8 Key Processes Distinguish a Business From a Hobby

Even when your startup is a one-man show and lots of fun, a “business” needs some discipline and controls to keep it from being defined as a hobby by investors, and assure some financial return. Like it or not, you are now entering the dreaded realm of specifying and documenting “formal business processes.” The right question is “What is the minimum that I need?”

The simple answer is that you need to implement one process at a time, starting with those things that are most critical to your business, until you feel a relief that things are starting to happen naturally and consistently, without the attendant stress and continual recovery mode. If you feel that the process itself is a burden, you have likely gone too far.

Here are eight key business tasks that relate to almost every startup, generally prioritized by criticality. Think about the implications of each to your own business, and the potential impact of getting them done incorrectly, or forgetting to do them entirely:

1. Manage your financials and physical assets. I’m continually amazed at the number of entrepreneurs who go for months into a new business without really keeping a formal record of money spent or assets acquired. Use a simple accounting tool like QuickBooks, get away from co-mingled funds, and you have the first business process you need.

2. Develop your business plan. Write down the key elements of your business plan very early, and keep it current as things evolve. This will include the first version of many critical processes that can be split out later, including market opportunity, requirements, product definition, business model, sales process, and organization.

3. Product development process. Even if you are doing the work yourself, you need to document requirements, features, metrics, and milestones. If you are contracting or outsourcing, this is even more important. Otherwise you will find yourself a year later being no closer to a product that you were yesterday, with no idea why.

4. Funding process. Unless you are bootstrapping everything, you need to have a clear plan on what networking and documents are required to get to friends and family, Angel investors, and institutional investors. Measure yourself against a researched plan, or your “out of cash” brick wall will be looming before you know it.

5. Manage human resources. At this stage, you should start recruiting, hiring, paying, and training others to help you run your business. In addition to effectiveness and consistency, you now have a myriad of legal and tax considerations to get right. Don’t try this without a formal process.

6. Leverage information technology. Find an IT person you can trust, and plan how you will acquire, implement, and utilize computer technology to run your business. How do you access the Internet, what servers do you need, applications required, databases designed, and backups scheduled? It all has to be written down and maintained.

7. Billing and revenue collection. Whether you provide an online subscription service, or sell products in a store, you need to consistently and economically sell your product and collect revenue to survive. Here you will likely need to train others to help you, so more detail may be required in this process.

8. Customer service and support. Here is another often overlooked area of process that kills many startups, both in cost and time. Don’t assume that you can fix every problem yourself, or that there won’t be any problems to fix. Even if your business is online, people want a contact, real expertise, and quick response.

If you are a great startup, you won’t just copy the processes of your competitors, even in these basic elements. Innovation is the key, to keep each process small, but make it more effective than competitors and big-company processes.

But having no process does not make you more competitive. In my experience, no process means a business “out of control,” or simply a hobby masquerading as a business. Neither of these is really much fun, and both situations will cost you money rather than make money. Even the government is watching to see where you fit.

Marty Zwilling

10 Criteria for a Memorable Name for Your Startup

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

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

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

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

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

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

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

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

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

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

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

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

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

Marty Zwilling

What is the Primary Reason For Startup Failure?

When I heard a friend make the statement “Your startup can’t fail if you don’t quit,” I realized that every entrepreneur should adopt it as their mantra. Pivoting or dealing a new hand is not quitting. If we all repeat this mantra, perhaps we can improve the statistic that over half of new startups fail within five years. Nothing is more discouraging to future entrepreneurs than a failed startup.

Why do most startups fail? There are a thousand reasons listed by pundits across the media, but most of them agree that the number one reason is NOT running out of money. The number one reason is that the founder quits. Of course, they may be quitting because they ran out of money, but good entrepreneurs tell me that running out of money is most often an “excuse” rather than a “reason.”

Let’s take a look at the main reasons (excuses) given for startup failures, and suggest some alternatives to quitting:

• “I’ve lost interest – I don’t want to do this anymore.” This suggests you have lost your passion for the current business model, probably because someone suggested you change from your original concept to make it easier, or to make more money. My suggestion is to morph the current idea into one you love and enjoy, rather than quit and take an employee role you never wanted.

• “I can’t find any investors in this economy.” If you can’t bootstrap the venture yourself, find a partner, friend, or family member rather than a professional investor to carry some financial weight. Otherwise, look for advances from distributors, vendors, and even future customers. Try bartering services you have for something you need. I’ve seen countless creative solutions to the cash flow problem, from people who don’t quit.

• “The people around me are all turkeys.” We all make people mistakes. So you made some bad hiring or partner decisions. Now is the time to face up to these issues and move out the people who don’t fit, rather than let them destroy your startup. The sooner it is done, the happier both of you will be.

• “I don’t have the skills or discipline to run this business.” If you knew everything that had to be done, and could do it easily, you would be bored and lose interest (back to item #1). If millions of people all over the world run businesses, there is nothing implicit in the role that is beyond normal intelligence. Half the fun is learning, so get started today, and don’t be afraid to ask for help.

• “I finally realized there is no market for what I do.” Big markets rarely spring “full grown” out of nothing. Every entrepreneur has the challenge of making a market, or differentiating his product to match an existing market. Every startup I know has tweaked (or totally transformed) their product several times, rather than quit.

• “I grew too fast and everything is spinning out of control.” This is probably a good reason to scale back and focus on organic growth, but it’s not a good reason to quit. You must have something of interest, or growth wouldn’t be the problem. Reset to the basics, get financial or management help, and failure should not be an option.

Another important point is that even if you declare your current startup a failure, don’t let it defeat you. Most people agree that we learn more from our mistakes than from our successes. The bright side is that investors tell me they are wary of funding an entrepreneur who has never failed (in his own mind), since that often leads to a cocky and unrealistic view of future expectations.

Overall, my view is that starting a business is just like everything else. Nothing important is all that easy, and all of us stumble a few times and pivot along the way as we learn. There is a real difference between cashing in your cards for a new hand, in the face of unbeatable odds, versus quitting and walking away from the challenge. You don’t learn any lessons by walking away.

Marty Zwilling

Startups Need the Right Team Mindset to Survive

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

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

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

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

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

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

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

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

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

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

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

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

Marty Zwilling

Top Floor Relationships Make For a Top Entrepreneur

In the world of entrepreneurs and startups, high level relationships are everything. You can’t start a business alone. You need partners, team members, investors, vendors, and customers. But people don’t realize that all relationships are not the same. There are people you only recognize on the street, business friends, and then close friends whom you can always count on to help.

Tommy Spaulding, in his book, “It’s Not Just Who You Know,” categorizes relationships into five levels, like floors of a building, and identifies the attributes of relationships at the different levels. More importantly, he talks about the actions required to build a network of contacts at the highest level. He also defines the five floors of relationships as follows:

1. Meet and greet relationships (first floor). This is where most business relationships start and remain. You need something specific from the other person – a loan, or product order, or help solving a problem. After you get what you want, you move on, with no giving or commitment.

2. Limited information sharing (second floor). But it’s very basic information, the type you dispense out of social obligation or because it’s a job requirement, not because you’re offering some insight into who we are. Many people call these “close” friends, but in reality there is no trust, feeling, or giving going on at this level.

3. Emotional comfort level that goes beyond facts (third floor). You feel safe enough to voice opinions, discuss perspectives and share feelings in making decisions. In business, positional authority remains the primary guiding force at this level, and most business relationships stay at this level or below.

4. Real same-page connection (fourth floor). This level allows for conflict and resolution with no hard feelings. Here you get the introduction of “netgiving” as well as networking. Friends to the end talk about what’s important to them and aren’t afraid to discuss private matters.

5. Sharing the other person’s state of mind (top floor). They become confidants, advisers, and cheerleaders who understand each other’s needs and drives. Vulnerability, authenticity, trust, and loyalty are off the charts. It’s a relationship based more on giving than on getting. There’s only room for a few relationships at this level.

It’s often said, “it’s not what you know, it’s who you know.” In business, there is another dimension, the level of your relationship, and the level of trust and giving established. Of course, relationships seldom fit neatly into a given level. They’re far too dynamic, and may even move up and down floors like an elevator.

I recommend that you use the top floor as the reference point to think about your own business relationships. How many do you have at the top level, and what are you doing to actively develop more? Are your “close” business friends actually at the top floor, or merely at the second floor? Can you count on them for a real help or a big favor?

Tommy insists that building meaningful relationships, without sacrificing integrity or treating other people as a means to an end, will always help you achieve your goals and move beyond them, personally and professionally. These relationships must be based more on giving than on getting. That kind of giving gives you more than you could possibly imagine.

All relationships require hard work, patience, understanding, as well as tactics and strategies designed to make them blossom, just as you have tactics and strategies for marketing, selling, advertising, production, distribution, and customer service. Thus relationships are the basis for all the other keys to business success.

Marty Zwilling

Entrepreneurs Who Master Storytelling Win More

The entrepreneur’s challenge is to effectively communicate their value proposition, not only to customers, but also to vendors, partners, investors, and their own team. Especially for technical founders, this is normally all about presenting impressive facts. But in reality facts only go so far. Stories often work better, because humans don’t always make rational decisions.

Most people care the most about the things that touch, move, and inspire them. They make decisions based on emotion, and then look for the facts that support these decisions. Thus it behooves every entrepreneur to learn how to craft stories from their personal experience and the world at large that make an emotional connection, as well as tie in the facts.

I just finished a book “Tell to Win: Connect, Persuade, and Triumph with the Hidden Power of Story,“ by Peter Guber, a thought leader on this subject and long-time business executive. He asserts that everyone today, whether they know it or not, is in the emotional transportation business, and compelling stories are the best way for you to move your business forward.

More importantly, he provides the insights and guidance that we all need to do this effectively. I have extracted these ten basic principles for telling the right story, at the right time, and telling it right:

1. Select the right story for the right audience. The most successful story tellers are also attentive story listeners. They understand that it’s more important to be interested in their listener than to appear interesting. What does the audience want and need? Armed with this insight, you can tailor a story that will achieve both your goals.

2. Choose when the listener will be receptive. Getting to know your audience also means figuring out the place and time where they will be most receptive and least subject to interruption or distraction. They need to be able to give you your full attention, so you need to look, listen, and locate their optimal context.

3. Finding the source material for good stories. The key is not to expect to find a story fully born, perfectly framed, and read to be told, but to constantly stockpile fragments and metaphors that have the potential to become stories. The most effective story material comes from firsthand experience, infused with your personal feelings and emotions.

4. Make sure your call to action resonates. Every story needs something that will move the audience emotionally to hear your call to action. This may mean finding a hero or a villain in the story, showing your real passion and emotion, or describing the excitement and fear of others.

5. Get in the right state for your story. Getting in state isn’t just a mental, emotional, or physical process; it’s all three. This state is vital to telling a story because reading your intention is what signals listeners to pay attention to you. Intentions speak louder than words. Train both your body and your mind on your clear intention to succeed.

6. Tell the story with authentic contagious energy. Like intention, authenticity and energy cannot be faked. If you are telling a story you don’t believe in, your audience will sense it instantly. The good news is that they will pick up just as instantly on your genuine enthusiasm and conviction.

7. Demonstrate vulnerability and perseverance. Everyone has something in common with every other person, so open up and expose your fears and concerns, allowing others to do likewise. The trick to perseverance is not to eliminate fear, but to use it to ramp up your energy, heighten your passion, and intensify your sense of urgency.

8. Make the story experience interactive. You can make any business story more memorable, resonant, and actionable by asking for input or a response during the story, or getting an emotional interaction. Engage the audience physically or verbally, which makes them feel like part of your story, and that they have a stake in the outcome.

9. Engage the senses of your audience. Scientists tell us that words account for only the smallest part of human communication. The majority is nonverbal, more than half based on what people see and more than a third transmitted through tone of voice. The more the audience feels the story in their bodies, the more positive they will react to it.

10. Listen actively with all your senses. Even when you make the story a dialogue, rather than a monologue, how you listen as a teller is as important to your success as the actual words you speak. You must listen to gauge emotions, attention, and interest – moment to moment. More engaged listeners will be more likely to heed your call to action.

Examples of great storyteller entrepreneurs include Howard Schultz, founder of Starbucks, and Chad Hurley, founder of YouTube. Both demonstrated many times the ability to turn “me” into a “we,” by being able to tell a story that shined the light on an interest, goal, or problem that both the teller and the listener shared. That connection ignited empathy, secured trust, and gathered commitment to the call to action.

Stories have been used since the beginning of time to share knowledge, history, and ideas. Sure they contain facts, but often emotion is what makes them work. How often do you get beyond the facts in your pitch to customers and investors? If you want to kick your business up a level, maybe it’s time to add some stories to your message.

Marty Zwilling

Entrepreneurs Can’t Win By Pushing Their Startup

True leaders realize that, by definition, the word "leader" places the leader at the front, and not the rear. Yet many, many executives try to lead through fear and intimidation. This isn’t really leading at all. It’s pushing. In startups, leading from the front means that you are not afraid to get your hands dirty, pitching in to get the job done.

True entrepreneur leaders see the big picture and recognize that their startup is only a small piece of a much bigger community. They lead their own small community to pull together in a way that galvanizes the entire ecosystem of the market into a win for both sides.

For maximum leverage, every leader has to learn how to delegate. Delegation is a great skill to have, but you also have to lead effectively to earn the right to use it. Intimidating or berating other team members from a position of power isn’t delegation or leadership.

In every startup, people are expected to wear multiple hats, each and every day. An effective leader that wears many hats easily creates loyalty. This is a quality that cannot be bought or bullied. Loyalty must be earned, and startup executives who earn it generally do the following:

• Communicate and demonstrate a clear sense of purpose
• Provide great coaching, mentoring, and tutoring
• Encourage, recognize, and reward achievement
• Ensure credit is given where credit is due
• Be consistently dependable and knowledgeable
• Demonstrate accessibility to everyone
• Treat people fairly
• Listen well
• Show patience and humility
• Helpful and quick to expedite important matters
• Prove loyalty by standing up for the team, defending them to other constituents, and when necessary, to customers

Funny thing about loyal team members - they respond very well to being led from the front. Your team’s level of motivation and attention to detail is always going to have a fairly direct correlation to your ability to keep things moving forward, despite the cyclone spinning around you.

People will make mistakes, so accept it now - certain tasks, even critical ones, can get lost in the noise. The 100% solution is never attainable - so forget about. Strive for 90% and try to get that part right. The rest will come in time.

Communicate effectively and constantly with your team. No news is not good news in times of crisis. Tell the truth even when it hurts. Don’t be caught stuck to your chair while the storm is swirling around you. You must stay on top of everything and everyone. And guess what, you will miss things, too. Get over it.

Unfortunately, a crisis often drives leaders to retreat behind closed doors instead of advancing to the source of the problem. They withdraw to their desk, get inundated with data, overwhelmed by numbers and lose the connection with their people. If one of your executives fits this mold, you need to get rid of them. Otherwise they will kill you in the end, one way or another.

Leadership is about being visible and setting the right example out front on the firing line, in good times, as well as times of crisis. There is no place for the bully, who fails to take the feelings of others into account and insists on his or her way, and no place for the tyrant, who feels superior and needs to rule the roost.

Now is the opportunity for real leadership, with all the economic challenges around the world, and continuing human suffering. There is a saying in the military that generals who lead troops from the safety of the rear, should have to take it in the rear. That’s not a comfortable position for anyone.

Marty Zwilling

Don’t Let One Customer Kill Your Online Reputation

These days, your online Internet reputation is your reputation. Of course, having no reputation is usually better than a bad one, but don’t wait for someone else to establish a good one for you. It’s time for every business and business person to proactively create a positive presence, before someone else puts you in a defensive mode that is hard to win.

The first step in the process is to claim your online identity. This is simple in concept, but requires real effort and can be time consuming, and even expensive, if someone gets there before you and tries to sell you the rights to your preferred business or personal domain name. See my previous article on “Get A Domain Name Without Bankrupting Your Startup ”

Michael Fertik and David Thompson bring this issue and many others together in their book “Wild West 2.0.” After you claim your identity with placeholder domain names, accounts in social networks, and common blogging platforms, your next challenge is to create enough positive content as a “Google wall” to keep negative info out of the top Google search results.

Positive content, such as information and pictures on your accomplishments, achievements, and friends, paints you in a good light. Neutral content, including your membership in business associations, and company affiliations, can at best balance false negative information, or at least make the negatives harder to find.

Here are some of the easiest methods Michael and I recommend for creating positive and neutral content:

• Blogging. There are several major free blogging platforms you can use to claim your identity, including WordPress, Google Blogger, and LiveJournal. If you add new content periodically, it is likely to become a secure and important part of your online resume, and it will come out at the top of any Google searches on your identity.

• Twittering. An even easier way of getting your positive messages to the top of Google rankings is “micro-blogging” through Twitter. This is especially useful in providing links to other positive and neutral content.

• Profile sites. There are several free and paid services, such as LinkedIn and Naymz, that allow users to manage your professional profile and measure your social reputation. Simply engaging in forum discussions and exchanging comments establishes positive content.

• Other user-created content sites. Sites like Flickr, Instagram, and YouTube allow users to create and share photos and videos, and create short profiles. You can use these sites to your advantage by uploading relevant and positive content and prominently including your name in the subject or description.

• Professional directories. Many professions offer free online directories of members or similar sites for professional networking. These sites are often highly ranked in search engine results because they are heavily linked. If there is a directory relevant to your business or profession, use it.

If you have already been a victim of online reputation damage (accidentally or maliciously), proactively reach out to friends and co-workers to explain the problem. They can assist you by linking to positive and neutral content about you, thus displacing or minimizing the negative content.

In fact, damage to reputation and brand has moved up to #4 from #6 in the Top 10 risks identified in Aon's 2011 Global Risk Management Risk Ranking, moving ahead of business interruption and failure to innovate to meet customer needs. This intangible asset can represent more than 60% of a company's market value.

The Internet has been a powerful and disruptive technology. The good news is that you can use it to advantage. But you can’t ignore it, and pretend there is no danger. Just like in prior generations with the Wild West, people who put up a good offense to protect themselves were the ones who survived and prospered. Take heed, and take action.

Marty Zwilling

7 Failures of Corporate Executives as Entrepreneurs

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

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

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

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

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

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

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

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

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

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

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

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

Marty Zwilling

How to Protect Your Startup Founder’s Shares

In reality, so-called “founder’s” shares are simply common stock, issued at the time of startup incorporation, for a very low price, and normally allocated to the multiple initial players commensurate with their investment or role. But that’s only the beginning of the story.

These shares are allocated and committed, but not really issued and owned (vested) until later. Typically, vesting in startups occurs monthly over 4 years, starting with the first 25% of such shares vesting only after the employee has remained with the company for at least 12 months (one year “cliff”). Vesting always stops when an employee leaves the company.

Even though the class is common stock, founders can negotiate special vesting and other terms as part of their stock restriction agreement upon venture investment. Here are some typical special terms and considerations for founder’s stock:

• Negligible real value. Since founder’s shares are usually issued at the time the company is incorporated, they essentially have no real value. As the company builds value, shares allocated later for employees or partners will have an appropriate price.

• Vesting with no cliff. Most founder vesting is not subject to the one year cliff because partners should already know and trust each other. Thus, most founders will start vesting their shares from the date they actually started providing services to the company.

• Right of repurchase in favor of the company. This clause gives the founder the first right of refusal to buy shares back from a partner who decides to leave early, or otherwise makes a troublemaker out of themselves. This right usually "lifts" over time, meaning that as time goes on, fewer shares are subject to this repurchase agreement.

• Accelerated vesting conditions. They might also have special terms in the case of termination or demotion that accelerate vesting. These have less to do with the type of stock and more to do with who the person is and how strategic they are to the organization.

• Stock dilution control. While most employees would see their vesting rest when the “Series A” round closes, a founder might retain some percent of their shares. Everyone wants to minimize dilution of shares, so this special clause is common.

Unfortunately, founders often make the mistake of waiting until they have received a strong indication of interest from an investor before they decide that it is time to incorporate. Forming a company so close in time to raising capital can create a significant tax issue.

For example, if founders issue themselves stock for one cent per share when they form the company, and then within a short period of time outside investors jump in at $1 or more per share, it might appear in an IRS audit that the founders issued themselves stock at significantly below the fair market value per share.

The difference in value between what the founders paid and the fair market value of that stock based on actual sale to outside investors will be characterized as compensation income resulting in what could be significant tax liability to the founders.

The way to avoid this risk by filing an “83(b) election” with the IRS within 30 days of the purchase of your founder’s shares and paying your tax early on those shares. Failing to file the 83(b) election is common mistake of founders that you should avoid.

There should be no tax concern for a founder investing more of his own money any time in the process. All the tax concerns relate to "outside" investors coming in shortly after incorporation. Valuation has very little meaning until an outsider invests.

So my advice is to incorporate and allocate founder’s stock as soon as you are starting real work on the company, but at least six months before you anticipate any outside investors. But don't incorporate too early, as investors will measure your growth and progress since the incorporation date. Several years of apparent inactivity since incorporation will make it look like there is a problem with you or with the company.

Of course I have to add my caveat that I’m not a lawyer, and these comments do not constitute a legal opinion. See a qualified business attorney if you anticipate multiple investors or a complex company structure. Don’t let a positive investor decision take the joy out of your future.

Marty Zwilling

Build Entrepreneur Credentials Early and Wisely

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

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

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

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

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

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

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

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

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

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

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

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

Marty Zwilling

Start Here if You are Looking for Angel Investors

If your startup is looking for an Angel investor, it makes sense to present your plan to flocks of Angels, and assume that at least one will swoop down and scoop you up. Or does it? Actually numbers and locations are just the beginning. The challenge is to find the right Angel for you, and for your situation. Here are some basic principles:

• Angels invest in people, more often than they invest in ideas. That means they need to know you, or someone they trust who does know you (warm introduction). For credibility, they need to know you BEFORE you are asking for money.

• Angel investors are people too. Investors expect you to understand their motivation, respect their time, and show your integrity in all actions. They probably won’t respond well to high pressure sales tactics, information overload, or bribes.

• Angels like to “touch and feel” their investments, so they are generally only interested in local opportunities. It won’t help your case or your workload to do an email blast and follow-up with 250,000 members around the world.

But now to answer one of the most common questions I get “How do I find Angel investors?” With today’s access to the Internet, and Google searches, it really isn’t that hard. Here are the largest flocks:

1. Gust (formerly AngelSoft). This is perhaps the most widely-used source of information on Angel investor groups across the world, run by the “Father of Angel Investing in New York,” David Rose. This software platform is used by most local Angel organizations for managing deal flow.

   It boasts more than 1,000 member-managed groups and VCs, with 40,000 investors, and over 1,800 startups funded in the last 12 months. As an entrepreneur, you simply use their investor search engine to find appropriate investors for your business according to location, industry interest and other relevant criteria.

2. AngelList. This is another very popular website for raising equity or debt investments for startups. It was founded back in 2010 by Naval Ravikant and Babak Nivi of Venture Hacks, which is also a great place to visit for startup advice.

   Although relatively new, they announced early last year that their community had already grown to more than 500 startups, and 2,500 investors. The format is more social networking in nature, and they also will soon provide a recruiting portal for crowdfunding with unaccredited investors, now that the US JOBS Act has been passed.

3. Keiretsu Forum. This one claims to be the world’s largest single Angel investor network, with 1,000 accredited investor members throughout twenty one chapters on three continents. Since its founding in 2000, its members have invested over $400 million in companies in technology, consumer products, healthcare/life sciences, real estate and other segments with high growth potential.

   The Founding Chapter is in Silicon Valley, California, (naturally). A caveat is that this is a for-profit organization, so fees to present may be significant.

4. New England Investment Network. This is an online platform connecting entrepreneurs based in Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont, with Angel investors worldwide. The caveat here is that this network doesn’t have a personal touch, as it only facilitates the exchange of contact information, so the matchmaking is left up to you.

   The reach is very broad, however, with 30 branches worldwide covering over 80 countries in Europe, North America, South America, Africa, Asia and Australasia, and over 200,000 members worldwide.

5. Angel Capital Association (ACA). ACA membership includes more than 160 angel groups and 20 affiliate organizations across North America. ACA member angel groups represent more than 7,000 accredited investors and are funding approximately 800 new companies each year and managing an ongoing portfolio of more than 5,000 companies throughout North America.

Of course, there are many Angel investors, often called “super Angels,” that have a large following and large reach, so they don’t need any of these organizations to be found. Examples of some leaders in this space include Ron Conway, Mike Maples, Jr., and Dave McClure. Connecting with one of these would be a real coup for your startup.

My real message is that the best Angel you can find is a local high net-worth individual, with whom you or your advisors have an established prior relationship. So get out there and network today, and you can be one of the lucky ones who is touched by an Angel without having to go through hell first.

Marty Zwilling

6 Key Characteristics of Innovative Startups Teams

Entrepreneurs are usually highly creative and innovative, but many innovative people are not entrepreneurs. Since it takes a team of people to build a great company, the challenge is to find that small percentage of innovative people, and then nurture the tendency, rather than stifle it.

A while back I read a book titled “The Rudolph Factor,” by Cyndi Laurin and Craig Morningstar, which is all about finding the bright lights that can drive innovation in your business. The story most specifically targets big companies, like Boeing, but the concepts are just as applicable to a startup with one or more employees.

The core message is that real innovation and competitive advantage are more people-based than product or process-based. Every good entrepreneur needs a people-centric focus to ferret out creativity and innovation in his team, and to build a sustainable competitive advantage.

The authors observe that people who behave as mentors tend to have an uncanny ability to recognize and nurture people who have innate capabilities along these lines. Here are six of the characteristics they and you should look for:

1. Thinkers and problem solvers. Innovators are naturally creative and love new challenges. Some may appear a bit eccentric to people around them. They generally promote unconventional ways to solve problems and have an easier time than most at identifying the root cause of a problem.

2. Passionate and inquisitive. These team members are passionate about their work and light up when talking about their role or a particular project they are working on. They often ask “Why?” even when it is not the most popular question to be asked.

3. Challenge the status quo. They believe that questioning is of value and benefit to the organization. This is also how they discover what they need in order to solve a problem, so they aren’t rocking the boat just for the sake of rocking the boat.

4. Connect the dots. Innovators have the ability to quickly synthesize many variables to solve problems or make improvements. To others, it may appear as if their ideas come out of the blue or that there is no rhyme or reason behind their thinking.

5. See the big picture. They tend to be natural systems thinkers and see the whole forest rather than a single tree … or just the bark on the tree. They may express frustration if people around them are having conversations about the bark, rather than the forest.

6. Collaborative and action oriented. They are not loners, and have the ability and confidence to turn their ideas into action. They act on their ideas, sometimes without knowing how they will accomplish them. The “how” is always revealed in time.

Your challenge is to go forth with this new awareness and thinking, to find and mentor those bright lights that will drive innovation and competitive advantage. The next step after finding innovators is to integrate them into your team. A key aspect is establishing a team-based culture that is a safe environment to share and execute ideas.

In fact, this safe and nurturing environment has to extend beyond a single team to the highest levels of the organization. It should embody a style of leadership that is essentially a commitment to the success of the people around you. That opens the door for anyone in the organization to lead from where they are, rather than waiting for management to “do something.”

Innovation is at the very heart of every successful startup. Everyone wins when you look at things very differently and wonder “why”, not “why not.” What better way to extend this power than to surround yourself with more highly creative people? Then you can make the world a place of possibilities, as well as probabilities.

Marty Zwilling

Seed and Later Investments for Startups are Booming

The number of startups getting seed funding in 2012 jumped by 65% over the previous year to a total of 1749, according to a recent report by CB Insights. “Seed investments” are early stage financings (typically less than $1.5 million) made by either Angels or venture capitalists, or both. This is great evidence that the recession drag on funding new startups is behind us.

In another report more specifically on Venture Capital Activity for 2012, CB Insights noted relatively flat but still healthy funding levels, compared to the previous year (down in total dollars by 7.5%, but up in total deals by 7%). Thus the venture capital industry isn’t dead yet, despite all the rumors, and more startups are getting money, even at Series A and later levels.

Of course, there are still qualms, cautions, and risks highlighted by these reports that every entrepreneur needs to understand, to optimize their own chances of getting the funding they want:

• A “Series A Crunch” could orphan 1000+ startups. The explosion in seed funding, without a corresponding explosion in investors willing to lead the next round (Series A), may mean that you can’t get a second round and will be “orphaned” or die. The pundits are now debating the impact and potential alternatives for startups. Stay alert.

• Seeded companies will take longer to raise a next round. As soon as you get seed money, it’s time to start working on the next round. The current average is slightly more than 13 months to raise follow-on financing. As the leverage increasingly looks like it is shifting towards investors, the time required may go up, so plan ahead.

• Only 40% of seeded companies get follow-on financing. This is nothing new. The death of startups and the loss of investment dollars is part of the process of separating the best companies and investors from the rest. To prepare yourself, make sure you have enough runway, be prepared to make drastic cuts, and have a Plan B for organic growth.

• The Internet sector is tops for seed deals. Not surprisingly, the Internet sector is still the primary destination for seed investing. Interestingly, follow-on financing rates to the computer hardware and services sector is the highest of all tech sectors. Healthcare is not far behind.

• California and NY dominate for number of seed deals. California is the clear #1 for seed investment activity followed by strong #2 New York. Massachusetts is a distant #3 but in terms of the rate of follow-on financing, Massachusetts has the highest rate. Texas is still struggling to hold the next position.

Make no mistake, even with these caveats, 2012 has been a banner year for startup funding, and the cost of entry has never been lower. Investment amounts and deals were near 10-year highs, and all indications are that this year will be just as good. Of course, it always helps to be in the right business sector, in the right part of the country, and know the best players:

• Top business sectors for venture capital. The Internet sector continues to lead the pack (information technology and software), followed by Healthcare (medical devices and equipment), then Mobile (CRM) & Telecom (wireless). Green Tech is still in a slump, with renewables leading the way. Yet these comprise much fertile territory for entrepreneurs.

• Top five states for venture capital. California (Silicon Valley), Massachusetts (Boston), NY, Washington, and Texas held as the top 5 states for venture capital in 2012, but overall, 38 states got in on the action. As is typical, funding and deals remain concentrated in venture’s big markets. Be there, even if you have to move.

• Most active venture capital firm. New Enterprise Associates, in Silicon Valley, leads all VCs as most active in 2012, putting some of its $2.5 billion fund to work. By activity, the other four of the top five firms were Kleiner Perkins, Google Ventures, Andreessen Horowitz and First Round Capital. It helps if you know someone in one of these.

Of course, every entrepreneur needs to remember that even if you are in the right sector and the right location, there is no entitlement to venture funding, much less success. Most sources agree that less than 1 out of 100 who apply get the funding they want. Of those who get funded, only about 1 in 10 succeed. But who amongst us doesn’t love a challenge? Now is the time.

Marty Zwilling

5 Startup Marketing Actions to Impress Investors

It’s not uncommon for me to see a startup business plan “mission” to be the “premier brand” for their product, yet their marketing budget in the financials is trivial. This combination will almost certainly get your plan tossed by potential investors, who understand all too well the need and cost for marketing in today’s environment.

When questioned, founders usually mention word-of-mouth, viral marketing, and a top quality product. These founders need a reality check on what recognized brand names have spent to reach that threshold, and how long it is likely to take. Viral marketing costs real money these days, which usually means adding at least an extra zero to budget estimates.

Recognized brands like Facebook and Priceline.com each required over $50 million and several years to get to be premier brands. We know that existing big brands like Apple and Nike spend millions per year just to maintain their brand recognition. In fact, the average spent by Inc 500 companies for sales and marketing expense continues to hover around 10% of overall revenues.

My first recommendation then is to confine your “premier brand” comments to the long-term vision section of your business plan. Concentrate elsewhere on the near-term marketing activities (which are also expensive) for this round of funding. By the way, if the marketing section is missing or un-budgeted, you will also likely be “branded” as unfundable.

So what are some credible marketing and promotion steps you should consider for your startup? There are many more, but these should get you started:

1. Create a professional website and blog. With these, your business presence can look big and credible even when you are small. There are multiple low-cost website tools available, like Adobe Dreamweaver, which allow you to do your own work and save thousands of dollars, but a budget of $10,000 is a good starting point. A blog is critical, and essentially free (your cost is creating content).

2. Get exposure for your expertise. Use social media and Search Engine Marketing (SEM) to start. Create meaningful content and engage others online (free downloads, white papers, webinars, regular blogging). Put out regular press releases for search purposes and general visibility. Pitch your story to newspaper journalists, radio, and television news reporters who cover your local area or industry.

3. Do something unique to get customer attention. Promotions and free give-aways are all the rage these days. This step requires thought because you need to identify what can set you apart from your competitors and how to retain customers. Promotions that appeal to the wrong customers won’t help you.

4. Generate leads for your product. Gather leads online from your social media initiatives, mine your contacts, attend trade shows, and use lead-generation services. Here is an area where you need to be creative, and not just spend big money. For example, exhibiting at trade shows is very expensive, and usually not very productive. Figure out what is valuable to your audience.

5. Establish partners and referrals. Customers who enjoy doing business with you are more than happy to spread the word. Create referral marketing opportunities within your business community that maximize the potential for customer referrals. Find partners and channels which are complementary, and not directly competitive.

Good marketing often is the only thing that separates the successful startup from the not-so-successful startup. There is no doubt that marketing overall has become even more critical for startups over the past several years.

Despite the fact that social networking and other online processes are essentially free, good marketing still costs money. If your early-year budgets for marketing aren’t 10% of projected sales or more, plus an early kicker for setup, you are probably underestimating reality, and jeopardizing your credibility with investors.

Marty Zwilling

Top Entrepreneurs Have Follow-up, Not Ideas Alone

When someone introduces me to an “idea person,” I automatically jump to the down-side conclusion that this person doesn’t do follow-up. Of course there are people who are great at getting things done, but haven’t had an original idea in their life. Great entrepreneurs, like Bill Gates, are great at both.

I was with IBM in the early PC days when Bill worked with us to provide PC DOS and other software. He was relentless in his focus on getting a project done, and he always assigned himself the toughest tasks. At the same time, he was always pushing the limits of our business relationship with new ideas.

That’s the bar you should aspire to. I can think of several related aspects of starting and running a business where follow-up, or lack of it, can make or break your startup. Here are a few:

• Business networking. For entrepreneurs, effective networking is required to find investors, partners, and customers. It doesn’t work if you don’t follow up on networking opportunities, networking referrals, and ongoing networking relationships.

• Investor negotiations. Serious investors expect founders to have their homework done before the first interaction – documented executive summary, business plan, and financial model. They expect prompt formal follow-up to questions. Too many entrepreneurs try to talk their way through all of these.

• Product development. For a great idea person, the product details keep changing for the better, but nothing ever gets finished. Lists of project milestones and technical issues are created, but nothing happens on time, because follow-up on issues is missing.

• Time management. Some struggling entrepreneurs are totally event driven. They are too busy with the “crisis of the moment” to focus on follow-ups that may save a major customer, close a partner deal, or solidify a process that isn’t working well.

• Effective marketing. Guerrilla marketing preaches the importance of prospect follow-up if you even hope to succeed in business. If you collect business cards at a trade show, make sure all have follow-up within 72 hours, and at least three more times after that.

• Customer retention. More customers are lost to apathy after the sale than poor service or quality. Many experts suggest it costs six times more to sell something to a new customer than to an existing customer. A numbing 68% of all business lost in America is lost due to lack of follow-up after the sale.

• · Professional relationships. How many people do you know who have a thousand emails in their inbox, or just a few awaiting follow-up for over a week from people who matter? These procrastinations jeopardize your integrity and your relationships.

Everyone likes to be pursued, rather than the pursuer. There’s a reason that many people say that the fortune is in the follow up. When you follow up properly with people, your reputation will benefit, your business will benefit, and eventually your pocketbook will benefit as well.

As an aside, I would suggest that you should never aspire to be a manager or an executive if you don’t do follow-up. You won’t be happy, and you won’t do a good job, because that’s what they do most of the time. The idea time for most executives is in the shower, or during other non-work activities.

So which is the most important, the idea or the follow-up? If you intend to be a great entrepreneur, you need both. But I know some very good ones built on great follow-up with incremental improvements to existing products. On the other hand, a great idea without a business plan is a non-starter.

Marty Zwilling

Get A Domain Name Without Bankrupting Your Startup

I’m sure you have all been frustrated at least once by not being able to get the Internet domain name you want for your company. Who owns all of these names, and should you ever buy one for a premium? The simple answer is that if you want to be found on the Web, the perfect domain name can be well worth a few thousand dollars, but don’t pay a fortune for one.

The market for domain investors has been in the doldrums for the last few years, since the Internet Corporation for Assigned Names and Numbers (ICANN) has rolled out top-level domains for every country, like .us and .me, as well as allowing companies to set up their own top-level domains. For instance, Cisco has applied to use URLs ending in .cisco.

Gone are the days when people like Frank Schilling and Kevin Ham built $300 million empires by speculating on premium domain names, since the possibilities are now endless. Only one sold for 7 figures in 2012 (investing.com sold for $2.5 million), and the average is now down to below $5,000. The current record was set in 2010, when sex.com sold for $13 million.

The right place to start is to target today's average of approximately $8-$10 per year for a .com domain name from GoDaddy or one of the hundreds of other domain name registrars. Certain extensions such as .tv and .vs range in the $20 to $40 range for a year registration, but you can find sales on certain extensions for as little as fifty cents per year.

So how do you decide if you should be looking at the low end or the high end of these ranges? I suggest following these steps to get the name you need for your business:

1. First pick the right company and matching domain name. The names don’t have to match, but it sure makes branding and recognition easier if they are at least similar. Starting and name a company today is a world-wide decision. Make sure the names don’t have negative and even obscene connotations in another language.

2. Register the name and related suffixes, if available. Registration of the domain name is easy and simple through most hosting sites, if nobody already owns it. It's a good idea to also buy between three and twenty names with spellings and suffixes that are close to your primary address, or that could be confused with it.

3. Rename your company to match an available domain name. With today’s pervasive Internet searching and shopping, the domain name may well be more important than your company name. As a startup, cost to rename your company and change existing collateral may be less than dealing with unmatched names or premium domain pricing.

4. Otherwise, find the owner. With150 million names already in use, chances are someone else may have already snagged your favorite. First you have to find the current owner, using Domain Tools, or other lookup functions available on the net. Ask if the domain name is for sale, but don’t tip your hand by making a specific offer.

5. Negotiate for the name. Contemplate your available budget, the potential value of the name to you, and the range of possible prices mentioned above. Then decide whether you are game to complete the negotiation yourself, or whether you should consider an intermediary, like Moniker.com, and expect to pay a $250 to $500 fee.

6. Consider leasing or lease to own. If the price is too high, work with the domain name owner to agree on a “lease-to-own” deal for the domain name. This will allow your company to build some assets before committing the capital. Prices may continue down, or in the worst case, you won’t need the name for the long term.

7. Get the agreement in writing as quickly as possible. Once you have a deal, immediately open up an escrow account, like Escrow.com. The faster you fund the account the better chance you have of the seller not being able to back out. Remember that many domain moguls don’t have a sterling reputation, so no handshake deals.

Whether by crafting a great new name or wresting one from a previous owner, every new business needs to master the domain game early, and it need not break the bank. Spending big money up front, or changing domains down the line are both painful and costly. Have you done the proper homework on your preferred domain name?

Marty Zwilling

7 Startup High Risk Factors That Scare Investors

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

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

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

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

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

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

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

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

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

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

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

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

Marty Zwilling

Nurture 5 Top Entrepreneur Success Characteristics

Every startup wants to be a predictable success, yet so few ever achieve this enviable position. In reality, getting there is not a random walk, and requires an understanding of the stages that every business must navigate and the organizational characteristics necessary at each stage.

Les McKeown, in his book “Predictable Success” outlines these stages and characteristics for any business. He points out, for example, that every business should anticipate the early struggle stage, a possible fun stage, and probably a turbulent whitewater phase, before they can hope for the predictable success stage.

This stage is defined as a point where you can set and consistently achieve your goals and objectives with a consistent, predictable degree of success. Unlike previous stages, where you may not know how or why you have survived, you now know why you are successful, and can use that information to sustain growth in the long term.

His studies show that companies at this stage show five key characteristics, which I believe every startup should strive to achieve from the very beginning:

1. Decision making. The ability to readily make and consistently implement decisions. You need a sense of flow – decisions are made without the decision-making process placing a burden on the organization, or the leader. Decision making is delegated and decentralized, freeing management to concentrate on what they can do best, rather than micromanaging others.

2. Goal setting. The ability to readily set and consistently achieve goals, and really being in control. It has to happen seamlessly, as part of the day-to-day operation of the business, not as the resource-sucking, do-it-at-the-last-minute event that it is in so many organizations. Goals are hit more than missed, and people are willing to take timely, corrective action.

3. Alignment. Structure, process and people are in harmony. Otherwise, a lot of time and energy is expended by people because they have to manipulate the organization’s processes and/or structure in order to get things done. There is just the right amount of process and structure to efficiently get the job done.

4. Accountability. Employees become self-accountable, in addition to being externally accountable to others. When empowered to make decisions of genuine import about their own jobs and responsibilities, and given the resources and freedom required, each employee personally buys in to the overall success.

5. Ownership. Employees take personal responsibility for their actions and outcomes. This results is everyone pulling together, rather than by the manager group constantly “pushing.” There is a deep sense of co-dependency, where managers are dependent on their teams for delivering, and employees are dependent on managers for guidance.

As challenging as it may seem to achieve these characteristics in your business, the bigger challenge is to retain them for the long haul. Many businesses slowly slide into a treadmill stage, where they become over-systematized, or on toward the big rut where creativity disappears (“the way we have always done thing”), on into the death rattle, where the market moves faster than the company.

As a startup, you need to walk before you can run. That means starting early to practice and implement the techniques that will lead to predictable success. Remember that the lynchpin of the entire framework comes down to your own personal ownership and self-accountability. There is no room here for excuses or half-way efforts.

Marty Zwilling

10 Tests of Your Modern Entrepreneur Lingo Savvy

Many entrepreneurs I know don’t realize that the language they learned in the corporate world, or even their recent MBA class, won’t get them ahead in the startup world today. Even if you have heard some of the new terms, but can’t explain how, when, and why they are relevant to your startup, you may be in jeopardy. As a reality check, try this quick test of your entrepreneur savvy.

See how many of the following “new” entrepreneur concepts you recognize, and can explain in terms of impact and value to your startup. See how many you have personally experienced already, or are currently mentioned in your business plan:

1. Crowd-sourcing equity. This is a term indicating the use of “crowd appeal” to get money from interested people on the Internet for a share of your company. Sites like KickStarter have for years offered rewards and pre-sales for crowd investments, but real equity won’t be legalized until sometime this year for people other than accredited investors.

2. Super-angels. Super-angel investors are a new category of investors (like Mike Maples Jr.), closer to venture capitalists, who are perceived to be more sophisticated, insightful, or well-connected in the startup community, particularly with respect to technology companies in Silicon Valley and other technology centers (also called micro-VCs).

3. Minimum Viable Product (MVP). For startup new product development, this is a strategy used for fast and quantitative market testing of a product or product feature, popularized first by Eric Ries for web applications. It suggests the minimum features to allow the product to be deployed and get feedback, and no more.

4. Startup accelerator. As opposed to a startup incubator, which typically deals with startups barely hatched, an accelerator focuses on a later stage startup, with an existing product and proven business model, looking for rapid growth. This usually involves more attention to organizational, operational, and strategic challenges.

5. Osmosis marketing. This concept promotes the idea that any brand's image -- and resulting success -- is achieved more effectively through the osmosis of pervasive blog buzz and tweet-trending than traditional marketing methods. Osmosis marketing is the hot new term for word-of-mouth advertising.

6. Social mobile web. Responsive web technology that re-sizes text and images to fit any screen is the norm with new websites. As tablets are replacing magazines on your coffee table, and smart-phones are replacing portable computers, you need to make sure that your content is able to be viewed, shared, and bought on the new mobile devices.

7. Gamification. This is the use of game-thinking and game mechanics in business applications for marketing, to enhance user engagement, accelerate revenue flow, and expedite application learning. Rewards include becoming the “mayor” of an entertainment location via FourSquare, to winning badges via a Badgeville campaign.

8. Startup pivot. A pivot is a quick change of direction or strategic correction by a startup, based on customer feedback or changes in technology and the marketplace. Over time, this pivoting may lead an entrepreneur away from their original vision, but not away from the common principles that drive any business.

9. Ramen-profitable. This is a startup that proclaims to be cash-flow positive, but actually makes just enough money to cover basic living expenses, such as toilet paper, running water and instant ramen noodles for survival (no salary for the founders). This buys you time and credibility with investors, until the big bet really starts to pay off.

10. Gen-Z. This is the youngest demographic, people born after 1995, who are sought-after by all new businesses. Gen-Z members have grown up in an un-tethered world of smart-phones, tablets and WIFI, and their perspective is both multi-cultural and global. They have never seen a world without the Internet, and they now have real spending power.

Just for fun, I’ve come up with a scoring system based on my own non-scientific survey to help you rate yourself on your level of entrepreneur business acumen. How many of the terms defined above have you personally used or explained in the context of your startup?

• 8 to 10 – Excellent startup savvy (or a Gen-Y)
• 5 to 7 – Average, keeping up with the crowd
• 2 to 4 – Wanna-be entrepreneur, struggling to catch up
• 0 or 1 – Wake up, the entrepreneur world has passed you by

The new entrepreneurial age is here – there is no going back. It’s probably the biggest source of change and innovation in business today. As entrepreneurs and business people, it behooves us all to understand and adopt changes which can improve our competitiveness and impact. Are you leading the pack or barely hanging on?

Marty Zwilling