Tuesday, June 26, 2012

Entrepreneur Smarts Comprise 8 Dimensions of IQ

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

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

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

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

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

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

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

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

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

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

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

Marty Zwilling


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Monday, June 25, 2012

The 10 Best Sources of Cash to Start Your Business

Money to build the business is the number one challenge for most startups. Don’t believe the urban myth that you can sketch your idea on a napkin, and professional investors will throw money at you. In reality, only 3 out of 100 companies who apply are successful with Angels, and the success rate with VCs is even lower. A large percentage of startups never apply to either.

You need to explore more common and more productive approaches for getting your startup moving forward. Of course, every approach has pros and cons. For example, with any outside investment, you give up some ownership and control, and with bootstrapping your growth curve will likely be longer and more organic.

Yet, I find that startup founders often fixate on one or two sources, often to the detriment of their business. Following is my prioritized larger list of sources, with some “rules of thumb” which may save you a lot of time and energy:

  1. Bootstrapping. Self-funding is the preferred source of cash for your startup – if you can do it. The advantage is no time and effort searching and preparing for the other alternatives, and you don’t have to encumber yourself or give up control of your company. Just don’t quit your day job before your new company is producing revenue.

  2. Friends and family. After bootstrapping, friends and family are the most common funding sources for early-stage startups. Use this approach before you have a real valuation, a real product, or any real customers. As a rule of thumb, it is a required first step, as outside investors will not normally consider providing any funding until they see “skin in the game” from one of these first two sources.

  3. Small business grants. This source often gets overlooked, but it should be a major focus these days due to government initiatives on alternative energy and technology. It’s not a quick solution, but state and federal funding agencies do not want ownership or interest payments from your company. Related sources include local business development agencies. You have to be relentless in this pursuit to win.

  4. Loans or line-of-credit. If your company needs only a temporary or small infusion of cash, you should try for an SBA loan, or a bank line of credit. Many people are afraid to tap into debt sources because they don't want to be burdened with the debt if the startup fails. However, if you don't believe in the company enough to place your own credit behind it, why should anyone else?

  5. Startup incubators. A startup incubator is a company, university, or other organization which provides resources for equity to nurture young companies, helping them to survive and grow during the startup period when they are most vulnerable. These resources would likely include office space, consulting, and even a cash investment.

  6. Angel investors. If you are looking for $25,000 to $1 million, the next step is to tap into a local angel network. If you don't know any “high net worth” individuals, use your advisors to find them. Networking is key here, and you need to find an angel who understands your industry and shares your passion.

  7. Venture capital. As a rule of thumb, don’t try this one in the earlier stages, and don’t try it unless you need more than $1 million. An investment from a venture capital firm is usually expensive, in equity and control. If you go for venture capital, don’t expect a quick fix, so prepare to spend at least six months searching for and closing the deal.

  8. Bartering services for equity. Bartering technically means exchanging goods or services as a substitute for money. An example would be getting free office space by agreeing to be the property manager for the owner. Exchanging equity for services is worth negotiating with legal counsel, accountants, engineers, and even sales people.

  9. Partner with distributor or beneficiary. A related company may see the value of your product as complementary to theirs, and be willing to advance funding, which can be repaid when you develop your revenue stream. Consider licensing and “white labeling.”

  10. Commit to a major customer. Find a customer who would benefit greatly from getting your product first, and be willing to advance you the cost of development. The advantage to the customer is that he will have enough control to make sure it meets his requirements, and will get dedicated support.

Just remember that you don’t get ‘something for nothing’ in any of these cases. All funding decisions represent complex tradeoffs between near-term and long-term costs, ownership, control, and time and effort. Your funding strategy is a key part of every business plan, so don’t hesitate to check out the real alternatives.

Marty Zwilling


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Tuesday, June 19, 2012

Are You Agile Enough for the New Business Economy?

Prior to the recession, many companies and even startups were acclimated to prosperity, maybe too comfortable. We have now been through some turbulent times, but has your strategy really changed? All too many simply hunkered down to wait out the economy.

Smart entrepreneurs are making changes now, to be more agile in defining strategy, making organizational changes, and analyzing markets for change. The rebound may be here, but business will never be the same. Look for new volatility, caused by inflation or deflation, new government regulations, and of course new technology and even more determined competitors.

These volatile markets are already creating unexpected opportunities and risks – you must be alert and agile enough to spot them and adapt quickly to survive and prosper. Here are the key aspects of agility requiring focus:

  • Eliminating bureaucracy. Inflexible organizational structures can exist in small organizations, as well as large ones. Organizations, as small as a single person, are made up of people – and inflexible people are the real problem. Make sure your team consists wholly of people who are open-minded, empowered, and motivated.
  • Proactive pursuit of new markets. An agile business listens to customers and proactively embraces change, rather than waiting for the pain of competitors’ arrows. Because change is perpetual, make sure you have a process for innovation and an ongoing program to adapt to new opportunities.
  • Constant redefinition of roles. If your key roles and titles have not changed for as long as you can remember, they are likely obsolete. If any given person has been in the same role for as long as you can remember, that person is likely obsolete. Rotating good people to new roles keep both them and their new roles agile. Eliminate deadwood.
  • Plan to innovate. Sustainable innovation is really the only sustainable competitive advantage. But innovation doesn’t happen without a process, and requires commitment from every member of the team. Track results and measure ROI.
  • Speedy strategy to execution. Create a performance culture, rather than analysis paralysis. Once the decision is made, automate, and outsource functions that are not core to the business. If it routinely takes you six months to change a process, your company is still in the dark ages.
  • Quick to fail. If your new idea doesn’t seem to be working, don’t hang on to it forever. With innovation, we know many great new ideas don’t work out. Make sure you have a process in place to measure progress and success, or to discard untenable ideas, before you spend a fortune in dollars and time.
  • It starts at the top. An agile company starts with agile leadership at the top. It’s up to you to communicate the message, manage resources, and ensure fluid movement between people and projects. Managing change is not an element of your job as a business leader; it is the job.

Increasing the agility of your company is not a “big bang” one-time effort. It’s making hundreds of small adjustments every day to reduce costs, increase revenues, and penetrate new markets. All you need are profits that are two to four percent higher than the market average to stay ahead of your competitors.

Simply put, business agility means being proactive and quickly able to adapt to change. It can exist in any company at three levels at least; operational agility, organizational agility, and strategic agility. Where is your company today in this spectrum? The rebound is happening.

Marty Zwilling


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Monday, June 18, 2012

The Cost Equation for a Startup is Better Than Ever

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

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

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

  • Facilities and staff. Founders now routinely use their home to operate their startup until they are well into the revenue phase. No office space rental, no secretary, and no accountant are required. That’s a burn rate of at least $10K per month that can be eliminated if you are handy with computers and Quickbooks.
  • Technology costs. We all know how much costs have come down on computer hardware, computer software, printers, PDAs, high-speed internet access, servers, and security measures. Skip the IT consultants and build an entry website yourself to save $50K. Do basic Search Engine Optimization (SEO) and Marketing (SEM) yourself.
  • Sales and marketing costs. Print your own collateral and marketing materials until the business is rolling. Use the Internet and social networking instead of public relations companies and advertising agencies. Try Web-Ex, free teleconferencing, and Skype instead of international travel for client meetings. Savings can be huge in these areas.
  • Manufacturing cost and lead times. Remember when you had to build a $1M factory to roll-out a new product? Now you can get a product built in China almost overnight with minimal up-front cost, with delayed payment based on first-customer order commitments. With the struggling economy, manufacturers everywhere are negotiating great deals.
  • Wages and benefits. Obviously, if you can do most of the work yourself, you need fewer employees, meaning less for payroll tax, benefits, and workers compensation. As a rule of thumb, you should double every employee’s salary in estimating employee costs, so less is more.

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

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

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

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

Marty Zwilling


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Saturday, June 16, 2012

9 Leadership Failures to Avoid as an Entrepreneur

After working with dozens of startup founders, I’m still amazed that some seem to be able to do the job easily and effectively, always in control, while others always seem to be struggling, out-of-control, and fighting the latest crisis. I am more and more convinced that it is the right founder behavior that leads to success, rather than some exceptional intelligence or training.

In that context, startup founders should carefully review the points made by Denny F. Strigl, former CEO of Verizon Wireless, in his recent book, aptly named “Managers, Can You Hear Me Now?” He outlines the behavioral habits he has seen in managers who are successful, versus the bad habits of ones who struggle. These habits apply even more directly to entrepreneur startup leadership:

  1. Failure to build trust and integrity. Poor leaders often fail to build trust initially, or they erode trust during daily interactions and operations. Without trust, there can be little cooperation between team members. This results in little risk taking, diminished confidence among employees, and a loss of communication throughout the company.

  2. Focus on things that don’t really matter. Entrepreneurs who struggle spend too much time focused on things that don’t really matter. If it doesn’t fit into one of the Four Fundamentals: growing revenue, getting new customers, keeping the customers they already have, or eliminating costs, they should rethink what they are doing.

  3. Shirk accountability and role model. Founders need to realize their behavior is in a “fishbowl” and thereby highly visible for the team to see and imitate. What the founder says and does in stressful situations sends a signal to imitate that behavior, even when they are not under stress. Poor performers thrive in an unaccountable work climate.

  4. Fail to consistently reinforce what’s important. Managers often stress a particular message or a program for a couple of weeks, and then assume everyone gets it. When they change their message too often, team members become confused about what’s important. People perform best when what they hear is consistent and frequent.

  5. Over-rely on consensus decisions. Some founders go too far to become consensus builders. This takes too much time in our super-competitive environment, and the result of a total buy-in is usually a watered-down version of the original decision or action they intended. Informed decision-making is not the same as consensus decision-making.

  6. High priority on being popular. The first priority of a founder is to deliver results, rather than building friendships. Happy team members don’t necessarily bring you stellar results, although stellar results almost always bring you a happy team. Good managers don’t worry about shaking up the status quo, and realize that change is never initially popular.

  7. Get caught up in their self-importance. Many founders fail because they get caught up in the “aura” of their position, and seek recognition and glamour for themselves. They love to give speeches to groups and in places that don’t really matter. These people seldom see what is causing their own demise in their attention to “all-about-me.”

  8. Put their heads in the sand. Many founders struggle because they only want to hear good news. Team members quickly learn to report positives, while hiding problems. As a result, productivity suffers, employee morale decreases, and targeted results are missed. Encourage open, honest, direct, and specific communication always.

  9. Fix problems, not causes. Don’t fix a problem without addressing the reason the problem occurred. The most common excuses given include lack of time to immediately address the cause, lack of resources to address the cause, or problem is outside of their control. Good managers always find the means to fix the cause.

In order to stop struggling and start delivering, founders need to close the gap between what they know and what they do. Avoid the bad behaviors outlined here. Do the good things, day in and day out, until your behavior becomes habit for both you and your team. This can override pure intelligence and create real success and positive results from everyone on the team.

Marty Zwilling


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Wednesday, June 13, 2012

Even Startups Can’t Innovate Without a Process

Most entrepreneurs I know are individually very innovative, but a successful startup can’t be a one-man show (for long). That means they need to build an innovative team, which is not a skill that most people are born with. In fact, some very innovative individuals, known as ‘idea people’ or inventors, often end up creating the most dysfunctional teams.

A typical approach to dealing with team dysfunction or no innovation process is to work around it, which normally leads to startup failure. The only way to build productive, collaborative, innovative, and cohesive teams is by resolving core dysfunction issues and implementing a structured process for innovation.

There are many resources out there to help you address team dysfunction, but very few provide much insight on a process for maximizing startup team innovation once you have the motivated people. Recently I was reviewing a new book by Chris Grivas and Gerard Puccio, “The Innovative Team,” which seems to hit the issue directly, with stories to illustrate key points.

They outline a simple process or framework for fostering team innovation, called FourSight, which is composed of four steps, capitalizing on the leader’s and other team member’s strengths and interests, that is consistent with my own experience in big companies as well as small:

  1. Clarify the situation. Innovation is not all about coming up with new ideas. It really is first figuring out which challenges are the most important. Clarifying means sorting out the real problem from the symptoms or distractions, and focusing all team energies there to change things for the better.

  2. Generate ideas. This requires divergent thinking, with the strengths of every team member, to generate as many ideas as possible. Then it requires convergent thinking when there are enough ideas to choose from. Look for that sparkling new idea or “eureka” moment to develop into a workable solution.

  3. Develop the best solution. No idea is born perfect. Here the goal is to transform a novel idea into one that can be implemented successfully, with tinkering, adjusting, and polishing. True creativity brings novelty and usefulness together. This step includes verification will the solution will actually work, and the improvement can be measured.

  4. Implement plans. This is the stage where project plans are created and implemented. Now it’s all about action, and in many ways, about managing change. People who prefer this stage of the process tend to be drivers, known for making quick decisions and getting results. It always helps to temper their preference with patience and sensitivity to others.

In business today, it takes a team to get work done, whether we are talking about a startup or a large conglomerate. The potential of any team is defined by its members, not just individually, but collectively. Then the right process is required for innovative thinking that is greater than the sum of their individual talents and skills.

Although most startups say they want to create a culture of innovation, they should realize that there are implications. Leaders have to focus on open and honest communication to maintain trust. Founders have to be willing and able to reject ideas that won’t work, in a way that still encourages more creativity.

Entrepreneurs have to remain open to creativity and change, despite high-pressured investors driving more toward “making it through the day” and “timeline deliverables” than producing well-developed and novel products, improvements, or new directions.

By becoming more consciously and deliberately creative, entrepreneurs can enjoy their lifestyle with more satisfaction, enabling their team to do the same, and together produce results that no one has yet dreamed of. Are you building a team yet which fits this mold?

Marty Zwilling


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Tuesday, June 12, 2012

Is User Base or Profitability the Key to Scale?

Every entrepreneur dreams of that sweet spot in the life of their business when it will reach critical mass, and they can focus more on scaling it than finding another investment round, or pumping in more cash. The challenge is how to recognize the point where the business is self-sustaining and stable, rather than spinning out of control at the slightest glitch.

In fact, in the last decade, the whole concept of a business critical mass has been sent into a tailspin. It used to be simple – when your business became cash-flow positive, it had achieved critical mass. Then came the advent of social media companies like Facebook and Twitter that declared a critical mass with no revenue, counting on their user base of millions of people to get them market values in the billions of dollars.

Now most entrepreneurs are confused. Should they focus on revenues and profitability, or focus on growing their customer base at all costs? In my view, the pendulum is swinging back, meaning that while the size of your following and customer base is valuable, most investors are looking for the old-fashioned indications of critical mass in a new venture, like the following:

  • Your business is living off internally generated cash. When cash-flow positive, there are profits to put in the bank or invest back in the business. In fact, you are able to invest in the business, even explore new avenues to grow, without always putting your business in jeopardy.
  • Margins and revenue are healthy. Exact margins depend on the business model, but most companies at critical mass must generate a gross profit margin of at least 55%, and an operating profit margin of at least 20%, and have been doing it for a year. Critical mass also usually implies an annual revenue stream of at least $1 million.
  • Low customer churn and employee turnover. Productivity is critical to enhanced profitability, and you can’t get productivity if you are continually churning customers, and hiring new people who need experience and training to be productive. Productivity is measured in ratios like cost of customer acquisition and revenue per employee.
  • High energy level everywhere for and in the company. The idea, direction, and business must be obviously inspiring the team to evangelize the offering, not because they are highly compensated, but because they are believers. You have critical mass you’re your customers are your greatest evangelists.
  • Brand engagement is evident and widespread. Today’s customers want to know the brand, and you are the brand in a startup. You need to have established interactivity, visibility, and credibility with your customers. When your level of engagement is widely recognized, it spreads virally, and you have a critical mass.

While the last three of these are always relevant, some analysts and investors, like Jason Calacanis, are arguing that customer scale these days can trump revenue as the critical mass. Of course, this only works if funding is not an issue, and you are prepared to spend $50 million to get 100 million users. In my opinion, most investors still view this model as the exception, and don’t recommend Twitter as a role model other startups.

I realize that there are businesses today, like web services and social media, that are hard to monetize at all until you have an audience of scale. In all businesses, scaling is important, but the question is whether it comes before critical mass or after. For either to work, it better be part of your strategy to fit both your levels of commitment and funding from the start.

Overall, every new business is much like any investment that accrues compound interest over time. Your level of engagement, network, product quality, and customers all gather momentum to help you reach that critical mass. Your team has to be more productive, your quality better, and you need to make the right decisions to build this momentum.

Finally, don’t fool yourself into thinking you can relax when you reach this critical mass point. Now comes the real challenge of scaling the business return. That will probably require more time and more money, and will continue indefinitely. There is no end to the fun and the challenge for an entrepreneur!

Marty Zwilling


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Monday, June 11, 2012

Entrepreneurs: Don’t Quit Your Real Job Too Early

Many entrepreneurs I know feel guilty about not quitting their day job when initiating their startup, worrying about not giving their all to an employer, juggling the multiple roles, or even a legal conflict of interest. I’ll try to offer some guidelines to address these issues, but I generally recommend you keep the day job until your new company is producing real revenue.

The exceptions to this advice would be if you are being paid for your startup position by external funding, or if you have enough money in the bank for both you and the startup to survive for at least a year. Otherwise, I suggest that founders be up-front with their employers, with an honest commitment that the “side” work on the potential startup will not jeopardize committed results.

Then there are the more pragmatic questions of how to make concurrent startup efforts productive. Many people simply can’t handle multitasking, so they struggle for years doing both, and really do both jobs poorly. Even if you are not in that category, I recommend the following guidelines, summarized from real experiences of Babak Nivi on Venture Hacks a few years ago:

  1. Team with a partner. In a part-time effort, a co-founder is essential to keeping you on-track and working. At some point, you’ll hit a motivation wall, but if you have a partner who is depending on you, you will find a way past that. If you don’t have a partner, you’ll often lose interest and find something else to entertain you.

  2. Pick a day and time per week where you always work together. Babek and his co-founder worked one weekday evening and one weekend day, every week. That doesn’t mean they weren’t working other days, but keeping a fixed schedule will help you through the phases of the project that might not be so much fun.

  3. Set some real milestones. What will it take for everyone to dive in full-time? 5,000 active users? 10,000 uniques a week? Funding? The target should be a shared understanding. You don’t want one founder who is ready to go full-time while the other has reservations. That’s not fair to either one, and it leads to disasters.

  4. Pick an idea that is viable part-time. Every startup is a hypothesis. If your hypothesis is, “we can build a better web-based chat client”, that’s something you could test quickly. If your hypothesis is “we can build a car that runs on lemonade”, that’s just not going to work as a part-time effort.

  5. Understand that your first version will not be the final. Be prepared for a long journey and be surprised if your startup is an immediate hit. So with your first version, look for the tiny little flicker than you might be onto something. Use it to motivate you to make it better. Every week, make it better than last week and see if that flicker of light can be fanned into a tiny flame.

  6. Use every spare moment at work getting smarter. While others are enjoying coffee or lunch, use the time to update yourself on your technology, your competitors, angel investors, or how to incorporate a new business. That said, be aware of the fuzzy line between using your cool-down time at work for your startup and stealing time or resources from your employer. If you’re paid to do a job, you need to do it first.

You also need to be realistic about the conflict of interest issue. If your startup could even have the appearance of competing with your employer’s business, you could lose everything later. Also check any employment agreement you may have signed that might dictate that “any” invention or development during employment is the property of that company.

Obviously, the alternative of quitting your day job early avoids these issues, and also removes any excuse that your startup is merely a hobby. There is nothing that drives a team like the fear of debt, starvation, and visible failure. Even you may be surprised what you can accomplish under pressure.

If all of this discussion still scares you, you probably need to keep your day job long-term, and give your startup idea to someone else. There is nothing wrong with a dependable salary, medical benefits, and a contributing 401(k) retirement savings account. At the very least, don’t take the entrepreneur plunge with your eyes closed.

Marty Zwilling


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Tuesday, June 5, 2012

Paranoid Companies Miss the Best New Opportunities

Companies today are paranoid, afraid that even their friends will steal their business. Yet a creative collaboration with your biggest competitor may be the best opportunity for revenue and survival. But remember that “dancing with the wolves” can also get you eaten for lunch. You have to take the risk, but keep your wits about you.

Your goal is “coopetition” - to find a way to partner with your competitor in such a way that both parties can substantially benefit from the other's resources - without stealing customers or damaging anyone's credibility. It’s a great survival strategy for small companies or entrepreneurs, and a good expansion strategy for even the largest companies.

As an example, a few years ago I worked for small software company selling an expensive enterprise workflow product. It was heavy on visual development capability but light on modeling and simulation, and we kept battling a competitor in the marketplace who had essentially the inverse strengths in a similar product. We were both losing in the lucrative high-end market segment. Neither could afford to build what the other had, but we could easily integrate some of our combined features in a shared product.

We finally decided set up a strategic partnership with a joint product to capture this elusive segment of the market. As a result of our increased coverage and wider range of solutions, we both gained revenue and credibility, while reducing marketing and development. In the following quarter, we jointly signed up two new customers who loved our “end to end” integrated solution.

This example is only the first of six approaches for coopetition, with potential wins for both sides:

  1. Best of both creates a new market. Your competitor has strengths, and you have different strengths. A strategic combination can win in a new segment of the market, which neither of you could do alone in the same timeframe or at the same cost.

  2. Cost sharing and economies of scale. Companies work together on segments of their business where they believe they can minimize costs but not jeopardize their unique attributes. For instance, Dell and HP are strong competitors on notebook computers, but both offer Intel processors, rather than building their own to keep component costs down and broaden their application market through compatibility. Both now lead with the same processors, but Dell offers custom system configuration at ship, while HP capitalizes on more impressive display and battery technology.

  3. Up-sell related products after the initial sale. If your customers would benefit by having both of your products, you might negotiate the opportunity to include your competitor’s product as a later add-on, or vice versa. This is called up-selling, or cross-up-selling, and both parties share the profits. You see this every day in retail outlets that are not “company stores.” They are more than happy to sell you alternative brand of shoes that match your suit, or suggest a premium appliance from another manufacturer, once you have selected the lowest cost refrigerator.

  4. Integrate for new or critical mass. If your competitor has a similar product that could complement your own, you might consider arranging a deal where both you and your competitor would offer an integrated bundle or new product. Another way to "coopetate" is to create a critical new offering to address a common enemy. For example, if you're selling a travel magazine, you could add a free travel video when someone buys a subscription. You're now targeting people who want the travel magazine and those that want the specific video you are giving away. Others will now buy your travel magazine over a travel book, for example, which competes with both your magazine and the video individually.

  5. Cross endorsement. If your "competitor" isn't really competing with your direct market, you can refer business to each other without anyone losing customers. Affiliate marketing might actually be one of the more effective (and easier) ways to partner with someone else in the industry. Online, this starts with link exchanges, leading to referral fees.

    This also works for two businesses with different products but similar clientele, to increase the market for both. It could be something as simple as a chiropractic office that offers acupuncture and physical therapy cross-endorsing with a neighboring gym. Gym members could get discounts on chiropractic services and chiropractic patients might get free on-site body fat analyses from the gym.

  6. Possible investor. Once you have established your credibility and value, a strategic partnership may extend to a financial relationship. They may have the finances you need and are ready to invest in a business area they know. Also, this competitor will now be a better candidate for merger or acquisition (M&A), due to the existing relationship, when either of you is ready for that step. For example, IBM, Intel, and other large companies routinely allocate and manage venture funds to invest in startups with new technology that may in fact be competitive with their own. Buying the startups that get traction is cheaper and faster for them than trying to manage similar development efforts within a large company.

Of course, for a strategic alliance to work, you must take precautions. Companies need to very clearly define where they are working together and where they are competing. The right place to start with a good joint non-disclosure and non-compete agreement. Also, make sure there is no misalignment of priorities between your organizations, which can negate all the positives.  For example, if your pride is your customer service reputation, don’t risk it by partnering with a company who has related items at a lower cost but consistently poor customer service.

While it is normal to instinctively look for ways to avoid, evade or protect ourselves from the perceived threat of a competitor, take the time to look at the opportunity strategic alliances may provide. You will find that it is sometimes smarter to capitalize on the positive aspects of a competitive situation, rather than fight to the death of both of you.

Marty Zwilling


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Monday, June 4, 2012

8 Attributes of a Real Entrepreneur That Run Deep

Business success begins in the mind of the startup founder and his team. A winning startup is a team of entrepreneurs who build and run the business as an extension of who they are, rather than some extrapolation of the Google or Facebook model.

It’s not so easy to fake the important attributes when the going gets rough. So before you risk it all by jumping into a startup, do a reality check on your own mind to see if you can find a majority of the following attributes, summarized from the book “You Can Win” by Shiv Khera:

  1. Positive believing. This starts with positive thinking that your startup idea will work, but is a lot more. It is a confidence bolstered by intelligence, preparation, and experience that your business model addresses a need in the market, provides a solution, and will beat the competitors.

  2. Burning desire. You need the motivation to succeed, which comes from the burning need to achieve your purpose. This is the starting point of all accomplishments. Napoleon Hill in “Think & Grow Rich” said "What the mind can conceive and believe, the mind can achieve."

  3. Unwavering commitment. Many successful business people hailed as visionary leaders are individuals who hold firmly to a simple set of principles, usually grounded in beliefs such as "elegant designs", or the “highest possible customer service". The strength of these religiously followed commitments led to their business success.

  4. Power of persistence. Persistence is determination to succeed. It is a commitment to finish what you start, which comes from a real purpose. A person who has no purpose will never persevere, will never be fulfilled, and will not succeed.

  5. Hard work. Excellence is not something that you accomplish by accident. It takes a lot of preparation, character, and hard work. Everyone likes to win, but how many are willing to put in the preparation effort and time to win? It takes sacrifice and self-discipline.

  6. Acceptance of responsibility. People with character accept responsibilities. They make decisions and determine their own destiny in life. Accepting responsibility involves taking risk and being accountable. This is sometimes uncomfortable.

  7. Pride of performance. The quality of the work and the quality and the worker are inseparable. Excellence comes when the entrepreneur takes pride in doing his best. Half-hearted effort normally produces no results, rather than half the results.

  8. Enjoy the work. Do what you love, and you will love what you do. It’s hard to maintain all of the above if you don’t enjoy the subject area, the team, the challenge, and the customers. People who are not having fun are rarely successful.

Those who run successful businesses possess many of the above attributes at phenomenal levels, much beyond those of the average person. And they don’t fear failure, but are quick to learn from it. Now you can understand why less than half of all startups last more than five years.

Some experts argue that everyone possesses these attributes, but they may be buried deep in the subconscious. Their challenge is to release the negative thoughts and feelings that are blocking the emergence, and blocking success. There is even a form of alternative psychotherapy, called EFT (emotional freedom techniques), that is gaining popularity to help release the blocks.

In summary, when you decide to start a business, the place to begin is in your own mind. Take a hard look at your drivers, and those of every member of your team. That’s the only way your chances of success will be definite and real, instead of just a wish and a prayer.

Marty Zwilling


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