Early Customer Feedback Can Lead to a Death Spiral

For most new high-tech products, the first customers are always “early adopters.” The conventional wisdom is that early adopters are the ideal target for new products, to get business rolling. I see two pitfalls with any concerted focus on early adopters; first, the size of this group may not be as large as you think, and secondly, their feedback may lead you directly away from your real target market of mainstream customers.

The term “early adopters” relates to the people who are eager to try almost any new technology products, and originates from Everett M. Rogers' Diffusion of Innovations book. Early adopters are usually no more than 10%-15% of the ultimate market potential, and marketing to them may be necessary, but not sufficient in marketing to the mainstream. Witness the market struggle for 3DTV acceptance over the past couple of years.

The good news is these people will readily provide candid feedback to help you refine future product releases, and push towards new features, increased control, and interoperability. The bad news is that they hardly ever push towards simplicity and increased usability needed by the masses.

The result can easily be the classic death spiral, driven by a small but vocal portion of your market, for more and more features, when you can least afford it in time or money. Equally bad, implementation of input from a few early adopters can actually prevent your products from being adopted by the majority, as follows:

• Minimize value of usability features. Features you designed for average users, like wizards for configuration, and simple buttons to eliminate complex processes, will get no feedback, or removal recommendations. Early adopters like to see tricky and elegant details, rather than general usability.

• Increased control and flexibility. Product suggestions by early adopters often ask for increased user control over details of the technology. However, each increase in control that you hand over to the users also increases user interface complexity, and the opportunity for pitfalls for the average user.

• Emphasis on engineering robustness. Early adopters love the technology, sometimes to a fault. Technical issues like execution speed, file size, and memory usage are typical examples that always need further optimization. At some point it becomes compulsive engineering, rather than engineering to increase value for the average user.

• Higher product price. They want new features automating complicated but obscure tasks. These features will likely be used by only a tiny fraction of the entire user base, but increase complexity for everyone. Early adopters are normally less price sensitive, so may mislead you in finalizing your pricing model.

The dilemma that we all face is that the most valuable customers might be the least vocal (silent majority). The users who scream the loudest are usually a minority segment. The challenge of every business is to proactively seek out a cross section of core users and ask them for feedback, rather than responding to random noise.

I’m certainly not suggesting that you ignore early adopters. Simply recognize them as a specific and important small market segment, and treat them with respect. Early adopters have money, and if they like your product, they’re generally very vocal about it and provide invaluable word-of-mouth press. You need their evangelism and passion to get enough momentum to start attracting mainstream consumers.

So don’t be lulled into complacency by early adopters as your first customers. Temper your feedback assessments, product changes, and marketing strategy to the mainstream market. Ten percent of your projected market won’t make either you or your investors very happy.

Marty Zwilling

Startups With More ‘Go-To People’ Lead the Pack

Go-to people get things done. As an entrepreneur, you need these people, and you need to be one, if you expect your startup to be successful. That may be easier said than done, since resumes do not tell the story, and without real nurturing, they won’t stay around long.

To highlight how rare this breed is, Jeffrey Gandz of the Richard Ivey School of Business relates a quote from a new CEO in a large company, "I have more than 1000 people in my head office organization, 900 can tell me something’s gone wrong, 90 can tell me what’s gone wrong, 9 can tell me why it went wrong, and one can actually fix it!"

Finding and nurturing that one is the challenge for every company and every startup. I like his summary of how go-to people are different from other people, not necessarily because they have unique skills, but because of the ways these skills are configured and integrated with other leadership characteristics:

• Know how business works and how to work your business. They have what we might call “street smarts” as well as real intelligence. They have a special ability to help people achieve, clear away road blocks, and resolve impasses that are frustrating people. Then they use those skills to build support for required actions.

• Politically astute without being politicians. Unlike many political operatives these people are seen as dedicated to the goals of the business, rather than feathering their own nests. This leaves them with the reputation for being politically astute rather than being labeled with the stigma of being a politician.

• Know how to use power when it’s needed but seldom use it. They recognize that people are persuaded by those that these people, in turn, can persuade. So they open themselves up to recommendations from those they are trying to persuade. They recognize that people want recognition, so they reward people who get-with-the-program with attentions for doing so.

• Consummate negotiators but getting it done is non-negotiable. They are adept at seeing situations from others’ perspectives, separating people from principles, building bridges between positions, and bringing people to their senses. But they are laser-like in their focus on project completion, and never sacrifice deadlines for compliance.

• Networks of reciprocation rather than deals. However, these exchanges of favors and reciprocity are not conditional negotiation elements, but usually based on having done someone a favor without requiring anything in return. The favor is often motivated not by future consideration but by a genuine desire to help someone else.

• Think out of the box while acting inside the box. Go-to people are creative people who are constantly looking for better ways to get things done. Barriers are challenges, obstacles are opportunities for innovation, the words “can’t do” register as “how can we do.” They use the culture to change the culture, and use channels effectively.

• Analytical and intuitive, aggressive and patient, confident and humble, deliberate and decisive. These sometimes paradoxical characteristics of highly effective leaders are present in abundance in go-to’s. They escalate what needs to be handled at a higher level and don’t feel that they have to resolve everything themselves.

While many resumes portray people as leaders, resumes are heavily weighted toward “initiators”, those who start things and develop new ways of doing things. Few talk about completions – driving things that they have initiated through to conclusion. You need both, and don’t confuse the two.

If you are not that natural leader, remember that becoming the go-to person in your organization is equally powerful in raising positive perceptions of your value. It's all about who you know, what you know, what you do, and how you can help. Best of all, it’s fun to get things done.

Marty Zwilling

Many Entrepreneurs Suffer From the Peter Principle

Most people think that the Peter Principle (employee rises to his level of incompetence) only applies to large organizations. Let me assure you that it is also alive and well within startups. There I see founders and managers who are stalled transplants from large organizations, and technologists trying to run the business.

Forty years ago, in a satiric book named “The Peter Principle”, Dr. Laurence J. Peter first defined this phenomenon. The principle asserts that in a hierarchy, members are promoted so long as they work competently. Sooner or later they are promoted to a position at which they are no longer competent, and there they remain, unless they start or join a startup to get the next level.

In all environments, the move to incompetence often occurs when competent technical people try to step into management or executive positions, for which they have no aptitude, interest, or training. How many technologists have tried to run startups and failed?

So what are the keys to avoiding this problem for yourself, and recognizing the signs and requirements in your own team, before the “level of incompetence” paralyzes your startup:

1. Focus on communication skills. The ability to communicate effectively and often to your team and to the outside world becomes more and more critical as you move up the role ladder. Practice and training are critical. If communication to others is not your forte, then stick to a highly focused non-management role.

2. Look for ability to direct, as well as act. Many people have trouble directing the task and not doing it themselves. Both are hard work, and both are valuable. Executives get paid for what they know, not for what they can do with their hands—for managing the job and not actually doing it.

3. Comfortable with a spectrum of responsibilities. As a manager, there will be many new responsibilities, most of which are a little fuzzy. A tech promoted to manager must change his mindset from one of focusing on a problem and solving it, to multi-tasking a broad range of responsibilities, and keeping them all moving.

4. Demonstrates high-level competencies. You need ‘portable’ competencies—those that you can take with you to any level of the corporate ladder, and which you can tap into in a managerial capacity. For example: be solutions-oriented, able to balance both sides of an issue, and be a quick study.

5. Provide mentoring and formal management training. If you are seriously looking at shifting someone to a management role, make it top priority to get them formal training, not only on business management itself, but especially on people management and interaction skills. Talent and good intentions are not sufficient.

6. Assess passion and current position. A management position is not for everyone, and a specialist career may be much more exciting. Great technical gurus get paid very well, and have visible top positions like Chief Technical Officer (CTO) for prestige and respect. You can still be the founder, and bring in a CEO to run the business.

Another important point is to recognize and deal immediately with occurrences of the Peter Principle. If you are the CEO, and you tolerate ineffective people in important positions, they will suck the life out of your startup. The good people will fade away, and only the bad will remain.

The Peter Principle is something that we all have to deal with, in our own career, and with other team members. In a small startup, everyone has to carry a maximum load for survival, and everyone sees the non-performers. If you are the last to see the problem, or the last to react, maybe it’s time to look in the mirror.

Marty Zwilling

Early-Stage Startups Need Friends, Family, and Fools

Most entrepreneurs have learned that it’s almost always quicker and easier to get cash from someone you know, rather than angel investors or professional investors (VCs). In fact, most investors “require” that you already have some investment from friends and family before they will even step up to the plate.

You see, investors invest in people, before they invest in ideas or products. Since they don’t know you (yet), their first integrity check on you as a person is whether your friends and family believe in you strongly enough to give you seed money for your new idea. If they won’t do it, they why would I as stranger invest in you?

Friends and family will likely not expect the same level of sophistication on the business model and financials as a professional investor, but they do expect to see certain things. Here is a summary of some key items to think about as an entrepreneur before approaching friends, family, or even fools:

1. Don’t be afraid to ask, carefully. If you set around quietly waiting for someone you know to offer you money to fund a startup, you will probably have a long wait. On the other hand, if you open every conversation with “I need money,” you won’t have any friends or any money. Practice your “elevator pitch,” and end it by asking for the order.

2. Be upbeat and respectful. Nothing kills everyone’s optimism and desire to help quicker than a negative or arrogant attitude. If they are going to put cash into your company, chances are that they will expect to spend a fair amount of time together, either helping you or certainly discussing progress. Nobody likes a downer.

3. Be passionate about the idea. Friends and family will quickly detect your level of sincerity and thought behind the idea. You need to convince them that you have been working on this vision for a long time, and have done the “due diligence” on all the potential knockoffs. Daydreams and “the idea of the moment” won’t get much respect.

4. Demonstrate progress and your own “skin in the game.” Saying that you need money to start is not nearly as convincing as saying that you have built a prototype on your own dime, but need more to roll it out. We all know people who can talk a good game, but never get around to building anything.

5. Ask for the minimum rather than the maximum. We would all love to have a million dollars of funding to “do it right” and build the company of our dreams. But your chances are minimal of finding someone who will give you that much to start. Set some milestones for three or four months out, and show what you can do, then ask for more.

6. Communicate the risks, and write down the agreement. Be honest with naïve family members and friends about the inherent risks of a startup – at least 70% fail in the first five years. Don’t take money from family or friends who can’t afford to lose it. Think hard about the consequences of a possible startup failure and the loss of their funding.

7. Show some incremental value along the way. Look for ways to get some traction with a minimal product, while you are still developing the main event. In high technology, this is called “release early and iterate,” which allows you to make corrections as you go, as well as adjust for the market changes. It also shows progress to early backers.

8. Network to build investor relationships before you ask for money. Having a real project, rather than just an idea, is a strong positive when networking for angels or VCs. Now you really have something to discuss, and real credibility as an entrepreneur. Build the friendship first, ask for advice on a real project, then maybe money later.

Overall, don’t think of friends and family funding only as a last resort. There are massive advantages, like sharing profits with friends and family, as well as the strategic credibility than can be gained from funding from someone you know, rather than from a professional investor.

I hope all of these points seem like common sense to you, and you wouldn’t think of handling it any other way. Yet, I’m continually amazed at how often I am approached as a professional investor by strangers asking for a million dollars to fund an idea, without hitting even one of the above points.

We can all recount horror stories of families and friendships torn apart by money lost on someone else’s speculative dream. In these cases both the entrepreneur and the funding partner are the fools. Don’t be one.

Marty Zwilling

If You Think Making Money is Hard, Try a Non-Profit

A common misconception I often hear in the startup world is that non-profits are easy and safe, since they don’t have to pay taxes, and they don’t have to make a profit for their shareholders. In reality, from the feedback I get from non-profit executives, exactly the opposite is true.

Technically speaking, in the United States, a non-profit corporation or association is one which has been exempted from Federal income taxes by meeting the criteria set out Section 501(c) of the Internal Revenue Code, most notably religious, educational, and charitable entities. Other countries have similar exemptions for similar organizations.

Yet even a non-profit has to make a profit on everything it sells, in order to cover operating expenses (salaries, offices, equipment, research, travel, etc.), unless it relies wholly on donations. Even then, the business and leadership efforts to solicit and manage donations cost real money, and may be more difficult than the marketing and sales jobs of most startups.

Here are the common reasons I hear that make starting and running a non-profit actually more difficult than starting and running a conventional business:

1. Creating a non-profit 501(c) business is a long and arduous process. You can start an LLC for-profit in less than a month, often for less than $100. A non-profit 501(c)(3) status requires filing IRS Form 1023. The form must be accompanied by an $850 filing fee, and may take as long as two years to complete successfully.

2. Investors are not interested in non-profits. Even non-profits usually require startup funds for facilities, people, and inventory. But because they can’t project excellent returns on investment, no investors will likely be interested. Also, they can’t sell shares on the stock exchange to raise money, even though both the NYSE and Nasdaq are non-profits. That means they need to grow organically, or find a philanthropist.

3. Reputable non-profits need to keep their operating expenses low. This usually means keeping wages low, and no fancy facilities. Thus it’s hard to attract top-notch talent, premium locations, and first-class marketing campaigns. Managing volunteers, and running any organization with these constraints is a challenge.

4. Results are always subject to public scrutiny. Most startups, as private companies, don’t have to disclose their salaries and spending habits to anyone other than the IRS. Non-profits have to answer to watchdog organizations like Charity Navigator for how much of their proceeds actually make it to the causes they proclaim to support.

5. Some laudable non-profit missions are hard to sell to supporters. A common complaint from many non-profits is that both government and private funders would rather spend their dollars on ‘sexy’ causes such as children’s charities, cancer, and heart disease, rather than long-term causes like global warming and erasing hunger in Africa.

Unfortunately, misuse scenarios, like the lavish lifestyles of leaders and scams, have given the non-profit environment a bad name, making things even tougher. Even reputable organizations, supporting veterans, the police, firefighters or children, often raise eyebrows, with alarming real data like these from the 10 Inefficient Fundraisers report from the Charity Navigator website:

• Cancer Survivors' Fund – 91% of donations spent on fundraising
• The Committee for Missing Children – 89% spent on fundraising
• Firefighters Charitable Foundation – 87% spent on fundraising
• Children's Charity Fund, Inc. - 86% spent on fundraising
• Disabled Police Officers Counseling Center – 86% spent on fundraising

These numbers vividly show that non-profits with good causes can fail to achieve satisfying results, in the same way that for-profit startups often fail, even with good products. Despite these challenges, my advice is still to follow your heart and your passion when starting a business.

You shouldn’t choose a non-profit, or a for-profit, because one seems easier, or one can make more money. Do it because you love the cause, the service, or the product, and the challenges will get lost in the satisfaction and results you achieve along the way.

Marty Zwilling

The Male Lead as Entrepreneurs May Be Slipping

I often get asked the age-old question (by men) of “Who are the best entrepreneurs, men or women?” Women already believe they know the answer, so they never ask. I always try the diplomatic answer of “It depends”, but that doesn’t satisfy anybody.

First, here are a few facts to set the stage. According to the Center for Women’s Business Research, only one in five firms with revenue of $1 million or more is woman-owned, but the number of female-owned firms is growing twice as fast as all businesses. Overall, female-run businesses still grow slower, so create fewer jobs.

You can find lots of research facts on this subject, with much hedging on meaning. A Small Business Association research study a while back is typical in concluding that gender is not a factor in new venture performance.

Yet this study and others identify significant differences between the sexes in the approach and rationale for running ventures:

• Women start companies to better balance their work and family lives. Wealth is not their primary focus, so most remain smaller. But there are exceptions, like Martha Stewart (Omnimedia), Ruth Furtel (Ruth's Chris Steakhouse), and Lillian Vernon, which make big money.

• Male owners are more likely to start a business to make money. They also spend more time on their new ventures, have higher expectations for their business, and do more research to identify business opportunities. Sometimes this works, and sometimes it doesn’t.

• Female-owned companies tend to offer family-friendly benefits. These include such perks as job sharing, parental leave and telecommuting. They argue that their more worker-friendly policies boost morale and lead to less turnover, less absenteeism and higher productivity.

• Male entrepreneurs seek investors much more often than women. Many feel this is due to a male affinity for technologically intensive businesses, and businesses that have a broad geographical customer base. Female entrepreneurs and their advocates say some women want financing, but can't readily get it because of discrimination by banks and venture capitalists.

• Female owners are more likely to have positive revenues. They prefer lower risk opportunities, and are willing to settle for lower returns. Some women feel that pushing profits is “not polite.” More women entrepreneurs are single person businesses, while men tend to have more employees.

• Men have more business experience prior to opening the business. For most male entrepreneurs, business is their whole life, and has been since adolescence. Women often change their focus from business to marriage and family, then to entrepreneurship. Managing a family may have more synergy to a new business than a corporate role.

• Women have more difficulty delegating tasks. They are used to doing everything themselves and thus sometimes will spread themselves too thin trying to keep up their business and do their housework at the same time. A man might hire a housekeeper without guilt. Guilt seems to be a woman's nemesis!

From these few highlights, it’s obvious that men and women do speak different languages, and neither is all right or all wrong. As I contemplate the differences 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 best 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. That way we all win. Wars are no fun for either side.

Marty Zwilling

10 Rules For Picking a Company Name That Sticks

First things first – your startup needs a name! This may seem a silly and frivolous task, but it may be the most important decision you make. The name of your business has a tremendous impact on how customers and investors view you, and in today’s small world, it’s a world-wide decision.

Please don’t send me any more business plans with TBD or NewCo in the title position. Right or wrong, the name you choose, or don’t choose, speaks volumes about your business savvy and understanding of the world you are about to enter. Here are some key things I look for in the name, with some help from Alex Frankel and others:

1. Unique and unforgettable. In the trade, this is called “stickiness.” But the issue of stickiness turns out to be kind of, well, sticky. Every company wants a name that stands out from the crowd, a catchy handle that will remain fresh and memorable over time. That’s a challenge because naming trends change, often year by year, making timeless names hard to find (remember the dot.coms).

2. Avoid unusual spellings. When creating a name, stay with words that can easily be spelled by customers. Some startup founders try unusual word spellings to make their business stand out, but this can be trouble when customers ‘Google’ your business to find you, or try to refer you to others. Stay with traditional word spelling, and avoid those catchy words that you love to explain at cocktail parties.

3. Easy to pronounce and remember. Forget made-up words and nonsense phrases. Make your business name one that customers can pronounce and remember easily. Skip the acronyms, which mean nothing to most people. When choosing an identity for a company or a product, simple and straightforward are back in style, and cost less to brand.

4. Keep it simple. The shorter in length, the better. Limit it to two syllables. Avoid using hyphens and other special characters. Since certain algorithms and directory listings work alphabetically, pick a name closer to A than Z. These days, it even helps if the name can easily be turned into a verb, like Google me.

5. Make some sense. Occasionally, business owners will choose names that are nonsense words. Quirky words (Yahoo, Google, Fogdog) or trademark-proof names concocted from scratch (Novartis, Aventis, Lycos) are a big risk. Always check the international implications. More than one company has been embarrassed by a new name that had negative and even obscene connotations in another language.

6. Give a clue. Try to adopt a business name that provides some information about what your business does. Calling your landscaping business “Lawn and Order” is appropriate, but the same name would not do well for a handyman business. Your business name should match your business in order to remind customers what services you provide.

7. Make sure the name is available. This may sound obvious, but a miss here will cost you dearly. Your company name and Internet domain name should probably be the same, so check out your preferred names with your State Incorporation site, Network Solutions for the domain name, and the U.S. Patent Office for Trademarks.

8. Favor common suffixes. Everyone will assume that your company name is your domain name minus the suffix “.com” or the standard suffix for your country. If these suffixes are not available for the name you prefer, pick a new name rather than settling for an alternate suffix like “.net” or “.info.” Get all three suffixes if you can.

9. Don't box yourself in. Avoid picking names that don't allow your business to move around or add to its product line. This means avoiding geographic locations or product categories to your business name. With these specifics, customers will be confused if you expand your business to different locations or add on to your product line.

10. Sample potential customers. Come up with a few different name choices and try them out on potential customers, investors, and co-workers. Skip your family and friends who know too much. Ask questions about the names to see if they give off the impression you desire.

If you are still unsure of yourself, you should know that there are many dedicated firms, like Igor and A Hundred Monkeys, that can relieve you of $1 million of your hard-earned funds to come up with just the right appellation. Hmmm. I wonder how much they spent on their own names?

Marty Zwilling

7 Reasons Big-Company Executives Fail in a Startup

Mid-level or even top executives who “grew up” in large companies often look with envy at startups, and dream of how easy it must be running a small organization, where you can see the whole picture and it appears you have total control. In reality, very few executives or professional stars from large corporations thrive in the early-stage startup environment.

The job of a big-company executive is very different from the job of a small-company executive. The culture is different, the skills required are different, and the experience from one may be the exact opposite of what you need for the other. I agree with the seven survival issues summarized by Michael Fertik, in an old Harvard Business Review article, for executives making the transition:

1. Empire-building skills are counter-productive. Establishing and wielding influence may help you move resources in your direction in a large business. Similarly, acquiring a larger footprint of direct reports is often a sign of success at large businesses. These instincts kill you in a small company, where requiring more resources is a negative.

2. Forget your staff and entourage. This is one of the harder transitions for people joining small businesses. The axiom applies to all matters, tiny to large. Small-company heroes are consistently self-reliant. At a small company, if you're constantly demanding more support, you risk turning your net impact into overhead creep rather than value creation.

3. Never cover your a$$. There's no place for CYA in a small company. This attitude sows division and mistrust at exactly the early stages when the business most needs to build precious esprit de corps. When you're considering a job at a small company, look for colleagues and founders who don't tolerate CYA.

4. Go faster. Large companies move slowly because they are usually in reasonable financial condition, with less urgency, have a lot to lose from making bad decisions, and have built layers of management sign-off over the years. These conditions don't apply in a small business. Speed gives you the greatest chance of success.

5. Be very selective about the problems you attack. Managers at large companies often have the obligation and luxury of thinking about problems that may arise at some future time if things go well. Startups spend little time on this — the risks of enormous success are so remote they aren't worth major planning.

6. Get used to dynamic budgeting. Large companies usually operate with annual budgets, and often the budgeting process is locked down months before the start of the fiscal year. At start-ups and smaller businesses, budgeting can happen opportunistically, monthly, or even on an ongoing basis.

7. Understand that your daily impact is huge. Many of your managerial decisions will have enormous and possibly fatal effects on a small business. Larger companies rarely face life-or-death opportunities or threats. Small companies can face them daily. The most practical way to adapt is to focus on learning to evaluate and trust your judgment.

I’ve spent years in large-company environments, and many years later in startups, so I’ve seen and felt the pressures of both. One positive aspect of having worked in a large company is that they usually provide actual training and education for a new role, rather than all “on-the-job training.” This transfers well to startups, and should give you an advantage.

On the other side of the ledger, big company executives tend to be demand-driven by initiatives handed down from the top. In contrast, when you are a startup executive, nothing happens unless you make it happen. In startups, you have to drive multiple initiatives concurrently or the company will stand still. Well defined and well documented processes don’t exist to guide you.

For startups, the time to do the people filtering and fit analysis is before the hire. Look at previous company results, and listen for evidence of self-sufficiency, problem solving, and a thorough understanding of your product, technology, customers, and the market. If you don’t see a self-awareness of the differences required, your candidate probably won’t bridge the gap.

Marty Zwilling

Most Great Entrepreneurs Don’t Drop Out of Harvard

Many believe that entrepreneurs are born, not made. While I agree that successful company builders usually have a natural inclination to be entrepreneurs, a good education helps polish that apple. There are people who are natural musicians, but that doesn't mean we don't try to teach them music.

Of course, there's no law saying you have to go to college to start a business. We can all point to examples of successful entrepreneurs who dropped out of college, but still went on to make a big impact. Current young adults have grown up hearing about Mark Zuckerberg (Facebook) as the paragon of success. Why not try to follow in his footsteps?

The entrepreneurial wunderkinds who find success without higher education "are exceptions to the rule," says Robert Litan, Vice President of Research and Policy at the Kauffman Foundation. The most successful entrepreneurs are those with multiple real-life experiences, who have personal exposure to markets where opportunities are being left on the table.

Academic research supports that this experience pays off. It also shows that survival prospects are higher if the owner has at least four years of college, like Sergey Brin and Larry Page of Google, and Andrew Mason of Groupon. The bigger question, then, for an entrepreneur, is not "Should I go to college?" but, instead, "What should I do while I'm there?"

• Study entrepreneurship, but major in something else. Many colleges offer courses on entrepreneurship, to help you think like one. But a depth of knowledge in a specific discipline, like computer science or engineering, allows you to understand that business as well as run it.

• An MBA is helpful, but not required. More important are standard business, finance, and economics courses. If offered at your college, don’t forget the practical business skills like “Critical Thinking”, “Business Writing” and even “Dress for Success.”

• Supplement course work with practical experience. Look for that summer internship job in the field of your interest, or even just part-time work during the school year. Too many startups fail simply by missing the practical elements of money management, time management, and setting priorities.

• Take advantage of inside and outside advisers at school. Some college faculty members have great practical experience. Find the ones with experience, and the ones who are willing to share, and tap into it for free. Most universities also bring in outside advisors to mentor budding entrepreneurs. It's a huge opportunity to learn early.

• Build a business plan early on. Pick an idea, any idea. There is nothing like writing and pitching a business plan that makes you realize what you don’t know. Most schools have business plan competitions, and even give out seed money to winners. Once you graduate, you can’t take that course you need, and even the advisors are gone.

• Business networking is key. These days, every student has his social network of peers. But these won’t help you much finding investors, key executive hires, and pitfalls to avoid in the real world. Plug yourself into a new network of business people. You'll be amazed at what you can learn by listening to experienced entrepreneurs.

• Just do it. You will learn more by struggling through the process of setting up a company and making it work, than all the other items above put together. If possible, team up with someone who has been there before and is willing to provide some mentoring. Don’t try to “bet the farm” on your first company. It’s the learning that counts.

Once you are out into the real world of running a startup, your academic credentials mean very little to anyone, and practical experience in invaluable. And don’t forget that the hardest part of dropping out of Harvard to start a business, for most aspiring entrepreneurs, is that first you have to have the credentials to get in.

Marty Zwilling

7 Keys to Startup Survival in Today’s Now Economy

Since the days of Henry Ford, mass production has been the Holy Grail of business, rather than build-to-order. Too many businesses haven’t noticed that we have come full-circle, where mass customization is required now to win. Customers have come to expect immediate and tailor-made responses to their needs, and the businesses that fail to deliver quickly fall behind.

Changing the culture and mindset in an existing businesses is difficult and slow, so this becomes another “opportunity” for smart entrepreneurs and startups to excel. John M. Bernard does a great job outlining seven key steps to success today in his new book, “Business at the Speed of Now.” They apply to any business, but every startup better lead with these:

1. Prepare your team to always say “Yes”. This starts with always assigning people on the front line with the responsibility to solve problems, not just report them. Obviously, they must have the communication and system tools needed, and all the behind-the-scenes workers who never see a customer understand their role in delivering now.

2. Leverage the game changers to gain the speed you need. These game changes include using social media, to provide real-time two-way communication; cloud computing, which enables efficient, lower-risk automation of business processes; and the millennial mind-set, which does not tolerate anything that moves at a snail’s pace.

3. Make excellence through breakthroughs a habit. Breakthroughs are not just incremental improvements, but step-function changes in performance and capability brought about by deliberate planning and exquisite execution of skilled people. Top management has to set the expectation and provide the authority to make decisions now.

4. Close the execution gap through real-time transparency. Business transparency is making sure you whole team always sees and understands the real business challenges. Lies and misuse of accountability generate fear, and nothing paralyzes a team more than fear. Transparency highlights new behavior, new thinking, and new levels of maturity.

5. Equip everyone with core skills to solve problems now. Replace preventing people from doing the wrong thing to helping them figure out for themselves how to do the right thing. That means hiring help, rather than helpers, and providing the resources they need to stay current. It also means assigning responsibility and measuring accountability.

6. Enable the team by building trust and banishing fear. People want to do the right thing, but they quickly learn from negative consequences, real or imagined. Trust requires a clear vision from the top, line of sight to their role, resources to do the job, and full transparency to make people feel safe and confident.

7. Stop bossing and start teaching. You can get a lot more accomplished working with people rather than trying to get them to work for you. Today, every business needs everyone to learn something new every day, and everyone to teach, with humility. Teachers make mistakes, and when they do, they must admit it.

In summary, all of these steps are really about rethinking the definition of “employee engagement.” Today it’s not about people feeling all warm and fuzzy; it is about people possessing the knowledge, skills, and authority to act swiftly and skillfully without waiting for permission.

According to the Gallup Organization and numerous other respected analysts, 49 percent of current American employees admit to not being engaged, meaning they just show up, follow orders, and keep their mouths and their brains shut. Another 18 percent actively sabotage the company’s performance. These perspectives evolved through the age of mass production.

Entrepreneurs and startups today have a clear opportunity, and a clear survival requirement in the new economy of mass customization, to avoid the customer satisfaction and productivity penalties implicit in poor engagement. The good news is that the steps to change, as outlined above, are not rocket science. Just don’t wait for your competitors to get there first.

Marty Zwilling

7 Ways Startups Get Tagged as Too Risky by Investors

We all know that every startup is risky. No risk means no reward. Yet every investor has his own “rules of thumb” on what makes a specific startup too high a risk for his investment taste. You need to know these guidelines to set your expectations on funding.

Of course, if you intend to fund the business yourself, or have a rich uncle, external investment funding concerns are not a problem. Yet, it’s still worthwhile to understand the issues so you can minimize your own risk of failure. Here is a summary of the “big picture” high risk considerations:

1. Inexperienced team. I’ve said many times that investors fund people, not ideas. They look for people with real experience in the business domain of the startup, and people with real experience running a startup. An expert in software is considered high risk in manufacturing, and a Fortune 100 executive running a startup is high risk.

2. Historically high failure rate category. Certain business sectors have historical high failure rates and are routinely avoided by investors. These include food service, retail, consulting, work at home, and telemarketing. On the Internet, I would add new social networking sites, and new matchmaking sites.

3. Dependent on government regulations. If your business model is dependent on government approvals, that can take a long time, or require political connections. All new medicines, for example, require expensive and extensive testing for side effects before FDA approval. Of course, successful approvals may also mean high returns.

4. Large initial investment required. If your startup involves new electronic chips, that may require a huge investment (more than $1B) to ramp-up manufacturing. By definition, all but the largest investors will pass, and it becomes high-risk to all investors. New drugs often fall in this category, due to long clinical trials and FDA approvals required.

5. Businesses with small return potential. Businesses with a low growth rate or a small opportunity (less than $1B) are considered high risk by investors, who get measured on portfolio return over time. That eliminates from consideration family businesses, small niches, and business areas with declining growth.

6. Poor public image businesses. Most investors like to maintain a squeaky clean image, so would consider it high risk to invest in businesses on the margin of legality or social acceptability. Don’t expect investor enthusiasm for your gambling site, porn site, gaming, or debt collection business.

7. Operations in another country. Investors in one country are generally reluctant to invest in a company outside their realm of operational knowledge. We all know that the success “rules” in Russia are different from the USA, so cross-boundary investments are considered high risk, even if you have operating experience there.

These rules of thumb should not be viewed as barriers, but just another factor that needs to be addressed specifically in your business case and investor presentation. It’s better to be proactive on these, rather than hope your investor is too naïve to notice. Your challenge, if your interest is in one of these areas, is to point out quickly why the high risk is mitigated in your case.

In summary, it pays to have some insight into how investors will likely see you, since this allows you to prepare the best case, both for your own decisions, and for approaching an investor. It’s never smart to switch your plans to a “less risky” business that you know nothing about, because your lack of experience there simply moves that alternative to the high risk category.

If you can’t handle risk, don’t do a startup. But even if the risk energizes you, do it with your eyes wide open. Even the best adventurers do their homework before starting down a new path. Known obstacles are a lot easier to overcome than surprises. Enjoy the challenge.

Marty Zwilling