Wednesday, October 31, 2012

10 Reality Checks for Entrepreneurs From the Master

Most of the time, I’m all about providing encouragement and inspiration to entrepreneurs. They need it and they deserve it, because entrepreneurs are the lifeblood of our economy. But every so often, I try to give them a reality check, just to keep their feet on the ground and their nose to the grindstone.

Many years ago, I enjoyed one of Guy Kawasaki’s first books, “Reality Check: The Irreverent Guide to Outsmarting, Outmanaging, and Outmarketing Your Competition.” In his classical humorous and cynical style, he could reset your dreaming in a moment. Here is a sampling of ten themes from the book that I think are just as relevant today as they were then:

  1. The reality of starting. It’s not going to get better – it already is. Startup folks are like medieval monasteries: always convinced that paradise is just ahead or that things only recently got worse.

  2. The reality of raising money. The closest real-world analogy to raising money is speed dating. That’s right: In five minutes, people decide if they are interested in you, just as in bars and nightclubs. This isn’t right, and it isn’t fair, but it is reality.

  3. The reality of planning and executing. If you think raising money was the hard part, you’re in for a surprise. Raising money is easy and fun. The real work begins when you have to deliver the results you promised.

  4. The reality of innovating. Many people think that innovation is easy: You sit around with your buddies and magical ideas pop into your head. Or your customers tell you what they need. Dream on. Innovation is a hard, messy process with no shortcuts.

  5. The reality of marketing. Everybody wants to do the fun stuff: shuck and jive with the beautiful people, and create fun marketing campaigns. More accurately, marketing is the process of convincing people that they need your product. That’s not so easy or fun.

  6. The reality of communicating. Entrepreneurship is an outward-focused activity. It requires that you communicate with others in all the modern modes. Every one is a skill you need to master. All it takes is reading this book and practicing for twenty years.

  7. The reality of competing. If you don’t compete with anybody for very long, it may mean that you’re trying to serve a market that doesn’t exist. The question of defensibility is one of the toughest for an entrepreneur to answer. A good answer is not to stop moving.

  8. The reality of hiring and firing. These are black arts for most people. Few people are trained for either, and most depend on their gut. They believe they won’t make hiring mistakes, so will never have to fire anyone. Wrong; and mistakes hurt people and you.

  9. The reality of working. In the beginning, startups are like a clean sheet of paper: nothing but opportunity and upside with a chance to make meaning and change the world. Then the reality of work sets in. Building a success is hard – damn hard, actually.

  10. The reality of doing good. At the end of one’s life, you are measured not by how much money you made, but by how much you’ve made the world a better place. Successful entrepreneurs often switch to non-profits and social entrepreneurship for real impact.

Of course, there is much more, but I think you get the idea. I also hope these themes don’t send a totally negative message, because the book is funny as well as thought provoking. I do believe we all need reality checks to face our challenges head-on, so that we can deal with them and survive, rather than just float along in the clouds until our dreams evaporate.

Marty Zwilling


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Monday, October 29, 2012

Startup Execution Transcends the Idea From Day One

A startup begins with a great idea, but all too often, that’s where it ends. Ideas have to be implemented well to get the desired results. Good implementation requires a plan, and a good plan and good operational decisions come from good people. That’s why investors invest in entrepreneurs, rather than ideas.

People and operational excellence have to converge in every business, large or small. Microsoft found this out when their market capitalization, once at $560B, had fallen in 2010 to $219B, allowing them to be passed by Apple, who grew from $15.6B during that period. Apple is now at $570B, with Microsoft at $240B. Both had access to the same technology, people, and market.

So what could have happened here? I found a good summary of the relevant keys to business operational excellence in a new book by Faisal Hoque, called “The Power of Convergence.” His focus is on repeatable practices to maximize business opportunities in large companies, but I’m convinced that these apply equally well to startups:

  • Clearly define your value chain. Your value chain consists of customers, partners, vendors, internal systems, and your own team. Make sure you understand this chain, as well as market dynamics, to drive operational innovations and every decision. Apple has been able to innovate at an amazing pace to define and meet new market opportunities.
  • Visualize abnormal or suboptimal performance. Recognizing and understanding deviations enables a startup or any business to take corrective action quickly. This requires executives and a team that understands the parameters, and is focused on customers, quality, and continuous improvement.
  • Facilitate the power of your team. Startups need to empower their people to take action in the absence of orders. That doesn’t mean abdication in setting corporate policies, which provide parameters to ensure that individuals have to ability to act collectively in the company’s best interest. Steve Jobs built a committed team.
  • Communicate effectively with the team and customers. Communication is a challenge in any organization, but it’s a particular challenge when you’re working in a startup, where customers, products, processes, and the team are new. Most founders forget that communication becomes exponentially more difficult as the business grows.
  • Measure value flow and performance. Measuring performance may seem self-evident, but many entrepreneurs mistake this task as a point-in-time or a one-time event. In operationally excellent startups, performance measurement is an ongoing effort throughout the process chain, not just at the outcome.
  • Define response mechanisms. Anticipating and planning for worst-case scenarios, and having a Plan-B, will enable the quick-response and pivots required to put a startup back on track. Metrics are required for ensuring the return to a known good baseline.
  • Maximize technology architecture and standards. Continuous innovation to maintain your competitive advantage does not mean that you can ignore current architectures and standards. These must always be leveraged produce optimal intended product outcomes.

What every business needs is a convergence of business and technology elements to optimize return and competitive positioning. All too often, entrepreneurs posit a new technology or idea, without understanding that a successful business is a never-ending process of adapting and improving all the elements in a business – especially business model, processes, and people, as well as technology.

Apple, while Steve Jobs was at the helm, demonstrated a rare convergence of technology, market understanding, business process, and people. Are you focused on all the right execution principles in your startup to do the same?

Marty Zwilling


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Monday, October 22, 2012

10 Entrepreneur Tips Dodge Million-Dollar Mistakes

It’s a well-accepted axiom in the investor community that entrepreneurs learn more from their failures than their successes. Thus a well-explained startup failure often can actually improve your odds of funding in the next go-round. Yet, there is no doubt that the best strategy is to learn from someone else’s mistakes, so you can enjoy the millions that someone else lost in learning.

Certainly there are innumerable possible mistakes to be made, but there is a thread of common ones that I see across the range of all startups. Ryan Blair, a serial entrepreneur who admits to his share of million dollar mistakes, as well as some multi-million dollar successes, sums these up nicely in his book “Nothing to Lose, Everything to Gain:”

  1. Don’t make wildly optimistic sales forecasts. Test and adjust your projections, based on experienced advisor input and industry norms, rather than the Google high exception. Excel spreadsheets can easily project dramatic growth, with no connection to reality.

  2. Don’t hire people who like your ideas all the time. Flattery feels good, but it doesn’t pay the bills. Look for the thoughtful challenge to your ideas, and practice active listening, when you are selling your vision. High three-digit intelligence has value.

  3. Don’t focus too much on the competition. It’s always more productive to focus on making your offering successful, rather than killing your competitors. Doing things like dismantling their leadership team, or highlighting their shortcomings is lose-lose.

  4. Don’t waste time caring what others think. No matter how hard you try, you won’t make everyone happy. Don’t be afraid to follow your vision, learn from your mistakes, and pivot the business, just because someone will see the change as a disappointment.

  5. Don’t mix business with pleasure. This is especially true of relationships. Do not fraternize with your employees, and choose your partners wisely. Thou shall not “do your business” where you do business.

  6. Be quick to fire and slow to hire. Pull the trigger fast when a new hire isn’t working, but don’t forget to be human and follow all the steps. On the other side, hiring after one interview is like hopping a red-eye to Vegas to get married after one date.

  7. Don’t put your company before your people. A company is an entity that can be pivoted at will. Your team of people has a collective passion and intelligence with a real worth that’s hard to manipulate. Make the company fit the people, rather than vice versa.

  8. Don’t under-forecast cash needs. When you have people and their families depending on you for their paychecks, and you are out of money, that’s another lose-lose situation. Even if you can find someone willing to help, it’s a very, very expensive proposition.

  9. Don’t try to do too much all at once. You hear about all the parallel entrepreneurs, like Steve Jobs running Apple and Pixar at the same time. Make sure you have the aptitude to run one business well, with one product line, before you start a couple more.

  10. Never write something you wouldn’t want to come back to you. Every one of us has sent a sensitive email to the wrong party, or had it misinterpreted by the receiver. Save the hard and easily misinterpreted messages for face-to-face calm discussions.

There are more, but I think you get the idea. Of course, the biggest mistake is failing to learn from the mistakes of others, or even from your mistakes. You can only learn from your mistake after you admit you’ve made it. Wise people admit their mistakes easily, and move the focus away from blame management and towards learning. Wise people can become great entrepreneurs. Where are you along this spectrum?

Marty Zwilling


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Tuesday, October 16, 2012

7 Facts of Business Life For Aspiring Entrepreneurs

When I started mentoring entrepreneurs and startups a few years ago, I anticipated that I would get mostly tough technical questions, but instead I more often hear things like “Where do I start?” I find that the basics are actually the hardest to answer, just like your parents found out when they first tried to fill you in on the “facts of life” a long time ago.

Most entrepreneurs are not born with the knowledge to run a successful business, so the right place to start is some business training in school, or some practical work experience in a business of your interest, prior to starting your own company. Jumping into a business area you don’t know, because you see a chance for big money, is a surefire path to disaster.

I also found a wealth of books are available to address the basic facts of business life, like one I just finished by Bill McBean, aptly named “The Facts of Business Life,” based on his forty years running large and small businesses. Bill does a great job of outlining the key facts as follows:

  1. If you don’t lead, no one will follow. Good business leadership begins with defining both the direction and the destination of your company. That’s where you start. From there you need to hone a whole set of skills to survive and prosper, including effective communication, leadership under pressure, and constant adaptation to change.

  2. If you don’t control it, you don’t own it. Control in business requires teamwork, which occurs in successful companies when team members, products, and processes work in unison. You have to define the key tasks that must be handled every day, and institute the proper controls to make sure they happen effectively and consistently.

  3. Protecting your company’s assets should be your first priority. Assets include the obvious equipment, accounts receivable, and cash. Maybe more importantly, your long-term survivability is tied to intellectual property, like trade secrets and patents, as well as other less tangible items like your customer base, your experience, and your skills.

  4. Planning is about preparing for the future, not predicting it. Planning is not just an early-stage activity, but must be an ongoing activity, based on current accurate information as well as educated guesses on future changes. Planning should keep you focused on what’s important, and prepare you for what lies ahead.

  5. If you don’t market your business, you won’t have one. Marketing and advertising are business realties. Word-of-mouth and viral are not long-term solutions. It doesn’t matter how good your product or service is if most of your potential customers don’t know about it. With 150,000 new websites per day, customers won’t find you by accident.

  6. The marketplace is a war zone. Every company has competitors, or there is no market for what you offer. Successful entrepreneurs know they have to fight not only to win market share, but to retain it as well. Past success is no guarantee of future success, and the only way to remain successful is to maintain a fighting mentality.

  7. You don’t just have to know the business you’re in, you have to know business. Understanding one’s industry is necessary but not sufficient to be successful. Many businesses fail simply because they ignore or do poorly one or more of the basic aspects of every business, like accounting, finance, personnel, or business law.

In business, as with people, there is a life cycle of birth, constant maturing, change, and rebirth. Entrepreneurs are ultimately responsible for guiding their business through this life cycle, rather than getting suck in any one stage. This means the entrepreneur has to focus correctly not only on what is important, but also on when it’s important.

Before you start building a business, you really do need to know the basic concepts of leadership, management, and operations, and you need to know how these areas change as a business goes through its life cycle. These are the “street smarts” that many entrepreneurs try to acquire by fast talk and bravado. That’s a painful and expensive way to learn any facts of life.

Marty Zwilling


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Monday, October 15, 2012

Stealth Mode Entrepreneurs Only Increase the Risk

Every time I hear about a new startup that is in stealth mode, I wonder what problem they are hiding from whom. Of course they pretend that they are trying to avoid alerting competitors prior to launch, but too often it becomes an excuse to move slowly in a world that’s all about getting to market fast.

I believe stealth makes sense for large companies who can be sued for “pre-announcing” a new product to stall the market or kill a competitor. It also makes legal sense to never disclose the details of your patent application, before the product is ready to ship. But otherwise, startup companies should seek out publicity and the open sharing of information, from day one.

Openness is part of the business culture of entrepreneurs and technology centers around the world. People talk to people, and even competitors freely exchange news on trends and discoveries. Here are seven ways this can actually help your startup efforts, rather than hurt them:

  1. Initiate media interest. These days, new technologies and social trends are fanned from an ember into a flame by the media and word-of-mouth. This takes time, and is more valuable than any advertising you can buy. It’s probably here that you need the “first-mover advantage” more than in the lab.

  2. Get concept feedback early. No matter how good you are, your initial idea is likely to be at least partially wrong. The sooner you get that feedback from people who count, the better your chance of recovery, and the less money you have wasted. Don’t be so arrogant to assume you won’t need course corrections.

  3. Find your real competitors. The sooner you disavow yourself of the notion that “we have no competitors,” the more likely you are to survive. “No competitors” may mean no market (give up now), or customers are happy with alternatives (keep their car rather than ride the new fast train). Face reality early, and you can deal with it.

  4. Deliver minimum product and iterate. Stealth mode can give you a false sense of security that you can take additional time to get it right the first time. Time is your biggest enemy, and customer feedback is your biggest ally. A startup that has been incorporated for two years or more without shipping is already seen as a bad investment.

  5. Prime the investor world. Don’t talk directly to potential investors until you have the business plan and other basics complete. But start networking with advisors, industry pundits, and domain experts early. Your direction will get back to potential investors, and create a sense of heightened expectations that can help you get in the door when ready.

  6. You need time to pivot. The good news is that almost every mistake can be undone, if you have the time. Customers are more forgiving of early visible changes in direction, and the cost is much lower for you. With stealth mode, you can’t learn early enough to pivot gracefully.

  7. Tune your website. Most startups need funding before shipping, and investors expect to see your website to validate your business plan. In addition, a website needs several weeks of presence for indexing by search engines, search engine optimization, blog activity, and link building. These things can’t be done while in stealth mode.

To enforce stealthy behavior, startups often require everyone, even potential employees to sign nondisclosure agreements, and strictly control who may speak with the media. This is a turnoff to everyone, and real investors never sign nondisclosures. It’s all an expensive distraction that doesn’t work.

Overall, I recognize that there are some startups, like biotech and semiconductors, with long highly technical development cycles and huge competitors, where early stealth makes sense. With most others, like web services, incubation time must be short, and secrecy can be the kiss of death. For these startups, stealth mode can keep you under the radar, just when you wish you could be found.

Marty Zwilling


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Friday, October 12, 2012

10 Ways to Make You the Best Part of Your Startup

If you expect to succeed in the thrill-a-minute, roller coaster ride of a startup, let me assure you it takes more than a good idea, a rich uncle, and luck. In fact, the idea is often the least important part of the equation. Most investors tell me that they look at the people first, the business plan second, and only then at the idea.

If you want some tips to beat the insurmountable odds, take a look at the following concepts, adapted from Richard C. Levy’s book, “The Complete Idiot’s Guide to Cashing in On Your Inventions.” He was talking about inventions, but I think his concepts apply perfectly to any entrepreneur starting a business:

  1. Don’t take yourself too seriously. Don’t take your idea too seriously, either. The world will probably survive without your idea. You may need it to survive, but no one else does. But there is no excuse not to love and laugh at what you are doing. I’m convinced that people who love their work are more innovative, as well as happier.

  2. The race is not always for the swift, but for those who keep running. It’s a mistake to think anything is made overnight other than baked goods and newspapers. You win some, you lose some, and some are rained out, but always suit up for the game and stick with it. It’s not speed that separates winners from losers; it’s perseverance.

  3. You can’t do it all by yourself. Entrepreneurial success is almost always the result of unselfish, highly talented, and creative partners and associates willing to face with you the frustrations, rejections, and seemingly open-ended time frames inherent to any business startup.

  4. Keep your ego under control. Creative and inventive people, according to profile, hate to be rejected or criticized for any reason. An out-of-control ego kills more opportunities than anything else. While entrepreneurs need a healthy ego for body armor, it can quickly get out of hand and become arrogance if not tempered.

  5. You will always miss 100 percent of the shots you don’t take. Don’t be afraid to make mistakes. If you don’t put forth the effort, you won’t fail, but you won’t succeed, either. Inaction will keep opportunities from coming your way.

  6. Don’t start a company just for the financial rewards. We all want to make money. That’s only natural. But you should be motivated by the opportunity to “make meaning” as well. People who do things just for the money usually come up shortchanged.

  7. If you bite the bullet, be prepared to taste gunpowder. Not every idea or decision works. For every action, there is always a criticism. Odds are, you’ll encounter far more criticism than acceptance. Learn from your mistakes, and don’t blame someone else.

  8. Learn to take rejection. Don’t be turned off by the word “No,” because you’ll hear it often. Rejection can be positive if it’s turned into constructive growth. My experience is that ideas get better the more times they are presented. “No” means “not yet.”

  9. Believe in yourself. One of the first steps toward success is learning to detect and follow that gleam of light Emerson says flashes across the mind from within. It’s critical that you learn to abide by your own spontaneous impression. Allow nothing to affect the integrity of your mind.

  10. Sell yourself before you sell your ideas. Be concerned about how you are perceived. You may be capable of dreaming up ideas, but if you cannot command the respect and attention of associates and investors, your proposal will never get off the mark, and you may not be invited back for an encore

As with all the other “principles of success” articles I have seen, you should take these tenets with a grain of salt. Yet I’m betting that every entrepreneur out there can relate to these principles and practices, and most of the long aspiring and unhappy entrepreneurs have broken one or more of them. Maybe it’s time to learn from your mistakes, forget the past, and go for the trophy.

Marty Zwilling


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Thursday, October 11, 2012

Corporate Spin-offs Rarely Win Against Startups

A spin-off is merely a startup spawned by a mature parent (company), and conventional logic would dictate that it has a survival advantage over the lowly startup. Yet spin-offs seem to most often fail to launch in the real world. I was part of one myself a few years ago, and felt the pain, so the phenomenon has intrigued me ever since.

My first thought is that spin-offs are like struggling adolescents with over-protective parents. When companies spin off a division (sometimes called a demerger or deconsolidation), they naturally want it to grow and succeed on its own merits, just as they have. But like protective parents everywhere, they tend to shelter it in ways that stunt its growth in the long run.

Before we look at my specifics, I should mention some of the reasons companies make the spin-off decision in the first place. Contrary to popular belief, according to a report by A. T. Kearney, these go well beyond an organization getting rid of its "problem children:”

  • Deconsolidate—shed non-core functions to focus on core competencies. An example would be Time Warner spinning off AOL—to end a disastrous, dot.com-era marriage.
  • Mingle and learn from the startup culture and new technology – without losing control. Foreign companies in the US like to use spin-offs to find expansion opportunities.
  • Unlock shareholder value, which the spin-off can do as an independent entity. They may not be so constrained by monopoly fears and Sarbanes-Oxley controls.
  • Grow faster, which a spin-off can do outside the parent company. Airlines, for example, have difficulty scaling up through mergers and acquisitions (M&As), but they can spin off their maintenance businesses and let the spin-off do the M&A in its own field.
  • Grow in new dimensions from the parent company. Service operations such as call centers can grow far beyond their parent companies, especially if their services are more generic.

In retrospect, as in the case I was part of, I believe there were several areas in which the parent company consistently fails in their discipline:

  • Rewarding without earning. The parent company guaranteed the spin-off a revenue stream and provided incentive bonuses based on artificial objectives, rather than competitive or market driven targets. The guaranteed revenue and incentives were only loosely tied—at best—to the spin-off’s performance.
  • Fostering dictatorial leadership. Effective management skills in a startup are actually quite different from those in a large enterprise. The dictatorial leaders who survived and prospered in the enterprise parent, were ill-suited for the collaborative and highly adaptive spin-off and startup requirements. Yet they had “earned” the right to run an autonomous unit, and were not easily dislocated.
  • Supporting them for an undefined period. Parent companies provide services or infrastructure to the spin-off at below-market prices or for an excessively long period of time. In the reverse direction, this “support” carried the high overhead that is standard in the enterprise, but not financially sustainable in the spin-off.

In my view, fostering successful spin-offs, like raising adolescents, often requires tough love, embodied in the tough financial objectives and a firm timeline that startup investors impose on their charges. No free passes, and no bailouts. HP tried to come to grips with all these issues last year, in spinning off its PC business, but ultimately backed down.

In most ways, the success of a spin-off depends on the same factors that are critical to a startup, but sometimes get forgotten or taken for granted as a corporation matures. These include a clearly articulated vision and business strategy, communicated from leaders in a way that heightens motivation and lessens team anxiety of the unknown.

For entrepreneurs, this analysis should be a positive message, but it should also be a wake-up call to the overriding value of leadership and effective communication. For all of you who all too quickly tie your business success or failure to funding, or the lack of it, think again. Sometimes it helps to be “hungry” in that respect.

Marty Zwilling


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Monday, October 8, 2012

Startup Accelerators are Entrepreneur Boot Camps

Business incubators for sharing services were all the rage back in the days of the dot-com bubble (700 for profit, many more non-profit). About that time the bubble burst, causing more than 80% of them to disappear. Now they are coming back, and the best even provide networking, technical leadership, and seed funding, as well as investors waving money at graduates.

Incubators I hear mentioned most often include YCombinator, led by Paul Graham in Silicon Valley, and TechStars, located in Boston, Boulder, New York City, and Seattle. TechStars has several excellent mentors on staff, led by founder and CEO David Cohen. Both provide excellent networking to investors, and on-site technical leadership, which I believe sets them apart.

By way of a definition, a business or startup incubator is a company, university, or other organization which provides resources to nurture young companies, helping them to survive and grow during the startup period when they are most vulnerable. The goal of most business incubators today is to strengthen the local economy, and commercialize new technologies. A few are still trying to make money doing it, but it is hard to make money off startups.

“Business accelerators” is another term often used interchangeably with incubators. The key difference between them, according to purists, is that accelerators compress the timescale for startups by operating as a type of boot camp. The incubation period is very short and intense, usually intending to drive entrepreneurs from ideas to marketable products in a matter of months.

Most incubators and accelerators today provide one or more of the following:

  • flexible space and leases, often at very low rates
  • business support services for a fee, including administrative support, telephone answering, graphic services, bookkeeping, copy machine access, and meeting rooms
  • group rates for health, life and other insurance plans
  • business and technical assistance either on site or through a community referral system
  • assistance in obtaining funding, or direct seed funding
  • networking with other entrepreneurs

Incubators differ from research and technology parks, in that most research and technology parks do not offer business assistance services, the hallmark of a business incubation program. However, many research and technology parks also house incubation programs. Another variation is technology business incubators, which nurture high-tech startups and present a technology oriented variant of business incubators.

To find what’s available in your area, take a look at the National Business Incubation Association (NBIA) web site, and use the lookup tool provided. This organization claims to be the world’s leading organization for advancing business incubation and entrepreneurship. Another sure-fire approach to finding what’s available is to check local university resources, or even websites, like TechCocktail, which recently ranked the “Top 15 USA Startup Accelerators.”

The only down-side I have heard is that many business incubators used to be notoriously high-pressure environments where a lucrative exit strategy was more important than the half-baked products. If that’s the toughest problem you face as a startup, then you probably didn’t need an incubator in the first place.

Experts agree that the real value of an incubator is in the relationships, and relationships work best when the entrepreneur has selected a real market opportunity, with plans to address it in a unique, powerful, and direct manner.

For that reason, I am a strong proponent of incubators that screen prospective clients carefully, selecting only the best ones, and track whether they can handle responsibilities, like paying the rent. All startups are expected to “graduate” in a timely fashion to stand on their own two feet.

To convince you it can work, TechCrunch recently aggregated the combined valuation of YCombinator companies at $7.78 billion. However, if you are looking for an incubator for “free” money and services, you should think again. Look for the best mentors, and the toughest regimen for program survival. They can make the real world look like a walk in the park, with investors dropping money along the way.

Marty Zwilling


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Tuesday, October 2, 2012

Entrepreneurship Is All About Taking Smart Risks

Most entrepreneurs think that risk is just an “occupational hazard” that can be minimized or eliminated by a smart businessman. That way of thinking is simplistic and wrong. In reality, some risks are good and should be embraced for growth and a competitive edge, while others are bad and should be avoided completely.

Traditional risk management focuses only on bad risks, and seeks to contain losses. But if you want growth and sustainability, you need to create smart risks, which means intentionally taking a risk to grow your business or gain competitive advantage.

In fact, entrepreneurship is all about taking calculated risks, while minimizing non-calculated risks. Here are some simple examples of “smart” calculated risks that you should be working on:

  1. Deliver an innovative solution to a painful customer problem. This can be high risk if your solution doesn’t work, or your price is more painful than the problem. A bad risk is assuming that you because you like the solution, everyone will buy it, or that you can build an existing solution cheaper than anyone else.

  2. Plan to replace your product with a better and cheaper one. Probably more companies fail by avoiding this strategic risk than any other. If the current product is making money, it seems like a bad risk to obsolete it. Yet, new technology can quickly blindside you, and market dynamics change, plus you need to broaden your opportunity.

  3. Build a dynamic product line, rather than a single product. Every new product you add stretches your ability to deliver winning function and quality. Yet a great initial product, with no follow-on, will not keep you ahead of competitors. Take the strategic risk.

  4. Implement a new business model. Software as a service (SaaS) has now pretty much replaced the old licensing model, but offering it was a strategic risk for SalesForce.com. Proactively implementing new business models, like subscriptions and “freemium” pricing, are good risks, while linearly lowering old product prices is a bad risk.

  5. Partner with a competitor. Use “coopetition” for cost sharing, economies of scale, and open access to new markets. Once you have established your credibility and value, a strategic partnership may lead to other business relationships or a funding source.

  6. Plan to spend money on marketing. It’s a bad risk to count only on word-of-mouth and viral social network buzz for marketing, as I see in many business plans today. These days, you have to spend money to make money. Of course there is work involved to find the right media, and balance the investment against the return.

  7. Build your team from the best and brightest. Good people are expensive, and they are hard to find, which adds risk to your startup, but it’s a strategic risk. Lowering the risk by hiring the cheapest, or counting on family members, is a bad risk.

  8. Count on less funding rather than more. It’s a well-known oxymoron that startups which are over-funded to reduce risk fail more often than under-funded ones. Strategically, the more you can do for less, the stronger you grow. It’s a bad risk to solve problems with money.

  9. Be aggressive in your forecasts. Every investor has heard from the “conservative” founder who reduces his forecast to lower the risk. These don’t get funded, or they under-perform anyway. Forecasts should be strategic, based on the opportunity and pain level.

  10. Lead rather than follow. In the old days, the leaders always caught the arrows, so following was less risky. Entrepreneurs who try to reduce risk by following winners, like building another Facebook or another Google, will find that they don’t catch arrows or customers.

The challenge with all risks is that they must be proactive, measured, and managed. If not, they automatically become bad risks. How much of your time is spent on containing the bad risks, versus initiating forward-thinking ones? If it’s over 50%, your whole startup is a bad risk.

Marty Zwilling


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