8 Ways Entrepreneurs Seek Real Paradigm Shifts

What sparks paradigm-shifting innovation in any business? It’s a special mix of entrepreneur and company, regular in every respect except for having the courage and foresight to make an idea happen that was supposed to be impossible. As an entrepreneur in a startup, how do you know if you have this potential, and what are the steps to get from an innovation to a revolution?

The first step is to meditate on the examples set by others, like Steve Jobs of Apple, Jeff Bezos of Amazon, or Thomas Edison with the electric light. There are many others, like the book I read a while back about Ratan Tata bringing out the Nano car in 2009 in India for less than $2,500. The book is titled “Nanovation,” by Kevin & Jackie Freiberg.

These authors have studied many such examples, and summarize my own perspective on the characteristics of entrepreneurs they call “nanovators,” that produce true, life-changing innovations, which they call nanovations:

1. Get wired for nanovation. We all agree that innovation is an adventure into the unknown. If you want people to follow, you need to be able to convince them of three things: (1) your mission is worth supporting, (2) you have the competence to build a critical mass, and (3) you have integrity to look out for their best interests along the way.

2. Lead the revolution. Nanovators have more than the vision; they have the drive to lead, and the focus to stay on target. They are wired to win. Organizations don’t produce game-changing innovations; people do. They allow a leap of faith in their own ideas, as well as in the ideas and capabilities of their team.

3. Build a culture of innovation. You need a culture where restlessness is tolerated, curiosity is encouraged, passion is inspired, creativity is expected, and people are always talking about what’s next. Ultimately, the mind-set changes so significantly that innovation is natural, and no one is conscious of it.

4. Question the unquestionable. Outsiders ask a lot of questions because they don’t presume to know why something is done a certain way. Make your insiders think like outsiders. Provocative questions like “What if?”, “Why not?”, or “So what?” can help to get everyone outside the box.

5. Look beyond customer imagination. First-of-a-kind products empower customers to do things they didn’t even know they wanted to do, and now can’t live without them. The computer mouse, Tivo, and Teflon are examples. Listen to customers, but remember that they can’t always tell you what they don’t know.

6. Go to the intersection of trends. Nanovators pay close attention to the early warning signs that precede major cultural, societal, and market shifts. Where most people see an isolated trend, nanovators connect the dots by relating one trend to several others. They focus on next practices, versus best practices.

7. Solve a problem that matters. The key here is to resist the temptation to pay more attention to the technology solution than the problem. Some people create brilliant solutions to non-existent problems, like maybe Segway and satellite phones. These solutions may be nice to have, but won’t ignite a revolution to get there.

8. Risk more, fail faster, and bounce back stronger. When you pursue a creative idea that takes you beyond, fear tempts you to make compromises. If you can push through this fear and doubt, or bounce back intelligently from initial setbacks, you often arrive at something that has truly never been seen before.

Jeffrey Immelt of General Electric argues that the next big thing, like the Nano, could well be from “reverse innovation,” where instead of industrialized nations adapting their products for emerging markets, innovation in emerging markets will bring new paradigms to home markets. In any case, the future is defined by what we put off until tomorrow, so don’t wait too long to get started.

Marty Zwilling

6 Ways Startups Must Match the Pace of Change

Change is about the only thing constant in the world of startups. Despite their own focus on changing the world, they often forget that they too have to change rapidly and often as the market evolves. Too many find that out too late, and are left chasing a rabbit that is long gone.

The solution is to establish and maintain a culture and processes that don’t view change as a discrete event to be spotted and managed, but as an ongoing opportunity to improve competitiveness. Chris Musselwhite and Tammie Plouffe, in an HBR article a couple of years ago on change readiness for large companies, define it as “the ability to continuously initiate and respond to change in ways that create advantage, minimize risk, and sustain performance.”

Since the startup environment is usually more volatile, the challenge there in balancing advantage, risk, and performance, is more critical than in big companies. The following initiatives that Chris and Tammie define for large companies apply just as directly to startups:

1. Improve change awareness. How good are you and everyone on your team at proactively scanning the environment for opportunities, emerging trends, and customer feedback? This contextual focus is critical to innovation and survival – the right product at the right time.

2. Increase change agility. Change agility represents a startup’s ability to immediately and effectively engage everyone in pending changes and innovations. It starts at the top with the founder and CEO, but has to extend quickly to the bottom of the organization. This requires leadership, teamwork, and trust at all levels.

3. Expedite change reaction. This is the ability to appropriately analyze problems, assess risks, and take responsibility for problem-dictated and market-dictated changes, while still sustaining the day-to-day business activities. It’s called the management of unplanned changes, or how well your startup reacts to crises.

4. Implement change mechanisms. Every organization needs to have specific mechanisms in place to facilitate change, including regular effective communication, reward systems that reinforce desired change behavior, and accountability for results. These won’t work in an autocratic or dysfunctional management environment.

5. Build a change readiness culture. Change readiness is hard work, and requires creativity sometimes in conflict with task orientation. People have to have the right attitude, and make the choice from the beginning to be ready to change at any time. They need a sense of urgency to handle change, and confidence in their leaders.

6. Imbue customer change focus. The more everyone in the startup is obsessed with satisfying customer needs and providing better customer service, the more effective the startup will be in adapting to change. Provide direct customer contact to everyone, as well as training.

Experts say that we live in a world where the pace of change is accelerating at the fastest rate in recorded history. On the other hand, change management practices seem to be changing very slowly, resulting in a 70% failure rate of change initiatives. Failure rates this high demand a new mindset and startups are the logical place for this to happen.

For starters, the whole team needs to be constantly trained and encouraged to develop their skills. Relevant skills include continuous improvement of existing methods, processes and devices against a set of quality metrics. The ultimate skills, which lead to innovation and totally new processes, usually come from experimentation and special studies.

In summary, change will happen. If your people and your startup do not change, statistics say you won’t survive. It’s up to you to get out of your comfort zone and make things happen in your startup, rather than let things happen to your business.

Marty Zwilling

10 Avoidable Mistakes Cause Entrepreneurs Much Pain

I’ve been advising and mentoring startups and growth companies for years, and find myself always pushing them to try something new, for the sake of growth and survival. When you try new things, you make mistakes, and I’ve seen many. Smart companies learn from their own mistakes, but some don’t pay enough attention to other people’s mistakes. In the spirit of saving you a few lifetimes of pain, here are some common mistakes that seem to happen routinely:

1. Wait until your company is up and growing before you formalize it. Some entrepreneurs can’t decide if they want to be a Limited Liability Corporation (LLC) or a C-corporation, or they don’t have the money, so they put off doing anything until the first venture capital round, or until the first lawsuit occurs.

   The simple answer is to do something, and start simple. In almost every state, you can incorporate as an LLC with a minimal effort, and a cost in the hundred dollar range. This step shows everyone you are serious, and limits your liability on any mistakes. It also forces you to pick a name for your company and put other intellectual property stakes in the ground. It’s not that hard to change later to a C-Corp.

   Company and product naming may also seem simple, but should be a key early effort, because mistakes can be very costly. You may recall the Chevy Nova, a compact car from GM. Pundits in Latino countries quickly pointed out that the name, ‘no va’ means ‘does not go’ in Spanish. Professional advice in this area is highly advised. Cultural and religious implications must be very carefully considered.

2. Rely on informal agreements with partners. You may all be friends, or spouses, today, but things do change quickly in the stress of a growing company. The same principles apply to strategic partners. Early co-founders often drop out of the picture due to disagreements, and you forget about them, but they don’t forget about the verbal promises you made.

   Later, when your venture is trying to close on financing, or even going public, that forgotten partner surfaces, demanding their original share. This problem can be avoided by incorporating immediately after early discussions, and issuing shares to all founders. I know two former friends who are still killing each other financially years later over an unwritten agreement, remembered differently by each.

3. Quick to hire and slow to fire. If you are growing quickly and desperate for help, you may skip on the homework of a proper job description, or validating applicant credentials are a fit before you proceed to interview. The message here is that if you don’t know exactly what help you need, you probably won’t get it. Hiring after one interview is like hopping a red-eye to Vegas to get married after one date.

   Equally bad, you may know what you want, but you are trying to force-fit the candidate into the position. Maybe she’s related to the boss, or you are confident that the candidate will be a good helper, and can learn a lot from you. Helpers are expensive, since it often takes longer to jointly do a job than it would take one qualified person to do it alone.

   On the other end of the process, don’t hesitate to pull the trigger fast when a new hire isn’t working, but don’t forget to be human and follow all the steps. Carrying a non-performing employee probably triples the costs, since you are paying two people to do the job, and at least one other is de-motivated by the inequity.

4. Only hire people who like you or think like you. 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.

   Some executives think they can mix business with pleasure, with inter-office relationships. We all have our favorite story on this one. Make it a rule to not fraternize with your employees, and choose your partners wisely.

5. Be super-conservative on your cash needs. Double-check both the money you need before funding, and the size of investor funding requests. You will be amazed at how many items you forgot to cover, and how fast the cash disappears. You should buffer the first by 50%, and the second by 25%. Severe cash flow problems are a big mistake, and may not be recoverable.

   When you have people and their families depending on you for their paychecks, and you are strapped for money, there certainly won’t be any money for growth. Even if you can find someone willing to help, it may be a very expensive proposition. Cash is more important than profit.

6. Let your accountants manage the expenses. Too many founders think it’s more important to work on products and customers. In reality, the most important task of every small company CEO is to review every expense with a miserly hand before the money flows out. Do not delegate this task.

   A variation on this theme is promising a burn rate to investors than you can’t deliver. That means managing a bottoms-up budget process, and living within the budget. The result of budget and expense overruns is not only lost growth opportunities, but lost credibility and lost support from investors and vendors.

7. Make all the decisions yourself. One person making all the decisions doesn’t mean better decisions, and certainly not faster ones. For a company to grow, the team has to grow, and decisions must be delegated. Smart growth companies hire decision makers, not more helpers.

   Even early in the startup process, you need someone like-minded but complementary in skills to help you with the startup plans. It’s always good to have someone to test your ideas, keep your spirits up, and hone your business skills.

   Lastly, make good use of your Board Members. One or two “experts” who have “been there and done that” can head off many mistakes and suggest a calm recovery plan for the ones you make. Resist the ego urge to “go it alone” or to convince yourself that you are smarter than your competitors.

8. Defining the strategy is a one-time process. Assume your initial strategy will be wrong. Most startups I know have “refined” their target market and “pivoted” their operation several times during their rollout and growth phases. So be alert and be flexible.

   Plan for strategy changes by scheduling an adjustment review every month. Watch out for the unknown, such as an economic recession you hadn’t counted on, or a new competitor with deep pockets, or the changing trends in the industry. Be sure to communicate changes to the team effectively and often, so it doesn’t look like you are making random changes.

9. Let the daily crisis keep you from the “most important” issues. It takes practice and effort to focus on the most important things first. In business, “most important” means time to market, customer service, low cost, and beating your competitors. It also means knowing when to delegate, when to rest, and reserving time for effective communication with your team.

   If you allow yourself to be driven by the crisis of the moment, you will lose the ability to set priorities and focus on goals. Personal discipline is the key word here. Working in isolation and handling all the issues is fine during the creative phase of the startup, where the founder is often the designer and architect, as well as the builder. Now this same individual has to graduate from short-term thinking to long-term thinking.

10. Ignore the mistakes of others. The biggest mistake of growing companies is failing to learn from the mistakes of others, or even from your own 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.

The list goes on and on. But the reality is that making mistakes is part of every successful growth effort. Therefore, mistakes should be celebrated and learned from. But the one unforgivable mistake you should never make is to repeat a previous mistake.

In the end, ask yourself this question: Is it better to try and fail, or never have tried at all? To grow in the business world, never trying is not an option.

Marty Zwilling

Entrepreneurs Love the Learning and Ramen Noodles

Over the years, I’ve had the privilege of working with some of the best entrepreneurs in Silicon Valley and elsewhere. On the average, the entrepreneurs I know are living on Ramen noodles. But one thing they all seem to have in common is a love for learning and change. They rush in with a passion to better the world, and money is just an indication of their progress.

The successful ones then invest their time and money in furthering their knowledge base. I’m not talking about academic classes, because at best these only teach you how to learn. In these days of rapid change, most experts believe that the facts college students learn as a sophomore are obsolete before they exit their senior year.

Learning should be viewed as an ongoing part of everything you do, and one of the most important things. It’s an unfortunate artifact of our educational system that young people spend a dozen years focused more on memorizing facts than the learning process, and then thinking that they will have all they need to know for the rest of their lives by the time they graduate.

In business, as in most other disciplines, there are practical steps towards learning what you need for the next stage of your company and your life. These include the following:

• Networking with people who know. A question I sometimes get from startup founders is “What do I talk to these guys about?” I say you can’t learn much if you are doing all the talking. Just ask investors what they look for in successful companies. I’ve never known any successful entrepreneurs or investors who were not happy to share their insights.

• Read entrepreneur stories. Most successful entrepreneurs have been written up on the Internet, or in magazines, or books. Spend some time with these biographies and soak up the insights and inspiration. Follow up online with social networking to make contact, dig deeper, and maybe even line up a mentor.

• Adopt a mentor. Boomers who have “been there and done that” make great mentors. They have the time and interest in “giving back” some of what they have learned to the next generation. Gen-X executives are too busy running their own companies to be mentors. A mentor is someone who doesn’t let ego or money get in the way of helping.

• Formal learning. Some formal learning is always advisable, but get beyond university MBA courses to professional seminars and case studies. Formal courses work best for basics, like a business start-up course or financial accounting. Go with topics you are interested in and need today.

• Volunteering with local organizations. Work is highly valuable in any environment of universities and professional organizations. The payback is that you can get experience for free, while working on real stuff. I’ve done business plan judging at local universities, and learned more than I contributed.

• Just start a business. There is no better way to learn about being entrepreneurial than starting a business. No matter how much advice and counsel you have been given, I guarantee that you will encounter new challenges daily, to enhance your learning opportunities.

If you are one of those people who likes structured classes for learning, and counts on spending at least two weeks per year in the classroom to “catch up,” that’s laudable, but don’t try to start a business at the same time. It won’t happen.

If you have decided to become an entrepreneur solely to make more money, you are also likely to be disappointed. It’s that double challenge of learning to overcome all obstacles, while still surviving on the financial front, that keeps a good entrepreneur motivated to face a new day. Join us if you dare.

Marty Zwilling

10 Rules of Thumb for Startup Investment Valuation

Once you have a potential investor excited about your team, your product, and your company, the investor will inevitably ask “What is your company’s valuation?” Many entrepreneurs stumble at this point, losing the deal or most of their ownership, by having no answer, saying “make me an offer,” or quoting an exorbitant number.

I’ve written about this before, but it’s a mysterious subject, and I’m always learning more. This time I’ll use a hypothetical health-care web site company named NewCo as an example to illustrate the points.

Two founders have spent $200K of personal and family funds over a one year period to start the company, get a prototype site up and running, and have already generated some “buzz” in the Internet community. The founders now need a $1M Angel investment to do the marketing for a national NewCo rollout, build a team to manage the rollout, and maybe even pay themselves a salary.

How much is NewCo worth to investors at this point (pre-money valuation)? What percentage of NewCo does the investor own after the $1M infusion (post-money ownership percentage)? Well, if the parties agree to a pre-money valuation of $1M, then the post-money investor ownership is 50% (founders give up half interest, and lose control). On the other hand, if the pre-money valuation is $4M, the founders ownership remains at a healthy 80% level.

So what magic can the founders use to justify a $4M valuation (or even the $1M valuation) at this early stage? Here are the components and “rules of thumb” that I recommend to every startup:

1. Place a fair market value on all physical assets (asset approach). This is the most concrete valuation element, usually called the asset approach. New businesses normally have fewer assets, but it pays to look hard and count everything you have. NewCo might be able to pick up an initial $50K valuation on this item.

2. Assign real value to intellectual property. The value of patents and trademarks is not certifiable, especially if you are only at the provisional stage. NewCo has filed a patent on one of their software tool algorithms, which is very positive, and puts them several steps ahead of others who may be venturing into the same area. A “rule of thumb” often used by investors is that each patent filed can justify $1M increase in valuation, so they should claim that here.

3. All principals and employees add value. Assign value to all paid professionals, as their skills, training, and knowledge of your business technology is very valuable. Back in the “heyday of the dot.com startups,” it was not uncommon to see a valuation incremented by $1M or every paid full-time professional programmer, engineer, or designer. NewCo doesn’t have any of these yet.

4. Early customers and contracts in progress add value. Every customer contract and relationship needs to be monetized, even ones still in negotiation. Assign probabilities to active customer sales efforts, just as sales managers do in quantifying a salesman’s forecast. Particularly valuable are recurring revenues, like subscription amounts, that don’t have to be resold every period. This one doesn’t help NewCo just yet.

5. Discounted Cash Flow (DCF) on projections (income approach). In finance, the income approach describes a method of valuing a company using the concepts of the time value of money. The discount rate typically applied to startups may vary anywhere from 30% to 60%, depending on maturity and the level of credibility you can garner for the financial estimates. NewCo is projecting revenues of $25M in five years, even with a 40% discount rate, the NPV or current valuation comes out to about $3M.

6. Discretionary earnings multiple (earnings multiple approach). If you are still losing money, skip ahead to the cost approach. Otherwise, multiply earnings before interest, taxes, depreciation and amortization (EBITDA) by some multiple. A target multiple can be taken from industry average tables, or derived from scoring key factors of the business. If you have no better info, use 5x as the multiple.

7. Calculate replacement cost for key assets (cost approach). The cost approach attempts to measure the net value of the business today by calculating how much it could cost for a new effort to replace key assets. Since NewCo has developed 10 online tools and a fabulous web site over the past year, how much would it cost another company to create similar quality tools and web interfaces with a conventional software team? $500K might be a low estimate.

8. Look at the size of the market, and the growth projections for your sector. The bigger the market, and the higher the growth projections are from analysts, the more your startup is worth. For this to be a premium factor for you, your target market should be at least $500 million in potential sales if the company is asset-light, and $1 billion if it requires plenty of property, plants and equipment. Let’s not take any credit here for NewCo.

9. Assess the number of direct competitors and barriers to entry. Competitive market forces also can have a large impact on what valuation this company will garner from investors. If you can show a big lead on competitors, you should claim the “first mover” advantage. In the investment community, this premium factor is called “goodwill” (also applied for a premium management team, few competitors, high barriers to entry, etc.). Goodwill can easily account for a couple of million in valuation. For NewCo, the market is not new, but the management team is new, so I wouldn’t argue for much goodwill.

10. Find “comparables” who have received financing (market approach). Another popular method to establish valuation for any company is to search for similar companies that have recently received funding. This is often called the market approach, and is similar to the common real estate appraisal concept that values your house for sale by comparing it to similar homes recently sold in your area.

Remember that all the components, except the last, are cumulative. Even if a given investor excludes some of the components from consideration in your case, your credibility will be bolstered by the fact that you understand his interests as well as yours. In any case, the analysis will prepare you for the heavy negotiation to follow.

Precision is not the issue here – the task for the entrepreneur is to build a company that is worth at least $50M before thinking about an exit -- no investor wants to spend more than five minutes arguing the fine points of the last valuation dollar.

So what is a reasonable valuation for a company like NewCo? My advice for early-stage companies like this one is to target their valuation somewhere between $1.5M and $5M, justified from the elements above. A lower number suggests that the founders are giving away the company, while a much higher number may suggest hubris or lack of reality on the part of the owners.

Of course, we have all read about the “new” company with $100M valuation, but I haven’t met one yet.

Marty Zwilling

5 Military Lessons For Entrepreneurs Raising Money

Don’t charge the hill until you are “ready.” This probably seems obvious to military types, but I see entrepreneurs violating this rule all the time. They approach key potential investors way too early, trying to talk their way up the hill, with no supporting business plan, and before they have a support team around them. Needless to say, they usually get shot down, and get no second chance.

The first rule is to separate your advisors from your investors. Perhaps a close personal friend can be both (the earliest stage and first tier investors should be “friends and family”). But for Angel investors and venture capital investors, just remember that investors are not on your team (yet). You only get once chance to make a great first impression.

Continuing with my military analogy, here are some logistics, suggested ammunition, and an assault strategy (the bold points apply to every aspect of building the business):

1. Do your reconnaissance first. Before you meet a potential investor, check them out on the Internet and through your advisors. You need to know exactly what the investor has done before, what he is doing now, and what will interest him If you walk into his office cold, and can’t convince him you meet his interests, you will walk out cold.

2. Coordinate and brief your support team. Make sure all your advisors and team members know exactly what your mission is, and if possible, have at least one of them make prior contact to set the stage. If the investor thinks you are coming to ask for domain advice, and you ask for money, your success probabilities are shot.

3. Fully prepare for the assault. Don’t try to talk and demo your way up the hill. Talk bounces off and won’t stop any bullets. Lead with your two-page executive summary, be prepared to give a ten-slide investor presentation. Keep your big guns, the business plan and financial model, in your holster but visible for backup.

4. Put your ear to the ground before charging ahead. Offer to give your executive presentation, but he may want just the elevator pitch. Listen, and follow his lead with confidence and enthusiasm. Don’t insist on a product demo – he is buying the business, not the product. If you have an hour, use no more than 20 minutes for presentation.

5. Follow-up to assess progress or casualties. Have someone else, if possible, follow up with the investor the next day, to find out what really happened. If you didn’t learn anything from the meeting, you weren’t listening. Most VCs won’t volunteer to the Founder what they think, because that limits their options later.

By now, you are probably saying that this is “old school;” when going to Sand Hill Road offices was like going to the principal’s office. There you were ushered into a gorgeously appointed conference room for a precise amount of time with a serious-looking partner. Now some VCs and angels actually hold court in a nearby Starbucks or Paradise Bakery.

But believe me, investors are, if anything, tougher now than then. Don’t be fooled by the informality. Preparation, professional image, confidence, and strategy are just as important as they ever were. The strategy of “I’ll talk to him informally and early, find out what he doesn’t like, and then I’ll fix it,” is pure folly. Napkins don’t really work as your business plan.

Some of the most prepared “teams” I have seen are essentially one person, with a few part-time advisors, who seem to overcome all obstacles. One person can look like an army charging the hill, if they use all the networking facilities of the Internet, all the tools available to build business plans, financial models, and product prototype.

Don’t be afraid to use some mercenaries to back you up (outsourcing, consultants). All the shortcuts up the hill are rigged with minefields. Better safe than sorry. This is serious business.

Marty Zwilling

Every Entrepreneur Needs to Master Public Speaking

As a mentor for aspiring and early-stage entrepreneurs, I talk to a fair number who may have a great vision and a strong engineering background, but have a negative interest in the role of public speaking in business. In fact, they often claim to be part of the survey group that fears public speaking more than death, but I’m not sure how anyone could validate that survey.

Beyond the fear, many really don’t get the value of being willing and able to communicate effectively with team members, investors, customers, and a myriad of other support people, both one-on-one and one-to-many. I’m not suggesting that all have to be on the professional speaker circuit to succeed, but let me assure you that public speaking is a required business skill.

Thus, if you are like me, with no real background or experience in public speaking, I encourage you to start early with some traditional training, like a Dale Carnegie course, or read a good book on the subject, like the one just released by successful businesswoman and speaker Jan Yager, Ph.D., “The Fast Track Guide to Speaking in Public.” After that it’s practice, practice, practice.

Dr. Yager outlines in her book just a few of the reasons why an entrepreneur needs to overcome the fear, and master the art of speaking in public, and I’ve taken the liberty of adding a few occasions from my own business experience:

1. You need funding, and have to address a group of investors. As an investor, I sometimes see CEOs who negotiate to send their VP of Marketing to talk. Those requests will always be rejected, since investors invest in people, rather than ideas, and want to look the top decision maker in the eye and gauge their ability and conviction.

2. You have the opportunity to appear on a panel of experts. As a startup, you as the entrepreneur are the brand, the brand builder, and the major lead generator. You can’t afford to turn down the honor of being visible and showing your expertise, no matter how small the forum or indirect the role.

3. You are asked to explain your vision in a television interview. Believe me, talking in front of TV cameras requires all the skills of public speaking, and more. The implications to you and your company are also large, so be prepared. In her book, Jan devotes a whole chapter to speaking to the media, as a key aspect of public speaking.

4. As your company grows, you have to host customer seminars. You may think it’s too early to worry about this requirement, or you can hire professionals for customer user group meetings, but even meeting with your first potential customer will likely have a better outcome if you handle yourself like a professional public speaker.

5. You will be the key speaker at employee update and reward meetings. In a small startup, it may be cool to have a CEO who wears a hoodie and communicates via text messages. But it won’t be long before employees expect to hear and see their executives exercising the sensitivity and communication skills of other industry leaders.

6. Need to represent your company at industry association events. How you speak in public is even more important outside your company than inside. Your skills will be implicitly critiqued by industry analysts, potential strategic partners, your competitors, and the media. Their perception will determine the reality of your company and your career.

Dr. Yager asserts that being able to speak in public is one of the five key business skills that can make or break your company, whether you are a new startup or an entrepreneur who's been around for many years. The other four are: new product development, writing, time management, and sales/marketing. Many would argue that Steve Jobs impact at Apple came more from his public speaking ability than the other four skills put together.

Fortunately, the ability to be an effective speaker is based on communication skills that can be taught. And with practice, you may find you are not just a good, but a terrific speaker. If you used to fear speaking, you may find yourself not just tolerating it but enjoying the experience as you understand the source of your fears and how to overcome those fears.

You can’t win as an entrepreneur working alone, and without speaking in public, just like you can’t build a business from your invention without good business skills. The good news is that both are learnable, so the earlier you start, the better prepared you will be when you need them most. For an entrepreneur, the need arises as soon as you have your initial idea. Are you there yet?

Marty Zwilling

Get Early Customer Sales To Validate Your Business

“Will the dogs eat the dog food?” This rather crude expression weighs heavily on the mind of all good startup founders, no matter how confident they appear. We all know the products they give away, and the ones purchased by family and friends don’t count. The real milestone, proving the business model, is that first product sold for full price to a total stranger, leaving him happy.

So what can you do to expedite this event, or even improve the odds that it will happen at all? Of course, one sale isn’t really enough, so you need to get the first customer to recommend you to a second, and make sure rate of sales ramps up quickly enough to keep the business alive and growing.

This whole process is particularly worrisome to many startup founders, since their expertise and background more likely technology than sales. If you are one of those, here are some basics principles you should follow and live by until that milestone is behind you:

• It’s the market, stupid. I still see too many entrepreneurs who build a product and spend lots of money because THEY are in love with the idea or technology. There is no substitute for good market research, talking to experts, analyzing the competition, and listening to potential customers from day one.

• Sell what you have, not what you dream. Customers don’t buy the impossible dream. I believe in pre-selling and early marketing, but make sure you don’t oversell what you can deliver. I recently knew a founder whose sales pitch was always the next generation of his product, and he never understood why customers always decided to wait.

• Your revenue model has to make sense. If you lose money on every sale, it’s hard to make it up in volume. On the other hand, if your price is over the moon, even the best product features probably won’t sell it. Many of the Internet business plans I see these days say the service is free, and revenue will come later from a huge user base. You need deep pockets to make this one work.

• You need a sales channel that works, and one you can afford. Even with the global reach of the Internet, selling your first product from your website will likely not be much of a business. To get the reach you need probably requires one or two levels of distribution, partnerships, or joint ventures. Direct sales are too expensive, and word-of-mouth is too slow.

• A product, without customer support, is not ready for sale. Remember that your ultimate goal is satisfied customers, not just the best product. The sales process has to be smooth, the customer support impeccable, and the customer-facing people delightful and empowered.

• Selling is a learned skill, and takes effort, just like building a product. Everyone in your startup needs to understand sales, and needs to be a salesman. Don’t assume that only “fast talkers” are good salesmen, or that you can hire a good salesman at the last minute to sell your product. The best salesmen know their products and their customers better than anyone else, and they believe in both. That should be you.

I’m certainly not suggesting that you wait until all these items are perfect before you open your doors. If you do that, you will never achieve this milestone. The real job of an entrepreneur is to manage the right variables, with the right level of risk, to get and stay just one step ahead of their competitors.

What I am suggesting is that you laser focus on that first real customer from the very beginning. His real requirements might keep you from getting sidetracked by all the neat features your technology could deliver, and your dreams of delivering the perfect product. What you really want is a successful business and all your customers to be happy puppies.

Marty Zwilling

8 Pragmatics to Avoid Common Entrepreneur Pitfalls

Behind most great startup success stories is a long list of mistakes! Unfortunately, for every success story you see, there is an even longer list of failure stories with mistakes that you don’t see. But rather than dwell on the failures, I’ve tried to extract from them a list of practical action items that will improve your survival probability.

Every startup mentor has his favorite list of basic strategies to avoid pitfalls, and I’m no exception. If my experience and insights can save just one founder from the stress, lost time, and lost money associated with a startup misstep, then I’m a happy man. I offer these pragmatic recommendations:

1. Buffer your funding requirements. Consider both the money you need before funding, and the size of investor funding requests. You should buffer the first by 50%, and the second by 25%. You will be amazed at how many items you forgot to cover, and how fast the cash disappears. Severe cash flow problems may not be recoverable.

2. Adapt your strategy monthly. Assume your initial strategy will be wrong. Most startups I know have “refined” their target market several times during their rollout. So be alert and be flexible. Watch out for the unknown, such as an economic recession you hadn’t counted on, or a new competitor with deep pockets.

3. Reign-in expenses. The most important task of a startup CEO is to review every expense with a miserly hand BEFORE the money flows out. Do not delegate this task! Barter services and use equity to get things done for minimum cash. Make every effort to do things “in house”, rather than rely on outside services, accountants, and law firms.

4. Create intellectual property. Start early by registering your company, and reserving the name as your website domain name. Reserve the same names on the leading social networks and blogs. The patent process is far from perfect, but it’s a huge step ahead of no proprietary content. Also don’t forget trademarks and copyrights.

5. Make marketing and sales a priority. Every new startup needs to fight the urge to get the product out, and then start selling it. Do it in parallel, or the other way around, to keep from building the wrong thing. It takes leverage, effort and money to get in the public eye and stay there. Budget for it in time and dollars.

6. Find and use top-notch advisors. One or two “experts” (largely unpaid) who have “been there and done that” can head off many mistakes and suggest a calm recovery plan for the ones you make. Resist the ego urge to “go it alone” or to convince yourself that you are smarter than your competitors.

7. Temper theory with reality. There is no substitute for domain experience. No matter how well-educated you are, and how certain you are that you understand all the nuances of a business area, it is a good idea to work in a similar business for a few months to get a feel for the market and observe the unwritten rules before taking the plunge. This is especially true for students tackling their first venture.

8. Manage your time. It takes practice and effort to focus on the most important things first. In business, “most important” means time to market, customer service, low cost, and beating your competitors. It also means knowing when to delegate, when to rest, and reserving time for effective communication with your team.

A final recommendation, which is really the most important one, is not to even start any business without an overriding passion, confidence, and commitment to it. These alone will play the largest part in defining your success along the way. Apply the recommendations outlined here, define your own rules and goals, and you will be well on the way to creating a successful and profitable business.

Marty Zwilling

Women Entrepreneurs Surge But Fight Their Demons

Women entrepreneurs are starting small businesses at approximately twice the national average for all startups. Despite some inaccurate stereotypes, the evidence is that they are in every industry, from small consulting firms to medical high technology. As a result, there have also been many new resources and mentors popping up specifically aimed at women.

In most cases, the lifestyle questions asked and the answers given are essentially the same for all entrepreneurs, whether they be men or women. But according to a recent book by Adelaide Lancaster and Amy Abrams, “The Big Enough Company,” based on years of helping women entrepreneurs, the road to success for women does involve its own unique set of demons.

All surveys of women business owners show that women’s business concerns tend to skew towards issues such as finding work-life balance, startup financing, and marketing. But a key problem the authors found even among the best women entrepreneurs was trying to do too much at once. Here is a short list of impacts they commonly reported and all mentors have seen:

1. You feel overwhelmed. This is easy to do when your to-do list is threatening to swallow you whole or when you’re staring your big bad goal in the face. Your work is never done, but that doesn’t mean you need to spend your life catching up. Pace yourself.

2. You feel discouraged. It’s easy to get caught in this mindset and lose sight of what’s already been accomplished. Accept the reality that the business will forever be incomplete, and celebrate the small successes and the big milestones.

3. You are distracted. Everything unplanned seems like an unwelcome distraction, and it’s likely that important opportunities will be missed or be turned down. Don’t forget to pay attention to strategic priorities and time for yourself.

4. You suck all the fun out of your business. Chances are you became an entrepreneur to attain some level of satisfaction in the first place, so remember, the fun is in the building, not just the destination. Stressful journeys don’t lead to joyful outcomes.

5. You compromise your personal motivations. It’s pretty hard to bask in newfound freedom when you don’t even have a chance to breathe. The point is to build the business to honor your needs, not sacrifice them for the business.

6. You make bad decisions about the business you are building. When you’re under the false impression that your business won’t wait, you make decisions that are sub-optimal in the long-term. Be realistic, but don’t settle for less than satisfying outcomes.

7. You burn out. Remember … it’s a marathon. You gain nothing if you’re unable to keep going, especially if you expect your business to have any degree of longevity. Slow down and don’t let your work, passion, and creativity disappear before its time.

The antidote and solution to doing too much is doing less and, of course, doing it well. That doesn’t mean to do less overall, but do less right now, at this very moment. This entails the following:

• Prioritizing. Keep two to-do lists: things you “need to do” and things you “want to do.” Start with what is closest to the money, considering what you have available to make it happen. You are not super-human, so “want to do” things sometimes have to wait.

• Taking baby steps. While vision is great, progress is about putting one foot in front of the other, and taking small steps toward your goals. Other people’s steps always look larger, but in reality we all move forward one small step at a time.

• Creating accountability. Hold your own feet to the fire, and remember that it’s normal to have to do that for everyone else. Create specific goals and deadlines for everyone in the company. To help you, find a coach, create a system, join a group, or get a partner.

• Delegating. You can’t talk about doing less without talking about enlisting help, and relinquishing control. Focus on what you do best, and offload other tasks to people who can do them better, and you will both be happier and more productive.

• Celebrating progress, not just success. When you complete a baby step, or a major milestone, celebrate it. Then keep going. Then repeat. Consider each celebration a demonstration of respect for yourself, the work you have done, and the sacrifices made.

In the past, women have often come to entrepreneurship with fewer resources available to them than men. With this book, and the wealth of other information now available, the tide has turned, and every woman entrepreneur should be able to create a business that works for them. That’s the real definition of success. Go for it!

Marty Zwilling

5 Ways Entrepreneurs Help Others Succeed and Win

Many entrepreneurs forget that their success is more about helping other people than about personally becoming famous, or overcoming the odds and getting rich. A successful business has to satisfy customers with a strong team, by helping them solve problems, save money, or experience more pleasure. That means more focus on helping others achieve their goals.

How and why this is true was brought home to me in a recent book, “It's Not About You: A Little Story About What Matters Most in Business,” by Bob Burg and John David Mann. This is a fictional story about how an aggressive young M&A executive comes to realize that his aggressive style is actually making it harder to reach his goals.

He concludes that there are five leadership elements that include him, but are not always about him, that lead to success. These are lessons that every entrepreneur should take to heart:

1. Hold the vision. Many entrepreneurs are able to come up with a vision, but far fewer are able to hold on to it through thick and thin, and communicate it effectively and continuously to their team and their customers. Keep your eyes on where the company is going, especially when nobody else does. Watch your use of personal pronouns.

2. Build your people. Give people on your team the means, authority, and the motivation to do the job, you will be surprised at the value delivered. Make sure that the essence of your influence is pull, not push. See people for who they are, realize what they can be, and help to take them there.

3. Walk the talk and do the work. Most startups begin their life as “one-person shows” that over time evolve to teams of people, interacting with customers and vendors. By virtue of the growing workload and stress, too many entrepreneurs isolate themselves from the hands-on as the team builds. Don’t forget to be a mentor as well as a leader.

4. Stand for something. What you have to give, you offer least of all through what you say, and in greatest part through who you are. Competence and character are most important, and visible to everyone. I believe in the old saying: “If you don’t stand for something, you’ll fall for anything.”

5. Share the mantle of leadership. The best way to increase your influence is to give it away. Don’t get stuck thinking that you are the deal. Let others lead in their own area of expertise, and your power will be expanded many-fold.

As early-stage entrepreneurs, it’s natural for you to focus on you – what you’re doing, what you want, and what you need. As the business evolves, you must expand your focus beyond yourself to motivating the team and delivering value to customers. At that stage, you are still important, but it’s not about you any more.

One mistake many entrepreneurs make, especially with online businesses, is a fundamental misunderstanding of how interesting they need to appear to others. Yes, you are a fascinating person. You know how to bootstrap a business, build it from nothing, and burn sweat-equity for long hours to push your dreams to reality. Your business brand needs to quickly supersede you.

Online businesses have removed the convenience of geographic connections. Today, remote relationships are far more important. The best way to turn someone into your devoted fan is to go out of your way to make them feel important. Put yourself first by putting others first as well. It really isn’t about how great you are but how you make others great.

What have you done for your team and your customers lately? How did you make your product manager shine in the last meeting? Being an entrepreneurial success is not about grabbing information and power, it’s about helping others succeed.

Marty Zwilling

6 Clues That You May Be Cool as an Entrepreneur

A while back, when a startup founder mentioned to me that he wasn’t sure he had the personality to be an entrepreneur, I realized how important that insight was. My first thought is that if you are more annoyed than energized by expert advice, team suggestions, and customer input, then you should probably avoid this line of work.

Actually, it’s more complicated than that, but that’s a good start. After working with entrepreneurs for more than a decade, I have developed a good “radar” to quickly recognize mentalities that will likely pass the test of investors, employees, and customers.

But it’s easier for me to look in from the outside than it is for you to look out. So here is a list of mentality characteristics which I believe are absolutely necessary for you as an entrepreneur to see in yourself. On the other hand, if you see any of these causing you stress and discomfort, you probably won’t be happy in the role of entrepreneur:

1. You enjoy being the visionary leader. Being able to envision what the business and the industry will be like in years to come is a skill that can guarantee that you will be around for the long haul. What makes most success stories in business is not totally reinventing the wheel, but leading the charge to make the current wheel better.

2. Sometimes you are creative, sometimes logical. A successful entrepreneur has to come up with innovative ideas, but also turn them into a value-creating profitable business. That requires good amounts of both “left brain” and “right brain” activities, with enough common sense to find the balance.

3. Risk energizes you. To really enjoy the ride in the world of entrepreneurship, you need to be able to sustain yourself outside of your comfort zone and have a sense of adventure. Startups never ever go as you anticipated. This is why you need to be ready to go “off the script” and improvise, and enjoy the thrill of victory when it works.

4. Actively seek others input. The quicker you learn not to take it personally (and it’s hard when it’s your business and your creation), the more successful you will be. You will always come across people that will criticize you, no matter how great or valuable your product or service may be.

5. Motivated yet patient. When you start a business, you need to have the frame of mind that this is what you want to do for the rest of your life. Most people want financial freedom, but they want results immediately, and that is not the case 99% of the time. Most successful entrepreneurs understand that overnight success takes years.

6. Jack of all trades. When running a business, you'll be doing a little bit of everything. You have to be good but not an expert at everything you do, and you have to know when to be flexible and when to ask for help. If you are one to specialize in just one thing, then running a business might not be for you.

If you don't fit into everyone’s personal view of an entrepreneur's mentality, please don't be totally discouraged. Winning businesses have been started by people of every type. Yet overall, the facts are that about two-thirds of startups fail, so think hard before you ignore warning signs.

I’m convinced that if entrepreneurs spent half as much time evaluating themselves and what makes them happy, as they do writing business plans, and visiting with attorneys and accountants, they would be winners far more often.

Finally, don’t forget that the most important mentality aspect is to always do something that you enjoy. Life is too short to be going to work every day unhappy. Beyond that, I believe success is a state of mind derived from confidence, self esteem, and what you really want in life. How strongly do you really want to manage a startup?

Marty Zwilling

6 Right Times to Be a Ready-Fire-Aim Entrepreneur

I know entrepreneurs who have suffered from the dreaded premature execution syndrome often associated with the ready-fire-aim approach. Yet I believe that many more have benefited from this approach, especially in early startup stages. If your product is highly innovative, and speed to market is critical, you won’t get it right the first time anyway, no matter how cautiously you plan.

The ready-aim-fire traditional approach works best in more mature markets, where your strategy is to add features and value to competitive products, or address an underserved new segment of the marketplace. These are the environments where you really need extended planning to ensure proper positioning before launching the product.

But Lonnie L. Sciambi, in his new book, “Secrets to Entrepreneurial Success,” reminds me that premature execution will doom even a good ready-aim-fire plan. This most often happens due to impatience, which is not typically an entrepreneurial virtue. It also happens due to overreaction to some market surprise, a last-minute input, or a squeeze on cash.

Even when a good plan is possible, I believe there are many circumstances where the ready-fire-aim approach is the best alternative, even though it may be counter-intuitive that one can fire without having aimed precisely. Here are the key parameters that can swing the pendulum:

1. Engineers have an uncontrolled ability to add more features. Many good ideas never get off the ground, simply because the product or service is never “finished.” Some entrepreneurs don’t believe in the “minimum viable product (MVP)” approach, and they keep thinking they need to get the vision absolutely perfect before launching it.

2. Entrepreneur confuses sense of urgency with sense of emergency. Urgency comes from an outbound purpose to get market returns quickly, while handling emergencies is a reactionary inward approach to saving ourselves from the daily crisis. It’s easy to be too busy to aim, so ready-fire can get you moving, but may generate the next emergency.

3. Impossible to get adequate market information for any given plan. For innovative new products in a "fast-paced culture," entrepreneur leaders can’t count on conventional market research or expert consultants to give them the data to build a plan. After you've "fired" once, you have some actual data with which to adjust your aim.

4. The target market is moving in unpredictable ways. Marketing is inherently a trial and error process in new and unknown environments. The ready-fire-aim approach works best here, but must be used with a plan to learn from misses and feedback, rather than random shots into the dark. Be prepared for pivots and mistakes.

5. Planning cycle for determining certainty is too long. Too many entrepreneurs get bogged down in planning and thinking and never get to the point of action. This leads to another dreaded syndrome, called analysis paralysis (i.e. ready-aim-aim-aim-aim-aim...). If they don't fire before they aim, they may never take action at all.

6. Cost of a planning cycle is greater than cost of an execution iteration. Start with a strategic plan that embodies an iterative launch cycle, with a minimum viable product to a focused and limited domain, and the cost of execution will be low. That limits the scope of your plan, makes is more measurable, and forces you to plan for change.

It was Tom Peters and Bob Waterman (“In Search of Excellence”) who first came up with the “ready-fire-aim” go-to-market strategy. I like it in most cases, since it is action-oriented, helps streamline and decrease product development time and costs, and focuses the product and the firm on customer needs rather than technology.

Of course, if you fire without aiming, there’s always a greater chance that you will shoot yourself in the foot. I’ve even seen some entrepreneurs who quickly reload, only to shoot themselves in the other foot. Making your business a game of Russian Roulette is not the way to success. If you can’t plan ahead, at least plan to learn from your mistakes.

Marty Zwilling

Entrepreneurs Need New Growth Models To Scale Up

Startups are usually so focused on selling more of their branded product or service to their own customer base (organic growth) that they don’t consider the more indirect methods (non-organic growth) of increasing revenue and market share. Non-organic growth would include OEM relationships, finding strategic partners, “coopetition,” as well as acquisitions.

This initial focus is usually driven by limited financial and people resources, as well as the bandwidth of the executive team. Yet a creative and skilled team will often find that non-organic growth techniques can better leverage these limited resources.

An example of a startup which used non-organic growth early and effectively was Microsoft. Bill Gates started producing software solutions, like his Basic Interpreter and MS DOS, but quickly focused on adding thousands of small partners for applications, and major partners like IBM and other hardware manufacturers. Even mergers and acquisitions (M&A) came early.

Some people feel that organic growth is “better” because it requires real innovation and sustained effort to create long-term competitive advantage through differentiation and efficiency. They might agree that it cannot compensate for the speed and scale of growth of the non-organic approach, but has lower risks of failure.

Despite the risks, there are many advantages of non-organic growth, even in startup environments:

• New product or service lines. Organic growth assumes innovation in the product or service, but non-organic growth through white labeling and strategic partners may add totally new brands and services to your revenue stream.

• Fresh customer base. Teaming with another company, or buying another company, can add new geographical locations and new customer segments to the business. These relationships need not require cash investments; often they are done with exchanges of equity or assets.

• Economies of scale. In many cases business opportunities with competitors (coopetition) will open up a new marketing channel, and definitely give you the cost advantages of scale. Economies of scale also apply to marketing, distribution, and sales.

• New management skills. New business relationships mean new perspectives and new executives working on the opportunity. This can be a significant competitive advantage over major competitors, and overall reduces competition in the market place.

I’m certainly not proposing that one mode should be used to the exclusion of the other. Rather, I recommend that you pursue both concurrently, per the advantages of each. For example, if you are in an industry which is fragmented or has a slowing growth rate, with too many competitors, non-organic growth may be required for survival.

Use organic growth options for things which you do best, where there is plenty of room for growth by selling your products in new geographic areas, or using new sales channels, such as through a wholesaler or website. Organic growth is typically safer because you’re using a tried-and-tested business model, and you can reinvest profits back into the business.

Certainly non-organic growth has its pitfalls. Entrepreneurs, while partnering with or acquiring a new business, must check for compatibility and strategic fit. Yet startups looking for investors need to evaluate all the growth alternatives from the very beginning. “No growth” or even slow-growth companies waiting for an Angel may have a long wait.

Marty Zwilling

7 Questions to Ask Yourself Before Asking For Money

The first question most people seem to ask when contemplating a new startup is where they will get investor money. That’s certainly a valid question, but all the money in the world won’t make your business a success if you hate what you are doing, and you don’t have a plan to use it. I suggest that there are several other questions even more important than the money one.

The best way to assure the success of your startup is to do something you love, as opposed to something that will make you a lot of money. Of course, all these things and many more are critical, so it’s important that you keep your priorities straight. Here are the right questions to ask yourself, in the right order, before asking others about money:

1. Do you understand and aspire to entrepreneur lifestyle? Being a startup founder is not a job, but a lifestyle, like getting married versus staying single. In fact, it’s more like being single, since founders usually have no one to lean on, no one to make decisions for them, no one to blame, and no vision to follow but their own.

2. Do you have a passion for your idea and business opportunity? There is no joy in starting a business, if you can’t stand the people, business climate, or the day-to-day responsibilities of the job. Some people relate to service businesses, while others are more comfortable with manufacturing or construction.

3. What type of business startup best fits your mentality? Beyond the traditional new product or service model, you can always buy an existing business, purchase a franchise, join a multi-level marketing (MLM) company, or simply go out on your own as a consultant. Each of these has their unique challenges and payback. Ask around.

4. What level of experience and training do you have for this business? Be wary of stepping into an unknown business area, just because it looks easy or promises a big return. The real secrets of any business are not in textbooks, and you can’t believe everything you read on the Internet. Experience is the best teacher.

5. Do you have real self-confidence and self-discipline? Starting a business is hard work and will require sacrifices. You will be operating independently, making all the decisions, and shouldering all the responsibility. Will you be able to persevere and build your new venture into a success?

6. Do you have a viable plan? If you haven’t yet written down a business plan, you probably have no idea how much money you really need, or even if the opportunity is real. I believe the process of writing the plan is more valuable than the result, because it forces you to think through all the elements, and make sure they fit together and fit you.

7. How much money do you really need? From your plan, calculate the absolute minimum amount you need to make your plan work, and then buffer it by 50%. Consider the non-cash alternatives, like offering equity instead of cash and bartering for services. Fundraising is extremely difficult, which is why most entrepreneurs do bootstrapping.

If you have made it this far, it’s fair to now start asking people where and when you can find the money you need (if any). Professionals will tell you that the sequence is friends and family first, angel investors second, and only then venture capital. Each of these has a cost in time an effort.

The process for all of these is networking (not email blasts or cold-calling investors). Start with the local Chamber of Commerce, industry associations, or investor seminars. Just attending doesn't work. Use your entrepreneurial spirit to start some exchanges and relationships that can lead to your next step.

Starting a business is a marathon, so do your preparation and training before you ask for that bottle of water. Finding money is tough, but it’s not the hardest part. The hardest part is to do it all while enjoying the journey. Get busy, and have fun.

Marty Zwilling

10 Tips to Help a Business Leader Quit While on Top

For most business leaders, their current role is not where they intend to stay until they die. At the right time, they all intend to make a graceful exit, and leave while still perceived to be on top of their game. The challenge is how to know and exit gracefully when the right time has come, without trauma to either the company or themselves.

I haven’t seen much insight on this subject, so I was intrigued by a new book “Leaving on Top: Graceful Exits for Leaders,” by David Heenan, a business executive and Georgetown professor, with some good research on 20 top leaders, and why some leaders ‘get out while they’re on top’ while others ‘overstay their welcome.’

First of all, both Heenan and I agree that most exiting business leaders can be categorized into one of four major groups:

• Timeless wonders. With their skills very much intact, these white-haired prodigies have no need to call it quits. Warren Buffett and Rupert Murdoch clearly fall into this category.
• Aging despots. Reluctant to leave the spotlight, they are past their prime and should turn the reins over to a new generation. We won’t mention any names here, but we all know a couple of these.
• Comeback kids. Whether to return their enterprises to their former glory, or simply save themselves from boredom, these departed leaders have returned with a vengeance. Steve Jobs and Howard Schultz are a couple that come to mind.
• Graceful exiters. Quitting while ahead, these leave a sterling reputation as they move on. Bill Gates and Oprah Winfrey are business examples in this category.

After many stories of leaders in all these categories, he offers some good tips on how to get counted in the category you prefer:

1. Know thyself. What matters most to you? Fame? Fortune? Family? Friends? Helping others? Listen to your heart. Look at yourself as objectively as possible and analyze what’s truly important. Be open and responsive to the inputs of others.

2. Know thy situation. When everything is clicking, it’s easy to overstay your welcome. Staying power is elusive at best. Know where you stand, and don’t wait for the annual review. Move on before someone else decides to move you on.

3. Take risks. Don’t shackle yourself to the past. Accept change as a natural part of your transition, just as you always have for your company. Strike out anew while you are still hardy enough to face new challenges. Push your comfort zone.

4. Keep good company. Stay connected. Cast a wide net, including people inside and outside your fields of interest. Ignore the naysayers. Keep the company of sunny characters, those with an upbeat disposition. Avoid humorless people.

5. Check your ego at the door. While we still treat some personalities like royalty, a new view of leadership is beginning to see them more as stewards than kings. In addition to muffling hubris, graceful exiters functions as talent spotters, so everyone wins.

6. Keep learning. Graceful exiters remain curious. They are intellectually interested, alert, and adaptable. They read, explore new places, and engage their senses. The more diverse your experiences, the better the prospects for forging a new chapter in your life.

7. Stage your exit. The transition to what’s next may take a while. Back into it. Live life incrementally. Break your departure into manageable steps. Take things bit by bit. By carefully staging your departure, you’ll build confidence for your new life.

8. Know when to walk away. Many give up everything to stay in the saddle. As their legacy erodes, they fail to prepare for the next season of their lives. However brilliant they may once have been, their unbridled egos cost them soul and substance.

9. Know when to stay put. If you are happy and productive, stick with your day job – the one you love. Give it your all. Remain passionate about it. Not everyone has to pack it in. A long, healthy, and productive life awaits those people who prepare for it.

10. Start now! Life’s prolonged course offers everyone the opportunity to chart new horizons. But you need to set your priorities early and put the building blocks in place to achieve them. Don’t dillydally or let procrastination steal your dreams.

Leaving on top, and exiting gracefully, begins with recognizing that a job, like a life stage or a relationship, has peaked. After that, I’m reminded of the old quote by John Richardson "When it comes to the future, there are three kinds of people: those who let it happen, those who make it happen, and those who wonder what happened." Which category will you fall into?

Marty Zwilling

10 Key Metrics To Take a Startup to the Next Level

Entrepreneurs have no trouble focusing on how to build a product, and the good ones know how to find and nurture those first critical customers. Many, however, don’t know how to take their small business to the next level. What I’m talking about here is a level of discipline and skill necessary to collect and analyze the relevant business data, known as metrics.

Here is my selection of ten key metrics that every six-sigma joint like GE tracks without thinking, but too many small businesses only monitor haphazardly, if at all:

1. Sales revenue. Sales is simply defined as income from customer purchases of goods and services, minus the cost associated with things like returned or undeliverable merchandise. Of course, everyone is happy when the numbers keep going up, but the data needs to be mined constantly for deeper meanings and trends.

   Sales data needs to be correlated to advertising campaigns, price changes, seasonal forces, competitive actions, and other cost of sales. More sophisticated metrics in this domain, like the Asset Turnover Ratio, Return on Sales, and Return on Assets, can tell you how your company’s performance stacks up against others in the same industry, or same geography. In the long run, these tell you whether you will live or die, compared to competitors.

2. Customer loyalty and retention. Customer loyalty is all about attracting the right customer, getting them to buy, buy often, buy in higher quantities and bring you even more customers. You build customer loyalty by treating people how they want to be treated.

   There are three common methods for measuring customer loyalty and retention: 1) customer surveys, 2) direct feedback at point of purchase, and 3) purchase analysis. All of these require a systematic and regular process, rather than ad hoc implementation. According to Fred Reichheld and other experts, a 5% improvement in customer retention will yield between a 20 to 100% increase in profits across a wide range of industries.

3. Cost of customer acquisition. This metric is a measure of the total cost associated with acquiring a new customer, including all aspects of marketing and sales. Customer acquisition cost is calculated by dividing total acquisition expenses by total new customers over a given period.

   This tells you whether your marketing and advertising investments are paying for themselves. Over time, you cost of acquisition should go down as growth and your brand image goes up. Again, be sure to check industry norms for your type of business to see if you are competitive.

4. Operating productivity. Obviously measuring staff productivity is important, and the reasons why are obvious. If you do not know how your staff is doing, then how can you truly know the inner workings of your own company? Staff discontent can put your company in serious jeopardy, while on the other hand, high staff productivity can be your best company asset.

   Productivity ratios can be applied to almost any aspect of your business. For example, sales productivity is simply actual revenue divided by the number of sales people. Compare your productivity to industry norms by consulting industry statistics, or check yourself for continuous improvement by accumulating your statistics over time. The process works the same for manufacturing productivity, marketing productivity, or support productivity.

5. Size of gross margin. The gross margin is calculated as a company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. The higher the percentage, the more the company retains on each dollar of sales to service its other costs and enjoy as profits.

   Tracking margins is important for growing companies, since increased volumes should improve efficiency and lower the cost per unit (increase the margin). Improving productivity requires effort and innovation, and many companies charge ahead, not realizing that margins are going the wrong way. What you don’t measure probably won’t happen.

6. Monthly profit or loss. Profit is not simply the difference between the costs of the product or service and the price being charged for it. The calculation must include the fixed and variable costs of operation that are paid regularly each month no matter what. These include such items as rent or mortgage payments, utilities, insurance, taxes, and the salary that you and your partners are not taking just yet.

   Beyond reducing your cost of operation, the biggest lever on profit is usually the price you can charge for your product or service. This amount you charge, over the base cost of an item, is called “the markup,” and the difference between cost and price is the “margin.” Investors realize that small companies with margins below 60% will likely have a tough time growing.

7. Overhead costs. In economics, overhead costs are fixed costs that are not dependent on the level of goods or services produced by the business, such as salaries or rents being paid per month. In any growing business, these can creep up and out of control if not tracked carefully.

   By tracking them on a monthly basis, you will be able to see more clearly where spending occurs in your business. Use this information when updating your business plan or when preparing yearly budgets. Because overhead costs are not influenced by how much your business earns or grows, you need to track them separately and diligently. Moving to a location that is less expensive, or switching utility suppliers, are ways to reduce the fixed costs of running a business.

8. Variable cost percentage. By definition, variable costs are expenses that change in proportion to the activity of a business. Fixed costs and variable costs make up the two components of total cost. These include the "cost of goods sold" and other items that increase with each sale, such as the cost of raw materials, labor, shipping and other expenses directly connected to producing and delivering your goods or services.

   The value of tracking these as a metric is to assure that they are decreasing as your volume is growing, and assure that they are consistent with industry norms and competitive offerings. If you variable costs go up, your business won’t grow, even if sales are up and the number of customers increases.

9. Inventory size. The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale. Inventory represents one of the most important assets that most businesses possess, because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company's shareholders/owners.

   For growing companies, this is an important area to manage. You will find that you either have too much inventory (cash tied up, high storage costs, obsolescence, and spoilage costs), or not enough (lost sales, lower market share). The challenges include forecasting inventory requirements, buying in cost-effective lot sizes, and just-in-time delivery systems.

10. Hours worked per process. Beyond ratios, you need to keep metrics on total labor hours expended for various functions. Labor is likely to be your most important and most expensive raw input, especially in manufacturing, assembly, and support operations. The one constant in small business is change, so the excuse of “we have always done it that way” is not one that a growing company should ever want to hear or use.

    These days, most labor-intensive operations can be replaced with automation, and you need to recognize as you grow the business when the cost of automation is justified. At some point, the return on investment (ROI) of more computer systems, and automated manufacturing operations, is well worth the cost and time to change.

Leveraging the latest data can uncover new opportunities and help you measure the results of your efforts. I believe every small business owner should monitor these constantly, and take time to chart, review and carefully examine at least once a month.

Tracking key business metrics is important for a bunch of reasons, but probably the most important reason is cultural. It leads to a culture of success when you see the key business metrics moving in the right direction. Don’t miss the opportunity to celebrate your successes as you reach new milestones.

Marty Zwilling

Don’t Look For Investors for All the Wrong Reasons

There is so much written these days about how to attract investors that most entrepreneurs “assume” they need funding, and don’t even consider a plan for “bootstrapping,” or self-financing their startup. Yet, according to many sources, over 90 percent of all businesses are started and grown with no equity financing, and many others would have been better off without it.

According to the book, “Small Business, Big Vision,” by self-made entrepreneurs Adam and Matthew Toren, it’s really a question of need versus want. We all want to have our vision realized sooner rather than later, but it can be a big mistake to bring in investors rather than patiently building your business at a slow, steady pace (organic growth).

In fact, most of the rich entrepreneurs you know actively turned away early equity proposals. Too many founders are convinced they “need” equity financing, for the wrong reasons, as outlined in the book and supplemented with a bit of my own experience:

• Need employees and professional services. Of course, every company needs these, in due time. In today’s Internet world, enterprising entrepreneurs have found that they can find out and do almost anything they need, from incorporating the company to filing patents, without expensive consultants, or the cost to hiring and firing employees.

• Need expensive resources up front. Many people think that having a proper office and equipment somehow legitimizes their business, but unless your business requires a storefront, everything else can be done in someone’s home office, or a local coffee shop, on used or borrowed equipment. Consider all the alternatives, like lease versus buy.

• Need to spread the risk. Some entrepreneurs seem to get solace and implied prestige from convincing friends, Angels, and venture capitalists to put money into their endeavor. If nothing else, these make good excuses for failure – no freedom, wrong guidance, etc.

On the other hand, there are clearly situations where your needs call for investors. Even in these cases, all other options should be explored first:

• Sales are strong – too strong. If you are not able to keep up with demand due to lack of funds for production, and your company is too young for banks to be interested, you will find that investors love these odds, and are quick to go for a chunk of the action.

• Your company has outgrown you. Some entrepreneurs are quick with creative ideas, and even excellent at managing the chaos of initial implementation. That’s not the same as instilling discipline in a larger organization, where most the challenge is people.

• You need a prototype. When you have invented a new technology, you need expensive models and testing, including samples for potential customers. If you don’t have the personal funds to make these happen, investors might be your only option.

• You need specialized equipment. If your solution depends on high-tech chips, injection molding, or medical devices, and you can’t get financing from suppliers, giving up a portion of the company to investors is a rational approach.

• General startup expenses are beyond your means. Investors are not interested in covering overhead, unless they are convinced that you have already put all your “skin in the game” (not just sweat equity), and have real contributions from friends and family.

When deciding whether and how an investor can help you, remember that finding outside investors requires a huge amount of time and work, perhaps impacting your rollout more than working with alternate approaches and slower growth. Perhaps you really need an advisor rather than an investor.

Even under the best of circumstances, working with an investor requires give and take. More likely, you now have a new boss – which may be counter to why you chose the entrepreneur route in the first place. Maybe that’s why bootstrapped startups are the norm, rather than externally funded ones. You alone get to make the big decisions on your big vision.

Marty Zwilling