It’s a Great Idea, But How Does it Make Money?

For survival, the objective of every business should be to bring in revenues which exceed their costs. Even non-profits have to do this to cover overhead costs, unless they rely totally on donations. Yet I continue to see business plans, or even talk to founders, and can’t find the specifics of the business model anywhere.

As Guy Kawasaki says in his book “The Art of the Start,” if you can’t describe your business model in ten words or less, you don’t have a business model. Avoid whatever business jargon is currently hip, like strategic, mission-critical, world-class, synergistic, first-mover, or scalable. Try something like, “the product costs $X, and we sell it for $Y.”

Guy also says and I agree that the smart approach is to copy somebody else. You can innovate in technology, markets, and customers, but inventing a new business model is a bad bet. Try to relate your business model to one that’s already successful and understood. Here is a summary of a half-dozen of the most common models:

• Facebook model. This is the most often attempted and failed business model today on the Internet – all the services are free, and you make money off the online advertising. This model only works once you have exceeded about one million page-views per month, and spent maybe $50 million to get there.

• eCommerce model. This was one of the first Internet business models, per Amazon.com, and still a popular one today. It’s the electronic version of a catalog and shopping cart, and today rarely involves any stock of product. Products are usually drop-shipped directly by the manufacturer.

• Shopkeeper model. This is the most traditional and successful approach in use for centuries. It implies setting up a store in a location where potential customers are likely to be, with products and services on display, being sold at some multiple of cost to cover the overhead and realize a profit.

• Bricks-and-clicks model. This is a hybrid of the shopkeeper and eCommerce models, in which a company integrates both offline (bricks) and online (clicks) presences. It is also known as click-and-mortar, as well as bricks, clicks and flips, with flips referring to catalogs. It’s great for big companies like Wal-Mart, but I don’t recommend it for startups.

• Razor-and-blades model. This one has been around for many years now, and is sometimes called the “bait and hook model” or the "tied products model". The premise is offering a basic product at a very low cost, often at a loss (the "bait"), then charging compensatory recurring amounts for refills or associated products or services (the "hook"). I’m sure you can think of many examples.

• Subscription or licensing model. Here a customer must pay a contracted price to have access to the product or service on a periodic basis (monthly, yearly, or seasonal). The model works online, offline, through magazines, newspapers, and television. The advantage is recurring revenue without finding new customers.

There are many more, with descriptive names like the auction model, direct sales model, value-added reseller model, multi-level marketing model, and the freemium model. Take a look at Wikipedia if you want more details.

The point I am making is – pick one and provide specifics in your business plan. Define clearly who is your customer, what will the customer pay for, how much will he pay, and how much do you expect it to cost for that revenue.

Then as investors, we can argue other equally important parts of the model, like how big is the opportunity, how fast it’s growing, and who are the competitors. Don’t let your business plan be tossed before you are in the game. What are the ten words that define your business model?

Marty Zwilling

Six Key Principles to Set Your Startup Culture

I’m seeing a renewed appreciation of culture and values in business these days. Maybe it’s just another example of nature abhorring a vacuum, but I prefer to think it’s a natural evolution of the pervasive social networking communities, where people relate to and expect to interact with businesses and products they like. They drive the market, rather than the other way around.

Your values as you create a startup are the key to creating an enviable culture that attracts more customers, according to Ann Rhoades, in her book “Built on Values.” She would assert, and I agree, that you need to get it right the first time, because first impressions are critical, and changing your values and culture in the eyes of customers and employees is extremely difficult.

I believe in a startup culture that strongly transmits the values of integrity, customer focus, and results. Ann outlines six fundamental principles that are key to building this culture, or changing an existing culture to improve financial return, customer satisfaction, and employee performance:

1. You can’t force culture, you can only create environment. Every culture is the culmination of the leadership, values, language, people processes, rules, and other conditions, good or bad, present within the organization. No leader can “create culture,” just the environment where the desired culture can emerge and flourish.

2. You are on the outside what you are on the inside. The service you provide for your customers will never be greater than the service you provide to your employees. You can’t force people to treat customers well if they feel ill-used themselves. Hire people who fit your desired culture, and treat them the same way.

3. Success is doing the right things the right way. By defining your values and behavior by the right actions, you simplify and enable everyone to make the right decisions on the front line. Empowering and educating everyone to make the right decisions at every opportunity leads to happy customers and business success.

4. People do exactly what they are incented to do. Your expressed values will be perceived as hollow and meaningless unless you base compensation and rewards on the behaviors that go along with the values. It takes diligence and courage to hire only people with these values, and fire ones who have lost them.

5. Input = output. Your organization will get out of values only what they are willing to put into them. Communicate your values often, and use values-based performance metrics to gauge your results, measure the level of implementation, leadership development, and succession planning.

6. The environment you want can be built on shared, strategic values and financial responsibility. Conscious action, beginning with determining a set of shared values, can set up the necessary condition for encouraging a culture that will make a startup into a leader. Values are most critical when making tough decisions, but that is also when they come in handiest to illuminate the way forward.

Startups are the only businesses able to set their culture and values from a clean slate. Values start and emanate from you, the founding entrepreneur. Your values are not what you proclaim on your mission statement (if you have one), they are made real and set the culture by what you live by and project on the front line in day-to-day actions.

Strategy matters, but without a winning culture and the right values to drive it forward, your strategy will take you nowhere. Good leaders matter, but you need a positive values culture in order to attract the best leaders to compete effectively.

Leaders drive values, values drive behavior, behavior drives culture, and culture drives performance. High performance makes new leaders. This is the self-reinforcing circle of excellence every startup needs to succeed. You can’t afford to wait on any of these, so get your culture right sooner rather than later.

Marty Zwilling

Imitation With Innovation Reduces Risk in Startups

If you are an entrepreneur starting a business for the first time, I recommend that you find a product concept that is already accepted and improve on it, rather than tackling that ultimate disruptive technology. Notice that I’m not suggesting that you steal someone else’s idea, but simply limit your risk by adding innovation to a proven entity.

Evidence of success using this approach is all around us. Look how the Japanese entered the auto industry, or how McDonalds imitated White Castle, or how Wal-Mart “perfected” the low-price high-volume approach. Once you have experience in running a successful startup this way, you may decide that the disruptive technology of your dreams was a bad idea in the first place.

It seems to me that in the startup world, imitation gets a bad rap. People tend to look down on “me too” entrants as inferior, or forced to copy because they have nothing original to offer. I can see many advantages to the imitation with innovation approach, beyond just limiting the risk to changing just one variable rather than many:

• Avoid initial major R&D cost. Statistically, the costs to the first inventor of a new technology are at least a third higher than to follow-on innovators in the same technology. Of course, the first one gets the patent. But patent disclosure requirements often make imitation easier, and smart technologists can work around most patents anyway.

• Learn from competitors and early adopters. Market research is more meaningful if there is already a market and real customers. Don’t just copy successful formats and strategies, but learn from what has worked and not worked for your competitors. Hopefully, you can skip some of the costly pivots made by them.

• Easier to find investors. Even banks, as well as equity investors, look more favorably on a proven business model than a new and unproven one. This is probably why banks will often support a franchise purchase for up to 70%, while they rarely if ever support any investment in startups.

• Imitation drives progress. If a product or process has already proven its value, more people working on it, determined to be more competitive, will find more and quicker ways to improve the base than if one company maintains a monopoly. Good imitators often disrupt the original innovator.

• Try a new country or market. Good imitators actively look for a new country or market as the innovation, rather than a new technology. Even though the world is getting smaller and smaller, very few startups can yet afford to patent or even sell their product in all the relevant countries at once. If that’s your home country, jump in first.

Of course, you still have to do your homework and market research. Just because something works in Silicon Valley, doesn’t mean it will work in Peoria. Also, imitations done without the normal operational discipline and strategic planning will fail, just like any other poorly run startup. Don’t assume imitation is reserved for children, animals, and dummies.

Just like apes learned the value of imitation to survive in an ancient hostile jungle, entrepreneurs need to learn the same value in the new business jungle. Fifty years ago, Harvard economist Theodore Levitt observed that the same companies that were serious about innovation often approached imitation in a much more casual manner. That mindset is still too prevalent today.

Thus, the place to start for new entrepreneurs is to look for a successful business (not a failing business) in your domain and think about how you could do it better. Your innovation may be simply a better location, better service, or a better price, or it could be a technology innovation. At minimum, it can give you the money and experience to take your dream step later with less risk. In fact, your imitation with innovation may BE the “next big thing.”

Marty Zwilling

7 Keys to the Ideal Mental Age for an Entrepreneur

To be an entrepreneur, you have to be navigate lots of unknowns, and the path is fraught with risk. Once you are past a certain mental age, you know too many of the things that can go wrong, so you never start. Sort of like the old saying that if we didn’t have young men to fight our wars, we could achieve world peace in no time.

People who are young, or young at heart, don’t know all the negatives, or don’t worry about them. The result is that they achieve things that no one else ever thought possible. That’s the definition of a true entrepreneur. Many people, including Mike Michalowicz, in his highly irreverent book, “The Toilet Paper Entrepreneur,” have identified specific reasons for this:

1. Resilience. Youth brings an ability to rebound that many people lose with age, unless they remain young at heart. This resilience allows you to bounce back after defeat and try again, unscathed. The entrepreneurial path is littered with pitfalls and roadblocks; you need the capacity to come back again and again relentlessly.

2. No false pretense. The young foresee many more possibilities and great experiences ahead. As a young person your life IS still ahead of you. The best part is, you can determine just how great a ride it will be. In fact, at any age your life isn’t over yet. Smart people are still determined to make it a great ride, rather than a sickening spiral downhill.

3. Responsibility pressures. Most young people fresh out of college don’t have children and spouses to support, so they can put real focus into launching a company. Later in life, when the kids are grown and gone, someone young at heart can again focus on dreams without overwhelming responsibilities.

4. Energy and passion. No question, a young person has more energy than an older person. Likewise, a person at any age who is living their passion as tremendous amounts of energy. Those who are young at heart feel the same passion, and can even use their experience to do the same job with less energy.

5. No preconceived notions. Young people, in general, are far more willing to try something new. As we age, we often look back at our younger years and can’t believe the crazy things we tried. But it’s never too late for some to be young, be crazy, and launch a company.

6. Not schedule driven. One of the first freedoms that most young people enjoy is to ignore conventional schedules. They may party all night and work all day, or the other way around. Getting away from large company schedules is also one of the key reasons that experienced professionals jump ship to start their own company.

7. Money isn’t a big deal. Since most young folks have yet to experience what it’s like to have lots of money, going without isn’t perceived as much of a hardship. On the other end of the spectrum, most people learn that money doesn’t mean happiness. The motivation to follow you dream actually can keep you young at heart.

There is plenty of evidence that raw intelligence and advanced degrees are not the key to success as an entrepreneur. What does matter is how smart you believe you are, how talented you believe you are, how driven you are, how focused you are and how persistent you are. These are the domain of the young at heart, of any age.

Launching a business is about surviving and doing it intelligently. If you have the will, there is a way. Being young or young at heart makes it even easier. As Mike Michalowicz would say, all you need is to get down to business. NOW!

Marty Zwilling

A Growing Startup Should Only Hire Entrepreneurs

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

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

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

• Entrepreneurs are born, not made. The reality is that all entrepreneurial skills are learnable skills. The entrepreneurial mindset is a function of motivation, priorities, and risk versus reward, all of which you set or enable by your leadership and example. Hire employees who have strong skills, with the motivation to learn new ones.

• Employees will care only about work they create. This is really an issue of the quality of the people you hire rather than the management or compensation system. The key is to hire people with the right mindset, and communicate it daily to your whole team, by your actions as well as your words.

• Junior people shouldn’t be involved in new business. This is the platitude of an obsolete corporate culture where you had to “pay your dues” in menial jobs before adding creativity or making decisions. In today’s marketplace, junior staffers are often the most intimately connected to the market, technology, and the customer network.

• Employees will lose focus on their work. Old management models encourage employees to optimize their own task, often at the expense of the overall company objectives. There is new evidence that people want to understand the bigger picture, and business growth financial incentives will increase productivity, rather than lower it.

• Sales will be the organization’s sole focus. Again, you get what you demand and reward. If sales are the only way to get rewarded in your organization, then sales will take precedence over other activities. Motivate for a spectrum of entrepreneurial behaviors, and you will see results.

• We don’t need to reward lead generation. For a startup, you don’t have a recognized brand to bring in the leads. All businesses need to proactively seek leads, rather than simply attract them, with the creativity and initiatives of every employee rewarded for every contribution.

• There is too much risk associated with decentralized decision making. When you have to move and change quickly to survive, centralized decision making is too slow. You become the bottleneck. If you train people properly, empower them, trust them, and they understand the business, your evolving business can become a revolution.

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

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

Marty Zwilling

Imagine a Dating Site for B2B Strategic Partners

People tell me there are over 5,000 online dating sites, but I couldn’t find one that focused on matchmaking business-to-business (B2B) relationships. Yet, every business expert tells me that finding good business partners is just as tricky as a good marriage, without the sex.

Business partnerships come in all shapes and sizes, from finding a single partner to help you run your startup, to signing a strategic agreement with another large company for development, marketing, distribution, or sales. As with personal relationships, unbalanced deals don’t work, since the dominating entity finds it hard to adapt and appreciate the value of a partner.

Everyone agrees that successful business partnerships can provide cash for growth, reduce costs, provide new geographic markets, or bring whole new customer sets to the table. Bad ones will suck the energy out of your company, and leave you wanting more. The thrill of the chase is always the fun part, but making it work is a lot harder.

Just like personal relationships, if you are contemplating a business partnership, the first consideration should be the characteristics of the key people involved. In addition, your company engines have to synchronize, which requires changes beyond the honeymoon period. Here are some of the key elements of both:

• Principals on both sides need to be ready and willing to work with a partner. Some executives prefer to operate in solo mode. If you have worked for yourself for a long time, like living alone and making decisions without consulting anyone else, it may be hard to adapt to a shared decision-making environment.

• Look for a match in operating style and work ethics. A business partnership doesn’t come with a no-fault divorce clause. During the “dating period,” look hard for those characteristics that suggest complementary strengths, compatibility, chemistry, motivation, and values. Consider a business “pre-nup” agreement.

• Both sides should write down the shared objectives and vision. If there is nothing to write down, or the results are quite different, that’s a big red flag. At this point both need to put in some serious thought about common value systems and how integration will impact current operations and the “next generation.”

• Agree on performance indicators measuring partnership effectiveness. Every relationship needs to be mutually beneficial to foster trust and common commitment. If the value is channeled to one beneficiary, with more cost and effort to the other, the equation won’t work for either.

• Understand required changes to the current business model. These need to be understood up front, since implementation will likely require staff changes, process changes, and a more complex communication system. Both sides need to evaluate the intangible impact of these.

Even with the best of efforts, in my experience a high percentage of partnerships don’t work in the long run, because the underlying entities have different long-term objectives. This means prior planning for an easy dissolution. Document early the partner agreement detailing what each person is responsible for, who makes what decisions, and how disagreements will be resolved.

In summary, I did find a few sites, like PartnerUp and jobmingle, which are a step in the right direction, but they still seem focused on letting you do most the work (like Facebook) to find the ideal partner. How about finding the best fit for you through something like eHarmony’s “scientific approach to matching” with 29 DIMENSIONS® of compatibility?

I wonder how many dimensions of compatibility there are to a good business partnership? I know it’s rarely love at first sight. There is still time for you to be the first eHarmony.com of the B2B crowd!

Marty Zwilling

Seven Maxims That Have Led to Startup Success

Even though I have seen many startups succeed, and many that failed, I still struggle with what really makes the difference. It seems like some CEOs are just more tuned in to the market realities, customer dynamics, people interactions, and are better leaders. But what does that really mean?

A while back I found some great business leadership insights in “The Secrets of Tuned In Leaders”, by Craig Stull, Phil Myers & David Meerman Scott. They did a series of interviews with CEOs to understand how technology companies create success, and why most fail. They found many similarities between the companies that are winning in the marketplace and those that are struggling.

But behind the scenes, seven critical success factors emerged. So pragmatic were these “secrets” that most of the CEOs treated them as nothing more significant than looking both ways before crossing the street. But we all know that looking both ways first can save your life.

Here is a summary of seven maxims that I excerpted from their e-book, which you can use in your startup and every entrepreneurial initiative:

1. Work as a trusted customer advisor. The way today’s leaders create a sustainable, growing, and successful company is to instill a company culture of working as trusted advisors to prospects and customers alike. By first understanding market problems, then building the products people want to buy, and communicating to buyers an understanding of their problems, everything else falls into place.

2. Build from the market outside-in. Tuned in leaders understand the complete picture of market problems before building products. They develop solutions in the context of the total customer experience. The most important thing they do is to live in the prospect’s world and look at all the touch points that matter.

3. Simple is smart. The best companies create solutions that are narrow and deep. They organize around a single market problem and solve it completely with a solution that seems simple to the buyer, by obviously and most importantly handling all the related tasks in one easy step. Often, this means specializing in a single vertical market or industry.

4. Leadership is distributed. Winning companies recognize it is better to distribute leadership and to employ a bottom-up strategic planning process that drives the business forward, than it is for functional senior managers to collaborate on decision making and push new strategies, processes, and plans out to the organization.

5. Stop being a vendor. Tuned in leaders don’t push solutions at their customers and walk away. Instead, they develop programs to partner with their customers in the process of continuous problem solving. As a result, they garner high customer satisfaction rates. A formal customer relations program is the first step.

6. Marketing with a big “M.” Leaders focus first on identifying market problems that exist and can be solved with technology, not just promotion and advertising. They organize around both understanding market problems, as well as what is more traditionally defined as outbound marketing (go-to-market strategy).

7. Measure only what matters. They demand real measurements that help them run the business. Metrics must help answer questions such as: Should you increase spending to build new and innovative products? Should you expand your marketing programs? Develop new channels? Increase or decrease your marketing staff?

Executives and staff at most companies already are convinced that they are tuned-in (market driven). Their opinion, although interesting, is irrelevant. Think hard about how tuned-in you really are to these seven maxims? Looking all seven ways and listening carefully can save your career and the life of your startup.

Marty Zwilling

Entrepreneurs Can Thrive on Services or Products

You don’t need to invent an innovative product to be a real entrepreneur. Self-employed services specialists are just as important, and are a growing part of this new “age of the entrepreneur” that I discussed last week. Many of these new entrepreneurs were regular employees a few years ago, focused on a skill specialty. They are not the generalists required for new product startups.

Some specialists have existed for some time with titles like business consultant, independent contractor, or freelancer. But these titles have lost their credibility and aren’t even descriptive of the roles. I propose we standardize on the “specialist” title, which is much more meaningful and focused, and can be applied to almost any role. Here are a few examples:

• Marketing specialists. As your business starts up, you need marketing programs, Search Engine Optimization (SEO), Search Engine Marketing (SEM), a modern “pull” strategy based on social networks, and lead generation. This world changes rapidly and needs a highly focused specialist to keep up.

• Administrative specialists. These were once called secretaries, who looked forward to a long career with a single company, starting in the typing pool, with careers often paralleling top executives. Now some never see the people they support, but are experts on the technology involved.

• Writing specialists. Whether you are in manufacturing or software, you need experienced writers who can document your latest technology, write patents, and efficiently manage the multitude of data formats required by printing companies and advertisers.

• Information specialists. With information technology (IT) and requirements changing so fast, it’s definitely cheaper to find specialists rather than hire young employees and train them. When it’s time for the new generation of technology, there will be new specialists waiting in the wings.

• Software specialists. It’s hard to find employee programmers who can do rapid prototyping with “mashup” technology, as well as build scalable fail-over applications using the latest hardware and tools. Then your apps need to run on the new iPhone platform.

The days when these roles were stable careers for company employees are gone. Today we are seeing a rapid transition to independent specialists. Tomorrow, a similar change is likely to happen to sales personnel, customer service, even manufacturing and construction jobs. We are becoming a society of entrepreneurs.

So I believe we all need to learn how to be good entrepreneurs, in the sense of taking responsibility for our own education, skills, well being, and productivity. It shouldn’t be a huge transition. If you think about it, the best employees have always done this.

Independent specialists are becoming the preferred way to staff a business, regardless of the economy. Especially these days all businesses need to run lean and mean. Websites like Elance and Guru.com help you staff up with specialists, or find work if you are a specialist.

At any rate, you should realize that all businesses today are relying more and more on non-employee specialists to get their jobs done, for the practical reason that these minimize the long-term commitments to payroll and benefits, the expensive training, and the crises of downsizing and layoffs. Maybe it’s the incentive you need to jump on the entrepreneurial bandwagon.

Marty Zwilling

Start With Innovation, Then Make it a Revolution

Great startups these days start with innovation, and then take it up a few notches to make it a revolution. An example is Google, who turned a new search technology into a tool that most of us couldn’t live without. As an entrepreneur, how do you know if you have the potential to innovate, and what are the steps to get from innovation to revolution?

While digging into this subject, I came across a new book by Patrick J. Howie, called “The Evolution of Revolutions,” which makes the points that resonate with my experience. He starts with a discussion of the Big Five personality traits, used to explain individual differences across all walks of life. The following three seem to relate most closely to innovative potential:

• Openness to experience. Scoring high on openness has been found to be the top predictor of an entrepreneur’s innovativeness. Having a curiosity to learn about all new things increases the likelihood of “seeing” novel solutions.

• Hardworking and responsible. Innovation is hard work. Good entrepreneurs have to develop sufficient knowledge and enjoy the difficult problem-solving process to achieve real innovation. That requires a high level of commitment, and a high degree of ambition.

• Desire to communicate. If an entrepreneur creates an innovation but never talks and shares it, then the innovation may never be recognized. An entrepreneur doesn’t have to be a raving extravert, but working with other people and selling are required capabilities.

With the right personality traits, the next step is to follow a productive innovation process. The sad fact is that the vast majority of new products and new companies fail to make it to market or fail to turn a profit. Here the key steps of a process that good entrepreneurs espouse:

• Problem identification. Useful innovations are ones that solve a real human problem, rather than simply illustrating a capability of a new technology. Many entrepreneurs start with an impressive technology, but forget to relate it to a problem that affects large numbers of potential customers who have the means to buy it.

• Motivation to inspiration. The germination of an innovation is elusive. Overt attempts to motivate people to be innovative or usually counterproductive. Good entrepreneurs are usually intrinsically motivated by a dream or vision, or even money, or inspired by a personal challenge or opportunity to change the world.

• The new reality. Entrepreneurs need to critically evaluate their “habits of perception” to come up with new concepts of reality. This is called re-conceptualization, using the innovation they bring to the table. The hard part is bringing customers to that new reality.

The final step to successful innovation is to get it adopted by real customers, rather than simply being the subject of an academic report or technical journal. Patrick calls this “taking an innovation to a revolution.” This involves moving through the following three stages:

• Overcoming resistance. All new innovations are evaluated against the current option, which may be doing nothing. The reality is that most people have a natural bias against change and innovation, so your challenge is to get them to re-concepualize.

• Clarification and iteration. Most new products are not conceived or developed perfectly the first time. Thus resistance is a good thing, since it helps the entrepreneur to be more precise as they iterate on the definition, production, and selling of the innovation.

• Evolution to a revolution. Every innovative product needs continuous follow-on, meaning additional innovation, with a cumulative value much greater than the original. Failure to pass this stage means your innovation is a fad, or a ‘one-trick’ pony.

Notice that none of these elements mentions risk. Traditionally, the level of innovation is aligned with the level of risk, yet many entrepreneurs do not consider themselves to be risk takers at all. If your goal is to spark “the next big thing,” it has to start with innovation, but that is only the beginning. Can you make the evolution from there to a revolution?

Marty Zwilling

When, Where, and How to Raise Venture Capital

By Dave Lavinsky, President and Co-Founder of Growthink

At one point or another, most entrepreneurs find themselves in a place where they could use money. And oftentimes, they could use a lot of money. These entrepreneurs often dream about how much they could accomplish if they had millions in the bank. All the people they could hire. All the products they could develop. All the marketing they could do.

And as they sit and dream, most entrepreneurs think about venture capitalists. Venture capitalists, or VCs, are the folks with millions upon millions of dollars to invest in companies such as theirs. This includes the folks that funded Google and Yahoo and Netflix and Ebay, and many of the great recent companies which were able to start and grow to massive scale in just a short period of time.

And for a select few entrepreneurs, they are able to go out and raise the venture capital they need and make their dreams a reality. So, what it is about these select few entrepreneurs, and what do they do that makes them successful in raising venture capital? Below are the three core things they do:

1. They go after venture capital at the right time. Venture capitalists generally are not interested in funding companies at the idea stage. They want to see that you have taken some of the risk out of the venture by developing prototypes, gaining beta customers, and possibly already generating initial revenues.

   If you haven’t accomplished any of these things, you might want to raise funding from angel investors and other sources to achieve them. And then go back to venture capitalists later.

2. They make sure they are a proper fit for venture capital. Venture capitalists swing for the fences. They aren’t interested in getting a 1X or 100% return on their investments. Rather they seek a 10X or 1,000% return on every investment they make.

   VCs aren’t naïve, and understand that the majority of their investments won’t pan out. And so they need the ones that do pan out to have enormous returns, which can give them a high return across all of their investments.

   Now, not only does your company need to have the potential to give a VC a 10X return, but it has to meet two other key criteria. First, it needs to be able to grow quickly. Venture capitalists generally want to see a return on their investment within 5 to 7 years. As such, you need to be able to grow quickly and get acquired or go public within just a few years.

   A second criteria is that the investment size and return has to be big enough. No matter how exciting your company is, no venture capital firm wants to invest only $100,000 in it. Rather, VCs generally invest no less than $1 million in any one company. And for some VCs, that barrier is considerably higher. Consider that some venture capitalists have billion-dollar funds; these VCs can’t possibly invest the time to fund and manage thousands of small investments.

   So, to sum up, your company must have the potential to grow very rapidly, provide a massive return on investment, and be worthy of a multi-million dollar investment (which typically means that you will be able to sell for $50 million, $100 million or more within a few years).

3. They go after the right VCs. All VCs aren’t created equally. Some prefer to fund healthcare companies. Others prefer software. Most only invest within 200 miles of their offices. Some will only invest very large amounts of capital.

And even when you target the right VCs, chances are that they’ll say “no”. The fact is that VCs are bombarded with potential deals to fund. And even if you’re the best deal, you won’t always win (just like the prettiest and most talented woman generally doesn’t win the pageants since a certain degree of luck and noise typically kicks in).

So, raising venture capital is a numbers game. You need to create a large list of investors that are a fit (e.g., based on your geography, sector, amount of funding you are seeking). And then you need to methodically contact and meet with them.

Importantly, the best thing you can do to get a venture capitalist to invest is to let them know that other VCs have shown genuine interest. It’s all too easy for a VC to play the waiting game with you….to say that they’re interested but want to see your company progress (and minimize their risk further) before they invest in you.

But once a VC sees that they might lose the opportunity to invest in you, they often get more aggressive in taking the next steps to fund your company.

Raising venture capital is possible. And it is often the most important step an entrepreneur makes in building a highly successful venture. So follow these steps and make it happen!

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Today’s guest post is by Dave Lavinsky, who has taught thousands of entrepreneurs how to raise venture capital. Learn more about Dave’s Venture Capital Pitch Formula from his Growthink blog, or contact him directly at davel@growthink.com.

The ‘Big Bang’ Theory Doesn’t Work for Startups

The traditional mode of starting a company is to plan a serial process, where you complete only once all the steps, leading to the “big bang” launch of the company. I strongly recommend a dramatic departure from this model, called “planned iteration,” where you assume you won’t get it right the first time.

This idea was well articulated by Paul Graham in an old essay, called “Startups in 13 Sentences” in which he talked about “making a few people really happy rather than making a lot of people semi-happy.” One of his key points is that “launching teaches you what you should have been building,” and I agree.

All you old software development types will recognize the analogy to the traditional two year “waterfall model” of software development, which has been totally replaced with the Agile iterative methodology. Agile assumes and plans for iterative development, where requirements and solutions evolve as more is known and markets change.

Don’t mistake this for a license to launch an incomplete or poor quality solution. Your strategy today should be to define and excellently prepare the absolute minimum product that will excite a selected small segment of your intended customers, and roll it out to them – as a Beta, early promotion, or even a give-away.

Then you assess feedback, adjust your offering, and iterate until you get it right (have some very satisfied customers). Plan on multiple small launches, with iterations, rather than a big launch. Here are the advantages I see with this approach:

1. Faster time to market. If you launch fast, you can be working with real customers in 4-6 months from your start, rather than 1-2 years. In today’s fast moving marketplace, needs, competitors, and costs change rapidly, so even if you were right, two years later the wave has moved on. Equally likely, your first target was wrong, and you will need to adjust.

2. Get traction before funding. Let’s face reality, the angel or VC funding process now takes 4-6 months of almost dedicated effort and time, and usually fails because you don’t yet have a product or customer. By using a laser focused approach for the first iteration, you may actually produce something and get a customer without funding. Now investors will pay attention, since scale-up funding is less risky and has a time frame.

3. Find customers, partners and channels early. There is nothing like a real customer pipeline to convince you that you need partners and channels, and to convince partners, channels, and investors that you are real. Get out there personally and find that first customer. It will narrow your development focus, and adjust your strategy for you. Spend your time finding renewable sources of customers and iterate.

4. Use social networking to start the wave. Costs are low these days to set up a credible website, do some search engine optimization, start blogging, and start mining the social networks for interest. It won’t cost you your whole funding pot to start some momentum, or to realize that your original strategy needs major tuning.

Think about it. Where did Google, eBay, and Facebook come from? They inched their way into public view before the first multi-million dollar funding rounds, and they have never had a big public launch. New product companies in the offline world start one store at a time, or in one geographic area.

Big bang product launches are the domain of big enterprises, and you can never match their clout and budget. The biggest advantages you have as a startup are speed and agility. Use them.

Marty Zwilling

Entrepreneurs Need to Recognize Their Limitations

If you are going to be a real entrepreneur, it’s important that you know yourself well. After all, you won’t have a direct manager charged with giving you feedback, and your direct reports probably will be afraid to tell you what they really think.

In any case, your skills, talent, knowledge, personality, and strengths are your best assets as an entrepreneur. I’ve extracted many of the following points about knowing yourself from a book aimed at women professionals, called “Career GPS”, by Ella L. J. Edmondson Bell, Ph. D., but I see them applying equally well to every entrepreneur, man or woman. Let’s see what you think:

• Self-knowledge builds confidence. Know who you are and make sure you’re comfortable in your own skin. It will help you be a strong, effective leader. But don’t overdo it. We all know people who act supremely sure of themselves, but they are usually trying to hide some deep insecurities or fears.

• Self-awareness is one cornerstone of effective leadership. Leadership isn’t about how big your role is, or how big you act. Self-aware leaders are able to see the larger picture, the context and purpose. They actively listen and don’t put themselves ahead of others. They allow others to be the best they can be.

• Being sure of who you are allows you to make sound business decisions. When you are running a startup, having a better sense of who you are and what you want can help you push away things that are not really important, and urge you to go after the things that are really in your heart.

• Knowing, accepting, and liking who you are encourages others to do the same. Being authentic and genuine makes you attractive to your customers, respected by your team, and effective as a leader. Individuality is the hallmark of a successful and strong entrepreneur.

• Understanding your wants and needs helps you say “no” when necessary. Startup businesses are very demanding. You’ll be expected to be present just about 24/7 while keeping everything else in your life managed. Knowing your limits – just how far you can stretch before you break – is an important skill.

• Know all of you - the good, the bad, and the ugly. No one, even the best of us, is all good. The good encompasses the parts of ourselves that are our natural gifts and treasures. The bad are those parts that need work. The ugly parts are generally hidden, especially from ourselves. Use the good, fix the bad, and learn to live with the ugly.

• Knowing yourself allows you to maximize performance. There’s more to being successful than working hard. You have to be able to create a winning business plan, cultivate relationships, and build your brand. Work smart and focus on results in everything you do. This will reduce stress and increase satisfaction.

When you understand how you work most effectively, you will do a better job of delegation, use of outsourcing, and selection of partners and employees. Figure out what you love to do, and what you can do well, then hire people to complement your abilities.

If you are by nature a big picture person, and have trouble with follow-through, then you need to find a detail task manager to fill in the gaps. On the other hand, if you get bogged down in systems details when you should be working on the long-term strategy, get yourself a mentor to keep you on the right path.

In fact, there has never been a better time or more opportunities for entrepreneurs. The recent economic disaster demands a transformation of business processes and cultures, beginning at the startup level. Now is the time to know yourself and believe in yourself – and use this power to win.

Marty Zwilling

Ten Tips to Business Risk Without Reckless Abandon

Being a risk taker in business is not the same as being reckless. Nevertheless, the word “risk” has a negative connotation to most of us, implying danger and possible loss. For true entrepreneurs, risk is viewed as a positive, with its implied challenge to overcome the unknown and hitting the big return.

In fact, risk is an integral part of life, as well as every business, yet so few people learn to manage it properly, or even want to think about it. One way to learn is to understand better how successful entrepreneurs approach risk, and look at actual strategies they use for success.

I found a great summary of key strategies used, with life stories, in a book titled “The Risk Takers,” by Renee and Don Martin. Here is their list, with a little prioritizing and comments of my own:

1. Spot a new trend and pounce. Often, a shift in cultural or economic trends will create new entrepreneurial opportunities. The challenge is to recognize the shift early, and then act on it, despite the risk. This is the origin of the “first movers” competitive advantage.

2. Go on a treasure hunt and find an under-served niche. Even a huge multi-billion-dollar company can’t offer everything for everyone. There is nothing more exciting than finding a lucrative market that everyone else has failed to spot or target.

3. Exploit your competitor’s weakness and make it your strength. The sharpest entrepreneurs have a knack for viewing the world from the perspective of their customers. That quality can help you capitalize on competitors vulnerabilities and shortcomings.

4. Hit ‘em where they ain’t. Whenever possible, set your sights on areas that your competitors have neglected or ignored. It’s easier than dislodging well-recognized existing products, and waiting for customer change, even if your solution is better.

5. Buck the conventional wisdom. Many entrepreneurs profiled in the book succeeded in large part because they veered away from established formulas and ways of thinking. Challenging convention can open the door to competitive advantage.

6. Save your bucks and get notice without expensive advertising. If your startup business is on a tight budget, there are creative ways today to get customers’ attention without traditional advertising. Start with social media, blogging, and word-of-mouth.

7. Never let adversity or failure defeat you. The ranks of successful entrepreneurs are filled with men and women who refused to stop believing in themselves, despite the derision of others or heartbreaking failures. Persistence and resiliency lead to success.

8. Trust your gut. An expanding body of research confirms that intuition is a real form of knowledge. It’s a skill you can develop and strengthen – one that’s particularly valuable in the most chaotic and fluid business environment. At such times, intuition often beats rational analysis.

9. Never stop reinventing your company. Top-performing entrepreneurs make it a point to give their business a major overhaul now and then to keep pace with changes in the marketplace. Complacency in business is like a slow leak in a tire. By the time you notice it, the damage is done.

10. Just start! The “perfect” time for a business launch will never present itself. More often than not, waiting just gives would-be competitors the opportunity to beat you to the punch. If you truly believe your idea will succeed, then take the risk and just get started.

We have always been a world of entrepreneurs, and if we are to rebuild our economy, we must reinvigorate the culture and mind-set that have built that tradition. Believe in the power of your ideas and just start the pursuit of you own entrepreneurial dream. With intelligent risk, you too can succeed.

Marty Zwilling

You Don’t Need to be Rich to be an Entrepreneur

I come from a high-tech software background, and only a few years ago, it would cost at least a million dollars ($1M) for a team of professionals to produce any commercial software product. Now, with open source software components, and low-cost development tools, the same job can be done by one good hacker for a few thousand dollars.

Even for low-tech startups, the scope of information available on the Internet, and its global reach, has had a similar financial impact on the many other challenges facing every startup founder. Here are a few examples:

• Setting up the business. Establishing the legal structure for your business, registering trademarks, filing copyrights and patents, and drafting partnership agreements used to require extensive attorney fees and ongoing consultation. I now see and believe business plans that budget $1K for all this, versus a previous $20K or more.

• Facilities and staff. Founders now routinely use their home to operate their startup until they are well into the revenue phase. No office space rental, no secretary, and no accountant are required. That’s a burn rate of at least $10K per month that can be eliminated if you are handy with computers and Quickbooks.

• Technology costs. We all know how much costs have come down on computer hardware, computer software, printers, PDAs, high-speed internet access, servers, and security measures. Skip the IT consultants and build an entry website yourself to save $50K. Do basic Search Engine Optimization (SEO) and Marketing (SEM) yourself.

• Sales and marketing costs. Print your own collateral and marketing materials until the business is rolling. Use the Internet and social networking instead of public relations companies and advertising agencies. Try Web-Ex, free teleconferencing, and Skype instead of international travel for client meetings. Savings can be huge in these areas.

• Manufacturing cost and lead times. Remember when you had to build a $1M factory to roll-out a new product? Now you can get a product built in China almost overnight with minimal up-front cost, with delayed payment based on first-customer order commitments. With the struggling economy, manufacturers everywhere are negotiating great deals.

• Wages and benefits. Obviously, if you can do most of the work yourself, you need fewer employees, meaning less for payroll tax, benefits, and workers compensation. As a rule of thumb, you should double every employee’s salary in estimating employee costs, so less is more.

I recognize that different small businesses will have different types of startup costs. For example, a furniture retailer might need a storefront and staff, while you might run an online retail business, at home in your shorts, with no facility or staff at all. That wasn’t even possible a few years ago.

As a result, being an entrepreneur in now within the financial reach of almost everyone. No need to make the assumption that you will need a rich uncle or an angel investor for every idea you come up with. See my interview a while back with parallel entrepreneur Rich Christiansen, who has started 28 businesses with a target bootstrap investment of $5K each.

Best of all, it’s even considered “ultra-cool” these days to be a lean startup. Of course, a word of caution is also in order here. It makes no sense to rush headlong into a commitment as big as starting a new company without doing your homework on viability first. See specific guidance on “Six Idea Validation Tests to Pass Before Startup.”

In summary, I see a historic shift taking place in the world today. More than ever, people are striking out on their own and starting their own businesses. New cost equations brought about by the Internet and social networking are causing a revolution, and a new age — the age of the entrepreneur — is dawning. Don’t be the last to get on board.

Marty Zwilling

A Victim Mentality Will Doom an Entrepreneur

People with a victim mentality should never be entrepreneurs. We all know the role of starting and running a business is unpredictable, and has a high risk of failure. For people with a victim mentality, this fear of failure alone will almost certainly make it a self-fulfilling prophecy.

I’m sure you all know someone who is the perennial victim. The problem is that most of these people aren’t likely to accept your assessment, so it’s hard to help them. They don’t see themselves as others see them, and many simply refuse to accept the reality of the world in general.

According to an article by Karl Perera, called “Victim Mentality - You Don't Have to Suffer!” there are many indications of a victim mentality in a person’s thought process. Here are some key ones he mentioned, applied to the entrepreneurial environment:

1. “When things don’t work, I secretly believe I’m the cause.” Victims act as though each business setback is a catastrophe and create stress for themselves. These people feel more importance and ego when relating problems rather than successes.

   A survivor believes that bad things are an anomaly to be brushed off, or just another challenge to overcome. In fact, they look forward to the challenges, and get their most satisfaction from declaring success.

2. “When I talk to myself, I never have a positive discussion.” Second-guessing every decision affects mood, behavior, and happiness, and is likely to cause or intensify a victim mentality. If you are negative, you cannot see reality, leading to more bad decisions, confirming you are indeed a victim.

   Survivors continually relive their positives, and see themselves as miracle workers. They live in the present or the future, and rarely dwell on mistakes of the past. They have faith in themselves, and life as a whole.

3. “When others put me down, I‘m wounded to the soul.” Negative comments from others are devastating to a victim. Offensive behavior towards you actually says more about the other person. But if you have a negative mentality you will just take what they say or do at face value, and believe that you deserve to be the victim.

   The survivor always stands up and fights negative comments, and usually turns the blame back on the deliverer. He is quick to counter with all his positives. He builds boundaries around negative or toxic people, and avoids them at all costs.

4. “I believe in fate, even though it’s unfair.” If you succumb to fate, then you think you are responsible for all the bad things that happen to your business. The victim feels that he or she has been treated unfairly but is trapped. There seems to be no way out.

   Survivors believe that they can make things happen, rather than let things happen to them. They accept random turns in their life as new opportunities, rather than unfair punishment.

5. “God punishes for a reason.” Religious beliefs can have a positive or negative affect on your life. If you believe in a God who is responsible for everything, it’s easy to believe that your pain and misery is punishment for something you did wrong.

   Survivors obviously take it the other way. They enjoy a personal relationship with the God of their understanding, and feel a gratitude for everything positive in their life. They may ask their God for help, but rely on themselves for results.

This victim mentality is not a good thing under any circumstances, but it’s particularly lethal when applied to an entrepreneur. If you would like to be an entrepreneur, remember that you don't have to be a victim. Take a hard look in the mirror. Truly the only one who makes you feel like one is the same person who can make you a survivor - you!

Marty Zwilling

Find an Angel Investor, Without Going Through Hell

If your startup is looking for an angel investor, it makes sense to present your plan to flocks of angels, and assume that at least one will swoop down and scoop you up. Or does it? Actually numbers and locations are just the beginning. The challenge is to find the right angel for your, and for your situation. Here are some basic principles:

• Angels invest in people, more often than they invest in ideas. That means they need to know you, or someone they trust who does know you (warm introduction). For credibility, they need to know you BEFORE you are asking for money.

• Angel investors are people too. Investors expect you to understand their motivation, respect their time, and show your integrity in all actions. They probably won’t respond well to high pressure sales tactics, information overload, or bribes.

• Angels like to “touch and feel” their investments, so they are generally only interested in local opportunities. It won’t help your case or your workload to do an email blast and follow-up with 60,000 members around the world.

But now to answer one of the most common questions I get “How do I find angel investors?” With today’s access to the Internet, and Google searches, it really isn’t that hard. Here are the largest flocks:

1. Angelsoft. This is perhaps the most reliable source of information on angel investor groups across the world, and the software is used by most of the other angel organizations mentioned below for deal flow. It boasts 595 member-managed groups and VCs, 30,203 investors, and 2,900 new company applications a month.

   As an entrepreneur, simply enter your location online, and it will list the angel and VC organizations near you. You can then begin your application to one or more of these organizations right on the same screen.

   As a member of one of these local organizations, I use Angelsoft on the investor side to review business plans, deal flow, and help orchestrate presenters at monthly meetings of the local organization.

2. Keiretsu Forum. This one claims to be the world’s largest angel investor network, with 850 accredited investor members throughout twenty one chapters on three continents. Since Keiretsu Forum’s founding in 2000, its members have invested over $200M in 260 companies in technology, consumer products, healthcare/life sciences, and real estate.

   The Founding Chapter is in Silicon Valley, California, (naturally), and I have a connection there if you need a start. A caveat is that this is a for-profit organization, so fees to present may be significant.

3. New England Investment Network. This is a series of templated websites for matching angel investors seeking investment opportunities with entrepreneurs seeking capital. The caveat here is that this network doesn’t have a personal touch, as it only facilitates the exchange of contact information, so the matchmaking is left up to you.

   The reach is very broad, however, with 30 branches worldwide covering over 80 countries in Europe, North America, South America, Africa, Asia and Australasia, and over 120,000 members worldwide.

4. Angel Capital Association (ACA). The ACA membership includes more than 150 angel groups and 20 affiliate members from 49 US states and 6 Canadian provinces. These groups represent more than 6,500 angels and are funding approximately 800 new companies each year and managing an ongoing portfolio of more than 5,000 companies throughout North America.

My real message is that the best angel you can find is a local high net-worth individual, with whom you or your advisors have an established prior relationship. So get out there and network today, and you can be one of the lucky ones who is touched by an angel without having to go through hell first.

Marty Zwilling

Learn Strategies for Tapping into Foreign Markets

By Christian Arno, Managing Director

Is your business tapping into foreign markets? If you haven't broken out of your domestic market, you are missing out on a big business opportunity. The idea of selling overseas is attractive to many small and medium-sized businesses. But many small business owners abandon any thought of selling abroad because they don't think they have the necessary resources. In fact, this isn't the case. The internet can provide a whole host of innovative strategies for businesses of any size to break into foreign markets.

Use localization in your online marketing

Online marketing is one of the most effective ways of establishing a presence in foreign markets. You are likely to see a good return on your investment in a properly localized website. Don't rely on your English-language website to do the job for you overseas. A website localized for your target market will build trust amongst consumers and potential trade partners.

So what does website localization mean? A big part of it is translating your content as accurately as possible. While online services, like Google Translate, are attractive for their speed and low-cost, they will never be as accurate as a professional translator. A translator will be able to alert you about any potential cultural issues with your web content. Cultural sensitivities could have an influence on the material you publish on your website, or the way it is presented. Content which may be perfectly acceptable in the USA or Europe may cause offence in other parts of the world. A properly localized website is attuned to these cultural differences.

Good website localization also involves hosting and web infrastructure. Your foreign market website will be more successful in local search engines if it uses the appropriate country domain and is hosted on servers within your target region. For example, a website aimed at the German market should have a .de domain name (e.g. www.yourcompany.de) and reside on servers within Germany. This will allow more effective search engine optimization within foreign markets.

Use local affiliate networks

Online affiliate marketing is a well-established sales channel for many businesses. If you're planning to launch an e-commerce website in a foreign market, local affiliate networks could prove useful in your online marketing mix. Apart from the large global affiliate networks, there are many others operating solely within regional markets. As well as driving sales, affiliate marketing is also useful for building your brand. Many small affiliate marketers use content like blogs, social networks, podcasts and video to monetize their affiliate relationships. Building an army of these small-scale content creators within a foreign market could do wonders for your brand recognition there.

Use local social media

Many businesses benefit greatly from well run social media campaigns within their domestic markets and this success can be exported to foreign markets. Social media is beneficial to many sales and marketing functions, including market research, competitor analysis, CRM and customer service. Utilizing local social media expertise within a foreign market can help you to assess market response to your overseas roll-out and drive traffic to your localized website.

Use the web to find local freelance expertise

One of the biggest risks in tapping into foreign markets is hiring staff overseas. It's not just remuneration that saps the budget; the recruitment process, handling legislation and training are also big costs. And, of course, you'll need premises for them to work in. However, the web has enabled millions of freelance contractors to offer their services on the global market. Whether you need a PR professional, a virtual assistant, a sales director, finance officer or pretty much any other expert, you can find them via online marketplaces like Elance.com or Guru.com.

Many businesses are using freelances to mitigate the risks of starting-up overseas. They are saving time and money by hiring professionals, located in their target foreign markets, without the hassle and expense of employing them on a permanent basis. You can build a workforce quickly and efficiently and easily restructure based on your changing needs throughout the start-up process. Some of the freelances you find may turn into permanent hires once your overseas operations are fully up and running. Thanks to the web, you can find the personnel you need, without permanent ties, half way around the world.

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Today’s article is presented by Christian Arno, who is the founder and Managing Director of global translation services and localization agency Lingo24. See more articles by him at http://www.lingo24.com/blogs or contact him on Twitter at @lingo24chr.

How to Succeed With Today’s Empowered Customers

You can’t succeed in your new startup if you can’t win customers, and the new Internet-empowered customers are tough. They are in control, and they no longer care where or from whom they buy. They do have a specific purchase progression with key milestone moments that determine your win or loss outcome in every transaction.

I agree with the premise in a new book by the widely respected expert on business growth, Robert H. Bloom’s “The New Experts,” that today’s customers are armed with three lethal weapons – instant access to information about every potential purchase, immense choice, and real-time comparison of competitive prices.

They don’t care about customer loyalty, and all that matters is that you deliver what matters most to them, when it matters most. If you are a new entrepreneur, you business life depends on understanding the following four decisive moments in their buying process:

1. Your now-or-never moment. This is your buyer’s all-too-brief first point of contact with your business. You have to create customer preference at this moment or the customer will vanish – probably forever. The key lesson here is to think like a buyer, not a seller. The first priority must be to get your prospect to know you and trust you.

2. Your make-or-break moment. This refers to the often extended period of consideration, negotiation, and decision to purchase, during which far too many transactions fall through. You win here by remaining consistently engaged with real interaction and involvement, and by knowing their needs and values better than any competitor.

3. Your keep-or-lose moment. This moment is the period whey your customer is actually using your products and services. Rather than a sigh of relief at the sale, you must redouble your efforts to improve the relationship while the customer is first using, consuming, enjoying, and relying on the product or service they purchased from you.

4. Your multiplier moment. This moment is when you can convert a one-time customer into a repeat customer and an advocate and referral source for your company. These are the transactions that require far less investment and will create far more profitable revenue. You need a reliable system of metrics to measure your performance here.

While this is viewed by customers as a blessing, this buyer empowerment is seen my many businesses as a curse. Some won’t change, and they will die. As a startup, you at least don’t have to overcome the inertia of how things have always been done in your company, but you do have to recognize the new reality and use it to your competitive advantage.

The simple recommendation is that empowered customers have to be met by your empowered employees, using the same Internet technologies to keep up . After you embrace the new reality, the first thing you need to do is get the new requirements ingrained in your most innovative employees. Then you have to trust them.

Trust them to think and act independently on behalf of your startup and your brand. Clear a path for them, see what they come up with, provide resources, and support them. When they make mistakes, highlight the learning experience, pick them up and get them innovating again.

The other things that your whole team needs to do are to reduce complexity and deliver a consistent customer experience. This allows your startup to handle new input, resolve customer issues and move forward more swiftly. Entrepreneurs that recognize this empowerment and the importance of delivering a positive, consistent customer experience will gain and maintain the competitive advantage.

Because it’s a wide-open market, the latest technology often comes to consumers first. The old-style, top-down, “push” marketing, where you drive the process, isn't working anymore. You need to understand and capitalize on the decisive moments of empowered customers now-or-never.

Marty Zwilling

Six Reasons Why Big Dreams and Laser Focus Succeed

It’s great to dream big, but your startup needs a laser focus in the beginning to get market and investor attention. Google did it with search engines, Apple did it with a personal computer, and even Wal-Mart did it through low prices. A business plan I saw a while back to combine all the good features of several popular social networks on one site does not do it.

Trying to do everything at once probably means that none of the items will be done well. Plus it’s almost impossible to craft a message that will make your offering stand out in the minds of customers. I can’t think of a company that launched to superstardom with a broad focus. Can you?

Here are the common sense reasons why a laser focus is more likely to lead to startup business success:

1. Time to market is critical. It takes too much time to build processes and products to capitalize on a broad strategy. Meantime, small competitors will appear and seize your business opportunities and steal your targeted customers.

2. Keep infrastructure costs low. Every business needs some basic equipment and infrastructure, and ongoing development costs. Attempting to roll out the big dream internationally all at once costs lots of money. Getting more money is hard, but not as hard as building the big infrastructure and getting it right the first time.

3. Need to be nimble. Every successful startup I know has had to “dodge and weave” or pivot quickly as they learn what their customers really want, and what really works in product design and marketing. Bloated products and the grand unifying “theory of everything” won’t allow you to adapt quickly to market changes and mistakes made.

4. Innovate to market leadership. Success requires market leadership in your product area, and it’s easy to see that pushing more products and services dilutes your focus and attention. Market leadership isn’t a one-time thing, it means continuous innovation, or you will be left behind.

5. Maintaining quality is key. The more you try to do in parallel, the harder it is to maintain quality. Remember the old maxim that “you only get one chance to make a great first impression.” Customers are fickle, and good quality and good customer service is hard, even with a focused product.

6. Personal bandwidth is limited. When things become too messy and complex, and even you are not sure of priorities, people get disillusioned, tired, lose motivation, and tend to give up easily. A laser focus is easier to communicate, easier to manage, and more likely to get done quickly and well.

As with everything, there are two sides to every coin. When applied appropriately, focus will result in rewards exceeding your expectations. Conversely, focusing on the wrong things will result in a downward business spiral. Focus on exploiting strengths and achieving success rather than resolving weaknesses and avoiding problems. Don’t get burned by focusing on the wrong thing.

Remember that most people can confidently and competently accomplish one thing at a time, and most customers are only looking for one thing at a time. After you saturate the market with your focused offering, then you will have the time and resources to broaden your offering.

Don’t give up your grand vision, since no investor wants to buy a “one trick pony.” But also don’t try to be the “one-stop shop” for all on day one.

Marty Zwilling

Managing Risk is the Essence of an Entrepreneur

Willingness to take a risk is the hallmark of a serious entrepreneur. That’s why one of the first questions that potential investors ask is “How much of your own money, and friends and family, have you put into the new business?” If you won’t risk yours, you won’t get investors to risk theirs.

A while back I read the book “When Turtles Fly” by Nikki Stone, an Olympic champion, which explains this well. She provides many examples of success stories from entrepreneurs to Olympians. She proclaims that if you want to be successful, you need to be soft on the inside, have a hard shell, and willing to stick your neck out (“Turtle Effect”).

She goes on to outline seven lessons that are key to mastering the Turtle Effect, and I believe that you need to relate to every one of these before you can dare to even call yourself an entrepreneur:

1. Find your passion. Entrepreneurs, like Olympians, tend to put a competitive spin on anything they find a passion for, and once they are snagged, they have to win. This passion, while it is your soft inside, is probably the single most important factor in achieving business success.

2. Make sure you are focused. This is where many entrepreneurs fail. If you try to do too many things at once, you probably won’t do any of them well. All successes are best achieved from a root focal point, one step at a time, through focus on the questions and focus on the process.

3. Get committed. No one truly understands how much they can accomplish until they develop their hard shell of commitment to a goal you really want. The commitment has to not be one day, or someday, but today. Nothing good comes without hard work. In business, that means first put it in writing with a business plan.

4. Overcome your adversities. Adversities are the norm, not the exception. We all face them, and a few overcome them. Today it is the economy, tomorrow it could be your health. Successful people bounce back, plan for the unexpected, stop the downward spiral, and enjoy the rewards of a comeback.

5. Believe in yourself. Confidence is not something that we are born with. It’s something we develop. Peter T. Mcintyre said, “Confidence comes not from always being right, but from not fearing to be wrong.” Focus on your own strengths. Pick a positive future goal, and visualize success. Then go for it.

6. Take some risks. Be willing to stick your neck out. The best entrepreneurs always believe their startups will thrive despite the odds. Don’t worry if you feel some fear. Fear is a natural emotion, and fears can actually help us to be alert. Especially, you must not fear failure. People learn more from failure than from success.

7. Use teamwork. No one in business gets to the top alone. The real genius is in recognizing where and when you need support. Finding support is the easy part. Using someone else for support may even allow you time to turn your attention toward more important issues.

Remember that there is no business without sticking your neck out, and no approach that will eliminate risk entirely, so learn to live with it and manage it. Most experts agree that entrepreneurship is more about reducing risk and managing failures, than it is about pure willingness to take risks.

So if you want to be an entrepreneur, you need to learn the secrets of successful people who know how to stick their neck out, but maintain a hard shell. Practice the seven lessons outlined above, and enjoy rather than suffer through the entrepreneurial adventure of a lifetime.

Marty Zwilling

Boomers are Driving a New Entrepreneurship Boom

Contrary to what most of you might guess, the highest rate of entrepreneurial activity over the last few years is not Gen-Y young upstarts, but Baby Boomers in the 55-64 year age group. In fact, according to a study by the Ewing Marion Kauffman Foundation, these Boomers are actually driving a new entrepreneurship boom.

Some people are calling entrepreneurship the ‘new mid-life crisis’ for the 76 million-strong demographic once thought to be over the hill. Partially due to the economy, but also due to longer, healthier lives and changes in job tenure, 62% of working Boomers are now expected to stay in the labor force, with real power and influence, for at least nine more years, to 2020.

Here is a summary of indicative facts from the earlier study referenced, an update published last year, and others. These indicate that the correct icon for an entrepreneur may now have gray hair, rather than the warm glow of youth:

• In every single year from 1996 to 2010, Boomers between the ages of 55 and 64 had a higher rate of entrepreneurial activity than Gen-Y, aged 20–34. The highest growth rate last year actually was the next echelon, Gen-X, 35 to 44-year-olds.

• These trends seem likely to persist. In the Kauffman Foundation Survey of nearly 5,000 companies that began in 2004, nearly two-thirds of the founders are now between the ages of 35 and 54.

• Additionally, Kauffman research has revealed that the average age of the founders of technology companies in the United States is a surprisingly high 39 - with twice as many over age 50 as under age 25.

• While people under 30 have historically jumped from job to job, another striking development has been a deep drop in the incidence of ‘lifetime’ jobs among men over age 50.

• With longer life expectancies and greater health in later life, older generations are moving to start new firms -- and mentor young entrepreneurs. One new incentive is the falling transaction costs and barriers to entry for entrepreneurs of every age.

• Half of the Internet users aged 50-64 use social media now, an 88 percent growth from the previous year. The number of Facebook users in the US aged 55 and older grew from around 1 million in early 2009 to 10 million in early 2010.

• The immigrant rate of entrepreneurial activity declined slightly in 2009, but remained substantially higher than the native-born rate. Business-startup rates in America increased the most in the Midwest and South.

In addition, the Boomer demographic is also creating a slew of new market opportunities, including improved healthcare facilities, construction of senior-friendly facilities, and technical support for seniors, by seniors. What all of this means is that boomers will have more impact and power in the marketplace for a lot longer than most people expected.

Since entrepreneurship is a key driver of economic growth, this should bode well for America, and for world economic growth as well. In terms of job creation, innovation, and productivity, entrepreneurs drive growth. Many Boomers have the purchasing power and become enthusiastic early adopters who help lead the way. They are becoming the new early adopters.

Of course no one has any idea what the next big thing will be, but more often than not innovation comes from entrepreneurs. If you are one of the Baby Boomers who wants to redefine retirement, now is your chance for real impact. Find an opportunity you understand, follow your passion, and join the entrepreneurial majority.

Marty Zwilling