Friday, May 31, 2013

Great Entrepreneurs Lead People and Use Technology

Terry-PearceSome entrepreneurs forget that they can’t use people the same way they use technology to build a startup. Inventors, for example, are skilled in manipulating technology, but may have little interest or experience engaging people to make an effective team. Unfortunately, startups are not one-man shows, so entrepreneurs need to study leadership as much as they study technology.

In fact, we can all benefit from focusing on the keys to people leadership from time to time. Recently I came across the new edition of “Leading Out Loud: A Guide for Engaging Others in Creating the Future,” by Terry Pearce, who has been is this space for a long time, and I felt it spoke loudly to every entrepreneur looking to improve his leadership communication.

Pearce characterizes good leadership as the place where soul and science meet. He explains in detail how and why every entrepreneur needs to hone his skills and document his own personal leadership guide, comprised of the following four main parts:

  1. Establishing competence and building trustworthiness. Startup leaders recognize the need for strong credentials to demonstrate competence to team members, customers, and investors. But they must also display empathy, acknowledge resistance, and share personal motivation to build trustworthiness. These are the hard parts.

  2. Creating shared context. They also must share a common understanding of the past, and the urgency for creating a new, better future with the products and services on the table. Otherwise, customers and investors will see new initiatives as merely change rather than progress. On the average, change generates more fear than excitement.

  3. Declaring and describing the future. Entrepreneur leaders must be able to vividly describe a new world that is compelling and exciting to others. Focusing on the technology doesn’t do it. Customers can relate to painful problems today, and can relate to solutions that will make their new world less problematic.

  4. Committing to action. Personal action speaks far more loudly than any rhetoric. Startup leaders must reveal what they are willing to risk – what personal steps they will take – to enable the new reality to take shape. The team wants to see you in the pit with them. Investors want to see progress and traction. Customers want to see results.

Merely understanding what matters will not assure that you can communicate to inspire. Effective leaders have to be courageous enough to communicate authentically from the basis of their real values, whether they are pitching to investors, closing a customer sale, or conversing informally with the team. Their passion, commitment, and self-knowledge have to come through.

In the business and financial world, the choice and use of evidence in communication is also critical. Passion, excitement, and emotion are usually not enough to get investors and customers lined up. Evidence like the following leads to understanding and receptivity:

  • Data specifics encourage engagement. People equate specificity with certainty, so facts are far more powerful than generalities. Specifics allow comparison and judgment, engaging others in a mental process rather than treating them as passive receptors.

  • Make data relevant and meaningful. Use examples to make it possible for each constituent to directly and personally experience the relevance of the data you present. Put global data in a local context to make it familiar. This establishes a much closer connection.

  • Highlight quotes and support from others. Quoting an expert or customer who agrees with your idea generally adds weight to your evidence. For even more power, use personal relationships, audience members, or people who have actually impacted your own life.

Technology may be the key to building a great product, but people are the key to building a great business. Effective communication and leadership are a tremendous advantage in both cases. A great entrepreneur creates the future by declaring it and describing it in such a compelling way that people go there without fearing the change. Start today.

Marty Zwilling


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Thursday, May 30, 2013

Do We Really Need an Alternative Form of Capitalism?

alternative-form-capitalismIn my view, entrepreneurship has always been the ultimate embodiment of capitalism, and quite synonymous with free enterprise. Yet I find that more and more young entrepreneurs are uncomfortable with the term “capitalism”, somehow thinking that it prioritizes “making money” above all else. They are looking for a business model that makes the world a better place for humanity.

One step in that direction is the trend to “conscious capitalism,” as exemplified in the recent book by John Mackey and Raj Sisodia, “Conscious Capitalism: Liberating the Heroic Spirit of Business.” These authors argue that capitalism is simply misunderstood, and businesses run by ethical people create value and prosperity based on voluntary exchange, while reducing poverty.

In a recent blog, “Capitalism: Alternative Realities?” Scott McIntosh, an avid Angel investor friend and champion of conscious capitalism, makes the case that that true capitalism is about entrepreneurs driven, in part by profit motive, but more from motivation that stems from a simple desire to make a difference in the world. We shouldn’t let greedy or misguided people derail this.

Here are some of the alternatives outlined to enhance the negative image of “for-profit businesses” in the minds of many entrepreneurs. These also address the negative impacts of some well-publicized business practices on the environment, standard of living requirements, and missed opportunities to do good:

  1. Promote “Conscious CapitalismTM” as capitalism re-branded. Socially conscious capitalism, per Mackey’s book referenced above, adds four requirements to every business enterprise – focus on a higher purpose, stakeholder orientation, conscious leadership, and a conscious culture and management.

    Model business examples today include Whole Foods, Southwest Airlines, Costco, Google, Patagonia, The Container Store, UPS, and dozens of others. These set the model for aspiring entrepreneurs to achieve their dream of a good business that is also good for society as a whole.

  2. Adopt the B-Corp as a new conscious business model. To more strongly support startups who want to give top priority to socially conscious solutions, eleven states, including New York and California, have passed legislation allowing incorporation as a Benefit Corporation (B-Corp). Other states are close behind in this effort.

    A benefit corporation is a new corporate form designed for for-profit entities that want to consider society and the environment in addition to profit in their decision making process. The B-Corp status is meant to reduce investor suits, and gives consumers an easy way to spot genuine social commitment, without assuming it is a non-profit.

  3. Increase government regulation to level the playing field. Some advocate “fixing” capitalism as it is practiced today, by stricter regulations to prevent bad practices, and eliminate the cancer of “crony capitalism.” Crony capitalism, per Wikipedia, describes an economy driven by greed and business requirements from government relationships.

    These relationships result in success based on favoritism in the distribution of legal permits, government grants, and special tax breaks. In this environment true free enterprise entrepreneurs can no longer compete based on innovation, and everyone loses.

  4. Reduce government regulation to level the playing field. Others, including McIntosh in his article referenced above, argue that the answer is to reduce (not eliminate) regulation, limit the power of government, letting private enterprise market forces work their proven magic of the past 200 years in free economies around the world.

    What about the truly greedy business folks? We need to let market forces work and force them out of business. Those who truly abuse the system need to be held accountable rather than allowing a system of cronyism to provide undue protections.

I have to put myself in this last camp, since I’m not a believer that any government can regulate morality, respect for the environment, or concern for the common good. These have to come from the heart, and I’m happy to report that the entrepreneurs I meet are leading the charge. If making money is your primary motivation for starting a business, be prepared for a long and lonely road. Following your passion to change the world is a lot more fun. It’s time to have fun!

Marty Zwilling

*** First published on Young Entrepreneur on 05/23/2013 ***


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Wednesday, May 29, 2013

Technologists Need to Team With an Entrepreneur

steve_jobs_and_wozniakIn my experience, inventors and technologists aren’t interested or aren’t very good at building a business, and entrepreneurs aren’t usually good scientists. These people need to find each other, and can jointly make a great team for a new startup. Without the synergy, companies like Apple might never have gotten off the ground.

Historically, it’s also not often that a good inventor was also a good entrepreneur. There are some old arguments that even our entrepreneur heroes, like Thomas Edison, really cheated on the invention side. Most of the great entrepreneurs of recent times, like the young Steve Jobs, had a great technologist, Steve Wozniak, who could implement his dreams.

I’m convinced that this is because the personal characteristics required for these two jobs are quite different. For example, here are a few of the attributes that come to mind for a good technologist:

  • One idea, one focus. They have perseverance, based on strong personal conviction that something is possible. An inventor has to know precisely how things work. Inventors build solutions to a problem, and they relish in the success of having solved the problem.
  • Good with details. If you have ever written a patent application, you know it’s all about details, linkages, and causes vs. effects. Good inventors love to diagram out all the details, algorithms, and get their reward from finding new ways of getting things done.
  • Creative and artistic. You have to give the creator some resources, time, and throw in some food once in a while, and a “completed design” will appear in due time. Then they are done. They hate sales, and don’t understand what making a profit even means.
  • Realistic if not pessimistic. Every inventor, programmer, musician, and artist will tell you that you can’t schedule invention. They won’t commit to a completion date, and always dream of an unlimited budget. They expect many attempts will be required.

Entrepreneurs, on the other hand, have a complementary but different set of strengths and weaknesses:

  • Lots of ideas, can’t focus. Most good entrepreneurs are idea people, and can flood you with ideas. The reason they can't focus is that they haven't yet flushed out all of the half-baked ones. When teamed with someone who can focus, things work, and a lot of wasted effort is avoided.
  • Likes the big picture, not good with details. An entrepreneur always has a “vision” of a bright future. But many fail, or have lots of stress because they don’t like to deal with the details. They tend to leave the details to others, who don’t have the vision or the skill, so the business suffers.
  • Good at starting a business and selling. Every entrepreneur reads everything they can find on running a business, maps out all the steps in their head, or explicitly on paper (business plan). They love talking about their business and their product, and dream of having millions of customers.
  • They exaggerate and are too optimistic. Exaggeration, pipe dreaming and denial are the tools and comforts of the trade of entrepreneurism. The psychological source of this "always at the edge" may be an addiction to adrenaline, the pleasure/high of "pulling it off" at the last minute, or the high that victory brings.

For a successful business, it takes the discipline and creativity of a technologist, as well as the vision, planning, and optimism of an entrepreneur to create customer value. So if you’re an entrepreneur, find yourself a frustrated technologist and likely both of you can find more success and happiness.

Marty Zwilling


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Tuesday, May 28, 2013

5 Rules of Thumb for Startup Financial Projections

investor-meetingMost entrepreneurs struggle with financial projections, not wanting to commit to numbers they can’t deliver, and having no clue what investors might consider reasonable. However, making no projections, or non-credible projections will get your startup marked as unfundable. I recommend a simple set of guidelines, which work for at least 80% of the business plans I see.

In reality, you need to make these projections first as goals for your own use, to convince the team as well as investors that you have a business which is achievable. Projecting the financials should be the last step of your business plan preparation, since it assumes you already know the opportunity size, customer buying habits, pricing, costs, and competition.

Here are some basic “rules of thumb” that every Angel or venture capital equity investor uses, to help you anticipate their reactions. The rules are obviously not absolute, but you must be prepared to explain to potential investors why your startup is the exception to these guidelines:

  1. Five-year financial projections are the norm. According to a recent Dow Jones VentureSource report, the average time to liquidity of an equity investment in a startup is now about five years. Thus most investors ask for 5-year projections, to get a sense of the opportunity and trajectory that you’re envisioning while their money is tied up.

  2. Aggressive revenue projections and growth rate. The first filter applied by most investors is to identify high-growth investable startups from ones that may be a good family business with organic growth, but could never generate a 10x return. Revenue in the fifth year should be at least $20 million, with a growth rate average of 100% per year.

    But don’t go crazy with this number. If your fifth year projection exceeds $100 million, that puts you in the rare category of the next Google, and probably won’t be credible with investors, unless you have a track record in this range. In other words, revenue projections are not the place to be too conservative or wildly optimistic.

  3. Gross margins greater than 50%. Most entrepreneurs, with no experience, believe that they can make good money with lower margins than competitors. The reality is that even if you eat Raman noodles and do survive with low margins, your growth rate will be stunted, yielding a low return for investors.

    Financial projections for investors should always show an annual cost of goods sold and gross margins line, as well as revenue. Low gross margins in the first couple of years are expected, but they better climb to the 60% range by year five.

  4. Show red ink to match your funding request. Financial projections shown to investors should always be pre-funding projections, to illustrate what revenues and expenses you think are possible, and how much your current funding falls short. Don’t ask for funding if your projections imply you don’t need it. Investors don’t like their money used frivolously.

    If you show a negative cash flow of $800 thousand before the business turns cashflow positive, it is fair to buffer that amount by 20% and ask for a $1 million investment, since we all know that there will be un-anticipated additional costs.

  5. Build a path to 10x return. The only path to any return for equity investments is a liquidity event, like a merger or acquisition (M&A), or IPO. That’s why investors want to hear about your exit strategy. If you don’t have one, or intend to buy out investors with their own money, you probably won’t get much interest.

    What investors want to hear is that your company will demonstrate that high rate of growth to get you to $50 million in revenue in 5 years, making you a premium acquisition alternative to one of your partners, selling for 5 times revenue, for a total of $250 million. That makes their $1 million investment for 10% equity worth $25 million, or 25x.

Be aware that investors will be testing your financial projections in real time against your opportunity numbers, volume projections, pricing model, and performance to date. If you have no data in one of these areas, be prepared for the “come back when you have more traction” message. Investors don’t want to antagonize a potential winner, but you are not fundable yet.

Of course, the quality of your management team, or demonstrated performance in prior similar ventures, can override any or all of these rules of thumb. On the other hand, you must remember that less than 4% of Angel investor funding requests get satisfied, according to the Angel Capital Education Foundation. Venture capital requests that get satisfied are even lower.

Overall, financial projections that make sense in your business domain, and cross-foot with available data from independent market analysts are no guarantee that you can deliver. They do show you already stand out from the crowd of talk-only entrepreneurs, understand financial realities, and are willing to commit. What more could an investor ask, since he is really investing in you, not the numbers?

Marty Zwilling


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Monday, May 27, 2013

8 Key Focus Elements Will Attract Startup Investors

startup-focusOne of the most common failures I see in startups is lack of focus. Unfocused entrepreneurs boast that their new technology will generate multiple disruptive products for consumers as well as enterprises around the world. Investors hear this as trying to do too many things with limited resources, meaning the startup will not shine at anything, and will not survive the competition.

For example, just last week, I received a startup executive summary, requesting Angel investor funding, that touted technology for a line of new medical devices, also to be offered in a new military radar device. Even a company with unlimited money and people shouldn’t try to step into those two domains for the first time at the same time.

Other elements of startup focus are a bit fuzzier, so let me zoom-in on some key ones here:

  1. Type of business model. Startups that try to mix a non-profit entity with a for-profit entity to share resources don’t work, and scare off investors. Providing shoes for the poor is a laudable goal, but quite a different business than Zappos, which sells clothes profitably, and provides free shoes for the needy due to social consciousness.

  2. Solve one problem really well. Focus means starting with a problem that is painful, rather than a technology, and showing how you can solve that problem better than anyone else. Later in the pitch, you can show that you are not a one-trick pony by prioritizing related solutions in your long-term plan.

  3. Limited goals and priorities. No organization can manage more than 3 to 5 goals and priorities without becoming unfocused and ineffective. Keep these balanced and aligned between people (customers, employees) and process (quality, service, revenue), and keep the scope realistic (eliminating world hunger is too broad).

  4. Segment the opportunity. Targeting all the people in China as your opportunity gives you big numbers from a small penetration percentage, but will be seen as lack of focus by investors. Narrow the scope more realistically to people with specific age, income, and education demographics, that you can realistically reach with your marketing plan.

  5. Keep your value chain consistent. Your value chain is your preferred business model, like premium quality, high service. If you mix that model with some commodity items, with no service, that will be seen as a lack of focus. Your team, customers, and investors will all be confused, leading to a lose-lose situation.

  6. Simplify product scope. Your product will never have enough features to satisfy everyone, and it will never be perfect. Focus means creating a minimum viable product (MVP) first, and validating it in the marketplace. Feature-rich products take too much time and money to build, are hard to pivot, and will likely be slow and difficult to use.

  7. Realistically frame the competition. If you really believe that IBM, Microsoft, and Oracle are your competition, you probably don’t have a business. It’s better to focus on a niche that none of them do well, and build your plan around that opportunity. Claiming you have no competition also implies lack of focus, or you don’t have a business.

  8. Prioritize marketing channels. For a startup, it’s impossible to run an effective Facebook, Twitter, content marketing, and Google AdWords online campaign all at the same time. Focus on one channel at a time, measure results, and then move to the next. Offline, it’s not credible to talk about direct marketing, distributors, and integrators all in the same breath.

I certainly understand the pressure add more of everything to your plan, as you listen to more and more people, all with their own priorities and biases. But in the long run, you need a narrow and memorable focus to build a strong company. Even in the short term, customers and investors alike will help you carry a simple and clear focus all the way to the bank.

Marty Zwilling


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Sunday, May 26, 2013

8 Reasons All Angel Investor Money May Not Be Equal

money-equalA few angel investors have slipped or fallen from their lofty perch, so entrepreneurs must take great care to validate the character and reputation of every prospective investor. The entrepreneur’s tendency to be in a huge hurry to obtain the funding can end up being disastrous, and play into the hands of these less scrupulous investors.

Many entrepreneurs believe all money is created equal. As long as somebody recognizes their million dollar idea and writes them a check, the source really doesn't matter. In fact, most angels are pure, but there are some exceptions that may cost you more than an investment:

  1. Shark angels. These are the ultimate bad guys whose sole interest in early-stage investing is to take advantage of what they believe is the entrepreneur’s lack of financial and deal-making experience. If the term sheet process turns to pure torture, it may be time to respectfully bow out. Not all shark angels are on the Shark Tank TV show.

  2. Litigious angels. The litigious investor will look for almost any excuse to take you to court. This type of investor never really focuses on the returns your company can deliver, but instead tries to make money by intimidation, threats and lawsuits. They know you won't have the resources to fight them, so they count on you "caving.” Keep your attorney close by your side.

  3. Superior angels. A number of successful business people, some of whom become angels, develop the belief that they are destined for greatness because of their clear superiority over everyone else. These are usually overbearing, negative people who are hypercritical of every decision you make. Don’t be intimidated into bad decisions.

  4. Control freak angels. This angel starts out looking like your new best friend. Once you are funded, he waits until you hit your first pothole and then points out “gotcha” clauses in your agreement that give him more control. This escalates into a requirement that he must step in to run your company himself. Only your Board can save you here.

  5. Tutorial angels. The tutorial investor is not after control, but wants to hold your hand on every issue. The mentoring offer always sounds good up front. But after they write the check, it soon becomes apparent that their desire to be helpful 24 hours a day is a nuisance at best. Initially, your gratitude for their investment may prompt tolerance, but eventually the burden wears you down. Keeping your distance is the best solution.

  6. Has-been angels. These tend to appear with every perturbation in the economy. They are usually high-flyers with a liquidity problem. They are still at the country club every day, but are now running up a tab. They will meet with you, and ask a thousand questions, but never get around to closing the deal. Learn to ask the closing questions.

  7. Dumb angels. Wealth is not synonymous with business savvy. You can spot dumb angels by the questions they ask (or don’t ask). If they ask superficial questions or don’t understand business, a successful long-term relationship is not likely. But don’t forget that people with wealth usually may have some savvy friends to meet.

  8. Brokers posing as angels. These people are all over the place, often posing as lawyers and accountants. They have little intent to invest in your company, and will eventually solicit you to sign a fee agreement to pay them to introduce you to actual investors. Brokers are often worth the fee, but don’t be misled about who is the angel.

How do you avoid most of these? Whenever possible, only accept investments from individuals in credible, professional angel investing organizations - not people who solicit you. Even then, do your own due diligence in the business community. Ask what other companies they've invested in, and talk to the CEOs of those companies to find out what kind of investor they've been.

Also, make sure your lawyer writes the initial investment document or term sheet - not the investor. This document should be standard for all your investors and not negotiated on a one-on-one basis. Watch out for any attempts to add clauses that can come back to bite you. Not all angels these days are even trying to earn their wings.

Marty Zwilling


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Saturday, May 25, 2013

7 Reasons Why Fun at Work Makes Winning Startups

startup-fun-perksI’m convinced that people who have fun at work are more innovative, as well as happier. I don’t have any big scientific studies to prove this, but in my considerable business experience, I haven’t seen many successes come out of a group of fearful pessimists or unhappy people.

As I was looking through the literature, I did find evidence that many strong business leaders, like John D. Rockefeller, knew how to laugh at themselves. Humble leaders with this trait seem to create cultures that don't take themselves too seriously; cultures willing to take risks; cultures capable of creating and supporting a greater number of ideas.

Current popular startups, like Foursquare, with their break-up music and "Slow Jam Fridays" are a model of this new fun world. I can postulate several reasons why laughing and having fun at work might be linked with creativity and innovation. Here are a few:

  1. Escape the inhibitions. Laughing tends to remove inhibitions. Under the spell of inhibition, people feel limited and stuck. This is what we refer to when we say “thinking outside the box”. Encourage everyone to be open to new ideas and solutions without setting limiting beliefs. Innovation is more about psychology than intellect.

  2. Willing to make mistakes. People who take themselves too seriously are afraid to be seen failing. Failure while having fun is not usually seen as life-threatening. Expect that some ideas will fail in the process of learning. Rather than treating the mistakes as failures, think of them as fun experiments.

  3. Reset to a positive attitude. Under the pressure of a difficult problem, or if you are stuck on something, nothing innovative is likely to emerge. Do something fun to shift your thoughts back to the positive. Come back to the work problem with a fresh and more creative mind.

  4. Productive group activity. In teams, people feed off each other. A “downer” in a group takes the whole group down, whereas a fun person can bring the whole group to a more productive and innovative plane. This allows the group to “suspend disbelief” and really brainstorm new alternatives.

  5. Likely to be seen. Successful people surround themselves with people they enjoy and respect. If you are unhappy, or take yourself too seriously, you are less likely to get the attention and trust of people who can make a difference, or even recognize your innovative ideas.

  6. Likely to be heard. Communication effectiveness is the final hurdle for creativity and innovation. No matter how great your idea is, it won’t happen if it is not heard. People like to listen to fun people, and they close their mind to all the rest. If you want to be heard, write down the message and deliver it in a positive tone.

  7. Be perceived as a leader. By definition, people who project negativity are not going to be perceived as leaders. Nobody will charge a hill led by someone who says it can’t be done, or someone who emphasizes the risk of death.

Some people seem to want to make fun an enemy of business. I believe you will accept that premise only at your own peril. Fun is all about creativity, innovation, play, experimentation, progress, and seeing real things come to life. The most innovative people don’t see any dichotomy between work and fun.

So I encourage you to go out of your way this season to nurture fun at work, as well as passion and motivation. Learn to pay attention to laughter. Where there is laughter, there is an idea that holds people's interest. If you don’t take yourself too seriously, the pleasant by-product is that work becomes more enjoyable, and your innovative side will be more visible.

Marty Zwilling


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Friday, May 24, 2013

A Business Rebound is Not All Positive for Startups

michael_e_porterAs the business economy rebounds, many entrepreneurs are thinking that life will soon get easier, and their opportunity can only grow. In reality, the business world gets tougher every day, with new entrants, new technology, and competitors more easily entering the fray from around the globe.

Way back in 1979, Michael E. Porter proposed his Five Forces framework for analyzing the competitive environment which I think makes even more sense today. Every existing business, as well as every startup, needs to reassess their product or service in the context of these five forces:

  1. Intensity of competitive rivalry. This is where most current business plan analyses focus today. These plans just list a few key competitors out there now, compare feature richness, quality considerations, and pricing. This is an important first step, but it’s only the beginning.

  2. Threat of new competitors entry. Startups that target profitable and growing markets with high returns should realize that these will draw many new entrants. It will certainly also decrease profitability over time, as well as test your sustainable competitive advantage. That leads to switching costs, sunk costs, brand equity, and a host of other considerations, commonly called “barriers to entry.”

  3. Utility of alternative solutions. You are never the only alternative, hopefully just the best, in price, utility, and satisfaction. If you new vehicle costs too much, people take the bus. At some level of function, availability, and price performance, customers jump ship away from you. These elements are referred to as “barriers to exit.”

  4. Bargaining power of customers. This is the degree to which customers can put your company under pressure, or leverage prices, delivery, features, and quality (market of outputs). A key is your differential advantage from alternatives. Small differentials and more competitors give customers higher leverage.

  5. Bargaining power of suppliers. Suppliers of raw materials, components, labor, and services to you can be a source of power over your ability to compete (market of inputs). You need to identify substitute inputs, supplier concentrations, and employee solidarity (labor unions), which can limit you or give you the advantage.

A few years ago, Andrew Grove is credited with postulating a sixth force in the marketplace – government, pressure groups, and the public. This force adds the concept of “complementors,” and has led to the growth of partners and strategic alliances to balance the competitive environment.

These forces make up the micro environment of a company, which affect its ability to serve its customers and make a profit. A change in any of them should be your cue to re-assess the marketplace. All startups need to remember their core competences, business model, or network, which are the factors that allow them to maintain a competitive advantage.

One of the key sections of every entrepreneur’s business plan is the analysis of the competition. I especially love the ones that start and end by saying “We don’t have any competitors.” Investors take that to mean either 1) there is no market for your product, or 2) you don’t understand the concept of business and competition. Either way you lose.

I always remind startups that this section of the business plan should not be a negative one, merely listing competitors, with their advantages and head start. It’s your opportunity to highlight and emphasize your relative advantages, whether they be price, features, bargaining power, or any of the six forces outlined above.

On the other hand, there is more at stake for startups than enterprises because startups do not have the same financial capital of their bigger rivals. But with a clear understanding of where the power lies, you can take advantage of a position of strength, improve a situation of weakness, and avoid stepping into a pack of wolves with no protection. It’s a painful end.

Marty Zwilling


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Thursday, May 23, 2013

A Great Product Will Fail Unless You Price it Right

The_Price_is_RightOne of the toughest decisions for a startup is how to price their product or service. The alternatives range from giving it away for free, to pricing based on costs, to charging what the market will bear (premium pricing). The implications of the decision you make are huge, defining your brand image, your funding requirements, and your long-term business viability.

The revenue model you select is basically the implementation of your business strategy, and the key to attaining your financial objectives. Obviously, it must be grounded by the characteristics of the market and customers you choose to serve, the pricing model of existing competitors, and a strategy you believe is consistent with your future products and direction.

So what are some of the most common revenue models being used by startups today? Here is a summary, with some of the pros and cons or special considerations for each:

  1. Product or service is free, revenue from ads. This is the most common model touted by Internet startups today, the so-called Facebook model, where the service is free, and the revenue comes from click-through advertising. It’s great for customers, but not for startups, unless you have deep pockets.

  2. “Freemium” model. In this variation on the free model, used by LinkedIn and many other Internet offerings, the basic services are free, but premium services are available for an additional fee. This also requires a huge investment to get to critical mass, and real work to differentiate and sell premium services to “convert” users to paying customers.

  3. Cost-based model. In this more traditional product pricing model, the price is set at two to five times the product cost. If your product is a commodity, the margin may be as thin as ten percent. Use it when your new technology gives you a tremendous cost improvement. Skip it where there are many competitors.

  4. Value model. If you can quantify a large value or cost savings to the customer, charge a price commensurate with the value delivered. This doesn’t work well with “nice to have” offerings, like social networks, but does work for new drugs and medical devices that solve critical health problems.

  5. Subscription model. This is a very popular model today for Internet services, calling for monthly or yearly low payments, in lieu of one value or cost-based price. Startup advantages include a more stable revenue stream, easier customer retention, and increasing customer investment over time. The customer advantage is a lower entry cost.

  6. Product is free, but you pay for services. In this model, the product is given away for free and the customers are charged for installation, customization, training or other services. This is a good model for getting your foot in the door, but be aware that this is basically a services business with the product as a marketing cost.

  7. Product line pricing. This model is relevant only if you have multiple products and services, each with a different cost and utility. Here your objective is to make money with the portfolio, with high markup and low markup items, depending on competition, lock-in, value delivered, and loyal customers. This one takes expert management to work.

  8. Tiered or volume pricing. In certain product environments, where a given enterprise product may have one user or hundreds of thousands, a common approach is to price by user group ranges, or volume usage ranges. Keep the number of tiers small for manageability. This approach doesn’t typically apply to consumer products and services.

  9. Feature pricing. This approach works if your product can be sold “bare-bones” for a low price, and price increments added for additional features. It can be a very competitive approach, but the product must be designed and built to provide good utility at many levels. This is a very costly development, testing, documentation, and support challenge.

  10. Razor blade model. In this model, like cheap printers with expensive ink cartridges, the base unit is often sold below cost, with the anticipation of ongoing revenue from expensive supplies. This is another model that requires deep pockets to start, so is normally not an option for startups.

If you have real guts, you can try the Twitter model of no revenue, counting on the critical mass value from millions of customers to sustain your company. This model was popular back in the heyday of dot.coms, when investors were buying anything with a following, but is frowned on today. It definitely requires founders with deep pockets and investors willing to take a huge leap of faith.

In all cases, your business model interacts closely with your marketing model, but don’t get them confused. Marketing is initially required to get visibility and access to the opportunity, but pricing defines how you will actually make money over the long term. A key challenge for every entrepreneur seeking funding is to convince potential investors that the marketing model will substantiate your positive revenue model, customers will buy the offering, and you have a viable business model.

Overall, I’m a huge fan of the “keep it simple (KISS)” principle – customers are typically wary of complex or artificial pricing. Your challenge is to set the right price to match value perceived by the customer, with a fair return for you. It’s not a game show, so don’t guess - do your research early with real customers. Your startup’s life depends on it.

Marty Zwilling


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Wednesday, May 22, 2013

How You Too Can Be an Unstoppable Entrepreneur

Graham-WestonWe all know at least one entrepreneur who always gets things done, and appears unstoppable in his quest. All of you probably know many others who talk incessantly about their great ideas, but never seem to even get started, or they give up at the first obstacle. What are the attributes that make an entrepreneur unstoppable, and is it possible for people to learn to be unstoppable?

According to my own observations, and a new book by Bill Schley, “The UnStoppables: Tapping Your Entrepreneurial Power,” there are some key “emotional mechanics” that put entrepreneurs in motion, and some principles that help entrepreneurs succeed in startups, as well as big companies. I believe we all have the power within us to learn and adapt to these principles.

Every entrepreneur needs to accelerate his proficiency by adopting and using this proven set of skills, rules, and emotional power principles, like the Graham Weston experiences at Rackspace summarized in the book. Here is an outline of the key essentials:

  1. The law of motion versus contemplation. Everyone dreams and talks. Successful entrepreneurs do. This means yearning and starting, not quitting, and ultimately achieving some value that wasn’t there before. In a startup, the founding team and their key employees have to all be entrepreneurs, with an impassioned leader.

  2. Limit focus to the top three or four priorities. It turns out that focusing on three or four activities at a given point, like positioning your brand, prospecting for leads, or managing cash flow, are all that you need to survive. It’s also all that any entrepreneur can manage concurrently with proficiently. Adhere to the familiar 80-20 rule.

  3. Rely on mental “rules of thumb” or heuristics. Being unstoppable must include the power to think and innovate on your feet under real conditions in real time. That means developing an intuition or “gut feeling” based on preset “rules of thumb,” continually updated from peers, advisors, positive experiences, and prior failures.

  4. Simple beats complicated. If your unique difference can’t be explained on the back of a business card, you don’t have one yet. There is virtually no idea, no process, and no vision that simplicity and brevity can’t improve – and never let a consultant, attorney, or investor try to tell you otherwise.

  5. Find the center of an issue and go there. Unstoppable entrepreneurs wake up every day on a quest to keep the center of their brand, their performance, their culture, or their status as #1 choice locked in the crosshairs. They win by going all in where it counts, and nothing counts more than the center.

  6. Conquer the fear that is preventing action. When a person has something important to do, and they are not doing it, then some type of fear is stopping them. The biggest counter to fear is love – as in passion for the idea, love for teammates, and desire to change the world.

  7. Embrace risk. We can’t achieve any human progress without risk. In this new dynamic world, where change is accelerating all around us, the safety we feel by hiding behind a rock instead of putting ourselves in motion has become an illusion - the riskiest decision of all. It’s always less risky to do it, than to have it done to you.

  8. The unsurpassed power of belief. Henry Ford said simply, “If you think you can or think you can’t, you’re right.” Thinking “it’s possible” triggers confidence, determination, and energy. Thinking the opposite makes any task impossible. Belief is the outcome of mastering all the other emotional mechanics

Notice that none of these mention anything about how much money you need to start, extraordinary intelligence, or academic credentials. Accelerated proficiency is all about the art and science of getting entrepreneurs to be Minimally Functionally Qualified (MFQ) in a sharply accelerated time frame so they can get in motion, start doing, and effectively teach themselves, rather than talking and observing.

To be unstoppable, every entrepreneur has to decide to dream, to dare, and to do. Decide to stand with your fear, and turn the struggle into your best advantage. Decide to learn the essence, then get in motion. Where are you along this spectrum as an entrepreneur?

Marty Zwilling


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Tuesday, May 21, 2013

Recent Gen-Y Startup Successes are an Emerging Era

gen-y-entrepreneurThe business world has been watching this emerging generation with trepidation, and a lot of people haven’t been sure who would be the winners, and who would be the losers. Can Gen-Y, much less the new Generation Z (1995-2010), survive as entrepreneurs, and do they have the passion and commitment it takes to run a startup and attract investors?

My own perspective is that the recession was good for Gen-Y (Millennials), because it forced them to face reality, often for the first time in their life. In the last few years, even college grads with advanced degrees don’t have job opportunities waiting for them. But I’m happy to report that I see more and more of them impressively stepping up to the entrepreneurial plate.

It now reminds me of previous generations, per the qualms raised about Gen-X back about 20 years ago, and about the Baby Boomers some 20 years before that. Yet now Gen-X’ers are seen as the major facilitators of change, and Boomers are the angels and business advisors for hot new startups.

We should look ahead to capitalize on evidence of the positive attributes of Gen-Y from a business perspective, including the following:

  • Confidence. Raised by parents believing in the importance of self-esteem, they characteristically consider themselves ready to overcome challenges and leap tall buildings.
  • Goal and achievement oriented. Many Gen-Y’ers approach the business world with solid personal goals. They expect to create something that is technically challenging, creative, fun, and financially rewarding.
  • Multi-cultural. They expect to succeed in a workplace that is fair to all, where diversity is the norm—and they’ll use their collective power if they feel someone is treated unfairly. Diversity is a key to innovation, and big new business opportunities.
  • Socially conscious. They were taught to think in terms of the greater good. They have a high rate of volunteerism. They expect companies to contribute to their communities—and to operate in ways that create a sustainable environment.

These attributes have already driven several well-known Gen-Y startups, like Facebook, Zappos, and Groupon. Yet it’s too early to totally forget the potential shortcomings and idiosyncrasies of Gen-Y. According to Winograd and Hais, there are still some of worrisome attributes relative to the role of entrepreneur:

  • Need to be scheduled. Gen-Y’ers were tightly scheduled as children and used to a full schedule of structured activity. Many still struggle with handling free time and time management in general. A startup is the most unstructured entity I know.
  • Minimal “street smarts.” They grew up in a time of increasing safety and protection (car baby seats, no failing grades, no walking to school). They were rarely left unsupervised. They may have good academic credentials, but less business sense.
  • Consensus driven. Gen-Y members have been reared in a way that makes it difficult for them to conduct business negotiations in an entrepreneurial manner. Rather than seeking to come out on top in zero-sum games, Gen-Y strives for consensus.

My challenge to Gen-Y, and to the rest of us, is to capitalize on the positive attributes and continue to work on overcoming any remaining negatives. I’m still convinced that “real change only happens when the pain level gets high enough.” The past pain level has been high, but the business climate has improved, so let’s not slip backward.

Gen-Y is now experiencing their wake-up call, just like previous generations did with Vietnam and the 1980 recession. From the quality of interactions I’ve had recently mentoring a number of Gen-Y members, I’m happy to report that many are emerging as the new entrepreneurs of the digital age. I’m sure you agree that we need them to fuel the wave.

Marty Zwilling


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Monday, May 20, 2013

6 Strategies for Transforming Ideas Into Results

ideas-actionSuccessful startups are all about turning ideas into action quickly and efficiently. These actions must be the hard part, since entrepreneurs always seem to come to me with ideas, and ask me for help on the actions. That has always seemed strange to me, since the magic is supposed to be in the ideas, and the actions are the same for every business.

In fact, the actions required to start and run a business are well documented, the subject of many books, and taught in college courses across the land. As confirmed to me by John Spence in his book on this subject, Awesomely Simple, turning business ideas into action consists of six essential strategies:

  1. Build a vivid vision. Having a clear, vivid, and compelling vision in your head is without question an essential component in building a successful company. But that’s not good enough. The vision has to be documented and communicated in a way that makes it vivid to every member of your team, your customers, and your investors.

  2. Team with the best people. The best people are highly talented and motivated individuals who are also masters of collaboration. The future of your startup is directly tied to the quality of talent you can attract and keep. You must create a winning culture that people love.

  3. Practice robust communication. Open, honest, frank, and courageous communication, both inside and outside the organization, is critical. The key skills can be learned, and include deep listening, logic versus emotion, and reading body language. According to Spence, this is the biggest problem he has to deal with in client organizations worldwide.

  4. Cultivate a sense of urgency. Get things done. A fast, agile, adaptable organization makes the important things happen now. Urgency is allergic to bureaucracy. Reward fast action. You set the model for your startup. You become what you focus on and become like the people you spend time with.

  5. Enforce disciplined execution. Build a performance-oriented culture that demands quality in every operation, encourages continuous innovation, and refuses to tolerate mediocrity. Most organizations execute only 10 to 15 percent of their major goals. Do a periodic effectiveness audit to check your operation. Then fix it.

  6. Show extreme customer focus. Put feedback mechanisms in place to know that you are consistently delivering what customers truly value. Attitude and listening are the keys. Superior customer focus can drive as much as an 85 to 104 percent increase in your profitability.

It should be pretty easy to see the interdependence and synergy among the six principles, each building on the next, all the various elements working together to create a highly successful business. But you don’t have to go out and address all six principles right now. Pick one that will create leverage immediately, and begin with it.

Spence defines three simple watchwords that will lead to business excellence – focus, discipline, and action. If you are missing any of these, the outcome will most certainly be mediocre. Once you start accepting mediocrity, you become a magnet for mediocrity.

Your great ideas deserve more than mediocre actions. Simple actions done in an outstanding fashion are far more effective than complex and time consuming actions done poorly (thrashing). Also, don’t be fooled into thinking that “simple” means “easy to implement”. Start now to turn your innovative ideas into action. Every entrepreneur loves a challenge.

Marty Zwilling


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Sunday, May 19, 2013

How an Entrepreneur Can be Open But Stay In Control

charlene-liThe emergence of social networking and the Internet has caused a new focus and value on “openness,” which leads to a new element of leadership, called “Open Leadership.” The mantra of open leadership is “Be Open, Be Transparent, and Be Authentic.” This is counter to the traditional business premise of “control,” so many companies are still pushing back.

Charlene Li, in her book “Open Leadership,” shows leaders how to tap into the power of the social technology revolution and use social media to be “open” while still maintaining control. I support her ten elements of the basic framework and vocabulary of open information sharing and open decision making:

  1. Explaining: creating buy-in. This element is sharing information through the new video, audio, and interactive media about, and the logic behind decisions, direction, or strategy with the goal of gaining buy-in to the idea so everyone is working toward the same goal.

  2. Updating: capturing knowledge and actions. New publishing tools, like blogs, collaboration platforms, and even Twitter provide updates that are easily available. These have the added benefit of being searchable and discoverable.

  3. Conversing: engaging in a dialogue with others. Employees can share best practices with customers on social network platforms and customers can help each other. When done well, an organization’s online community can become a competitive advantage.

  4. Open microphone: encouraging participation. Everyone and anyone is welcome to contribute through new collaborative tools with no preconditions. Search, combined with ratings and reviews become key in separating the useful from the rambling.

  5. Crowdsourcing: solving a specific problem together. The goal here is to grow the sources of new ideas and gather fresh thinking to create a new product or service. It can also be for solving everyday problems, like logo design or open source code.

  6. Platforms: setting standards and sharing data. Ebay is an example of open standardizing on how items are listed and how transactions are handled, enabling millions of individual sellers. Common platforms enable open data access at any level.

  7. Centralized. The key challenge of making centralized decision making more open is to open up information sharing in both directions, so that those in power have the right information and also have the commitment to share it back out to the organization.

  8. Democratic. Increasingly, voting is used to allow people to choose from a set of equally viable options, with the result is that employees feel a greater sense of ownership in the process. This is also becoming prevalent in decisions with customers on products.

  9. Consensus. Social technology tools now allow this process to be done quickly and less chaotically, with tremendous buy-in from everyone affected. This process works well in today’s extremely flat and non-hierarchical startup organizations.

  10. Distributed. This is a hybrid of all the preceding decision processes, in that it pushes decisions away from the center to where information and knowledge actually reside, typically closer to the customer. This mode requires more discipline and planning.

I’m still waiting to see how all this works out in real life. The challenge is to be open without abdicating all control, or spiraling into chaos. Hopefully, by embracing social media rather than banning it, leaders can transform their organizations to become more effective, decisive, and ultimately more profitable in this new era of openness in the marketplace. What do you think?

Marty Zwilling


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Saturday, May 18, 2013

Inspiration Without Perspiration is a Dull Startup

Genius-is-perspirationI’m fully convinced that both inspiration and perspiration are always required in a startup. Yet many people seem to be stuck on one end or other of this equation – all perspiration with no dream, or all inspiration with no reality. Success is the right balance of both for fun and profit.

Aspiring entrepreneurs ask me why their great idea hasn’t sold; they talk about it endlessly, and they expect others to do the development, finance, and marketing work for them. Those at the other extreme don’t look up from the grindstone long enough to notice whether all their work is producing sweat equity or just sweat.

Starting a business may be fun, but it’s not easy. No matter how many times you’ve done it – the stresses are tremendous. It can also be very inspiring, as you watch your dream morph into reality, or as you feel each little element of success:

  • Watch your team develop new skills. There is nothing more inspiring than seeing the results of your mentoring and leadership. Your own learning should be the biggest inspiration of all.
  • Your solution fills a real market need. Truly satisfied customers are a joy to every business person. Watching the orders come in, or the product moving off the shelf, is the feedback you have been looking for.
  • A business model that works. You have figured out how to undercut your competitor’s price, and still hold your margin. Taking that first salary after a long dry spell is an inspiring moment, and a great celebration with friends.
  • Love that sustainable competitive advantage. Working on that unique design, or completing the breakthrough for an innovative patent, are moments of inspiration that you will never forget, especially if they become your competitive edge.
  • Bask in the success as it happens. Maybe it’s that first customer testimonial, or that first congratulations from someone you respect, or seeing your story in the newspaper. You knew all along that you could do it.

Of course, never forget those ongoing perspiration items that seem to haunt you every day:

  • Create intellectual property. Incorporate, register your domain name, trademarks, and copyrights, then patent if possible. Reserve the same names on the leading social networks and blogs.
  • Marketing is top priority. Start even before the product is ready. Word of mouth advertising and viral marketing cost big bucks these days so budget for it. It takes leverage, effort and money to get in the public eye and stay there.
  • Reign-in expenses. Review every expense with a miserly hand. Do not delegate this task! Make every effort to do things “in house”, rather than rely on outside services, accountants, and law firms.

Though innumerable factors are a part of every success, it’s arguable that the ratio of effort to inspiration can make the difference between just spinning wheels, on the one hand, and ideas that never come to fruition, on the other.

Some say the Internet is a metaphor for our brains. Both are networks. Maybe inspiration is feeding your brain as much information as possible and then figuring out how it connects when the time comes. Perspiration is the lubrication to keep your senses open to all the possibilities.

Marty Zwilling


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Thursday, May 16, 2013

For Entrepreneurs, Conversations Are All Business

conversationsWhether you are trying to motivate your team, close a deal with a customer, or get funding from an investor, a casual conversation is usually a waste of your valuable time. These result is a founder who is always “too busy,” but never seems to get the business done and the team moving. All real business is conversations focused on creating results.

Shawn Kent Hayashi, in her new book “Conversations That Get Results and Inspire Collaboration” makes my point very well as she outlines the top twelve types of conversations that relate to working together in business, and provides tips on how to make each of them more effective for all concerned:

  1. Conversation for connection. Connecting with others happens when we slow down our talking enough to be in the present and really listen to one another. Rapport building requires listening, more than talking. Powerful listening causes trust to grow.

  2. Conversation for creating new possibilities. The questions a manager or colleague asks help us to understand a situation better, if we ask good questions and really listen to the answers. Conversations can also be the triggers to professional development.

  3. Conversation for structure. When we know what we want to create, the next step is to devise a plan. We build our plans with the steps as we become aware of them through conversations, with ourselves as well as with others.

  4. Conversation for commitment. For each identified action step, we identify potential candidates and then seek their commitment to produce the result that corresponds to the task. The commitments we make to ourselves are the most fundamental.

  5. Conversation for action. What actions will make your tasks and goals come alive? We’ve all seen people get stuck in a project because they do not know what to do next. They’re not asking themselves or anyone else the right questions, and not listening.

  6. Conversation for accountability. After a conversation for commitment has occurred and the expectations are clear, being accountable for engaging others in what you want to do is a sign of respect. Sometimes people need to be guided into better outcomes.

  7. Conversation for conflict resolution. Many people will avoid conflict in work relationships at all costs, which is nonproductive. Others feel fear when the smell of conflict arises. A few overuse this conversation type. Conflict is normal, so deal with it.

  8. Conversation for breakdown. Anger indicates that something or someone has crossed one of our boundaries, and is a signal to address the issue. Breakdown recognition is vital to moving forward. Asking for what we want might actually clear up the breakdown.

  9. Conversation for withdrawal and disengagement. It is unrealistic to think that all work relationships will be enjoyable or friendly forever. Often it is best to end a tenuous connection, so that we can invest our time in ones that are meaningful and productive.

  10. Conversation for change. Your ability to change the direction of an individual, team, or an investor occurs through conversations. By design, you can change the conversation in the office, at board meetings, and with peers who seem to have gone off track.

  11. Conversation for appreciation. Think of the last time you felt really appreciated at work. Undoubtedly someone showed appreciation of your efforts using language that works for you. Affirming others through conversation builds relationships and momentum.

  12. Conversation for moving on. You have conversations for moving on when leaving a community or transferring or retiring from a company. One day you might reconnect, but for now you have closure, with no expectations of future conversations.

Being successful as an entrepreneur begins in a conversation with ourselves first, and then extents to others, focused on what we are passionate about, and the solutions we are bringing to market. None of these are casual conversations, where you don’t really listen to the response. How committed are you when someone is obviously not listening to your responses?

Marty Zwilling


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Wednesday, May 15, 2013

7 Rules for Savvy Customer Service Required Today

CustomerServPriorityCustomer service has always been reactionary, meaning someone has to wake up and answer website email requests. That’s just not savvy enough to hold today’s fickle, less loyal, and ready to jump customer. Great startups are getting ahead of the game with “anticipatory customer service,” like providing smart phone access to product and account data to head off complaints. This exemplary customer service is just savvy marketing.

Self-service technologies, social media, and smart phones have created a new set of expectations for high-tech consumers today. You should assume that they will want discounts to match competitors, and answers to technical questions in real time, rather than waiting in some phone or mail queue.

Thus you need a new generation of self-service that goes way beyond the now old-fashioned and frustrating automated phone audio response messages. I found a good summary of these new expectations in a book recently published by Micah Solomon, “High-tech, High-touch Customer Service.” Here are seven rules derived from his insights to start your thinking:

  1. Customers expect a choice of channels. Customers should never be told by a clerk to call customer service, or told on the phone to see the website. You need to anticipate the channel they might choose, and be ready to handle it, or they will look elsewhere, and trash you on Twitter and Yelp.

  2. Self-service needs to have escape hatches. It’s time to end the automated email responses with the “do-not-reply” address. Always end self-help postings with “Did this answer your question?” and provide a next step for those who answer “No.” That means guiding your customer to the top, rather than hiding the top decision maker.

  3. Respect your customer’s view of usability. Usability is recognizing what users have learned from past experience, rather than an abstract science. So don’t move the search bar from the top of a web page, or select a digit other than “0” for getting a human on the phone. Scientific updates to your interface to reduce keystrokes may be self-defeating.

  4. Customers need to be able to shift channels without regression. How many times have you shifted from automated response to a human, and been asked for all the information anew? Anticipate this, and use today’s technology to make the experience seamless. You probably won’t get a second chance.

  5. Self-service has to be monitored and updated regularly. Customer expectations go up as rapidly as the delivery technologies change. Social media apps like Twitter and Pinterest are the latest sources for what’s catching people’s attention today, both positively and negatively. You should be watching.

  6. You and your staff need to regularly use your self-service channels. For the staff, they need to understand customer issues, and you need to test the tone and culture of the people behind the scenes. It’s getting tougher and tougher to outsource this tone and technology to other cultures halfway around the globe.

  7. Ugly upsells through self-service are a brand killer. Amazon handles upselling in a gently suggestive way, with a “frequently bought with” message. Harder sells can backfire, since people like to be pulled in with personalized messages, rather than pushed along with the crowd.

Technology is great for adding speed and flexible delivery to anticipatory customer service, but people are still required to add the heart and the personal touch. More than ever, a startup needs to build an emotional connection with every customer. Reactionary customer service won’t generate the loyalty you need to survive. When was the last time you took a hard look at your service?

Marty Zwilling

Disclosure: This blog entry sponsored by Visa Business and I received compensation for my time from Visa for sharing my views in this post, but the views expressed here are solely mine, not Visa's. Visit http://facebook.com/visasmallbiz to take a look at the reinvented Facebook Page: Well Sourced by Visa Business.

The Page serves as a space where small business owners can access educational resources, read success stories from other business owners, engage with peers, and find tips to help businesses run more efficiently.

Every month, the Page will introduce a new theme that will focus on a topic important to a small business owner's success. For additional tips and advice, and information about Visa's small business solutions, follow @VisaSmallBiz and visit http://visa.com/business.


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Tuesday, May 14, 2013

The Most Admired Entrepreneurs are Servant Leaders

its-not-about-meStartups provide leadership in the market. Entrepreneurs provide leadership to their startup. There are many styles of leadership, like dictatorial, laissez-faire, and democratic. One that I hear discussed more these days, in this age of relationships, is called “servant” leadership.

What is servant leadership? The servant leader serves the people they lead through mentoring, direct assistance, listening, and acting on their employees input. It’s the opposite of self-serving, domineering leadership, and makes those in charge think harder about how to respect, value and motivate people reporting to them.

The concept was developed by Robert K. Greenleaf in 1970. Servant leaders are felt to be effective because the needs of followers are so looked after that everyone reaches their full potential, hence perform at their best, individually and as a team.

Greenleaf says that Martin Luther King, Gandhi, and Jesus were good examples of servant leadership. What do you have in common with them? If you recognize yourself in most of the following questions, you may not be another Gandhi, but you are well on your way to becoming a servant leader:

  • Do team members believe that you want to hear their ideas and will value them?
  • Does your team believe that you have a strong awareness of what is going on and why?
  • Does everyone follow your direction because they want to, as opposed to because they “have to”?
  • Do others on your team communicate their ideas and vision for the organization when you are around?
  • Do people believe that you are committed to helping them develop and grow?
  • Do people come to you when the chips are down, or when something traumatic has happened in their lives?
  • Does everyone have confidence in your ability to anticipate the future and its consequences?
  • Does the team believe you are leading the organization to make a real difference in the world?
  • Do people believe that you are willing to sacrifice your own self-interest for the good of the team?
  • Does everyone feel a strong sense of community in the company you lead?

Some of the characteristics implied in these questions come more naturally to some people than others. Experts argue that some are inherent, and are difficult to learn. But characteristics such as listening, awareness, persuasion, and building community are all learnable skills.

You should reflect and thoughtfully assess the degree to which you have what it takes to be a servant leader. If you are committed to being the best servant leader than you can be, I urge you to continuously work to develop these characteristics.

For some executives, serving people's needs creates the image of being slavish or subservient, not a very positive image. In addition, leaders need to serve the needs of customers and stakeholders, as well as those of team members, so a sense of balance is required.

For comparison purposes, autocratic leaders tend to make decisions without consulting their teams. Laissez-faire and democratic leaders normally allow people within the team to make most of the decisions, based on consensus. In reality, the very best leaders are those who can use a variety of leadership styles effectively, and use the right style for each situation.

I encourage you to take a look in the mirror, and check your leadership style. Just to make sure you are not looking through rose-colored glasses, ask a few of your most trusted associates what they see. If the answers surprise you, it may be time to find a leadership mentor.

Marty Zwilling


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Monday, May 13, 2013

Key Techniques From Startup Leaders Who Get-It-Done

get-it-doneThe universal challenge of every startup founder is to get everything done that needs to get done, and still have a life. Even outside of business, everyone wants to accomplish more, while working less. I’ve been a student of these techniques for some time, but some time ago I saw a great summary that seems to pull all the key principles together.

Stever Robbins, known on the Internet as the Get-It-Done Guy, outlines his strategies in his book “9 Steps to Work Less and Do More.” These are not aimed specifically at entrepreneurs, but I see how they can be applied there as follows:

  • Living on purpose. Figure out what’s really important to you as an entrepreneur. For most, it’s following a passion to show customers your better solution. Live your lifestyle, do what you love, and identify your top priorities. Then you will get things done, and it won’t even seem like work.
  • Stop procrastinating. Procrastination is a killer when it comes to being effective. One of the best ways to stop procrastinating is to break things down into small chunks, using tiny steps to move forward. Break time into pieces. When there’s an end in sight, it’s a lot easier to get down to business.
  • Conquer technology. Cellphones, laptops, and other electronic devices are supposed to give users additional freedom, but far too often, they create time traps. Separate yourself from technology on a regular schedule to not allow a machine’s interruptions to set your day’s agenda.
  • Beat distractions to cultivate focus. You need to set boundaries and say “no”; to stop multitasking; and to find ways to group similar tasks or similar contents. Don’t forget to delegate to other team members, and don’t be tempted by the current “crisis” to postpone the important tasks of strategy decisions and monitoring the progress of the business.
  • Stay organized. Many people confuse ‘organized’ with ‘neat.’ In fact, organized means a place for everything and everything in its place. When you stumble over something that doesn’t have a place, either throw it away or make a place for it. If you don’t have any more room, throw something away – don’t rent a storage unit.
  • Stop wasting time. Work is whatever you need to do that most matches your business goals as they are today. Use the 80/20 Rule to pick and then complete those taks. Stop trying to do things perfectly. “Good enough” is the antidote to perfectionism. Make faster decisions by limiting the options you consider.
  • Optimize. Stop doing what isn’t working so you’ll have the time to optimize the rest of what you do. Some of the best ways to optimize include using team feedback to identify blind spots that could be limiting effectiveness; recognizing when it’s time to call in an expert to get the job done; and listening to your own advice.
  • Build stronger relationships. Build a network of contacts to allow you to harness the power of others’ strengths. Superficial relationships don’t help. Giving is the best and quickest way to strengthen a relationship. Conflict takes energy to sustain, so work to prevent conflicts from arising, and work to end conflicts quickly that do arise.
  • Leverage. Use technology thoughtfully to automate things that take a lot of time, thus gaining leverage. Reuse things rather than re-inventing them. The most valuable computer function in business is “cut and paste.” These days, on the Internet you can find samples of every document and contract you will ever need, so use them.

With each of these steps, you will reclaim more control of your business and your life. You will find yourself honing in on the things that actually move the startup forward and make you happy, and learning the skills you need to resist the rest. You too can be a get-it-done guy.

Marty Zwilling


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Sunday, May 12, 2013

Is Your Startup Moving Fast Enough to Stay Ahead?

Kentucky-Derby-OrbIn today’s business startup environment, if you don’t move fast, you get run over. Without a sense of urgency, people and businesses just can’t move fast enough. Speed is the driver because customers have a zero tolerance for waiting, and there are always competitors gaining on you.

John P. Kotter, in "A Sense of Urgency," delves into the how-to required of entrepreneurs on that first step, avoiding pitfalls along the way. He is convinced that increasing the sense of urgency is the toughest of the steps necessary for effective change.

Urgency is not frantic activity born of excess energy, anger, or frustration. These do result in high activity levels, but results will be slow in coming and often misdirected. Here are six more positive steps to increasing a true sense of urgency, according to Kotter:

  1. Behave with urgency every day. Always demonstrate your own sense of urgency in meetings, interactions, memos and e-mail, and do so as visibly as possible to as many people as possible. You are the role model for everyone in your organization. If your tone or actions lack urgency, it percolates quickly to everyone, and you reap what you sow.

  2. Consistently communicate urgency. Urgency is a set of thoughts and feelings, as well as a compulsive determination to move and win now. Aim for the heart, not just the mind. Look for the element of every story that will compel employees into action. Make employees feel empowered, not stressed, to buy into the need for urgency.

  3. Create action that is relentlessly aimed at winning. Make sure your actions are exceptionally alert, and focused on success. Show some progress each and every day, and constantly purge low value-added activities. Be quick to reward the winning actions of everyone on the team.

  4. Bring the outside in. Be on the lookout for compelling data, people, video, websites and other important messages from outside the company. Strive to connect internal activity with external happenings and challenges. Highlight competitor wins in the marketplace, and continually challenge your own team to do better than competitors.

  5. Find opportunity in crisis. Always be alert to see if crises can be a friend, not just an enemy, in order to destroy complacency. Think of crises as potential opportunities, and not only dreadful problems that automatically must be delegated to the damage control specialists. But don’t assume that crises inevitably will create the sense of urgency needed to perform better.

  6. Deal with the urgency-killers. Remove or neutralize all the relentless urgency-killers, people who are not skeptics but by their actions keep a group complacent or create destructive urgency. Examples are people who are always “too busy” or stretch every task delivery beyond reasonable limits.

One of the main obstacles to a sense of urgency is complacency, which often sets in after a success. When the CEOs and employees are riding high on a wave of profits, complacency can creep in unnoticed. It's easy to hand out rewards and praises without looking down the road and outside the box. Eventually a competitor comes along to trample you into the dust.

Another frequent obstacle is the false sense of urgency. The enemy of urgency is a full appointment calendar, when everything becomes urgent. Here you need flexibility, smarts, and guts to reprioritize less important tasks, or purge them altogether.

Finally, eliminate fear, both fear of failure and fear of success. Fear thrives in an environment where people get punished for mistakes and discouraged from experimenting. Fear of success means people worry that success will bring uncomfortable or distasteful changes.

So my challenge to each of you is that you wake up each day with a sense of urgency both at work and in your personal life, and practice the recommendations above. Constantly critique your business and look for opportunities to improve. Lead by your actions, and the team will follow.

Marty Zwilling


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Saturday, May 11, 2013

How Entrepreneurs Qualify for Funding from Banks

bank-fundingA common question I get is “How do I get a bank loan to fund my startup?” The default answer is that it probably won’t happen, because most banks just don’t make bank loans to startups. The failure rate is just too high, and startups typically don’t have the assets or revenue stream to back up the loan. That’s why Angel investors are so sought after by entrepreneurs.

In my experience, some startup founders do overcome these odds, but you need to be realistic and do your homework. Here are some tips and rules of thumb to improve your odds and help you understand when a bank loan or line of credit is possible, and how to get it:

  • Write a good business plan first. Approaching a banker without a business plan, and asking for money, is a sure way to be rejected and leave a bad first impression. Pay particular attention to the financials, and have a CPA friend review for reasonableness before presenting.

  • Clean up your credit rating before you apply. Good credit ratings, both personal and business, are essential to getting a loan or line of credit. This is just common sense, since every loan has a repayment schedule, and your credit score reflects your track record of paying bills on time.
  • Pick a business domain that is squeaky clean. Certain business sectors have historical high failure rates and are routinely avoided by banks and investors. These include food service, retail, consulting, work at home, and telemarketing. Also, don’t expect enthusiasm for your gambling site, porn site, gaming, or debt collection business.
  • Show a significant personal investment. Most loan programs, and most investors, want to see that you have “skin in the game’ before helping you. If you have nothing at risk, your own level of commitment is suspect. As a general rule, your investment should be at least 20% of total projected loan requirement.
  • Demonstrate an ability to repay from revenues, not collateral. Bankers will insist that you have collateral to back the loan, like equipment, or even your home. They actually prefer to see that you have a revenue stream to repay the loan, since they don’t want to own another home. The more conservative ask for two years of positive cash flow.
  • Demonstrate experience in starting a business, ideally in this domain. Bankers, like investors, fund people rather than ideas. Your idea alone will not get you a loan, but your experience running businesses may get you a loan, even if not intimately related to the current proposal.
  • Conduct meetings at your site, not at the bank. You have an advantage if you can get them on your turf, and even get several key employees to tag-team the presentation. If you are a startup operating out of your garage or basement, you are likely too early in the cycle to get banks interested.
  • Eliminate your salary from the use of funds. Most startup founders don’t take a salary for the first year or two, since most investors as well as bankers won’t give you money so that you can pay yourself. The most positive use of funds is to buy raw materials to build product for existing customer orders. In fact, customer orders are great collateral.

Even if you can’t meet all these criteria, it’s definitely worthwhile to utilize the free services of the Small Business Administration (SBA) and SCORE in the US to get their help in preparing for the loan option. They have contacts with the more “startup friendly” banks in your area, like Silicon Valley Bank, and might even be able to arrange a “loan guarantee” if you meet these criteria.

In all cases, the loan option should be investigated before looking for an Angel investor, since the “cost” of a loan is usually considered less than giving up a large share of your company equity and control to Angel or venture capital investors. I’m told that 21 companies on the Inc 500 list started with bank loans, so you can do it too.

Marty Zwilling


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