a “real” vacation (without bringing their work along). This may not be healthy, but it illustrates the level of commitment that you are competing with in the marketplace. If you insist on vacations “without checking in,” go and work for a big company that gives you a holiday allowance.

7. Hasn’t even thought about retirement. Many people involved with startups are working hard, but are looking forward to retirement. The committed entrepreneurs wouldn’t think of retiring, even if they made millions from the current project. They enjoy work too much to stop, and can’t wait to start their next venture.

Making a commitment is a serious matter and one which should not be taken lightly, especially in a startup venture where the team needs to pull its weight together to achieve goals. Individuals who need structure and workload predictability won’t be able to maintain the high levels of enthusiasm and motivation of a startup team.

This isn’t a statement of right or wrong, just different strokes for different folks. The next time you have the urge to chuck your day job and live the dream of being your own boss, remember to test yourself for how committed you really are, before you jump off the cliff!

Marty Zwilling

2011 May be the Year of the IPO for Social Media

It has been at least a decade since going public via an Initial Public Offering (IPO) has been considered a credible exit strategy for startups. But the word is out on Reuters that LinkedIn, Twitter, and maybe even Facebook are looking hard at going public this year, so all of a sudden the IPO option is back in business plans again as an exit strategy for startups.

But before you jump on the bandwagon, you should consider the advice I saw recently from the maven of venture capital, William H. Draper III, in his new book titled “The Startup Game.” He says that you should never consider a public offering unless you are confident that the company will deliver increasing profits and revenue after the offering, so that the public buyer can anticipate a gain.

According to Draper, in addition to the above Rule Number One, there are many other questions that need to be answered before a CEO should recommend to the board that it is time for an IPO:

• Do you really need the money? If the company is growing like crazy and has only a modest income stream, the answer is probably yes. If the company is just bumping along in a quiet niche, with no bright prospects in sight, the answer is probably no. Being thinly capitalized doesn’t necessarily mean you need a big cash infusion.

• Is the money going to be enough? Usually a small company can sell about 20 percent of its stock in an IPO. Run some scenarios, including some very conservative ones, and see what going public is likely to yield. If it’s not enough, don’t do it.

• How’s the timing? The timing of an IPO is driven heavily by the state of the economy in general and the stock market in particular, in concert with your profitability. The market is moving back up, but slowly. In 1999, there were 486 IPOs nationwide; just 10 years later, in 2009, there were only 63. Is your spotlight bright enough to start a new wave?

• Do you need the IPO for your acquisitions strategy? Sometimes the best way to grow is to acquire other companies or other products, and sometimes you need a public stock in order to go that route. Of course, you’re going to have to perform well to make that stock useful in the acquisitions process.

• Do you need this for recruitment and retention? Liquidity can help attract new employees and keep current ones happy. If you have been giving stock options, employees will want you to be a public company, to exercise their rights to buy the stock and sell it at a profit.

• Do you need this for your image? Rightly or wrongly, public ownership often lends prestige and credibility to the company in its sales efforts, general public relations, and the execution of its future strategies.

• Do you have the horses? Are you ready to answer to the new public stockholders and accept responsibility for both the good and the bad as it unfolds in an uncertain future? Do you have the CFO, and the best legal and accounting help to comply with the audit requirements of the Sarbanes-Oxley Act? These can add millions to the cost of doing business.

Then there is the formidable process of taking the company public. It will take at least three months, and require endless amounts of time, money, and energy. You need to work through a team of underwriters, who administer the public issuance and distribution of securities from a corporation. False starts in this direction can be disastrous.

At any rate, it seems only appropriate that social media sites, which have dominated the Internet over the past few years, will likely lead startups back into the IPO game. Like other startups, they no doubt have private investors eager to cash out, and it certainly appears that the big three social networking firms could be well-regarded for going public. Which stock would you bet on as the leader?

Marty Zwilling

Name the Big Three Social Networks for Business

With the advent of social networking sites like LinkedIn, Twitter, and Facebook, Internet usage has totally morphed, from a serious business medium, to a social and fun medium that still means business. Regular people now build business applications with “mashup” technology, rather than hiring programmers.

I’m a technology follower from the early days of the Internet, so a couple of years ago I decided to dive into this new world and check it out (who even heard of blogging or mashups ten years ago). I realized quickly that this new world isn’t just for the social life of Gen-Y – it is a sea change for everyone in business, especially startups.

After any earthquake event, the first thing I try to do is to step back, get the lay of the land, and derive some guidelines for getting around efficiently, while avoiding personal injury (I spent some years in California). Here are the current big three in social networking for business:

1. Facebook is biggest, moving from social to business. Currently, the biggest site in numbers is Facebook with over 500 million active users. 50% of active users log on to Facebook in any given day. Their primary visitors in the past have been Gen-Y socializers, but the fastest growing segment now is business people, and discussion groups for business, like “Facebook for Business” with 56,250 members.

2. LinkedIn caters to senior business professionals. The largest site traditionally targeted at business people is LinkedIn, with current numbers exceeding 80 million members. This one is a “must” for every serious business professional and executive out there today. You can join groups with your specific interests, participate in discussions or not, and highlight your business.

3. Twitter for business and networking is ‘hot’. This site is for text-messaging on the Internet, with about 100 million unique visitors per month, and was first popular for social updates and gossip. Now it’s the source of business leads and networking for thousands of people, and the source of the breaking world news for everyone. You need to be there.

Obviously, there are many others that you should evaluation, based on your geographic location, type of business, and personal interests. Here is my perspective on a few of them:

• MySpace is for tweens, forget it. The third biggest site (just passed by Twitter) is MySpace, with about 95 million unique visitors per month. They have groups for business and entrepreneurs, but the culture is primarily teen and pre-teen. You will find business advertising there, but minimal business networking.

• It’s not all about numbers. There are many more social networks which have good traction and a more specialized focus in the business networking world. Examples include Ryze, Plaxo, Orkut, RedWire, and Ecademy. In general, their membership is focused by geography, industry, or culture, so the value can be excellent.

• Business networking today starts with social networks. Social networking sites are more effective and efficient than attending all those boring business cocktail mixers and conventions. I’ll even be so bold as to say that if you aren’t on any of these sites, you are way behind the curve in business networking today.

• Protocols for each site are different. There is a hierarchy and a culture to social networking sites on the Internet, just like there always has been with professional business organizations and clubs. There are so many sites, so you need to choose wisely, and learn the rules for each. Most are free, so you can do serious business networking around the world without signing up for any of the fee services.

Maybe because the cost of entry is low, I see a swarm of startups today busy with add-ons, and building new offerings. It’s a brave new world, for me an exciting challenge and fun to explore. But like every good explorer, I’m asking everyone I meet what’s around the next corner. Are you there today, and what do you predict for tomorrow?

Marty Zwilling

Six Idea Validation Tests to Pass Before Startup

I have a certain friend who called me again a while back, all excited about his latest revelation. “What if you could go to a web site and find all the recipes you could make today, with just the ingredients you already have in your kitchen? I’m going to start a website to offer this service!”

I’m sure you all realize that there could be quite a distance between a great idea and a great startup. But many people don’t have a clue on how to bridge the gap. So, trying carefully not to rain on his parade, I suggested to my friend that he complete the following analysis as due diligence on the idea before spending his life savings (and others) to roll out a solution:

1. Competitors are few. Use Google or one of the many other search engines to search for existing solutions to this problem. A search argument like “recipes from the ingredients you have on hand” might be the place to start. If you find ten competitors who already have this offering, it’s probably not worth going any further.

2. No known patents filed. Maybe the solution hasn’t yet been commercialized, but a patent has been submitted by someone else, putting your idea in jeopardy. Another series of searches on Google Patents and the US Patent Office site and Free Patents Online is in order at this point. Of course, you could pay a Patent Attorney a few thousand dollars to do the same search.

3. Large and growing market. Investors will expect market analysis data from a “credible unbiased third party” – that means a nationally known market research firm like Gartner, Forrester, IDC, or many others. Hopefully, you will find, with your favorite search engine, something like the “Cooking And Eating Habits Market Assessment 2009.”

4. Real customer pain and money. Your own conviction that if you love the product, everyone will love the product, doesn’t count. Customers may “like” a product, but will generally only pay for things they “need,” physically or emotionally. Talk to experts in this domain (chefs, home cooking fanatics), and listen for hidden requirements and challenges.

5. Whole solution viability. Many products fail because of “dependencies” and hidden costs. Auto engines that burn hydrogen are “easy,” but getting service stations around the world and new safety legislation takes decades. Make sure you understand all costs, sales channels, marketing requirements, and cultural issues.

6. Motivated and qualified team is ready. The most critical step is to decide if you really have the passion, experience, and team for creating this solution and business. Startups are tough on even the most dedicated and passionate founders – others will likely fail, and definitely be unhappy. No idea is worth that.

I’m sure that many of you could add additional “idea due diligence” items, from bitter experience, that I’ve neglected to mention. By the way, if team experience and resources are the only limitation, it is better to give your idea away to a qualified group, rather than selfishly sit on it, or run it and yourself into the ground trying to make it work. Nobody wins with that approach.

In case you are wondering what happened to this recipe idea, try the search I suggested and you will find a dozen sites that already claim this capability. Needless to say, after I did the work, my friend decided to quit talking about this one.

But he will be back, he always is, and one of these days he may find an idea that someone can make a reality. It won’t happen for him, because just talking about an idea doesn’t start any business. Am I the only one with a friend like that?

Marty Zwilling

Startups Seeking Shortcuts Will Just Take Longer

Some entrepreneurs start polling venture capitalists for that multi-million dollar investment before they even have a business plan. That’s like trying to sell part of something to a stranger for big money when you haven’t fully defined it yet. It won’t work, it costs time and money, and hurts your credibility for when you need them later.

Every entrepreneur needs help and support along the way, from developing the initial idea, to selling off the successful business (exit strategy). The challenge is finding and using qualified affordable support organizations for each stage. Don’t waste your resources on the wrong ones.

It’s helpful to think of startups as proceeding through several stages, which I have defined before from a funding perspective. Let’s take a look here some similar stages from a support perspective:

1. Idea stage. The first step toward a business with any idea is to write it down, and build a business plan around it. If you need help at this stage, look for a local university teaching night courses on entrepreneurship, or how to build a business plan. The alternative is to work with an innovation institute to evaluate your technology, or hire a consultant. If you need money now, is has to come from friends and family.

2. Early or embryonic stage. The most common support organization at this level is called a startup incubator or accelerator, and these exist in most countries, usually sponsored by a university, local government organization, or even local individuals. Usually these will not give you money, but will provide very inexpensive space to work and office services.

   Their real value is your access to senior advisors with experience, and other startups in the same stage. Sometimes these will ask for 5%-15% of your equity for their support services. They are not trying to make money, but simply to recoup their costs over time.

   Separately at this stage, you may look for small funding amounts from angel investors, called seed investments. Funding of $25,000-$250,000 may be available from angels, who are private individuals spending their own money. The incubator organization can help you find them, or show you how to apply for a government grant.

3. Funding or rollout stage. This is the time for you to step out on your own, find office space, and open your business. Once you have some traction, you can approach venture capital organizations, with funding amounts of $1-10 million for the real rollout, often referred to as the “A-round,” or first institutional funding.

   Support organizations at this stage are usually professional financial advisors, or investment banks, which have nurtured relationships with institutional investors. These usually charge you a fixed fee up front, and then perhaps a small percentage of the raise.

4. Growth and exit stage. Companies at this stage must have a large market, good traction, and be focused on scaling infrastructure and market adoption. This normally means more then 30 employees, and more then $1 million in revenue. Support organizations are investment banks, similar to the preceding stage.

As startups pass through each stage, they need to use support resources wisely to minimize costs, wasted time, and maintain credibility to support movement to the next stage. Typically, they must also change and tune their executive team, to keep up with the increasing demands of a growing company on process discipline and sustainable success.

Obviously, if you bootstrap your business, you can avoid all the investment implications, but you still need a business plan and professional support. Otherwise, not paying attention to the expectations associated with each stage will likely jeopardize your business success. Do it right and enjoy real progress in each step of the journey.

Marty Zwilling

Lack of Integrity is an Easy Quality to Detect

As an entrepreneur, your personal integrity is critical for getting and keeping the support of investors and team members, and your company’s integrity is critical for getting and keeping customers and vendors. But in a practical sense, what does that really mean?

Most definitions of integrity include something like “the quality of being honest and morally upright.” Yet, I’ve found through experience that both honesty and morality are relative terms, depending on the reference point of both the speaker and the receiver. In business, the only view that counts is that of the receiver.

For example, it may not be easy to see when you are being blinded by money when closing a deal, but it’s easy for everyone else to see it. Here are some specifics that that help team members, investors, vendors, and customers to see a high level of entrepreneurial integrity in you at all times:

1. Meet your commitments. As an entrepreneur, when you are late with a committed business plan or meeting with an investor, you lose integrity. As a company, if your customer feels you did not meet your product quality commitment, your company loses integrity. Your view or reason doesn’t matter.

2. Honest to a fault. This term is usually used to mean honest as seen by other people. Some think honesty is only related to what is said, but not telling the whole truth is dishonest, even in court. If you can’t deliver a service because of your company’s mistake, integrity suggests that you include the real reason in your apology.

3. Strong and consistent moral code. The target here is to meet the receiver’s moral code expectation. If your product or process is marginal or worse, you will lose that customer. If you are trying to find an investor for your new gambling site, you probably will be disappointed.

4. Treat everyone with respect. No one likes to be dis-respected (from their perspective). Respect is difficult to define in the abstract, but quick to be recognized by the receiver. Be courteous and considerate to all on cultural differences, positions, races, ages, or any other types of distinctions.

5. Build and maintain trust. Trust is a reliance relationship built on character, strength, and ability. It usually takes several good acts to build, and one bad act to lose. To build company trust, you need to personalize your company. People do business with people. Even internationally known brands are judged daily by the quality of their people.

Integrity must start at the helm, and then it can percolate down through the deepest layers and become the heart and soul of the company’s culture. If the entrepreneur who runs the company does not have integrity, a startup usually falters.

Only people who don’t have integrity think it’s hard to detect. Lack of integrity is one of the easiest qualities to detect in people and companies you meet. It only takes a few actions or choices to set, but it will take many actions to reset if you go wrong. In business, it’s one of the most sought after qualities by customers and vendors.

In order to succeed as an entrepreneur, you need to have a good idea and the leadership to make it happen, and you need to demonstrate integrity at all times. In the words of President Eisenhower, "The supreme quality for leadership is unquestionable integrity. Without it, no real success is possible, no matter whether it is on a section gang, a football field, in an army, or in an office". Or as Alan K. Simpson said, “If you have integrity, nothing else matters. If you don't have integrity, nothing else matters.”

Marty Zwilling

Technology and Inventions Don’t Make a Business

I’m often approached by people who claim to have invented the next big thing, and ask me how much it’s worth, or complain that they can’t find an investor who will fund it. The honest answer is that ideas and new technologies are worth nothing, outside the context of a specific business plan that meets a market need for a fair price.

Invention is the process of creating a new technology. Business innovation is taking that technology and successfully bringing it to market in a way people want. There is a variation on an old quote that sums it up for me: "Invention is turning money into technology. Business innovation is turning technology into money."

A Techdirt article argues that if you look at the true history of major breakthroughs, you might conclude that the invention was the easy part – the hard part was the business side. In fact, if you look at all the "great inventors" championed by history, you'll realize that many weren't great inventors at all, but rather entrepreneurs, who later took credit as the inventors they never were.

Innovative technologies are essential to business progress. Yet, even in the best of times it is difficult for business innovators to get the kind of financial and people support they need to realize their technologies. Here are some tests every technology must pass before proceeding:

• Can you build a winning team? What investors want is a proven entrepreneur, someone who can invent a product, find capital, and find a way of getting the product to market. It's better to have an average new product and a great team than the other way around. People are the most important element for success of a business.

• Can it even be commercialized? First you need to be able to manufacture and distribute the product in volume. Then you have to worry about politics, government regulations, and infrastructure. Hydrogen is a great fuel for cars, but who builds the network of service stations, upgrades vehicle engines, and implements safety regulations?

• Can you sell it for five times the cost? This multiple may seem high, but it’s the rule-of-thumb most large corporations use in early analysis for new products. R&D is expensive, “overhead” is high, and they have to cover the cost of the nine out of ten products that fail. Even a single-product startup better assume twice the cost if they want any profit.

• Is it competitive to the current alternatives? New technologies are surfacing every day for alternative energy sources that will solve the global warming problem, but all are stymied by the low cost of energy from fossil fuels. Maybe your invention is “ahead of it’s time.” The pain level is not yet high enough for people to buy “green” at twice the cost.

• What is your barrier to entry? File a provisional patent as a place holder, a full patent, trademark, copyright, or all of the above. Patents may slow down competition, but they are not a real barrier to entry. Speed to market is the best protection, and continual innovation. Don’t count on development being a “one-time” expense.

• Is someone ahead of you? Don't be afraid to ask people in the field if they've ever heard of anything along the lines of your idea. Do a patent search, but that doesn’t cover patents in progress, or ones now being written (six month blind spot). Check published papers, scientific journals, and trade publications.

• Are you sure you want to be first? Being the first with an revolutionary versus evolutionary idea, or a “disruptive technology,” is the riskiest domain, and investors try to avoid these. Everybody wants to be second. Being really first probably means you will have to go with your own money, or friends and family.

The ultimate test is to remember that people buy and invest in solutions to problems; they don’t buy technology. Check your elevator pitch, investor presentation, business plan, and your leading comments to friends. If you lead with technology or the fact that you invented something, you probably don’t have a business.

Marty Zwilling