10 Keys to Startup Traction That Investors Look For

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

Manage Your Online Reputation Before It Goes Bad

Every startup fears that one angry and unfair customer who can jeopardize the business by a negative post on Ripoff Report, Yelp, or one of the hundreds of other consumer complaint and review sites on the Internet. Most entrepreneurs don’t even know how to keep track of what people are saying about them on the web, much less how to respond or remove it.

Web reputation management, both business and personal, has become a top priority requirement. On the personal side, these items can kill your career, as I discussed in an old article “Google Yourself to See How Other People See You.” Luckily, the basic principles for reputation management are the same for both business and personal environments:

1. Your reputation is your responsibility. The first step is to recognize that you alone are responsible for managing the reputation of your business and your life. Doing nothing, or counting on more laws, is not an answer. Due to First Amendment rights, offensive content, once entered, is often untouchable, and the sources are immune from liability.

2. Actively monitor what people are saying about you. You may assert that monitoring the entire Internet space is an impossible problem. Fortunately, there are already tools out there, like Google Alerts (free) and ReputationDefender, which can do the work for you, and send you a daily email report of every link where your name or brand appears.

3. Proactively build a positive reputation. Maintaining a good reputation means you have to build one early and maintain it. There is a big difference between no reputation with one negative comment, versus 1000 indications of a positive reputation and one negative. Most people accept that no person or organization is perfect.

4. Quickly address every negative. Many negative customer experiences can actually be turned into positives, if you quickly and unemotionally acknowledge the problem, resolve it, and spread the positive message before the negative one gets amplified. Don’t emulate the “United Breaks Guitars” experience.

5. Push negative content out of view. In reality, most people will never find negative content, unless a link appears on the first page of search engine results. With the right focus on search engine optimization, or the help of companies like DefendMyName, you can usually push negative links out of sight into the swamp of the Internet.

6. Remove unwanted content, where possible. Removing your content from the Web is not as easy as canceling your accounts, nor is it completely impossible. You can easily remove content you own (comments on your site or accounts). Experts, like Reputation Defender, have proprietary techniques to correct or completely remove other unwanted content.

The upside to the difficulty of removing unwanted content is that it does justice to those who have come by their bad reputations legitimately. For curbing bad guys, the speed and visibility of the Internet can be a very useful thing. For all the rest of us, it’s nice to know that we can shout back quickly and broadly, when someone starts to whisper about us.

As I have discussed in previous articles, social networking sites like Facebook are now the most frequently used websites on the Internet. Unfortunately, they have also become some of the most abused websites on the Internet, due to the emotions of failed relationships and the immature whims of young users.

So the social networks are the early place to start, in learning the discipline of building and maintaining a positive reputation. If you get that right, the transition to your business will be easy. On the other hand, if you let your reputation slide early to be “cool,” it may take a lifetime to recover. It’s easier to make Google remember than to forget.

Marty Zwilling

6 Keys to Moving Startup Leaders From Good to Great

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 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

9 Ways for Entrepreneurs to Counter Negative Vibes

Entrepreneurs need to listen to constructive criticism, but ignore negative vibes and complainers at all costs. If you are a complainer, and you are thinking of becoming an entrepreneur, think again. The world of an entrepreneur is tough, unpredictable, and fraught with risk. Most importantly, the buck stops with you, so there is no room for excuses and negativity.

Even listening often to negative team members and partners will reinforce negative thinking and behavior, and turn your normally positive perspective toxic. I’ve seen it too often in real life, and it was reinforced to me recently when I read a new book by Trevor Blake, “Three Simple Steps: A Map to Success in Business and Life.”

Trevor is a highly successful serial entrepreneur and success coach who has studied this phenomenon for many years, including the latest findings in neuroscience. Reviewing dozens of autobiographies of great entrepreneurs, including Steve Jobs, Henry Ford, and Andrew Carnegie, it seems that all had an unshakable belief in their ability to control their lives, with no excuses.

Here he offers, with some startup adaptation from me, ways that every entrepreneur needs to defend themselves against negativity – yours and others – so you can rewire your brain and boost the occurrence of positive thoughts and behaviors:

1. Become self-aware. When you feel an excuse coming on, no matter how trivial, stop yourself. You can’t delete the thought, but you can revise it before saying it aloud. So instead of saying, “I’ll never get the funding I need in this economy,” you might say, “Let’s try this new crowdfunding approach, since our solution value is so easy to understand.”

2. Redirect the conversation. When you participate in negative dialog with a complainer, you’ll walk away feeling depleted. If he says, “I hate demanding customers,” counter his negative thoughts with a positive image: “At least we have customers – how many of our competitors wish they had the backlog that we do?”

3. Smother a negative thought with a positive image. If a negative thought pops into your mind, immediately input a different image. This is the process of “neurogenesis” – creating new pathways in your brain that lead to positive behaviors. So if you think “I’m working late again,” replace this with a pleasant image of the restful weekend ahead.

4. Don’t try too hard to convert others. When trapped in a blatant complaint session with members of your team, simply choose silence. Let their words bounce off you while you think of something pleasant. If you try to stop them, you may end up alienating yourself and becoming a target. Let your positive results do the work in time.

5. Distance yourself when possible. When you hear insiders criticizing your startup, excuse yourself and take a break somewhere quiet. Think of something pleasant before returning. You have to take this seriously, because negative people can and will pull you into the quicksand.

6. Wear an invisible “mentality shield.” Imagine that an invisible shield like a glass cloak made of positive energy lightly covers your whole body. You can see perfectly well through it but it protects you from others’ negative words and emotions. This technique is used by professional athletes to deflect the negative energy of a hostile crowd.

7. Create a private retreat. When you are stuck with a cohort who is spewing vitriol, you should mentally retreat to a private, special place where you plan to enjoy the successful fruits of your entrepreneurial labor. Concentrate on your vision of making the world a better place.

8. Transfer responsibility. On occasions when you’re pressed against a wall while someone rants about all the injustices in their role, throw the responsibility back at them by saying, “So what do you intend to do about it?” If they just want to vent rather than find a solution, this tactic will stop them in their tracks.

9. Forgive your lapses. Everyone complains sometimes. Your computer crashes. Deadlines pile up. It’s human to vent once in a while. Be kind to yourself and start afresh. The less frequently you complain, the more time will pass between lapses into negativity. This is how rewiring the brain works.

Trying to live with complainers in your startup is not only unpleasant, but it’s bad for your own well-being, and bad for everyone’s performance. New research shows that if they keep hearing negative messages, your team behavior will change to fit these new perceptions, and not in a good way. You can’t survive with that kind of help in today’s competitive environment.

Marty Zwilling

Adding Slides Does Not Enhance Your Investor Pitch

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

7 Paybacks an Alma Mater Can Offer an Entrepreneur

An underutilized, but valuable resource, every startup should investigate is a formal or informal connection to your alma mater, or even any local university. These resources are definitely not limited to students, since every university seeks out and needs the real world exposure and experience of entrepreneurs who already are active in the real world marketplace.

Here is a short list of the areas where you should be able to find help, whether you are a student or an independent entrepreneur:

1. Exploring hot ideas. Universities are a rich source of new ideas from their students, their professors, and their own research, and they value entrepreneurs from the real world to decide which ones are viable in the marketplace. Start by contacting the university outreach liaison, or a professor in your area of interest or expertise.

2. Product research and prototype development. Take advantage of the tech classes, labs, equipment, and graduate students looking for real world problems to research. The professors know how to get grants to fund development for you in strategic focus areas, like biotech, that would otherwise cost you many thousands of dollars.

3. Business plan assistance. Every university has entrepreneurial courses or evening classes that can provide assistance on creating your initial plan. Look for special programs for entrepreneurs, like the Arizona State University Technopolis program that I am familiar with, available to non-students.

4. Early-stage funding. Don’t look for formal venture capital levels of funding, but certainly early-stage Kaufmann grants, incubators, and entrepreneurship incentives are available from endowments and state funds. Collaborative efforts with local companies, like Siemens Venture Capital, are available for certain technology and focus areas.

5. Legal guidance. Most universities have friendly law professors, or an entrepreneurship legal clinic, to address concerns like protection of intellectual property and privacy. These might even be available online, and may be staffed by outside lawyers working on a ‘pro bono’ basis with the school. Start by contacting the law school organization.

6. Building a team. If you need part-time resources to build a prototype, you can always find hungry but high-caliber graduate and PhD students with the latest theory ready to work. If you need experienced partners and vendors, the best professors and entrepreneurship staff will have the contacts you need in the local business community.

7. Connections to a mentor. Similar to finding experienced team members, you can use university contacts who do mentoring in the real world. Most schools also nurture relationships with local and former executives whom they use for guest lectures to MBA courses, judge student business plans, and assign as mentors for university spinoffs.

For example, I live in the Phoenix, Arizona area, home of Arizona State University. They have several "outreach" programs to help startups, including their Venture Catalyst program for business plan development, mentorship, interim management, connections, and development roadmap. They also provide incubator services and space for early startups.

The Thunderbird School of Global Management, also here in Phoenix, has a top-ranked International MBA and entrepreneur curriculum, a startup incubator program, and hosts a group of Angel investors to assist qualifying startups.

I do volunteer work at both of these schools, and I’m not even an alumnus from either one. Believe me, the payback for me has been large from both of them, and I’m betting that you can get the same from a university near you.

Marty Zwilling

Will the Real Crowd Funding Model Please Stand Up?

The new hot topic for entrepreneurs these days is crowd funding, which is anticipated to at least supplement, if not replace, the slow and mysterious process of current Angel and venture capital investors. The problem is that crowd funding means something different to everyone, and even I have been confused by the different ways the term gets used.

So I have set out here to outline and offer some practical advice on the many different models currently used with the term “crowd funding” and “crowd sourcing.” The newest model was passed into law recently via the JOBS Act, and won’t even be available until the end of this year or maybe mid-2013 in the USA, while waiting for the rules to be finalized:

• Startup equity crowd funding. This new model will allow large numbers of “regular” people to invest small amounts each online to fund early startups. This is not a get-rich-quick vehicle for consumers. As a current Angel investor, I can attest that any investments in startups are more risky than the commodity markets, and you shouldn’t expect to see any return for five years. Proceed at your own peril.

• Good-cause crowd funding. This model is a good thing, and has been around for years. Example sites include StartSomeGood and the Facebook Cause page. People can invest (donate) money to a project which has good moral/ethical value. No financial return should be anticipated, but contributors should enjoy the feeling of doing good.

• Pre-order crowd funding. Here people make online pledges with their credit cards during a campaign, to pre-buy the product for later delivery, if it is ever built. Kickstarter is the big player in this space. It has had some notable successes for entrepreneurs (over $1M in funding), as well as non-starters. There is no concept of ROI other than product.

• Rewards-based crowd funding. This is a variation on the two previous ones, where investors get the satisfaction of helping, and immediately get a pre-determined reward or perk of value, such as a t-shirt, or other recognition, but no equity or finished product. A good example site, and one of the earliest in this category, is IndieGoGo.

• Debt-based crowd funding. In this model, sometimes called micro-financing or peer-to-peer (P2P) lending, you borrow money from a number of people online and pay them back after the project is finished. This has been popular in many countries for years via sites like LendingClub and Kiva. The allure is fat returns, but they come with a huge risk.

• Ideas crowd sourcing. Technically, this model is not involved with funding at all, but “crowd sourcing” and “crowd funding” are often used interchangeably. Sites like GeniusCrowd get your ideas off the shelf, and give you the wisdom of the crowds. Of course, this might also lead to investors, partners, and licensing opportunities.

• Software crowd sourcing. This is basically the Open Source concept, where sites like IdeaScale facilitate the outsourcing of application development to the Internet community in the form of an open call. Sometimes contributors may get compensated later, but usually the rewards are just kudos and intellectual satisfaction.

Don’t confuse any of the models with other popular funding sites for startups, like FundingUniverse and GoBigNetwork. These are primarily matchmaking sites between entrepreneurs and professional investors or banks. Often they do sponsor pitch contests with small cash prizes for funding, as well as other valuable services to support entrepreneurs.

So it’s easy to see that whether you are a new entrepreneur or a new potential investor, the Internet has opened several new options for the crowd to help you. These also open new concerns about lost intellectual property, Internet scams, and long-term return on investment. Crowd funding is exciting new territory, but I don’t see it replacing Angel and venture capital investors any time soon.

Marty Zwilling

Selling Your Product May Be Harder Than Building It

A good entrepreneur is not necessarily born a good salesman. In fact, they are often the opposite, more focused on building things rather than selling them. Yet, in today’s world of information overload, marketing and selling skills are critical to the success of every startup.

The alternative “If we build it, they will come” approach has long been relegated to the field of dreams, after Kevin Costner’s movie by the same name. In my own effort to keep up with the times, I finished a book by Julie Steelman a while back, “The Effortless Yes: Demystifying the Selling Process.” Julie is known as the entrepreneur’s selling mentor, for both men and women.

Steelman does a good job of outlining the key selling steps that separate great salesmen from the rest of us. In my view, every entrepreneur has to be a great salesman to succeed (among the many other required skills), so you should take a hard look at these points:

• Dust off your moxie. Don’t hope that a miracle will happen and your products and services will sell themselves. Be passionate about what you are selling, and decide to be of service, by providing your customers with something of value in exchange for deserved payment. Set aside fear and doubt, and stand tall with your message.

• Claim your sweet spot. The sweet spot if the essence of your brand. The way to claim it is to name your expertise or specialty, describe for whom it’s meant and clearly state how it delivers on its promise (or what is called your unique payoff proposition). Make it real for you and your customers.

• Craft your irresistible pitch. An irresistible pitch is a clear and concise explanation of what you do best, benefits to your customers, an honest statement of why you do what you do, a question that pulls the listener in, and words and language that engage the hearts and mind of your ideal customer.

• Socialize your message. Generate leads using social media, but don’t rely on it alone to make sales. Use the media to initiate contact, highlight your human element, and communicate your specialty or expertise in a way that anticipates what your customers might be thinking about. Facilitate a transition to a private environment for closing a sale.

• Engage graciously. Always treat customers with respect, honesty, and warmth to make the selling process more enjoyable, fun and delightful. The goal is to deepen the relationship, and discover if their needs match your offer. Listen closely for what they are saying and expressing. Don’t forget to follow-up. Skip the cold calling – it’s just too cold.

• Discover your signature selling style. Learn to sell in a way that matches your personality and your strengths. Check the definitions in this book or other sources to see if you are the humanitarian, visionary, maverick, romantic, nurturer, mentor, or one of a dozen others. Tune your approach and you will find yourself enjoying the selling process.

• Perfect your natural ask. As you go through the sales cycle with your customer, there comes a point when it’s natural for the transaction to conclude. Asking the customer for their decision demonstrates leadership on your part, shows you have confidence in your offering, and prompts them to make a final decision. You can’t win if you don’t ask.

I’m not suggesting that a startup founder has to do all the selling, and doesn’t need to find or hire people whose focus is marketing and sales. In a startup, everyone has to sell – you can’t afford to rely on specialists for everything.

Just recognize that if you are in business for yourself, you are in the business of selling. Selling well is about creating relevancy with customers and aligning your product suite with their needs. That has to lead to a win-win close where the customer satisfies a need and you make money, or you don’t have a long-term business. Are you comfortable with your selling skills?

Marty Zwilling

8 Ways Entrepreneurs Often Destroy Team Motivation

Assuming no one would demotivate their team intentionally, then why do we see it happen so often? I believe it’s because too many entrepreneurs and leaders are so self-centered that they really don’t see what impact their actions have on others. What these leaders need to do is spend more time eliminating their own demotivating habits, rather than delivering more motivation.

Maybe it because there are plenty of tips, seminars, and books on the motivation side of the equation, starting with the basic Motivating Employees for Dummies, and so few resources on elements of demotivation. To learn about ways that your team is demotivated, most leaders would need to look no further than feedback from their own team, indicating you do the following:

1. Be sure your team doesn’t know what is important to you. You do this by changing your mind on an issue several times a day. Or by making sure your answers to employee direction requests run counter to ones given previously. Keeping your team guessing may keep them alert, but it is highly demotivating.

2. Never explain your actions. Just because you are the boss, that doesn’t mean you don’t have to explain your actions. They are watching you carefully, but they can’t see what’s going on in your mind. Non-specific directions like “make it better” or “get it right next time” are not helpful or motivational.

3. Hire team members who will follow your instructions. Then you have to make sure they are punished for taking any initiative that you personally did not authorize. These people may appreciate having a job in these tough economic times, but they won’t be motivated to take any risk, or lead your company through the competitive minefield.

4. Keep people on their toes with a threat of consequences. This may be as simple as withholding opportunities and rewards, but people need to understand that you are serious about punishment for mistakes. Even implied threats are demotivating, yet most employees say their supervisors do hold threats over them on a routine basis.

5. Team meetings are for delivering the latest decisions. Bring your team members along to all the meetings, but make sure they listen carefully rather than speak or provide input. You may ask them to bring you up to date on what they’ve been emailing you, but you’ve been too busy to read.

6. Agree to milestones and then accelerate them. After you hear the latest sales projections, you can’t resist adding a “stretch” objective, just to keep people challenged. For development projects, you prefer milestones just after major holidays, so people have the option of working through the holiday for extra credit.

7. Thank your employees for the little extras. You recognize the need for positive feedback, but it’s less risky to apply it to potential problem items, like “Thank you for doing the job manually, rather than waiting for your computer to show up,” or “Thanks for coming to my house to fix my kid’s home computer.”

8. Be careful not to get too involved in your employees own goals. If you help them too much, they will just leave you for a bigger opportunity. They need to understand the commitment of meeting your goals first, so you send reminder emails to them at midnight on Saturday, marked urgent.

If you recognize yourself in any of the points above, or find this article on your desk chair one morning, it’s never too late to change. Rethink your own behavior in order to ferret out any unintentional or intentional demotivational acts.

It’s time to move to the positive side of the motivation curve, from the team’s perspective. Motivation is one of the most powerful driving forces toward entrepreneurial success. In these tough competitive times, you need all the help you can get. Don’t try it with a demotivated team.

Marty Zwilling

Startups Must Balance Social Media Costs vs Value

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 read a while back, “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 the fading 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, Facebook Glancee).

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

Entrepreneurs Need to Listen More and Talk Less

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. Outbound marketing is all talking, and no listening.

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

Investors Know A Product Doesn’t Make a Business

Why is it that most of the business plans I see are really product plans? I define a product plan as a detailed description of your product or service, with a bit of business thrown in at the end. A business plan is a detailed description of your business, with a bit of product description thrown in near the front.

Don’t get me wrong. It’s definitely positive to have a product plan. A simple differentiation is that a product plan is designed for internal use, to get the product out. A business plan is an “outward facing” document for external investors, or for C-level executives within your own company.

The product plan tells your developers what to build, and the marketing team what to market. Because it addresses an internal audience, it can use technical jargon and assume the reader understands the technology. Here are the key components of a good product plan:

• Detailed features. For software, websites, and high-tech products, this is the “meat” of what you intend to build. Enough detail is required so that someone else can build it without you (outsourcing). Equally important, marketing and sales people should be able to identify benefits and marketing strategies, set prices, and validate a business model.

• Market research. This section defines the market, sizes the opportunity, and discusses the needs and requirements that will be addressed by your product and service. Establishing credibility is key, so this data should come primarily from industry experts, with footnotes to the source, rather than your passion that everyone needs one.

• Competition analysis. There are always competitors, or alternative ways to get the job done. Here is where you pick a few of these, characterize what they do, and position your own product to show your competitive advantage.

• Development and rollout. Show the timeline, milestones, costs, and people required to produce the product or service. Address proof of concept, performance considerations, quality certification, and support ramping.

Concurrently, or later, it’s necessary to build a separate business plan. Because this document is “outward facing” the tone and level has to change to be understandable by customers and investors. Here are some key components:

• Problem statement and solution. Skip the acronyms, write at an eighth-grade level, and talk in terms of “benefits” rather than “features.” Assume readers don’t know or share your vision, knowledge, and passion, so you have to sell them on your plan at all levels.

• Market research and competition. Reuse the two comparable sections above, making sure you refocus the words for an external audience, and remove the technical jargon. These are the only sections that these two plans have in common.

• Business model, executive team, marketing & sales, financials, and funding. These are all new and critical sections of a business plan. See my previous article “These 10 Key Elements Make a Business Plan Fundable” for details on requirements here.

Actually, it’s most disconcerting when people approach me with neither – just a verbal description of their “idea,” looking for a business assessment of its potential. In frustration, I usually comment to them that ideas are worthless outside the context of a realistic business plan.

I realize that many of you entrepreneurs are technical types, and you feel certain that an exciting product plan will highlight an exciting business opportunity. Instead most investors will see it as a “solution looking for a problem.” That’s a big red flag, and will usually get your plan a quick toss to the circular file.

Marty Zwilling

10 Comments You Never Want to Hear in a Startup

Some people are not cut out to be entrepreneurs. This is a good thing, or the business world would be chaos, with everyone trying to do their own thing. So what about you? How do you know if you should be running your own company, or concentrating on that queue of work that someone else has built for you?

I’ve hit this before, but I still hear from too many unhappy entrepreneurs. Now is the time to put aside your fantasies, and take a hard look at who you really are, before you commit to the entrepreneurial lifestyle. If you recognize yourself in many of these quotes, you WILL NOT be happy in that lifestyle:

1. “I like my life structured with clear decisions.” Entrepreneurs do not function well in traditional organizations and do not like being in the conventional management hierarchy. Most believe they can do the job better than anyone else and will strive for maximum responsibility and accountability.

2. “Handling problems causes me stress and pressure.” To an entrepreneur, stress is part of the job, and they are re-invigorated rather than discouraged by setbacks. They may actually be less comfortable when things are going well, and are not troubled by ambiguity and uncertainty because they are used to solving problems.

3. “My job is fun when everyone knows and does their job.” The best entrepreneurs relish the challenge of an undefined role, and enjoy the learning process as much as success. It’s even better when they can inspire and energize others to do things that have never been done before.

4. “I like to put my mistakes behind me and never think about them again.” Entrepreneurs accept things as they are and deal with them accordingly. They are quick to learn from their failures. They may or may not be idealistic, but they are seldom unrealistic. They want to know the status of a given situation at all times.

5. “Balance and family are everything in my life.” Entrepreneurs devote the largest share of their time to the business. During tough business periods, they will give their entire focus to business operations, and may essentially stay on the job for days. Even at home or at social events, the business is always top of mind.

6. “It didn’t get done today, but there’s always tomorrow.” Entrepreneurs have a great sense of urgency to develop their ideas now. Inactivity makes them impatient, tense, and uneasy. They have drive and high energy levels, they are achievement-oriented, and they are tireless in the pursuit of their goals.

7. “That’s not my job.” Successful entrepreneurs love to tackle complex situations that span the spectrum from planning, making strategic decisions, and working on multiple operational crises simultaneously. They are futuristic and aware of important implications, and they will continuously review alternatives to achieve their business objectives.

8. “I love to get awards for my efforts.” Entrepreneurs find satisfaction in the trappings of success from external sources, like the media and peer organizations. They like the business they have built to be praised, but they are often embarrassed by praise directed at them personally.

9. “I get frustrated when things don’t work.” Entrepreneurs have a "never, never, never quit" attitude. They are self-confident when they know what they're doing and in control. Most are at their best in the face of adversity, since they thrive on their own self-confidence.

10. “Risk and uncertainty cause me to lose too much sleep.” Some of the best entrepreneurs talk about the highs they get from taking a big risk, and the euphoria they feel when they beat the odds. They live for these feelings.

If you are an employee, and you recognize your boss in the quotes, you probably are not a happy employee. If you recognize your CEO or business founder in the quotes, then your business is probably failing. That’s how important it is for the right people to be in the right category.

In my experience, the most unhappy people are the ones who clearly fit in one category, but for various reasons believe they need to be in the other one (entitlement, more money, more prestige, family pressures). My message is do what you enjoy. Life is too short for the alternative.

Marty Zwilling

6 Myths From Past Startups That Limit Thinking

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 book a while back 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

10 Keys to Maximizing Personal Gain From a Startup

Everyone knows that that startups are risky, but they also expect that the job will be exciting and potentially very lucrative (think early employees at Facebook and Google). Yet we have all heard stories about the high turnover, unstructured work environment, lower base pay, and unpredictable expectations from the top.

Assuming you are lucky enough to get hired, what can you do to survive, and even stand out above the rest in this environment? Here are some tips from a book by Harvey Mackay a while back, titled “Use Your Head to Get Your Foot in the Door,” which work even better in a startup than they do in a bigger company:

1. Make yourself indispensible. The truly indispensible person in a startup is a problem solver, because every startup has plenty of problems. Very few people are willing and able to take on any challenge, and make it work. You can’t outsource that one.

2. Volunteer. This is related to the first item, but more specifically means the willingness to take on tasks that others could and should do, but hate to do. There will always be a place in this world for the person who says, “I’ll take care of it.” And then does it.

3. Stick out and shine. Many employees like to keep a low profile, thinking that will minimize their workload, but it also maximizes their risk. It pays to be visible in any way that’s positive for the company. It could be managing the company picnic, or being the office “go-to” person for computer questions.

4. Don’t hang out with gloom and doom. Some people love to gripe about management, the pay scale, and career opportunities. Even if you never utter a negative word, don’t tag along with this bunch, or you will be written off as a silent sympathizer.

5. Be a builder … and a rebuilder. When the organization changes, be the first to help the new organization work, even when it costs extra hours and sweat. If you see a customer service problem hurting the company, step up proactively with a proposal to fix it.

6. Always position yourself as number two to your next career opportunity. Initiate activities that improve your chances of being the chief’s backup. Then focus on ideas that will likely get your boss promoted. You will likely be the dark horse that fills the slot.

7. Persevere. In a struggling economy, it’s so easy to throw in the towel. Executives always have their eye out for people who do the opposite and engage in tough challenges. These are the ones who stick with finding a solution even after many reversals.

8. Educate yourself one notch up. Study the resumes of managers on the next level and do your best to match or even surpass their career credentials. Not just degrees, but loading up on books, business journals, and blogs that your top executive favors.

9. Pay attention to your image. You attitude and the clothes you wear assert your authority to subordinates, peers, the media, and customers. Your company is spending real money on its image, so make your own personal “brand” an asset to the company.

10. Think big picture. Some issues aren’t worth winning. You can win the battle and lose the war. If you boss takes credit for one of your ideas, use it as an opportunity to point out how you think alike, rather than berating him in public for the lack of attribution.

In the real big picture, if your prime focus is keeping your current job, you are already in trouble. You should be thinking about your promotion to the next level in this company, the next level in the next company, and then on to starting your own company. The satisfaction of creating jobs is a lot greater than keeping this one.

Marty Zwilling

Entrepreneurs Now Start Hyperlocal Then Go Global

Even though the world is getting smaller, due to easy global connectivity, people still feel alone if not well-connected locally. There is also more going on in every location, so this personal need and super sensitivity to the local community has spawned a new breed of Internet startups, called “hyperlocal.” The term first appeared at least five years ago, but the model is now very common.

At first this was limited to news sites that concentrated on a segment of a community, like West Seattle, but the concept is now being applied to advertising and promotion sites, blogging sites, and even legal services sites. These hyperlocal sites don’t have to compete with global sites, and always have unique content, community advertising, and local issues.

Foursquare is good example of a modern hyperlocal site, which describes itself as “50% friend-finder, 30% social city guide, 20% nightlife game.” It also shows how such a website can scale by adding new cities. When you enter one of these cities, you simply check-in to tell the service where you are, and you begin to earn points and unlock badges for discovering new things.

Much of this is still evolving, but I think it has great potential. Here are some of the dimensions of hyperlocal, summarized by Alex Gamela in an interview with Adrian Holovaty of EveryBlock a while back:

• Geographic granularity. Give people a way to follow news around a particular block. This is the main focus of EveryBlock, where they give each city block its own Web page, its own RSS feed and its own e-mail alerts.

• Geographic customization. Give people a way to draw custom geographic boundaries to specify their area of interest. Their “custom locations” feature lets you draw an arbitrary area in your neighborhood that selects the streets you’re interested in following.

• Geographic messaging. Give people a way to post news to specific geographic areas. Their “Notify your neighbors” feature lets people post messages (news reports, classifieds, etc.) to their blocks, with a sophisticated level of targeting.

• Subject matter granularity. Give people information that’s “too small” or otherwise not important enough for mainstream news sites, such as restaurant inspections, building permits, and fire department dispatches.

• Topic customization. Give people ways to control which types of information they get and how often they get it. For example, EveryBlock lets you choose which types of information you want to get daily, weekly or “as it happens”.

When you extend this to include social media marketing, you can imagine that startups and small businesses are in fact at an advantage over their less flexible big brothers. They can offer real-time feedback and immediate rewards for hyperlocal activity, by members of that community, for members of the community.

Hyperlocal blogs like My Ballard can find unique content that doesn’t compete with major players and newspapers for attention. They are free to write about neighborhood events, charities, schools, and local causes. The big news outlets don’t have the staff or resources to chase these types of stories.

I predict that hyperlocal services sites will continue to emerge and flourish. Many years ago, a community law firm could have a rewarding law practice, financially and personally fulfilling, by becoming a part of the community. In the new digital age, it’s possible again, even easier and faster.

With the advent of the iPhone and Blackberry, location-based apps are becoming commonplace. Especially in local communities, people want to know where the sales are, and who is hanging out where. This is not just a fad.

Hyperlocal can be the “beginning” for your startup, allowing you to test your business model and your marketing plan before you scale. Or it can be the final destination, if you are looking for a fun family business in the new world. I recommend it as a familiar place for your startup to “learn the ropes” before you take on the whole world.

Marty Zwilling

Good Entrepreneurs Practice Communication Secrets

Effective communication is an absolute requirement for successfully starting a business, but it doesn’t come naturally to many entrepreneurs. Communication is considered a social skill, and inventors and engineers, for example, are not known to be social butterflies.

Founders have to communicate their ideas and products to investors, business partners, and the rest of the team. Then, hopefully, come customers, distribution channels, and going public or merging with an attractive buy-out candidate. Communication is not just talking, but also writing, body language, and “actions speak louder than words.”

John Spence, in his book “Awesomely Simple” says that the single biggest problem he has to deal with in client companies worldwide is the lack of open, honest, robust, and courageous communication. He narrows down the problem to the following aspects of communication, and I agree:

• Honesty. This element is without question the most important in building strong communication in a startup. The implementation is simple – just tell the truth all the time, every time. It’s a lot easier than trying to remember what you said the last time, and people notice quickly. Build a culture of truth, and others will follow your lead.

• Empathy. It is one thing to be honest; it is another thing to be brutally honest. Tell the truth in a frank and direct, yet respectful and empathetic, way. Shoot straight with people, but don’t shoot them between the eyes. Body language and sincerity are important here.

• Courage. You need the courage to put even the most difficult and challenging subjects on the table and lead the discussion. Don’t wait until tomorrow, hoping the problem will go away. Courageous means that team members have the nerve and confidence to question authority, rather than dutifully fall in line behind a bad direction.

• Safety. If you want people to tell the truth, you have to make it safe for them. Here is where your actions speak louder than your words, and louder than any written policies. If you obliterate someone for telling you the truth, you will never hear the truth again. If you are caught in a lie once, you will never be believed again.

• Intellectual rigor. Although people should be safe, ideas should not be. In an intellectually rigorous culture, theories are tested, and people welcome, even encourage, critical examination of ideas and information, regardless of the source. The goal is for only the strongest ideas to survive.

• Transparency. The hallmark of great leaders and organizations is that they share as much information with all of their stakeholders as often as they possibly can, in multiple contexts. Yet many leaders will tell me that they are continually amazed to hear the common complaint “why didn’t anybody tell me this was happening”.

Spence says that the best way to improve your organizational communication levels is to improve your own interpersonal communication skills. Luckily, these are skills that can be taught and learned. It takes practice and hard work, but with time, it is possible to greatly improve.

The key skills for superior interpersonal communications are effective use of body language, focused listening, expert questioning, using multiple sensory modes, providing both logical and emotional arguments, and listening for ambiguous or emotionally loaded words. But these are subjects for another day.

If you are one of those entrepreneurs who struggles with every email you write, take heed of the importance of the basic principles above, and take inspiration from the fact that you can and will improve your skills, if you are willing to work at it. But make no mistake about it, being an entrepreneur who does not communicate is not an option. Start today, and do it every day.

Marty Zwilling

6 Key Drivers To a Long-Term Competitive Advantage

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, YouTube, 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

These 10 Key Elements Make a Business Plan Fundable

People ask me if they really need ANY business plan, unless they are looking for an outside investor. In fact, a business plan is needed more by you than investors, as the blueprint for your company, team communication, and progress metrics. Things that make it investment-grade for outside investors will also benefit you, since you are the ultimate investor.

First of all, any good business plan should demonstrate that you have done the homework to be an expert in your industry, and in what it takes to build a successful business from your idea. I’ll skip the basics here, and highlight only key elements that investors focus on:

1. Define the problem. Every plan must start with the problem you are solving, not a description of your company and product. Explain in terms your mother could understand, and quantify the “cost-of-pain” in dollars or time. Terms like “every customer needs this” and “next generation platform” are far too soft, and should be avoided.

   Many entrepreneurs scare away potential investors by claiming that their technology represents “truly disruptive technology.” What that may mean is that you haven’t figured out yet what problem it solves, or it may take many years for people to get it. No investor wants to wait that long for his payback, or fund the years of waiting.

2. Solution and benefits. This is not the place for a detailed product specification, but an explanation of how and why it works, including a customer-centric quantification of the benefits. Skip the technical jargon and hyperbole. Do describe your intellectual property and “secret sauce”.

   Focus is the keyword here. Pick a specific solution that you have built or prototyped, rather than rambling about all the possible things that could be done with your idea. Clearly define the customer, channel, and revenue model associated with this solution.

3. Industry & market sizing. Start with the evolution of the overall industry, market segmentation, market dynamics, and customer landscape. Remember that investors like industries that have a billion dollar opportunity, and a double-digit growth rate. Data from accredited market research groups like Forrester or Gartner is required for credibility.

   It always amazes me how an entrepreneur can define his market opportunity so broadly, and then assess his competition so narrowly in the next breath. You won’t impress investors by claiming that everyone in China needs one, and nobody else has exactly the right features to compete with you.

4. Explain the business model. This is how you will make money, who pays you, and gross margins. In this section, you need to be passionate about revenue, profit, and volume growth. Many people seem to use the social network advertising model for revenue, but forget it assumes at least 100M users and $50M investment.

   Avoid any statements like “All we have to do is get 1% of the market.” There are two problems with this assertion. First, no investor is interested in a company that is only looking to get 1% of a market. Second, that first 1% is the toughest of any market, so you look naïve implying it's easy to get.

5. Competition and sustainable advantage. List and describe your competition, direct and indirect, including customer alternatives. Asserting you have no competition is not credible. Then detail your sustainable competitive advantage, and highlight barriers to entry which will keep your competitors at bay.

   Often I see statements like “Microsoft is too big/slow to be a threat.” Usually the reason the big companies are no threat is because the market is too small. But investors know that sleeping giants do wake up, the moment your company shows some traction. Competing with IBM, Microsoft, and other large companies should never be minimized.

6. Marketing, sales, and partners. Describe your market penetration strategy, sales channels, pricing, and strategic partnerships. Here is also a good place for a rollout timeline with key milestones. Convince investors that you have lined up sales channels, strategic partners, and a viable marketing strategy.

   Be careful with assertions like “We have strong interest from a major customer.” The mention of unsigned contracts normally takes away more credibility than it adds. You can bolster this position by including a Letter of Intent (LOI), contract summaries, or even testimonials.

7. Executive team. Investors invest in people - not just ideas. Convince investors that your team is experienced in starting a new business, and have great expertise in the selected business domain. Include Advisory Board members and key industry people connections.

   Sometimes I see statements like “A world-class CEO will be joining us after funding.” Rest assured that potential investors will ask for names, and place some calls. Soft responses from your candidates will definitely kill your credibility.

8. Funding requirements. Explain how you calculated the funding requirements, and show details on planned use of funds. Quantify existing skin-in-the-game, by insiders and outsiders, including sweat equity and capital. Include a current valuation estimate.

   The most credible sizing approach is to do your financial model first with the volume, cost, and pricing parameters you want. See where your cashflow bottoms out. If it bottoms out at minus $400K the first year, add a 25% buffer, and ask for $500K funding.

9. Financial forecast and metrics. Project both revenues and expense totals for next five years, and past three years, if relevant. Show breakeven and growth assumptions. Details should be available in a separate financial model, but not included here.

   Remember that investors are looking for large, scalable, high-growth opportunities. Attractive deals show double-digit positive growth per year, and revenues that are projected to $20M or more within five years.

10. Exit strategy. This section is only required when you expect outside investors. These investors want to know that you are thinking about a liquidity event – when and how they will get their money out, with ROI. For a family business, don’t project an exit.

Otherwise, identify your preferred exit strategy, including specific candidates for merger or sale, and timeframe. “Going public” (IPO) is another alternative, but not common. Show how your rate of return would be attractive to investors.

An investment-grade business plan is a professionally prepared document, preferably about 20 pages, to satisfy both angel investors and venture capitalists. In preparing it, try to look at your project through the investors eyes. If your plan is missing one or more of the above elements, it will likely be deemed not “fundable”, and rejected.

The best plans are not usually the fanciest or the longest. They are not measured by the quantity of impressive graphics or the size of the revenue projections. Investment-grade ones attempt to answer every question an investor could possibly ask, except maybe “where do I sign”?

Marty Zwilling

The Best Entrepreneurs Ask The Dumbest Questions

I’m a big fan of the old adage "There are no stupid questions, only stupid answers." We have all heard questions that begin, "This may be a dumb question, but …" used effectively by smart people who are not afraid of risking ridicule by challenging a questionable assertion from an intimidating speaker.

Most people in business seem to expect their leaders just to give orders. According to Gary B. Cohen in his book, “Just Ask Leadership: Why Great Managers Always Ask the Right Questions,” as leaders advance, they tend to oblige by asking fewer questions and providing more answers. This is precisely the wrong approach.

Entrepreneurs and business executives have to keep reign over a very broad domain. They need to ask the right questions in the right contexts to stay ahead of the game, and to empower coworkers to find solutions, embrace responsibility, and become accountable.

Cohen provides specific insights to seek in particular situations, while also explaining how to create a culture of question-based leadership. I agree with his outline of five critical areas:

1. Improving vision. Good vision requires insight from all levels of the organization. Forward-leaning questions can illuminate the values of both the leader and the team. This, in turn, will enable employee buy-in, and good choices with regard to interacting with customers and future goals.

2. Ensuring accountability. Having coworkers solve their own problems is critical to building their accountability, and it increases team performance. When job descriptions are clear and people are encouraged to act in good-faith, it’s easier to see who made the mistakes and who’s to blame. Failure must be used as an opportunity for learning, not an excuse for punishment.

3. Building unity and cooperation. It’s important to listen respectfully to coworkers’ questions and opinions since they’re all a part of the team. This creates a culture of trust. It requires asking good and fair questions – not “gotcha” questions. Getting everyone to participate isn’t always easy, but when coworkers realize their ideas have value and the organization is receptive to them, they’re more apt to share.

4. Creating better decisions. Most leaders make too many decisions, and fall into the trap of doing others’ work. The best decisions are often made by those down the chain of command, not up. Get the right answers by asking the right questions. In order to avoid the blame game, it’s important to know who is responsible for specific problems.

5. Motivating to action. “Because I said so,” is not a phrase that will inspire the team. Ask for success. Create a sense of urgency, appeal to people’s desire to be remembered, and energize coworkers by using shared responses – such as asking a group to say, “Agree,” after consensus is reached.

If you tell coworkers how to do their jobs, you are essentially limiting their options and stifling their initiative, says Cohen. You are not leading. Asking questions isn’t just about not knowing the answers – these questions lead to fresh ideas, committed action, and the creation of a new rank of leaders.

Socrates was the early master of asking the right question, He taught that when you ask questions, you show respect, and you are respected in turn. Of course, even the best question is moot if you don’t listen to the answer. Ask. Listen. Learn. Lead.

Marty Zwilling

An Entrepreneur Needs to Count Friends Carefully

The Internet and social media have totally destroyed the meaning of the word “friend” and even changed it from a noun to a verb. On Twitter and Facebook, many young people follow hundreds of friends before age twenty, all without ever having physically said or heard a word from most of them. Facebook users with “whale” status (5,000 friends), are not even rare any more.

On the other hand, we shouldn’t confuse online friends with real friendships. Real friends help each other. In my experience, many of the people who “friend” me online today have only their interests in mind, and they aren’t interested in knowing me or helping me at all. Businesses ask customers and other businesses to “Like” them and “friend” them. Are these real friends?

According to most dictionary definitions, a friend is a person whom one knows, likes, and trusts. This definition seems totally lost on many people today. In my opinion, it’s impossible to know, like, and trust someone you have never met. Maybe that’s why so many people are hurt or defrauded every day by someone they assumed was their “friend” on the Internet.

So how many friends are enough for people? I did some scouting through the Internet to find any academic studies on the subject, and here are a few tidbits:

• Everyone needs at least one friend. Most psychologists agree that starting from a very young age, a friend is critical to the building of social skills, and help develop a balanced view of morality, integrity, and right versus wrong. That’s why good parents play an active role in selecting others for their children to interact with as friends.

• Limits of the human brain. Robin Dunbar, Oxford professor and anthropologist has posed a theory that the number of friends is limited by the size of the human brain, specifically the neocortex. “Dunbar’s number,” as this hypothesis has become known, is 150. Facebook cuts you off now if you try to exceed 5,000.

• With age, count becomes less important than quality. By the time we reach 30 years of age, our desire to socialize and maintain friendships already is shrinking, according to an old study by psychologists at the Institute for Social Research (ISR). Fewer friends are often viewed as a good thing, and good friends are the real value.

• Trusted friends are on the decline in our society. According to a more recent article, Americans’ belief that most other people could be trusted dropped from 77 percent to 37 percent in the last 30 years. My guess is this is more a statement of a decline in overall values, rather than people not needing trusted friends.

• Although total friends are up, the number of confidants is down. Only trusted friends can become confidants. In the same survey above, people also admitted that confidants are down even more than trusted friends, by almost a third. To me, this follows from earlier points – it hard to have confidants when you don’t have friendships.

In these days of social networking and business networking, it seems that all cultural pressures point to more friends as being better. Yet lots of people like me, who are not so gregarious, find that real friendships take lots of energy. One is probably enough, and I can only handle a few comfortably. More leads to stress and drama.

With business clients and even peers that you believe are friends, you also have to remember not to break the first rule of business relationships, which is to quickly spill your troubles. In a business context in the real world, this is usually taken as a sign of weakness. Expose yourself to family and real friends; otherwise keep on your happy face.

So one of these days, when you are texting your “bff” (best friend forever), that you have never met, think about the meaning as well as the words you use. I fear that real friendships may be slipping from our grasp, and that is sad.

Friendship is the glue of meaningful personal relationships, and the lubrication that expedites business transactions. It’s not the number of friends, but the quality of the friendship that makes the difference. If you don’t want to be alone despite many friends, spend more time on quality, and less time counting.

Marty Zwilling

Every Consultant Needs a Blog More Than a Website

Blogging has come a long way in the past few years, from a social release for narcissists, to today’s required vehicle for promoting your consulting business and gaining valuable online exposure. Even with product businesses, it’s the ultimate way to build your brand credibility, bring in customer leads, and get feedback from your target market.

Let me be clear – a product or consulting startup today without a blog, even with a static website, risks not being competitive in cost and time to reach and hold that critical mass of online customers. If you can’t justify both a web site and a blog, skip the old-fashioned web site, and make your blog do double duty as described below.

The challenge, as with all new technologies, is to make it work effectively, and avoid wasted effort and expensive mistakes. Here are some tips I’ve gleaned from experience:

• Lead with your blog. You should start blogging about your business before you have a product, to test interest and establish your credibility. Several free blog platforms, like WordPress, are so flexible that you can configure them as a website, as well as your blog, without separate hosting.

• Add content regularly. Every business wants their web site to appear on the first page of search engine results from a relevant search (Search Engine Optimization). Blogs help because sites that update data frequently get higher SEO rankings. When you post to a blog multiple times each week, you content is constantly changing and growing.

• Anchor the blog in your domain name. If you do have a separate web domain name, like ‘www.domainname.com’, then your blog name should be the domain name suffix ‘/blog’ or ‘blog.domainname.com’. Otherwise, your blog content will be indexed separately from your web site content, resulting in a lower overall Google rank.

• Conversational style. Search the Internet for blogs in your industry and do a little research before you start. Studying other people’s blogs will help you identify what you like and don’t like, and how you want yours to look and feel. An informal writing style is generally recommended.

• Add outgoing links. For example, if you mention an article you read in XYZ magazine, make sure to include a hyperlink to the article. Your readers will appreciate the option to view the sites you reference, and having links pointing to other sites will further improve your search engine rankings.

• Create incoming links. Promote your blog by including your blog link in your e-mail signature, on your website, in social networking profiles, and by providing signed comments to other blogs on a daily basis. You should also submit your blog name to directories such as BlogCatalog and Technorati.

• Leverage blog content. It doesn’t take long to build up a sizable amount of blog content. You can repurpose your posts into articles, books and reports. Many bloggers have found publishing success and Google ads revenue from the blog to be a substantial source of revenue to bolster their mainline business.

Finally, if you don’t have the time, energy, or skills to write a blog, it may be a good investment to hire a ghost writer, or hand the job over to your marketing executive. Don’t be shy, I don’t know many CEOs today that write their own speeches and marketing materials. Focus on what you do best, and let professionals do the rest for you.

To be successful, you have to get your message out there, and make your company stand out above all the clutter. Use the social networks, like Twitter, to ‘pull’ in the business. Be a blogger today, and trump your competitors tomorrow.

Marty Zwilling