Startups Without Financial Projections are Doomed

Most entrepreneurs tend to avoid this area of the business, and as a result are badly surprised by cost realities, and investor expectations. They seem to think that financial projections are simply invented numbers for investors, and not useful. In reality, it’s like jumping in your car for a long hard drive with no destination in mind. Chances are, you won’t enjoy success from the trip.

What is a business financial model, really? In most cases, it is merely a Microsoft Excel spread sheet loaded with your cost and revenue projections for your startup, starting now in time and extending at five years into the future. For more value, a few variables can be added, like product volume growth rate, and number of salesmen, for “what if” analyses.

Why? For you to make decisions and manage the business - because we are all mere mortals and can’t possibly keep all these numbers and calculations in our head – to decide whether and when the business is going to be profitable given rational projections of costs and income (these assumptions are referred to as your business model). Secondarily, it will be required by potential investors to validate how much money you need to get started, and how much return they can expect on their investment.

When? The financial model should be running even before you incorporate the business and build prototype products (would you start driving your car on a long trip before you knew where you were going?). If you can’t make that objective, then at least don’t approach potential investors until your model is working – investors have little tolerance for startups with no financial plan.

How? Start with a “sample” business model, available in generic form or customized for specific industries, from many sources on the Internet. Another alternative is to download from my website a free sample model that I built for a specific startup, with elements suggested by Angel investors and venture capitalists, ready to be customized to your business.

If you are not computer literate in Microsoft Excel, your first task is to find someone who has the time and expertise to convert your base set of costs and revenues into projection formulas, cash flow summaries, and a profit and loss statement.

Do your own, if you can, because you know the numbers. In fact, this is the easy part. More challenging is ‘defining’ the business model (assembling all the real variables of your projected business, pricing assumptions, staffing requirements, marketing costs, sales costs, and revenue flows).

This business model can then be used for many purposes, such as risk and profit assessment, projecting the values of assumptions that are made based on existing market conditions, calculating the margins that are needed to avoid adverse situations, and various forms of sensitivity analysis. These are necessary to estimate capital investment requirements, plan capital allocation, and measure financial performance.

Creating financial projections allows you to see areas of strength and weakness in your proposed business model, enabling you to make critical changes that will allow your business to run more successfully.

While people start businesses for many reasons, making money is usually important. Even a non-profit can’t afford to lose money. You won't know if you can meet these expectations until you build a financial model with reasonable financial projections.

It’s a great learning experience, and you can do it yourself, but don’t hesitate to ask for help from a professional if you need it. You will be amazed at how clear the relationship becomes between pricing, cost, and volume. When you lose money on every item, it’s hard to make it up in volume.

Marty Zwilling

A Startup Partner Needs More Than a Good Resume

A while back I talked about how and where to find a co-founder in “Ten Steps in Choosing the Right Startup Partner”. The feedback was good, but some readers asked me to be a bit more specific on attributes that might indicate an ideal startup partner. Even if you are looking in all the right places, it helps to know what you are looking for.

In this context, I’m broadening the definition of partner from co-founder to “business partner.” The reason is that good attributes apply equally well to “external” partners, as they do to internal partners, like a co-founder or CTO.

In all cases, the challenge is the same, of finding people that you can work with and enjoy in the business relationship. The relationship has to have trust, communication, and respect in order to work. Otherwise, like a marriage, it will be doomed to constant conflict, second guessing, and unhappiness. So the following attributes have to apply to both sides of the partnership to work:

1. Enjoy working with other people. You may be too independent to be partner material. If you find it hard to trust others, love to work alone, always have to be in control, or insist on micro-managing, you probably won’t find a partner who will satisfy you.

2. Does not need to be managed. Good partners are people who are confident in their own abilities, and willing and able to make decisions, take responsibility for their actions, and able to provide leadership, rather than require leadership.

3. Compatible work styles. Most entrepreneurs work long hours and weekends to get the job done. If you team with a partner who likes sleep until late morning, and reserves the weekend for other activities, the partnership will likely not work.

4. Common vision and commitment. It doesn’t take long to sense someone’s real commitment, or vision and desired outcome of a joint project. Is your project seen by both as an end in itself, or a means to another end?

5. Similar values and goals. If one of your core values is exceeding your customer expectations for quality and service, and your potential partner ascribes to the low cost, high profit mantra, a successful partnership is highly unlikely over the long-term.

6. Level of integrity. High levels of integrity are important in business, but more important is your level of comfort with your partner’s integrity. This is a critical element of a good relationship, but a tough one. This is probably the best place to apply your “gut” feeling.

7. Complementary skills. If both of you are experts at software development, even though one loves design and the other loves coding, that still won’t get the marketing done. Look at the big picture first of development, finance, and marketing/sales.

8. Passion for what they do. The passion has to be in the business context – meaning results oriented, customer oriented, and sensitive to competition. In many cases, experts with academic or research credentials are not good partners for a business venture.

9. Ethical and diversity boundaries. How the leaders of your company handle adherence to the spirit as well as the letter of the law will be seen by all employees, customers, and investors. Ethics and the view of personal boundaries should be explored fully.

10. No historical baggage. Partner decisions are more important than hiring decisions. Thus you should do the same or more due diligence on educational background, previous work, and references. Look impartially from all angles and do the follow-up.

Beyond the core team of two or three startup partners, every startup should seek to “outsource” the rest of their strategic requirements to external business partners. It’s faster and cheaper than building a large team in-house, and usually more effective.

By using this checklist, you should be able to objectively match potential partners with your own needs and expectations. Then, as I suggested before, it’s time to establish a formal agreement or contract to cement the partnership. With that, you will have a strong foundation for success, as well as a great working relationship in your new venture.

Marty Zwilling

Translate Your Startup Vision to Investor Values

Presenting your startup vision as a founder to a potential investor, or presenting an idea as an employee to an executive, requires that you effectively communicate, or “translate”, the value proposition into terms that the receiver can fully understand and appreciate. If you fail, it’s your loss, not theirs, no matter what the reason.

For example, if your investor has been a senior business leader, you need to transform your message so that it addresses the issues that senior business leaders have experienced as priorities. For the business leaders I know, these priorities almost always include the following:

• Business agility. How can my company keep up with the ever increasing rate of change in technology, core business strategies, and culture trends? Implicit in agility is increased productivity on change initiatives. This applies to startups as well as big companies.

• Data security. In today’s world of distributed data, global reach, and powerful incursion technologies, how do I protect my data and my customers’ data? Executives need more data accessible to their team everywhere, but at what cost?

• User privacy. Customers are bombarded from all angles today for information to improve their user experience, yet they need to protect highly personal things. How does your proposition address highly targeted advertising without a privacy backlash?

• Risk reduction. Especially in this world of constant litigation and hackers, how can I as an executive manage the risk to my personal future, as well as the future of my company? How can I control a highly distributed technical operation, which changes every day?

• Return on investment. How do I measure the return on my development and marketing investments? These business leaders get demands from all organizations for more, more, more, with little ability to quantify payback.

• Integration. Too many applications out there today are “silos,” built outside the existing organization without an overall architecture, or even a maintenance plan. How do I integrate these to maximize my return?

Your message better hit one or more of these priorities dead on, if you hope to get some traction. Too often what an executive hears is a pitch on some grand new technology that they can’t even understand, or certainly can’t see as directly applicable to their priorities. Remember they have heard similar technology stories for the last twenty years, usually expensive, with poor results

Consider this real example I heard a while back from some MBA students – “Let me introduce our newest tool, which we developed from ‘mashup’ technology, made popular by Facebook and MySpace.” This entry line, as well as a long presentation which followed, was missing not only the translation to receiver priorities, but also assumed that the executive had the same background and view of the world as the presenters.

This is called the generation gap. These young technologists didn’t consider that most executives today are a few years older, and would probably translate ‘mashup’ to mean some version of a train wreck. And the mention of MySpace would raise some vague fears of their granddaughter being accosted through the Internet. You won’t close the deal with that pitch.

Obviously, if you are communicating to peers, or any other generational group, the rules change. But the message is the same - if you want to win, then the onus is on you to communicate the value of your argument in terms the other party understands.

Some entrepreneurs, perhaps because of their sense of entitlement, sometimes arrogantly assume the other party should shoulder most of the responsibility for any translation required. If you had one chance to present to Warren Buffett, how would you present your new technology to prevent your own mashup?

Marty Zwilling

Six Things Entrepreneurs Know That Are Dead Wrong

All true entrepreneurs operate off a set of tenets that are built into their psyche, or drilled into them from training and mentors. These are represented by sayings like “You never get anywhere unless you take a chance” and “Passion and persistence are the keys to success,” Unfortunately, there are still other old, reliable tenets that don’t work anymore.

In a recent book by Jeanne Liedtka and Tim Ogilvie from the Columbia Business School, “Designing for Growth,” the authors encourage managers to think more like designers. I assert that designers have a lot in common with entrepreneurs, since both must innovate and start a deep understanding of what their customer really wants (“customer-centered”).

In most other respects, design thinking is the opposite of business thinking. For example, businesses must deal with reality as fixed and quantifiable, whereas design deals with subjective experience and a social constructs. Entrepreneurs need to bridge both these worlds, and the authors outline key business management myths that usually limit startup thinking:

1. Myth: Think big. There are always pressures to be sure an opportunity is big enough, but most really big solutions began small and built momentum. To seize really new opportunities, it is better to start small and find a deep, underlying human need to connect with. A better maxim for entrepreneurs is: Focus on meeting genuine human needs.

2. Myth: If the idea is good, then the money will follow. The truth about ideas is that we don’t know if they are good; only customers know that. Entrepreneurs often express surprise at funding challenges, confident that their good idea would attract money on its own merits. In that light, a better maxim for entrepreneurs is: Build the right team and customer need, and funding will follow.

3. Myth: Measure twice, cut once. This one works fine in an operations setting, but when it comes to creating the as-yet-unseen future of a startup, there isn’t much to measure. Spending time trying to measure the immeasurable offers temporary comfort but does little to reduce risk. A better maxim for entrepreneurs is: Place small bets fast.

4. Myth: Be bold and decisive. In the past, business cultures have been dominated by competition metaphors (sports and war being the most popular). Organic growth, by contrast, requires a lot of nurturing, intuition, and a tolerance for uncertainty. Placing bold bets falls well short of the new entrepreneurial maxim: Explore multiple options.

5. Myth: Don’t ask a question you don’t know the answer to. This one is borrowed from trial lawyers, and it traveled into business because it always seems less risky to look smart. Unfortunately, new opportunities do not yield easily to leading questions and preconceived solutions. A better maxim for entrepreneurs is: Start in the unknown.

6. Myth: Sell your solution. If you don’t believe in it, no one will. When you are trying to create the future, it is difficult to know when you have it right. The key is to be absolutely certain you have focused on a worthy problem. You’ll iterate your way to a workable solution in due time. Follow two maxims here: Choose a worthwhile customer problem. Let others validate.

There are many other design-thinking principles that entrepreneurs need to heed, such as the fact that products and services are bought by human beings, not target markets segmented into demographic categories. Great designs, as well as great products, grab customers at an emotional level first, then at the economic level.

Exemplified by Apple, and the success of their elegant products, design-thinking is proving to be more and more the competitive edge for entrepreneurs. This is not to say that sound business principles should be ignored in your next startup. The challenge for every entrepreneur, is to find that right balance between the myths and reality of business, and the power and inspiration of an innovative design.

Marty Zwilling

A Healthy Startup Requires a Healthy Entrepreneur

A couple of years ago, I saw first hand what can happen to a founder, and the business, when the founder practices unhealthy habits, such as working 20 hours a day. A typical “Type A” personality, with boundless energy and enthusiasm, she aggravated some previous health limitations until she was bedridden, and the business floundered.

Many entrepreneurs are too focused on their dream to take notice of health warning signs, which leads them to ignore business health signs as well. If you can’t remember the last time you had a relaxing evening with the spouse, or read a book, then your health may be in jeopardy. If your business won’t run for a day without you, then the business isn’t healthy either.

There is no single formula for how to stay healthy while starting and running an exciting but demanding new business, but here are a few suggestions, depending on your lifestyle:

• Stay fit and rested. You will have more energy and think more effectively if you are in shape and rested. In addition, you’re a role model for partners and employees. Real job performance is more a function of productivity than hours worked anyway.

• Find a stress reliever. For some people, it’s quiet meditation, and for others it’s a vigorous workout at the gym. Find something you really enjoy that doesn’t have anything to do with your business. These will help you unleash the creative side.

• Work and family balance. Family-work balance is an issue that involves financial values, gender roles, career paths, time management and many other factors. Entrepreneurs can be so focused that they ignore the family, resulting in an unhealthy situation for everyone.

• Regular medical checkups. No one is immune to the random attacks of a disease, and something recognized sooner rather than later can often be treated with minimal lasting effect. Undiagnosed and untreated problems, resulting from ignored or unknown symptoms, are a health disaster well worth avoiding.

At the same time, don’t forget that there are things you must do to maintain the health of your business, and send the right message to your employees on priorities:

• Reward employee health. Lead by example, of course, and encourage employees regularly to pursue a healthy lifestyle. You might even give special recognition for sticking to a wellness program, or sponsor a healthy team outing or other activities.

• Quarterly business reviews. On a regular basis, at least once a quarter, you need to take a hard look at all your key metrics. Maybe it’s time to tackle a new geography, or figure out how to exit some clients who are “high maintenance.”

• Quality improvements. Continuous improvement is the key to quality production. Make sure your processes are working. A constant increase in the quality of products and services, including more innovation and creativity, all lead to a healthier business.

• Improve customer service. Make sure all employees are empowered to provide the same customer service they would want for themselves and their own business. Measure how well you are doing with surveys and personal contacts.

Healthy companies need healthy employees and healthy processes. Workplace health promotion is not, as some might think, a charitable gesture towards employees but an investment in the company. It can be a life or death issue with you personally, as well as your company. Don’t wait, like my friend, until it’s too late.

Marty Zwilling

Don’t Count on Crowd-Funding to Save Your Startup

One of the hot new approaches I have seen around the country for assisting startups looking for funding has been “crowd-sourcing” sites (Kickstarter) or “crowd-pitching” events (Funding Universe). These are variations on a “crowd-funding” theme to raise money for a startup through social networks and voting at public events. I’m still waiting for a startup to proclaim real success from this approach.

Crowd-sourcing tools, usually Internet applications, use the social media to poll for interest, feedback, and ultimately some funding for the startup. This is a complex task, especially as it involves creating an accurate yet compelling offer, collecting the money, and rewarding the investors.

Crowd-pitching is an offline event, but logically similar, which give several candidates an opportunity to pitch to a crowd of interested people for a couple of minutes, after which the crowd “votes” with some play-money to pick the best candidate, who then wins some nominal investment amount or services.

Certainly both of these crowd-funding approaches provide the entrepreneur with an opportunity to hone his pitch, and get some real consumer feedback on the idea. But from my perspective representing investors, this approach falls short on several counts:

1. Focus is on the product, not the business model. When pitching to consumers, online or offline, the feedback will likely be on features and design. The key success factors of the business model (how you make money), management expertise, and financial projections will likely get overlooked.

2. Amount of funding provided is very small. The amount of time and money required for publicity and promotion of any crowd-funding activities may be more than the return. In reality, a few hundred or even a few thousand dollars to a few winners, is probably not a return on the investment required.

3. Multiple micro-investments are not manageable. Investors know how tough it is to get a set of terms accepted by even two investors, much less hundreds. The administration of legal conditions, signatures, disclosures, and distributions is a nightmare. In my opinion, that’s why micro-finance has rarely worked, even for loans.

4. Proposal content is too short to be meaningful. In all cases, to keep non-professionals attention, the content of the offer online, or pitch presented, is very limited. No one contemplates including a business plan, investor presentation, or even the equivalent of an executive summary.

5. Crowd sample size and makeup not representative of market. If the pitch is offline, the audience is likely to small and mostly budding entrepreneurs. Even online, the type of people who may respond to social media requests may bear very little relationship to the intended market.

6. Investors are not prepared for the high risk of startups. Crowd-funding investors are not constrained to be accredited professional investors. They may not understand that nine out of ten startup investments provide no return, and the risk of securities law violations is very high.

7. Intellectual property is jeopardized. Non-disclosure agreements can’t be done in these environments. In an environment populated by entrepreneurs rather than investors, when you are new to the game, you are exposing your plan to your biggest potential competitors.

Some groups are making an effort to mitigate these problems by pre-screening the candidates, and providing an experienced panel of investors to do the judging. This helps by making sure the feedback is realistic, and the presenters have a rational business opportunity to present. I’m already working with a couple of organizations along these lines.

Overall, there is no question that crowd-funding makes sense for non-profits soliciting donations, disaster relief efforts, political campaigns, or even artists seeking support from fans. But in the competitive world of “the next big thing,” with millions of dollars at stake to be lost, counting on these mechanisms today for money would be foolhardy.

Marty Zwilling

You Never Learn Anything While You are Talking

When you are not presenting to investors or your team, try to spend more time listening than talking. You can’t learn anything new while you’re talking, yet many entrepreneurs seem to never stop. It’s a sad spiral, since the more you talk, the less people really hear, meaning they don’t learn anything either. If someone left this article on your desk, read extra carefully.

Building a business is all about building relationships, and one of the most important elements of a relationship is effective communication. Communication doesn’t happen unless both parties practice the art of effective listening. Check to see if you are practicing the key disciplines of listening, as outlined by Brian Tracy in “No Excuses: the Power of Self-Discipline”:

• Listen attentively. Listen as though the other person is about to reveal a great secret or the winning lottery number and you will hear it only once. Since you always pay attention to what you most value, when you pay close attention to another person, you tell that person that they are of great value to you. You will be remembered.

• Pause before replying. When you pause, you avoid the risk of interrupting the other person if they are reformulating their thoughts. It also enables you to hear not only what was said, but what was not said. Then you can respond with greater awareness and sensitivity.

• Ask for clarification. Never assume that you automatically know what the other person is thinking or feeling. It is when you ask questions and seek clarity that you demonstrate that you really care about what he or she is saying, and that you are genuinely interested in understanding how he or she thinks and feels.

• Feed it back. The acid test of listening is to see if you can paraphrase what you heard in your own words. It is only when you can repeat back what the other person has just said, in your own words, that you prove you are really listening, and understood the message. For all feedback, be sure to mirror the other person's pace and communication style.

Even good communicators average only about half their time listening. Yet experts assert that most people listen with only about 25 percent of their attention, hear about 25 percent of what is said, and after two months, remember only half of that. That’s not effective communication.

There are also things you can do to encourage others to listen to you, when you do speak, to improve the overall communication:

• Lower voice, no emotion. This causes the other party to listen more carefully, and facilitates a more pleasant and more effective conversation.

• Adapt to listener interests. Use analogies and terminology that are easy for the other person to relate to, and they will respond with attention and higher comprehension.

• Choose the right environment. Wait for the right opportunity, when you can be easily heard and understood, and the listener is in the right mood.

• Address people by name. This gets their attention and focus. Sometimes it helps to bring others into the conversation to support your input.

In business, you need to always be listening – to customers, to advisors, to investors, and to your team members. When you do talk, concentrate on making it effective. You don’t have the time to have things repeated to you four times before you really hear and understand them.

Responsible, effective listening is a rare skill that will give you a sustainable competitive advantage over your peers and your competitors. It’s also a skill that can be developed with practice. You can never know enough in business, so even top entrepreneurs find time to listen. Are you learning anything these days?

Marty Zwilling

Ten Action Items to Reduce Entrepreneur Stress

One of the most common complaints I hear from entrepreneurs is that they are overwhelmed by the workload and stress of starting their company. Then there are the additional challenges of balancing the demands of family and friends. Having too much on your plate can turn your dream into a nightmare.

Some people will tell you to just get a bigger plate, meaning hire some help. But with the pressures of the economy, and limited access to outside funding, we all know this isn’t always possible or appropriate. I recommend the opposite, or getting things off your plate that shouldn’t be there in the first place.

In reality, many entrepreneurs are their own worst enemy, trying to do everything, working inefficiently, and imagining things that need doing which will never happen. Here are some tips on how to look at work, make some hard decisions, and keep your health and sanity:

1. Maintain a big picture perspective. It’s easy to be overwhelmed by day-to-day details, to the degree that they all seem like big items, driving up your imagined workload. Take a few minutes each day to reflect on your real goals, and eliminate items which don’t relate.

2. Set realistic deadlines. The more your workload grows, the greater is your temptation to set unrealistic deadlines for yourself. This results in poor quality work, which generates more work to fix previous efforts. Allow some buffer on every item.

3. Prioritize the work items. Relentlessly reprioritize your list and complete them in order, resisting the urge to skip over the tough ones. The longer that high-priority items stay on your list, the more stress you will feel, and consequences will add new items.

4. Keep a written to-do list. Most people can’t manage more than five items in their head, and when your list gets longer, it seems infinite. Write it down, but even then, keep it to the top ten priority items or less. Multiple pages of work items won’t get done anyway.

5. Block out time for priority work items. Don’t allow your day to be monopolized by distractions and the crisis of the moment. Close your door, or move to another location where you will not be interrupted so that you will complete the top item on your list today.

6. Count the completions. At the end of each day, check off, count, and celebrate your positives. A sense of progress is important here. Look positively at your progress as a glass half full, rather than half empty.

7. Take a break to recharge. Even a few minutes each hour to relax will re-energize you. Regular non-work breaks, like a trip to the gym, or time with family will be ultimately more productive than slugging it out all night on a given problem. Get a good night’s sleep.

8. Discuss the tough ones with a mentor. Don’t be afraid to discuss your challenges with a trusted friend, or business advisor. This will clarify the issue in your own mind, and let you see it from other angles. You need to stop and regroup when you hit a brick wall.

9. Stay in control of your emotions. Stress is a normal part of life. Don’t let it lead to anger and frustration, or loss of productivity. We can choose how we handle tough situations, and the best approach is always to stay calm and in control.

10. Eliminate phantom work items. These are items that you never intend to do, and probably don’t need, but you carry them on your list because of guilt or direction from someone else. You can’t complete an item that you don’t understand.

Wearing all the hats required to initiate a startup is tough in the best of situations. Then your business really starts to take off, and it gets even more challenging. As an entrepreneur, you need to seriously apply the discipline of these principles early and always to survive, and hopefully even enjoy the journey.

Marty Zwilling

You Can’t Afford to Stifle Innovators in a Startup

Entrepreneurs are usually highly creative and innovative, but many innovative people are not entrepreneurs. Since it takes a team of people to build a great company, the challenge is to find that small percentage of innovative people, and then nurture the tendency, rather than stifle it.

A while back I read a book titled “The Rudolph Factor,” by Cyndi Laurin and Craig Morningstar, which is all about finding the bright lights that can drive innovation in your business. The story most specifically targets big companies, like Boeing, but the concepts are just as applicable to a startup with one or more employees.

The core message is that real innovation and competitive advantage are more people-based than product or process-based. Every good entrepreneur needs a people-centric focus to ferret out creativity and innovation in his team, and to build a sustainable competitive advantage.

The authors observe that people who behave as mentors tend to have an uncanny ability to recognize and nurture people who have innate capabilities along these lines. Here is a summary of the characteristics they and you should look for:

• Thinkers and problem solvers. Innovators are naturally creative and love new challenges. Some may appear a bit eccentric to people around them. They generally promote unconventional ways to solve problems and have an easier time than most at identifying the root cause of a problem.

• Passionate and inquisitive. These team members are passionate about their work and light up when talking about their role or a particular project they are working on. They often ask “Why?” even when it is not the most popular question to be asked.

• Challenge the status quo. They believe that questioning is of value and benefit to the organization. This is also how they discover what they need in order to solve a problem, so they aren’t rocking the boat just for the sake of rocking the boat.

• Connect the dots. Innovators have the ability to quickly synthesize many variables to solve problems or make improvements. To others, it may appear as if their ideas come out of the blue or that there is no rhyme or reason behind their thinking.

• See the big picture. They tend to be natural systems thinkers and see the whole forest rather than a single tree … or just the bark on the tree. They may express frustration if people around them are having conversations about the bark, rather than the forest.

• Collaborative and action oriented. They are not loners, and have the ability and confidence to turn their ideas into action. They act on their ideas, sometimes without knowing how they will accomplish them. The “how” is always revealed in time.

Your challenge is to go forth with this new awareness and thinking, to find and mentor those bright lights that will drive innovation and competitive advantage. The next step after finding innovators is to integrate them into your team. A key aspect is establishing a team-based culture that is a safe environment to share and execute ideas.

In fact, this safe and nurturing environment has to extend beyond a single team to the highest levels of the organization. It should embody a style of leadership that is essentially a commitment to the success of the people around you. That opens the door for anyone in the organization to lead from where they are, rather than waiting for management to “do something.”

Innovation is at the very heart of every successful startup. Everyone wins when you look at things very differently and wonder “why”, not “why not.” What better way to extend this power than to surround yourself with more highly creative people? Then you can make the world a place of possibilities, as well as probabilities.

Marty Zwilling

How to Activate Your Entrepreneurial Leadership

I’ve often said that creating and building a business is not a one-man show, even though it usually springs from the mind and determination of one person – committees don’t start successful businesses. But taking an idea to a business success requires many people to work together effectively, and that requires entrepreneurial leadership.

Leadership is not a skill one is born with, but it can be learned and honed from experience and failures. We all start with what researchers term the “knowing-doing gap.” We know what should be done, but we don’t know how to get it done. Many people assume the solution is to find the recipe, or leader’s checklist, and follow it methodically.

I think it takes a few more steps to “activate” the checklist and fruitfully engage in the activities that lead to leadership success. Michael Useem of Wharton, in his new book, “The Leader’s Checklist,” outlines 15 mission-critical leadership principles, and also includes six avenues of learning for new entrepreneurs to activate their leadership skills:

1. Study leadership moments. A first step is to become a self-directed student of leadership. This study can take many forms: reading leaders’ biographies, witnessing leaders in action, and joining leadership development programs. What’s critical is witnessing how others have worked with a full checklist or fallen short, often a powerful reminder to examine whether you yourself are employing all the necessary principles.

2. Solicit coaching and mentoring. Solicit personal feedback from individuals who can provide informed, fine-grained advice on not only the leadership capacities that you already exhibit but those that require better display. It is hard to correct what you do not know you are not doing.

3. Accept stretch experiences. Ask for and accept new responsibilities outside your comfort zone. By testing fresh territories and experiencing the setbacks they can bring, you can grow to appreciate the shortfalls in your own leadership style even as you learn to more consistently apply it.

4. Conduct after-action reviews of personal leadership moments. Look back on leadership actions just taken, asking what worked, what was not invoked, and even what was missing from the original checklist. Through such efforts, entrepreneurs who actively pursue feedback from their team and their customers are on the road to success.

5. Endure extremely stressful leadership moments. Transform a chilling experience into a learning opportunity. We often learn as much from setbacks as successes—sometimes we learn even more from setbacks than successes—and with unflinching study of the stumbles, you have a greater readiness to apply real leadership the next time.

6. Experience the leadership moments of others. The final step is to vicariously or directly experience a leadership moment of a mentor or peer. When you walk in another’s shoes during a critical test of leadership, you will build a better appreciation for when and how to invoke your own leadership elements.

The core principles of leadership for every entrepreneur include articulating a vision, think and act strategically, act decisively, communicate persuasively, motivate the troops, build relationships, and building leadership in others. Of course, these need to be customized for every culture and every business environment.

In every environment, there is a final and most vital leadership principle – common purpose comes first and personal self-interest comes last. In business, it appears in Jim Collin’s appraisal as one of the defining qualities of those who lead their companies from “good to great.”

Entrepreneurial leadership has its greatest impact in times of uncertainty and change, like the present. How wide is your knowing-doing gap, and how actively are you working to close it?

Marty Zwilling

How You Can be Viewed as a Fundable Entrepreneur

Investors are people too. They evaluate you like you should assess a possible co-founder or first employee. What are your credentials? What have you done that would convince me that my money is safe in your hands? Only after they see you as fundable, do they want to assess your plan for fundability, not the other way around.

Even with great credentials, it is all too possible for an entrepreneur to come across as a high risk investment. Here are some “rules of thumb” that indicate a marketable and experienced entrepreneur:

• Highlights team strengths, more than his own. Some entrepreneurs seem to never stop talking about themselves, and all their accomplishments. The best ones talk more about how they have assembled a well-rounded team, and will continue to fill in the gaps.

• Talks about the implementation plan, not the idea. Most entrepreneurs are great at envisioning their business idea, but the implementation is fuzzy. Experienced entrepreneurs talk about their implementation and rollout plan, with real milestones and quantifiable results.

• Customer needs and benefits first, then product features. The best entrepreneurs show that their market domain knowledge is as strong as their product technology knowledge. They are able to weave their solution into the market, the opportunity, and customers, in a way that sounds like a natural fit, rather than a product sales pitch.

• Focus is clear, not all over the map. Success means the entrepreneur must be laser focused on driving the business, passionate about a product, and passionate about a specific set of customers. If the business plan reads like a smorgasbord of offerings, there are probably not enough resources to do any well, and customers will be confused.

• Rational business model, with prices and volumes. Unless the business is a non-profit, the entrepreneur needs to show how he will make money. The days are gone when investors want only to see a large market share or growth in eyeballs. Are revenues and costs reasonable and projected for five years?

As an entrepreneur, don’t let your ego get in the way, or believe you can take the world on by yourself. If you want to attract investors, you must be willing to listen and work with others, as well as share your ideas or your knowledge. Loner entrepreneurs won’t get their foot in the door with any investor I know.

If you are young or inexperienced, and don’t have business credentials yet, don’t hide this fact. I recommend a proactive approach, to highlight the accomplishments you have, the power of other team members, and show some humility in admitting a search for the rest of the team.

So you might ask, how do first-time entrepreneurs ever get the funding they need to prove that they can perform at the next level? The best answer is to team yourself with someone who has “been there and done that.” After a team success, you’ll find all members are “promoted” to the next level.

Another common approach is to bootstrap your first startup to success, possibly with some help from friends and family. As I said in the beginning, investors are people too, so get out there and make them your respected business friends before you try to sell your idea. Business networking is not the same as cold calling with a hard sell.

Every investor knows a few good entrepreneurs, like Marc Andreessen of Mosaic and Netscape fame, who can get millions of dollars of funding for just about any idea, but I don’t know one investor who has funded a “million dollar idea” without regard to the person and the plan behind it. Think about that the next time you pitch your idea.

Marty Zwilling

Men and Women Start Businesses With Unique Styles

Do you think men make better entrepreneurs than women, and why? I did some research on this subject a while back, and I found some interesting perspectives. Everyone seems to agree that women think differently than men, and run their businesses differently, but there is a lot less agreement on which styles are better or worse.

First of all, it is evident that there are fewer women entrepreneurs today than men. Only one in four companies in the USA today are run by women. Yet, according to a study by the Center for Women’s Business Research, the number of female-owned firms is growing twice as fast as all the rest, so women are catching up. Here are key observations from this and other studies:

1. Leadership style. There are clear differences between males and females in their management and leadership styles, probably reflecting their genetics. Distinguishing traits of male leaders are autonomy, independence, and competition, while those of women are relations, interdependence, and cooperation. Both have their advantages.

2. Operational style. For operational purposes, men move quicker, are more analytical, more focused and concentrate more on the short term and on rules. In contrast, women generally gather more data, consider their context, think more long-term, and rely also on their intuitive and sympathizing characteristics. No comments on which is better.

3. Organizational style. Status and rank are important for men, whereas women are more comfortable working in a flat hierarchy. The structure of preferred by males resembles a hierarchy or pyramid, where authority stems from one’s position within the hierarchy, and emphasis is more upon goals and objectives than on the process.

4. Business relationship style. For men, business relationships are more competitive, and power is enhanced through control of information, which may be hoarded rather than shared. Women have larger social networks, for advice and resources, and relationships with other business women are more nurturing than competitive.

5. Emotional style. The biggest surprise for me was the finding that men seek larger "emotional" networks - the complex of associations that provide warmth, praise, and encouragement. Also men tend to show more emotion in business than women do, as a form of domination and intimidation.

6. Investment style. Most of the venture capitalists and angel investors I know are male. Women seem to network for the sake of relationships, and they will invest in support of these relationships, but have less interest in business opportunity investments. Men network for the sake of utility.

7. Motivational style. Women are more likely to be motivated to pursue an entrepreneurial career as a means to balance family and career, while men are more likely to be motivated by wealth accumulation and career advancement. According to a study funded by the Kauffman Foundation, women’s self image seldom includes entrepreneurship.

We know, of course, that in the real world, it all comes down to the individual, not how many X chromosomes that he or she has. As I contemplate the differences in style listed above, it seems that in fact they are complementary – yin and yang – like masculine and feminine, rather than right or wrong. Societal trends actually seem to be favoring the women these days.

The implication is that entrepreneurs of either sex would do well to find a business partner on the other side, capitalizing on the other dimension, rather than engage in a battle of the sexes. Wars are no fun for either side.

Marty Zwilling

Social Media Isn’t Free to Entrepreneurs or Anyone

If you are an entrepreneur today, and not using social media to promote your business, you are missing out on a huge opportunity. But, contrary to what most people preach, it isn’t entirely free. Most social media outlets don’t require a subscription charge, but they certainly require an investment – in people, in technology, your reputation, and your time.

There are hundreds of consultants out there who will take your money for guidance in this area, but I recommend that you start with some free resources on the Internet, or one of the many recent books on this topic. One I just read, “How to Make Money with Social Media” by Jamie Turner and Reshma Shah, Ph.D., hits all the right points from my perspective:

• There are risks as well as benefits. As with many startup activities, you only have one chance for a great first impression. You can jump into social media with a poor brand definition, poorly focused content, unrealistic expectations of customer service, or be killed by malware or viruses.

• Assess social media relevance to your product or service. If your business is industrial B2B products, social media should be low on your list. Spend your time and money on other platforms. If you are selling to consumers, especially younger ones, your business won’t survive without an effective social media presence.

• Attracting key stakeholders requires sensitivity. For some customers and many investors, a heavy focus on social networks and viral marketing may be a negative, rather than a positive. A balance of conventional and social communication and marketing is always advised.

• Pick the right platform for your business. Within each of the platform categories defined above, there is a right one and a wrong one for your audience. For example, LinkedIn is attuned to business professionals, Facebook is dominated by the social and upwardly mobile crowd, and MySpace is for tweens and creative types.

• Communication and writing skills are required. Heavy texting experience is not a qualification for communicating via social media. In additional to strong journalistic writing and storytelling, you need business acumen, strategic thinking and planning, and the ability to do the right research. These days, video production is also a useful skill.

• Make social media an integrated part of an overall strategy. An integrated marketing strategy starts with an overall brand management strategy, delivered through online and offline communications, promotions, and customer engagement vehicles. Your Twitter and YouTube messages better match your print advertising message.

• Find the right tools to analyze the ROI. Return-On-Investment metrics are not new, but the tools are different. Get familiar with current social media tools, such as Google Analytics, Omniture, and HootSuite analytics. Over time, put together the data you need to measure your progress on a weekly/monthly/yearly basis.

The key social media platforms today include communications (Wordpress blogs, Twitter), collaboration (Wikipedia, StumbleUpon), and multimedia (YouTube, Flickr). In looking ahead, don’t forget the mobile platforms (iPhone, Android), and location-based services (Foursquare, Gowalla).

As with any resource or tool, you need to optimize your social media costs against a targeted return. That means first setting a strategy and plan for what you want to achieve, then executing the plan efficiently, and measuring results. It’s not free, but it’s an investment that you can’t afford not to make.

Marty Zwilling

These 10 Steps Will Make Your Startup Fundable

Every investor expects to see some business traction, both before and after a funding event. If you have been working 20 hours a day, and spent your last dollar, but have no results to show, investors will be sympathetic, but will probably tell you that your dream doesn’t have wheels. Traction means forward progress.

I hear a lot of entrepreneurs contemplating their great “idea” for several years with little discernable progress, and looking for money to start. Talk and time are cheap, but they need to understand that investors judge past results as a good indicator of future expectations. Here are some tips which will signal traction and fundability to investors, as well as to your team:

1. Document your business plan. It’s hard to build a business without a plan, just like it’s hard to build a house without a blueprint. If you have a product description, that’s necessary, but not sufficient. If you have neither, and choose to approach an investor, you will get no attention, and probably never again get a shot at funding with that investor.

   Forcing yourself to write down a plan is actually the only way to make sure you actually have a plan. Make sure your plan answers every relevant question that you could possibly imagine from your business partners, spouse, and potential investors. That means skip the jargon and include explanations and examples.

2. Set realistic milestones and achieve some. You can’t measure results if you don’t have a yardstick. On the other hand, if your objectives are off the chart, you look bad when you set them, and you look even worse when you miss them. Only written milestones are credible.

   Traction means that you have achieved one or more significant milestones, which will give you credibility with investors. Don’t expect them to believe your $100M revenue projection, if you are still waiting for the first revenue dollar. Only real results count.

3. Attract a well-rounded team. A great business often starts with one person, but it doesn’t end there. If you are strong enough to surround yourself with a strong team, that’s great progress toward success.

   A CEO who has “been there and done that” is traction, especially if teamed with a financial lead (CFO) and a product lead (CTO). A team of friends and family that work for free on weekends is not likely to impress investors, unless they ARE your investors.

4. Build qualified advisory board. If you can convince a couple of domain experts, or a couple of experienced executives to join your board and be your advocate, that’s traction. Investors love to have smart and experienced people in the boat.

   Investors are likely to make a few phone calls, so make sure these people really have taken the time and commitment to work with you, and know your business. Ideally, they will have links to distributors you need, or even be investors in your company as well.

5. Ship a minimum product now. For a true scientist, the product is never good enough, so it’s never done. For a business, you must define the absolute minimum features you need to satisfy the customer problem, and test it in the market. It will be wrong, so count on iterating, but you learn something each time, and that is traction.

   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.

6. Get a real customer and real revenue. If you give away your product or service to the first 10 customers, that’s a good learning experience, but it’s not real traction. It doesn’t prove your business model of pricing, distribution, and support. Sell one.

   Real customers give you real feedback, rather than just tell you what you want to hear. Funding for pre-revenue startups used to be the domain of angel investors, but they have moved up-stage. Without revenue, your investors are largely limited to friends, family and fools.

7. Register some intellectual property. File a provisional patent, register a trademark, and reserve your company domain names. These are things that can cost very little money, but go a long ways in convincing someone that you are making progress.

   Intellectual property is a large element of most early-stage company valuations, and this value determines what percent of the company an investor will expect to get for his money. It’s also the keystone to convincing investors that you have a “sustainable competitive advantage.”

8. Letters of intent or endorsement. If it’s too early for real customers, a Letter of Intent (LOI) or a written endorsement from a potential big customer is good traction to show potential investors. These show you have the ability to make the connections you need.

   Of course, a real contract or purchase order from a big customer is even better. If you have neither, you better have a prospect pipeline, connections to distributors, or partner relationship with a known company to bolster your credibility.

9. Show personal investment. Investors like to see that you have committed personal funds as well as “sweat equity,” and they like to see real progress at this level. If you haven’t risked anything or used funds effectively, investors won’t let you risk theirs.

   A related issue is your apparent commitment to the project. If your startup is an evening hobby for you and some friends, and they all have a full-time day job elsewhere, don’t expect investors to get excited.

10. Become a visible expert. If your business is a new job site for boomers, you need to establish yourself as the expert on this subject in the press, on social networks, and join related organizations. This is traction that will impress investors, and get you customers.

    Other ways to be visible include writing a blog, speaking at local groups, and issuing press releases which are related to the market need rather than the product you are producing. These efforts should be started well before you are ready for funding.

Your objective is to build a business that marches with power and purpose past its goals and objectives. Both your team and potential investors are watching, and if all they see and feel is words and work without progress, it’s easy to conclude that your startup is still a dream and a prayer.

Marty Zwilling

Entrepreneurs Need Self-Discipline and Real Goals

Successful entrepreneurs are usually hard-driving, and highly focused on some specific goals, like being the dominant player in a given domain, or the low-priced provider of their product. Yet other entrepreneurs will talk for hours about all their ideas, and how they intend to change the world, but I don’t hear any specific goals or milestones.

Many people are very hesitant to set specific goals, due to lack of self-confidence or whatever. The result is that they don’t ever get anywhere, because they never really knew where they wanted to go. If you find yourself in this category, try the following simple steps highlighted by Brian Tracy in “No Excuses: The Power of Self-Discipline”:

• Decide exactly what you want. If you want to increase your income, decide on a specific amount of money, rather than just “make more money.” Without precise goals, you can’t measure progress, and you miss the real satisfaction of knowing when to declare success.

• Write it down. A goal that is not written down is like cigarette smoke; it drifts away and disappears. It is vague and insubstantial. It has no force, effect, or power. It’s too easy to forget or push aside when outside forces arise that you hadn’t anticipated – and they will. On the other hand, most people don’t hesitate to write down excuses.

• Set a deadline with specific milestones. Pick a reasonable time period and write down the date when you want to achieve it. If it is a big enough goal, set intermediate milestones for measurement reference points. The rule is “There are no unrealistic goals; there are only unrealistic deadlines.” Don’t be afraid to change the deadline – for cause.

• Make a list of things you need to do to achieve your goal. The biggest goal can be accomplished if you break it down into enough small steps. Make a list of obstacles and difficulties, knowledge and skills required, necessary people, and everything you will have to do to meet the goal. Add to these lists as you learn more.

• Organize your list by both sequence and priority. A list organized by sequence requires that you decide what you need to do in what order. A list organized by priority enables you to determine what is more important. Then develop a business plan which embodies all of the above.

• Take action on your plan immediately. Don’t delay. Move quickly. Procrastination is the thief of time, and it shortens your life. Winners in life take the first step now. They are willing to overcome their normal fear of failure and disappointment, and take a small step, and then other one, until they reach the goal.

• Do something every day that moves you in the direction of your major goal. This is the key step that will guarantee your success. Do something every day that moves you at least one step closer to the goal. In this fashion, you develop momentum, which further motivates, inspires, and energizes you. Soon it becomes automatic and easier.

You can’t control the future, and that’s not the purpose of goal setting. It’s also a recipe for failure to assume that the path to your goal will require suffering and sacrifice. In fact, the whole objective of all steps above is to allow you to avoid stress and suffering, and be more fully motivated by your progress.

As you adopt a goal-setting mindset, you will find yourself setting different kinds of goals. These are lifetime goals, not just a collection of near-term objectives. It’s these really big objectives, that seem unachievable even to you right now, that will inspire you the most, and motivate you to real success and happiness.

Marty Zwilling

Ten Steps in Choosing the Right Startup Partner

If you are a first-time entrepreneur, I often recommend that you team with a co-founder with experiences, connections, and a skill set that complements, but doesn’t duplicate yours. Even experienced entrepreneurs need a partner to strengthen their position. The question is how to find that elusive perfect-fit partner.

First, I will admit there is no magic formula here, just like in real life when trying to find a relationship partner. But from my own experience, and input from others, there are useful approaches that will improve your odds of success:

1. Define the ideal partner. The most important step is deciding exactly what skills and experience you need to best complement yours. Start with your own judgment, but don’t hesitate to ask for advice from a seasoned investor. Ideal partners here should not include your best friend or a family member.

2. Start the search with business networking. Actively participate in local business groups and events, like The Indus Entrepreneur (TiE) and entrepreneur forums. Join entrepreneur groups online, like Linkedin “On Startups”, Facebook for Business, and use Twitter to find people with like-minded interests.

3. Join online “dating” sites for business partners. Believe it or not, there are online websites that are dedicated to just this challenge. Examples include PartnerUp, StartupAgents, and Cofoundr. Don’t forget the wealth of business blogs frequented by entrepreneurs and investors, where you make your interests known.

4. Use local university connections. Call some professors and students at your local university to see if they know any entrepreneurial students, alums, or professors who might be interested in jointly creating a real company.

5. Look for diversity in outside activities. Major universities, like Stanford and MIT, are flush with smart people from all cultures, many of whom would bring a whole new energy and creativity to your startup. Certain activities seem to attract the right kind of independent thinkers, like rock climbing and ultimate Frisbee.

6. Talk to people at work. If you have worked with someone at another company for a couple of years, and realized that your work ethic, goals, and personalities are similar, that person may be a good match. Watch out for non-compete clauses, and conflicts of interest with the current employer.

7. Move to the right geography. If you live in the middle of nowhere, your chances of finding the right co-founder for your new high-tech startup are poor. Maybe it’s time to consider relocating to one of the hubs for startups, like Silicon Valley, Boston, Seattle, or Austin. As soon as you find the partner, these are the places to find funding as well.

8. Get to know potential partners before committing. Take your time. Meet personally with potential candidates in both formal and informal environments to check for a match in chemistry as well as interests. Ask every question you can think of, and don’t let emotions get the best of you. Co-founder is a long-term relationship.

9. Agree on role assignments early. The last thing you need after all this work is partners stepping on your toes. Make sure you all agree on what you know, what you are good at, and what responsibilities are assigned to each. Get this in writing as a standard pre-nuptial.

10. Hire a lawyer. Especially when dealing with co-founders that haven’t worked together before, meet with a lawyer with all the partners present and tell him what type of company you are starting, who is contributing what, and other relevant information. Get it written down. Later will be too late.

As most founders come to learn, finding the right business partner or co-founder is among the most difficult, yet most important things that new entrepreneurs need to do. Once they find a great partner, most of the ones I know stay with that partner through multiple startups. Of course, if you’re the next Facebook, you only need one.

Marty Zwilling

Investors Look for These Six Competitive Elements

One of the toughest and yet most important questions you will be asked by savvy potential startup investors is “What is your sustainable competitive advantage?” Yet many entrepreneurs, maybe in their passion for their new product, gloss over this one, or even announce that they have no competition.

Think about each of the three words for the full meaning of the phrase. “Sustainable” means over the longer term – not just today. First to market, for example, is not sustainable. It may buy you a few months, but if you show traction, competitors with deep pockets will catch up and bypass you quickly, jeopardizing all your investments.

“Competitive” should be taken broadly to include alternative ways that people might solve the problem you are addressing. Don’t define your scope so narrowly that you would not consider airplanes to be competitive with your new train, or you will suffer their fate. The competition is transportation, not slow machines on tracks.

“Advantage” needs to be measurable and significant. Many entrepreneurs lead with fuzzy terms like “improved usability” and “lower cost.” Experienced business people realize that unless you are dealing with a commodity, or customers are extremely unhappy, they won’t switch to a new alternative unless the savings are well above 20%.

So what are the business elements that investors look for to conclude that you may indeed have a sustainable competitive advantage? Here are the key ones:

1. Real intellectual property. We can all argue the shortcomings and non-defensibility of patents, but these are still your best competitive protection, sustainable for twenty years. Others of lesser value include trademarks, trade secrets, unique domain names, long-term contracts, and copyrights.

2. A dynamic product line, rather than a single product. If your product or service looks like one-of-a-kind, with no planned follow-up, you have a weak position. The best position is some innovative technology, with a great initial product, and a big list of follow-on products that can be commercialized to keep ahead of competitors.

3. Dramatic cost improvement for cause. What we are looking for here is a breakthrough in technology (patented), manufacturing process, or new revenue model, that results in an order-of-magnitude cost reduction. Saying that you will work harder and more efficiently than competitors to keep costs down is not convincing.

4. Proven team with inside relationships. Great people are always a real competitive advantage. Many markets, like government contracts, are especially costly and time consuming to penetrate, but if your team already has these connections, you have an immediate head start, and past leadership success suggests you can sustain the lead.

5. Lock on the market or customer base. If you already have a brand with a large customer base that is relevant to this new business, that’s a tremendous advantage, and it’s sustainable if you can maintain the momentum through complementary products. Investors will look at turnover rates, cost of acquisition, and revenue streams.

6. Strong focus and differentiation. A new social networking product that proclaims to combine the best of Facebook, MySpace, LinkedIn, and Twitter has too broad a focus and will likely not compete in the long run with existing offerings. Combining functions is not a good differentiator.

Overall, a sustainable competitive advantage requires value-creating products, processes, and services that cannot be matched by competitors now, and plan content to maintain that position as you scale. Of course all of this assumes you are in a big growing market, with adequate resources, marketing, and great people to deliver. No one said it would be easy!

Marty Zwilling

America’s Entrepreneurial Innovation Needs Help

The innovation engine that powered the U.S. economy over the last century seems to be slowing down and dying, threatening not only local opportunities, but the economies all over the world. The $30 billion trade surplus in advanced technology products that America enjoyed just one decade ago has now become a $56 billion deficit.

More and more people, like Henry R. Nothhaft, in his new book “Great Again: Revitalizing America's Entrepreneurial Leadership” are already calling these last ten years the “Lost Decade.” Nothhaft has put together a challenging but small list of things we have to do to revitalize our innovation leadership, and I’m supportive:

1. Liberate entrepreneurs from regulatory shackles. Startups in the U.S. face the highest combined federal and state tax rates in the world. At 39%, it’s more than 50% higher than the European Union countries average of 25.5%. Rates around the world are still going down, while U.S. rates have remained fixed for the last ten years.

   In addition, due to Sarbanes-Oxley and other regulations, accounting costs have gone up an estimated four times for all businesses, and 2008-2009 represented the worst IPO market in forty years. We need a regulatory regime that nurtures startups, rather than penalizing them like giant corporations.

2. Fix the patent office to keep up with the backlog. Since 1992, Congress has diverted nearly $1 billion in applicant-paid fees already earned by the USPTO to other uses (like the 2010 census), leaving the patent office unable to deal with the threefold increase in patent applications over the last 20 years.

   As of January 2011, there are a staggering 1.2 million applications awaiting approval, and more than half have never had an initial review, which really hurts startups. The average total fees for obtaining a patent are now way up to $38,000. In most cases, no patent means no financing, no new products, no new jobs, and no new industries for tomorrow.

3. Offer meaningful incentives to bring back high-tech manufacturing. In the last ten years alone, more than one-third of America’s largest factories have shut down. That’s 42,400 factories, including 15 semiconductor plants, and 12 million lost jobs. We now produce only 14% of the world’s supply of semiconductors, and even less of other things.

   Both China and Taiwan now provide a 5 year, zero-tax holiday, for semiconductor manufacturers, followed by 5 years at rates as low as 5%. Germany, Ireland, Israel, and most other non-Asian nations also provide major tax incentives, and huge R&D tax credits. We need to make a strong manufacturing base a national priority.

4. Ease immigration rules to turn brain drain to a brain gain. Studies show that foreign immigrants who enter on H-1B visas make a greater innovation and scientific contribution to the nation, by patenting at double the rate of native-born Americans, and publishing more highly-cited engineering articles.

   In fact, between 1995 and 2005, these same immigrants founded over 50 percent of the venture-backed technology companies in Silicon Valley, and are some of the key venture capitalists there as well. The evidence is that immigrants don’t take jobs, they create them by the millions.

5. More programs to support basic science and research. Over the past decade, there has been an exodus of scientific and technical expertise from the DoD (Dept of Defense) and academic community, with basic research dropping from a high of 26% in the 1960’s budget to only 12% of their budget today.

Government should learn from private industry and invest research funds just like a venture capitalist invests startup capital. It should invest in people and teams first of all, and let startup entrepreneurs take the fruits of that research and build from it a better tomorrow.

It’s time for us to get back to the basics of fostering innovation. I agree with Nothhaft that the answer is neither the “big government” of the radical left nor the “no government” of the radical right – it’s the “smart government” of the common-sense middle. Startups can be our silver bullet to kick-start our economy and innovation, so let’s give them some help, and be great again.

Marty Zwilling

Experience the Magic of Startup Team Collaboration

It takes a great entrepreneur with a great vision to start a business, but it takes a collaboration of many people to make it a success. That’s where leadership comes in as a key ingredient, to drive the collaborative process to make the whole team better than the sum of the parts.

I remember a book from a while back by Amilya Antonetti, titled “The Recipe: A Fable for Leaders and Teams” which illustrates the key concepts with stories and specific guidance on how to develop your natural leadership style. It all starts with how to be the leader in your own life, but then extends to learning the following skills she outlines for building a great collaborative team:

1. Build and maintain trust. Trust is a key element we all need to set aside vulnerability, but it is hard to build, and easy to lose. It is not built on words, but through actions and evidence. Only when it works can a team raise and address the necessary issues to win.

2. Expect conflict to reach consensus. A conflict and a fight are not the same thing. Conflicts are normal and required factual push backs in business, whereas fights are emotional, often personal, disagreements which do not lead forward to consensus.

3. Embrace change. Change is the only constant in business, so make it your competitive advantage. Initiate change rather than react to it, and give clear instructions to help the team understand why the change is necessary, and how it will make the situation better.

4. Improve your self awareness. Too often how we see ourselves is different from how we truly are, and how we are perceived by others. If you are unclear on what you want and need from others, you will rarely find it, and can’t lead others to help.

5. Establish a level of analysis, structure, and control. The challenge is to strike the right balance. With none, things fall into chaos, but too much can have the effect of stifling innovation, flowing forward movement, and even hampering growth.

6. Make decisions. In general, any decision is better than no decision. Usually a blended approach is the best, between independent decisions, and collaborative decisions factoring in the best team input. Picking great team members is a required first decision.

7. Foster continuous communication. Communication is the glue that forms the bond between leaders and teams, and holds great teams together. Actions are stronger than words as the true evidence of the message we deliver. Credibility is a required base.

8. Build championship teams. Winning teams evolve only from the right players, the right attitude, and the right coach. There has to be a cohesiveness and common focus on shared values and a commitment to reaching their shared and personal goals.

9. Provide recognition and rewards. These drive human behavior, and human behavior drives results. Recognition validates people, their purpose, and their life. Intangible rewards can have an even greater impact than tangible ones, but they must be relevant.

10. Create learning experiences. We all have a desire to learn and grow, or we and the team become bored and lethargic. The best learning opportunities are experience and sharing with focus on three styles: see and read, hear and repeat, and touch and feel.

In today’s fast-moving digital business age, we face an entirely new environment for innovation and collaboration. The days of the lone genius quietly toiling away, or the autocratic leader are gone.

So use these tips to develop your collaborative leadership skills and learn to build high performance teams. When the team is working well together, it can feel like magic, and the results will match your feelings. Amilya and I have both been there.

Marty Zwilling

Your Startup Technology is Like a Banana

By Bob La Loggia, CEO StormSource

Technology is like a banana. Yes, you heard me right, a banana. Just like technology, a banana has very distinct phases. Understanding these phases and taking action on them could be the difference between your company being king of the jungle or being caged in a zoo scraping flattened Junior Mints off the ground for sustenance.

Eating a green banana

You know the drill. You head to the grocery store, snake up and down the aisles pretending that you are the one in control of your choices and not the marketers. When you finally hit the produce section, it’s a welcomed reprieve from the cardboard, plastic, and aluminum. When you get to the bananas, you say, “Hmm, these look a little green. No biggie. They’ll be ripe within a day.” So, you grab a bunch and off you go.

They say that all humans are basically the same, regardless of ethnicity, gender, or religion. What happens next is a ritual that transcends all of mankind – a self-indulgent lie that occurs millions of times every day in all corners of the Earth: You talk yourself into trying to eat an unripe, green banana. You struggle to peel it, but you succeed. As you take that first bite, you realize something is wrong. Something is terribly wrong. You were expecting a fine wine and you got vinegar. You try to stay composed, but you can’t control yourself. You burst into a fit of fury and curse the heavens. The anguish is unbearable. You wish you were never even conceived.

Eating a green banana is like introducing a technology for which people aren’t ready. It looks good and seems pretty cool. But, when you try it, it’s a disappointment. Either the customer isn’t ready or the technology isn’t ready or the market isn’t ready. Remember when the first tablet computers were introduced? They failed. They were a green banana.

Rotten bananas

To see a brown, slimy, unwanted banana is a horrible experience. Just days ago, it was spritely, firm and full of potential. Now, it’s a pitiful has-been of a fruit. It’s hard to even look at. It’s starting to leak a little and stink. It’s that same uncomfortable feeling you get when you visit an old-folks home.

When your technology is out of date, prospects and customers get the same feeling. They may not write you off, but it’s definitely a struggle for them to take your technology seriously. And, it gets harder when they get marketed to by new, shiny competitors. It’s like putting a new, firm bunch of bananas on the counter next to a couple nasty, rotting ones.

Just right

When you peel back the perfect banana, time seems to stand still. The world is beautiful, easy, and calm. You chomp down and confirm this wonderful feeling.

When your technology is not too young and not too old, when it’s in the prime of its life, it’s a magical thing. It just works and your customers get it. We come across web sites and applications like this all time. You know them when you see them. They feel right. But, you also know when it when you see technology that is old or technology that is not yet ripe. They don’t feel right.

In your business, make it a priority to have the right technology, even if it’s just your web site. Don’t make it too “out there” and make sure it doesn’t look too old. Your prospects and customers will tolerate green or brown bananas for a while, but eventually they’ll move on to the next tree where the fruit is ripe. Don’t let this happen to your business.

######

Bob La Loggia is the founder and CEO of StormSource Software, maker of Appointment-Plus online scheduling software. He is a veteran of four startups, has over 22 years in technology, and has seen a lot of bananas. You can contact him directly through his website or email.

Limit an Investor Pitch to 10 Pages and 10 Minutes

As a member of the local Angel group selection committee, I’ve seen a lot of startup presentations to investors, and I’ve never seen one that was too short - maybe short on content, but not short on pages! A perfect round number is ten slides, with the right content, that can be covered in ten minutes. Even if you have an hour booked, the advice is the same.

I’ve published these points before, but based on interest, it’s time for an update. Remember the goal is an overview presentation that will pique investor interest enough to ask for the business plan and a follow-on meeting, not close the deal on the spot. If you can’t get the message across in ten minutes, more time and more charts won’t help.

Every startup needs both a business plan and an investor presentation, completed before you formally approach any investors. The approach I recommend is to build the investor presentation first, by iterating on the bullets with your team, and then fleshing out the points into a full-blown text-based business plan document. Here are the ten slides you need:

1. Problem and market need. Give the “elevator pitch” for your startup. Explain in analogies your mother could understand, and quantify the “cost-of-pain” in dollars or time. Fuzzy terms like “not user-oriented” or “too expensive” are not helpful.

2. Solution product & technology. Here is how and why it works, including a customer-centric quantification of the benefits. Make sure to communicate the relevance of your product / services to market needs. Describe your technology patents and “secret sauce”.

3. Opportunity sizing. Define the characteristics of the overall industry, market forces, market dynamics, and customer landscape. Investors like $1B markets with double-digit growth rates. You need data from industry experts like Forrester or Gartner for credibility.

4. Business model. Explain how you will make money and who pays you (real customer). In this section, you need to be passionate about recurring revenue, profit margin, and volume growth. Implicit in this is the go-to-market strategy.

5. Competition and sustainable advantage. List and position your competition, or alternatives available to the customer. Highlight your sustainable competitive advantages, and barriers to entry.

6. Marketing, sales, and partners. Describe marketing strategy, sales plan, licensing, and partnership plans. Here is also a good place for a rollout timeline with key milestones. Make sure your marketing budget matches the scope of your plan.

7. Executive team. Qualifications and roles of the top three executives and top three on your Board of Advisors. They need domain knowledge and startup experience. Highlight their level of involvement, and quantify their skin in the game.

8. Financial projections. Project both revenues and expense totals for next five years, and past three years. What is the current valuation of the company? Show breakeven point, burn rate, and growth assumptions.

9. Funding requirements and use of funds. What is the level of capital funding sought during this stage? What equity is the company willing to give in return for the investment? Show a breakdown of the intended uses of these funds.

10. Exit strategy. What is the timeframe of return on investment? What is the planned exit strategy (IPO, merger, sale, including likely candidates)? What is the timeframe for the exit? What is the rate of return expected for the investor?

Hand out copies of the slides before the presentation for note taking, with proper cover sheet, with brochures, product samples, or other marketing material you may have. Offer to do a demo later, but don’t try to squeeze it in the presentation.

My last recommendation is practice, practice, practice. The CEO should give the pitch, and prepare by playing “presidential debates” - asking your team to be the opponents, and check you on timing. Investors hate long rambling presentations. Show some energy and enthusiasm, and remember if you lose their attention, you have lost the deal. Have fun!

Marty Zwilling