Every Entrepreneur Needs to Outwit the Devil

“The devil in the details” is a quote that we have all heard, and clearly applies to startups, where success in the long run is all about execution. But for you as an entrepreneur trying to get started, the devil is really in your mind, where you must prevent drifting, and maintain that confidence, commitment, and passion, to achieve your business dream.

This is highlighted well in a book just released, “Outwitting the Devil,” annotated by Sharon Lechter. It was written way back in 1938, by the famous author of “Think and Grow Rich,” Napoleon Hill. It was too controversial to publish then, due to religious connotations, but still has key lessons for every entrepreneur today.

The premise of the book is an interview with the Devil, where he admits that he dwells in idle minds, and finds it easy to control the minds of drifters. Drifters are people who do little or no thinking for themselves, and allow themselves to be influenced and controlled by other people and circumstances.

In an interview, the Devil confesses that all people need only follow some key principles to outwit him (adapted a bit here for entrepreneurs):

1. Do your own thinking on all occasions. Pursue your own dreams and your own thinking. Listen to others input, but make your own decisions. For success, entrepreneurs have to overcome any human tendencies toward laziness and indifference, which lead to procrastination and drifting.

2. Decide what you really want from your business. Set your goal, and create a plan for attaining it. Be willing to sacrifice everything else, if necessary, rather than accept permanent defeat. Drifters chase a business idea for all the wrong reasons, and then give up easily, like get rich quick, or to please someone else.

3. Analyze temporary defeat, no matter of what nature or cause. Extract from it the seed of an equivalent advantage. In business, it’s commonly accepted that you can learn more from failure than from success, if you choose to learn.

4. Be willing to give before you receive. Other entrepreneurs and investors will more readily help you, if you have helped them first. In addition, you dramatically increase your odds of success if you learn the business domain first, before you try to lead in it.

5. Recognize that your brain is a receiving set. Curb your output, and be an active listener, by providing feedback, an optimistic attitude, motivation, and a concern for people. A key part of receiving input is listening to what is not said.

6. Recognize that your greatest asset is time. This is the only thing except the power of thought which you own outright, and the one thing which can be shaped into whatever material things you want. Budget your time so none of it is wasted.

7. Recognize that fear generally is a filler. Fear rushes in to occupy the unused portion of your mind. It is only a state of mind, which you can control by filling the space it occupies with confidence and passion in your ability to overcome obstacles.

8. When you ask for help, do not beg. Take full responsibility, and don’t be the victim. Make sure you earn any help provided, and don’t forget to properly thank your benefactor. In a startup, there is no entitlement to funding, or to a second chance.

9. Recognize that business is a cruel taskmaster. Either you master it or it masters you. There is no half-way or compromising point. Never accept from a business anything you do not want. You can refuse, in your own mind, to accept it and it will make way for the thing you do want.

10. Remember that your dominating thoughts attract. To become the master of your destiny, you must learn to control the nature of your dominant, habitual thoughts. By doing so, you will be able to attract into your life anything you choose. Your thoughts create your reality.

I couldn’t help but think that these points are still so relevant today in our own recovering economy, even though they were written during a similar challenge over 70 years ago. I guess we all should take comfort in the fact that even though we live in a world of constant change, some things about human nature will always be the same. Can you outwit the Devil today to succeed in your dream?

Marty Zwilling

Entrepreneurs ‘Up The Ante’ With Parallel Startups

Maybe it’s just me, but I seem to be seeing more and more parallel entrepreneurs these days. These are people who are working on multiple startups concurrently. On the surface, this seems like an extremely difficult and dangerous practice, but for the new generations which have been multi-tasking since birth, it may be just business as usual.

I’m not talking here about a bit of overlap between the winding down of one venture, while already gearing up for the next. I see entrepreneurs who have started two or more companies in the last few months, and continue to split their time between the efforts. Others tell me about people like Scott Rafer, former CEO of Feedster, who is now heavily involved in four other companies.

The new hot term for this practice is “multi-table” startups, which I understand is derived from the common online gambling practice of playing multiple poker games at the same time. In fact, I think that’s a great analogy, since the odds in a poker game may be similar to those of a startup.

On the other hand, I hear from committed parallel entrepreneurs that there are advantages to their approach, along the following lines:

• Leverage and hedging a portfolio. Other entrepreneurs, even serial entrepreneurs, are putting all their eggs in one basket. Investors have long argued the value of a portfolio to hedge and leverage the risk, so why shouldn’t entrepreneurs do the same?

• Shared access to advisers and investors. Advisors are busy people. In your monthly lunch, it’s as easy to cover multiple company issues as one. Investors building their portfolio love to hear about multiple startups in one sitting, to ferret out the best.

• Cross-fertilization of current market feedback. One thing that you learn in one company, at a given moment in time, is equally valuable or leveragable in a different way at your other companies. As your customer list grows in one, you own it for the second.

• Foster and enforce the art of delegation. For long-term success, every entrepreneur needs to know when to step in, and when to delegate. That’s a skill that may not get enough attention until too late by a single startup entrepreneur.

• Multiply the pay-back. Many parallel entrepreneurs have already achieved financial security through earlier efforts. Now they may see a way to multiply pay-back by active involvement with multiple startups. Of course, it’s like a double-down in gambling as well.

• High energy and bandwidth. Now we are back to the fact that there are people who love to multi-task, and anything less is simply boring. This is especially true of Gen-Y entrepreneurs, with fire in the belly to change the world. I see more emerging every day.

Of course, there are huge risks when you try to ride two horses at one time. At the very least, you may not do either well, or won’t be fully there when the going gets tough for either. See my interview with Rich Christiansen, a popular parallel entrepreneur, for other challenges.

Even single entrepreneurs who maintain a day job, for a steady paycheck, feel the pain of juggling multiple initiatives. Then there is the challenge of making sure the multiple roles do not conflict, legally or otherwise. Tread carefully there.

The most common way people move into the parallel entrepreneur environment, if they are so inclined, is to start another one, while still exiting the current one. The risk here is that winding down one takes much longer than you would expect, and starting something new consumes more energy than anyone predicts.

For the first-time entrepreneur, my sense is that trying to focus on more than one equally exciting idea is a recipe for failure. But with the cost of entry going down, and the multi-tasking bandwidth of each new generation going up, I suspect parallel entrepreneurs may soon be the norm rather than the exception. Are you ready to step up to this table?

Marty Zwilling

Startups Needed For Cloud Computing Gray Areas

Cloud computing is still all the rage in the business world these days. Yet I find that most business people don’t understand and fully trust it, and I defy even the technologists to define it in ten words or less for business people. Many say it’s just marketing hype applied to old principles that have been around for a long time.

A typical definition (from Wikipedia) is that “cloud computing, is Internet-based computing, whereby shared resources, software and information are provided to computers and other devices on-demand, like a public utility.” That’s about 25 words which I’m certain doesn’t paint a very precise picture to the entrepreneurs I know.

Putting aside the acronyms and technical jargon, I think I can distill the essence of the cloud computing vision to the following five key points:

1. Buy service from a central utility, rather than buy assets. Now you can pay for a metered service delivering compute power, data, and storage, based on your business demand, through the Internet. No need to buy and manage these as assets. This is a great cost leveling advantage to businesses, which used to be called time sharing.

2. Maintenance and support are provider responsibilities. Small companies no longer need an IT staff, with the inherent costs and management responsibilities. That allows them to focus on their core competencies, reduce overall costs, and be more agile in responding to market changes.

3. Access to new services and data is instantly global. Employees don’t need to come to an office to do their job, and customers don’t need special software installed access a new application. International standards and localizations are assumed from the beginning, rather than added much later.

4. Availability is 24/7, just like your electric utility. No more down time on weekends, or during the nightly backups. The Internet is a huge power grid that services computing needs (cloud computing) of businesses and consumers, just like the electricity grid services power needs (cloud power).

5. Easy integration of customized applications. People have traditionally bought their own computers simply to provide a common platform where all their applications could talk to each other, even though customized, and share data. The cloud provides these transformations with security and integrity.

Make no mistake about it, these are the dreams, not the reality today. Even the pundits agree that cloud computing is still for “early adopters,” meaning it’s not all there yet. Many people can quote cloud computing successes, like businesses using Amazon Web Services for huge scaling, or failures, like the Google App Service major outage a while back.

Other gray areas include how to do secure credit card transactions in the cloud, tax considerations for international operations, multiple virtual machines in one cloud, and properly addressing differing geographic regional requirements in a single cloud. Then there is the connection problem of sharing data with standard applications not in the cloud.

When a vendor starts talking about his paradigm shift to a dynamically scalable and virtualized solution in the cloud, with SaaS (software as a service), PaaS (platform as a service), MSP (managed service provider), or web services in the cloud, tell him to skip ahead to the chart which shows you how well he does on the five points above, and the five gray areas outlined.

Even though “the cloud” is a familiar cliché for the Internet, cloud computing is still very much an opportunity for startups, with lots of room for innovation and better solutions. Now is the time to jump on board, but a cloud usually means you should expect a few storms ahead before you see the sunshine.

Marty Zwilling

David S. Rose – Father of Angel Investing in New York

I recently had the privilege of interviewing David S. Rose, who has been described as "the Father of Angel Investing in New York" by Crain's New York Business, and a "world conquering entrepreneur" by BusinessWeek. He chairs New York Angels, one of the most active angel investment groups in the country, which has invested over $60 million into nearly 70 companies.

Marty: Welcome to Startup Professionals interviews. It sounds like you could be a full-time Angel investor, but I know you have other activities as well. Tell us a bit about these.

David: I’m also a serial entrepreneur who has founded half a dozen companies, including Angelsoft, which provides the underlying Internet infrastructure for most of the world’s organized angel investing ecosystem. I also spend close to half my time teaching, and in addition to serving on the entrepreneurship advisory boards at Columbia, Yale and NYU, I am Chair of the Finance, Entrepreneurship and Economics program at Singularity University in Silicon Valley.

Marty: Were your own first investment ventures a positive and learning experience?

David: Absolutely. Because one rushes in all flush with the enthusiasm of giant exits, and soon begins to realize just how challenging it is to actually get to a positive exit! My first angel investment in the 90’s was into a video hardware company run by a good friend with great connections to the industry.

After that evaporated, I didn’t invest again until just after the dotcom crash (when my long-suffering spouse grounded me from any further entrepreneurial ventures :-)). The second company in which I invested, back in 2001, was a novel concept from the serial entrepreneur who invented social networking.

It had a great idea, great team, and great angels…but was ahead of its time. The third company is still alive. Its indefatigable founder, however, has since raised an additional $25 million from other angels, never made a penny of profit, and the value of my original six-figure investment is now about zero.

My fourth investment, and the first one I led, was into a mobile applications company, which was also ahead of its time and never truly understood its market. It, too, went down the tubes. The fifth one was a high-buzz, high-tech play with lots of big-name angels, and we eventually brought in a rock star CEO and a major VC followed us in with many millions. But that one fell victim to rapidly developing technologies, the recession, and the collapse of the consumer electronics market, and is unlikely to return a significant profit.

But while they certainly weren’t positive exits, the optimistic side of me continues to believe that they were all positive learning experiences, and I’ve tried to never repeat the same mistake twice. Luckily for me (and regardless of what anyone else says, there is a lot of luck involved in angel investing), I have since had significant positive exits to companies like Kodak, CBS and Facebook, and the current value of my portfolio is approaching the 30% IRR that rational angels target.

But my experiences are probably living proof of what the academics have been pointing out over the past few years: angel investing can be very lucrative, but it is a challenging path. It requires a mindset that can accept an enormous risk of failure, an ability to stick to at least a ten-year plan, and a willingness to continue executing on your plan despite losses early in the J-curve. According to most studies, getting into angel investing without being prepared to make a total of between 20 and 80 investments is a good way to lose ALL your invested capital.

Marty: How has the business world changed since you first started?

David: The exponential development of technology has begun to cause deep and fundamental changes to the world of early stage finance. It used to be that without millions in funding you couldn’t easily start a high growth company, and that funding could only come from venture capital firms that were hard to find.

My first Internet venture in the early 1990s took about $20 million in venture capital to get to our product launch. My second, six years later, took only $2 million in VC funding. When I started investing, my first angel deal took $200,000 to get to Internet product launch, and one of New York Angels’ recent investments only took $20,000. That’s a three order of magnitude difference!

Combine this with half a dozen books by investors like Bill Payne, Jeff Bussgang and Dermot Berkery explaining everything in painstaking detail, and there is enormously more information to help entrepreneurs achieve their funding goals. This is quite literally the best time in history for an entrepreneur to take a shot at creating a new venture.

Today, with facilitators like Angelsoft connecting over 35,000 accredited investors and bringing best practice tools to over 600 groups, with national and international organizations such as the Angel Capital Association, and with myriad VCs, angels and experts such as yourself blogging exhaustively about the field, this is also the best time in history for people with available assets to get into angel investing.

Marty: What is a key personal attribute you see in successful entrepreneurs?

David: Without question, the single most important attribute of a successful entrepreneur is integrity. And that’s not some philosophical or theoretical malarkey; it’s hard-nosed fact. When we invest in a startup, we’re NOT investing in cash flow or assets. Instead, we’re investing 100% in the person, because that’s all we’ve got.

So if we get even the slightest whiff of anything that doesn’t feel right, we’ll just move on. That means your entire life must be an open book, 100% of the reference checks we do on you (including ones we find on our own) must come back positive, and we need to see that you’ve treated former investors, employees, partners and customers with impeccable fairness.

Marty: Any advice you would like to give to someone contemplating a startup?

David: Being an entrepreneur is tough. Really, really tough. The entrepreneurial life is one of challenge, work, dedication, perseverance, exhilaration, agony, accomplishment, failure, sacrifice, control, powerlessness…but ultimately, extraordinary satisfaction.

It will be without question the hardest thing you will do in your life, and it is absolutely critical that you find personal joy and fulfillment in the process of entrepreneurship, in which case the economic success of your venture will be simply the icing on the cake.

Marty: David, it’s obvious that you personify that advice, and your path has not been an easy one. Thank you very much for your insights and your continuing role-model leadership for all of us, and best of luck in all your ventures! For more, you can contact David directly via his personal website.

Marty Zwilling

Don’t Pay Bribes to Get International Expansion

By Ernst Gemassmer

Expanding into International is both necessary and positive for every company, including startups, but it has some unique challenges, as I have found out personally, like expected “under the table” payments in dealing with other cultures and bureaucracy. Some companies look at this as a “cost of doing business,” but it can easily cost you your reputation and your business.

In a recent update by Thomson-Reuters, the U.S. Justice Department and SEC reported imposing over $1.5 billion in penalties on companies in 2010. In a very recent international bribery case, Alcatel-Lucent decided to pay $137 million to settle charges that it paid millions of dollars in bribes to foreign officials to win and maintain contracts in Costa Rica, Hondurus, Taiwan and Malaysia. The days of a “slap on the wrist” for offenders are gone.

The U.S. crackdown started way back in the late 1970’s with the advent of the “Lockheed Bribery Scandals,” in which the company was accused of paying bribes to foreign governments in order to secure aircraft and equipment orders. The resulted in the U.S. “Foreign Corrupt Practices Act,” which made it illegal for U.S. corporations to make any payments to foreign officials.

Last year, this same type of legislation was adopted by thirty other nations and countries who are member of the Organization of Economic Cooperation and Development (“OECD”), with its much-awaited Good Practice Guidance for anti-bribery compliance programs.

Now all companies, more than ever, need to implement internal controls and directives to meet the current legislation before they go International. As an example, one major public company, for whom I worked at the time, issued the following internal directives:

• All foreign subsidiaries are no longer permitted to engage ‘expeditors’ to obtain permits, licenses and other permissions from government entities.

• All distributors are obliged to sign documents stating that they would not use any of their commissions for payments to foreign officials.

For our subsidiary, in one of the key countries of South America, these internal regulations dramatically complicated the task of obtaining various permissions from local authorities. For example, obtaining periodic renewals of business licenses became a very tedious and time-consuming process for the local subsidiaries. These efforts proved to be a major distraction from our main objective, namely sales and service of our high tech products.

Distributors willingly signed the required documents, since they were threatened by corporate with cancellation if they did not comply. However, in reality the U.S. corporation had no opportunity to audit distributor books and therefore could not determine whether a distributor adhered to the letter and the spirit of the document.

After a number of complaints and extensive lobbying from industry, the ‘Foreign Corrupt Practices Act’ was amended. The new regulations now permitted so-called ‘facilitating payments to petty bureaucrats’. In practice that meant that we could once again focus on running our sales and service activities.

Dealing with the bureaucrats for permits and licenses was once again outsourced to expeditors specialized in these areas. Generally the cost for each such transaction was nominal, i.e. less than $200. These costs were small, especially when compared with the predictable outcome, which could be achieved in a timely manner.

In my personal opinion, little progress in simplifying bureaucracies can be expected any time soon, in any country. However, it is absolutely essential to adhere to local laws, rules and regulations. Failure to do so in a timely manner could result in the suspension of a business license, negative articles in the local press, slowing down imports, restricting the outflow of profits or even jail sentences.

Thus, I highly recommend that you take local regulations in each country seriously, and avoid the temptation to resort to bribery. If necessary, you may need to hire a local consultant to help you and your company in navigating complex, and in many instances illogical, rules and practices. The other alternatives are not worth the risk to your reputation and your business.

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

Social Media Accounts are Intellectual Property

A large portion of your competitive advantage and your potential value to investors is the size of your intellectual property portfolio. When someone says Intellectual Property (IP), most entrepreneurs think only of patents. In reality, patents are only one of at least eight items that should be in your IP portfolio. You need all these before you start looking for funding.

Some of the other items may cost a lot less, and may be worth far more in the long run. Here are the key elements:

• Company name. The company name becomes your intellectual property at the moment you incorporate your startup as an LLC or a Corporation. Sole proprietorships need to trademark the name to protect it. Select it well – marketers will tell you that you will be selling your name, more than your products. Actual incorporation fees in many states are below $100, if you do it yourself. Don’t pick a company name until you are certain that you can get the comparable domain name, so Internet brokers won’t hold you hostage.

• Internet domain name. This name (www.domainname.com) is just as critical as the company name, and the two should match as nearly as possible. Significant differences will confuse your customers, and open the door to imitators and scam artists. Internet domain names can be acquired from most hosting providers or Network Solutions, for as little as $10/year each.

• Social media accounts. Immediately go to relevant social media sites and grab the same name, even if you never plan to use the accounts. Many companies like Sears, Coca-Cola, and Twitter have already been hurt by people using company names they don’t own on social sites. These days, every business needs a blog, so sign up your domain names accounts on TypePad, Wordpress, and Blogger, or all of the above, before someone starts blogging in your name.

• Patents. Remember that ideas cannot be patented, only novel implementations. But the application or provisional application has to be registered before you disclose the details to investors or consumers, or the implementation will be deemed un-patentable. Patent attorney fees start at around $5K.

• Trademarks. A trademark is a name, phrase or logo that tells the consumer the origin of the goods and distinguishes your goods from those of your competitor. Trademarks require a federal trademark registration from the United States Patent and Trademark Office. The cost for a single trademark is around $300.

• Copyrights. No registration and no cost is required to secure a copyright on written, audio, or video material that you create to be attributed to your company. Still, it is recommended that you add the familiar ©Copyright 2010 symbol at the beginning or end of each media and document segment.

• Trade secrets with employment agreement. Companies often use non-patentable but important trade secrets to run their business. These trade secrets need to be documented and coupled with an employment agreement, to keep them from migrating to your competitors when employees move on.

• Business Plan. Your business plan holds the keys to your kingdom, so you don’t want it in the hands of competitors. If you need early reviews or assistance by people you don’t know well, get them to sign a Non-Disclosure Agreement first. A sample agreement is available for free download from my website.

In cost, all of these elements of intellectual property may be acquired for a few hundred dollars (or a few thousand with an attorney), if you act early and quickly. Later, good intellectual property can be worth millions when your company valuation is set for investment purposes, or when the company is acquired or sold. In between, you need it to survive.

Marty Zwilling