Monday, September 30, 2013

10 Entrepreneur Milestones That Make Funding Easy

cash_countingEvery investor expects to see some business traction, both before and after a funding event. If you have been working 20 hours a day, and spent your last dollar, but have no results to show, investors will be sympathetic, but will probably tell you that your dream doesn’t have wheels. Traction means forward progress.

I hear a lot of entrepreneurs contemplating their great “idea” for several years with little discernable progress, and looking for money to start. Talk and time are cheap, but they need to understand that investors judge past results as a good indicator of future expectations. Here are some tips which will signal traction and fundability to investors, as well as to your team:

  1. Document your business plan. It’s hard to build a business without a plan, just like it’s hard to build a house without a blueprint. If you have a product description, that’s necessary, but not sufficient. If you have neither, and choose to approach an investor, you will get no attention, and probably never again get a shot at funding with that investor.

    Forcing yourself to write down a plan is actually the only way to make sure you actually have a plan. Make sure your plan answers every relevant question that you could possibly imagine from your business partners, spouse, and potential investors. That means skip the jargon and include explanations and examples.

  2. Set realistic milestones and achieve some. You can’t measure results if you don’t have a yardstick. On the other hand, if your objectives are off the chart, you look bad when you set them, and you look even worse when you miss them. Only written milestones are credible.

    Traction means that you have achieved one or more significant milestones, which will give you credibility with investors. Don’t expect them to believe your $100M revenue projection, if you are still waiting for the first revenue dollar. Only real results count.

  3. Attract a well-rounded team. A great business often starts with one person, but it doesn’t end there. If you are strong enough to surround yourself with a strong team, that’s great progress toward success.

    A CEO who has “been there and done that” is traction, especially if teamed with a financial lead (CFO) and a product lead (CTO). A team of friends and family that work for free on weekends is not likely to impress investors, unless they ARE your investors.

  4. Build qualified advisory board. If you can convince a couple of domain experts, or a couple of experienced executives to join your board and be your advocate, that’s traction. Investors love to have smart and experienced people in the boat.

    Investors are likely to make a few phone calls, so make sure these people really have taken the time and commitment to work with you, and know your business. Ideally, they will have links to distributors you need, or even be investors in your company as well.

  5. Ship a minimum product now. For a true scientist, the product is never good enough, so it’s never done. For a business, you must define the absolute minimum features you need to satisfy the customer problem, and test it in the market. It will be wrong, so count on iterating, but you learn something each time, and that is traction.

    By using a laser focused approach for the first iteration, you may actually produce something and get a customer without funding. Now investors will pay attention, since scale-up funding is less risky and has a time frame.

  6. Get a real customer and real revenue. If you give away your product or service to the first 10 customers, that’s a good learning experience, but it’s not real traction. It doesn’t prove your business model of pricing, distribution, and support. Sell one.

    Real customers give you real feedback, rather than just tell you what you want to hear. Funding for pre-revenue startups used to be the domain of angel investors, but they have moved up-stage. Without revenue, your investors are largely limited to friends, family and fools.

  7. Register some intellectual property. File a provisional patent, register a trademark, and reserve your company domain names. These are things that can cost very little money, but go a long ways in convincing someone that you are making progress.

    Intellectual property is a large element of most early-stage company valuations, and this value determines what percent of the company an investor will expect to get for his money. It’s also the keystone to convincing investors that you have a “sustainable competitive advantage.”

  8. Letters of intent or endorsement. If it’s too early for real customers, a Letter of Intent (LOI) or a written endorsement from a potential big customer is good traction to show potential investors. These show you have the ability to make the connections you need.

    Of course, a real contract or purchase order from a big customer is even better. If you have neither, you better have a prospect pipeline, connections to distributors, or partner relationship with a known company to bolster your credibility.

  9. Show personal investment. Investors like to see that you have committed personal funds as well as “sweat equity,” and they like to see real progress at this level. If you haven’t risked anything or used funds effectively, investors won’t let you risk theirs.

    A related issue is your apparent commitment to the project. If your startup is an evening hobby for you and some friends, and they all have a full-time day job elsewhere, don’t expect investors to get excited.

  10. Become a visible expert. If your business is a new job site for boomers, you need to establish yourself as the expert on this subject in the press, on social networks, and join related organizations. This is traction that will impress investors, and get you customers.

    Other ways to be visible include writing a blog, speaking at local groups, and issuing press releases which are related to the market need rather than the product you are producing. These efforts should be started well before you are ready for funding.

Your objective is to build a business that marches with power and purpose past its goals and objectives. Both your team and potential investors are watching, and if all they see and feel is words and work without progress, it’s easy to conclude that your startup is still a dream and a prayer.

Marty Zwilling


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Sunday, September 29, 2013

Business Communication Is So Much More Than Words

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

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

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

  • Honesty. This element is without question the most important in building strong communication in a startup. The implementation is simple – just tell the truth all the time, every time. It’s a lot easier than trying to remember what you said the last time, and people notice quickly. Build a culture of truth, and others will follow your lead.
  • Empathy. It is one thing to be honest; it is another thing to be brutally honest. Tell the truth in a frank and direct, yet respectful and empathetic, way. Shoot straight with people, but don’t shoot them between the eyes. Body language and sincerity are important here.
  • Courage. You need the courage to put even the most difficult and challenging subjects on the table and lead the discussion. Don’t wait until tomorrow, hoping the problem will go away. Courageous means that team members have the nerve and confidence to question authority, rather than dutifully fall in line behind a bad direction.
  • Safety. If you want people to tell the truth, you have to make it safe for them. Here is where your actions speak louder than your words, and louder than any written policies. If you obliterate someone for telling you the truth, you will never hear the truth again. If you are caught in a lie once, you will never be believed again.
  • Intellectual rigor. Although people should be safe, ideas should not be. In an intellectually rigorous culture, theories are tested, and people welcome, even encourage, critical examination of ideas and information, regardless of the source. The goal is for only the strongest ideas to survive.
  • Transparency. The hallmark of great leaders and organizations is that they share as much information with all of their stakeholders as often as they possibly can, in multiple contexts. Yet many leaders will tell me that they are continually amazed to hear the common complaint “why didn’t anybody tell me this was happening”.

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

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

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

Marty Zwilling


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Saturday, September 28, 2013

10 People Who Won’t Be Happy As Entrepreneurs

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Marty Zwilling


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Friday, September 27, 2013

How Can An Entrepreneur Qualify For A Bank Loan?

entrepreneur-loan-qualificationMany entrepreneurs are convinced that banks are not worth the effort for startups, especially early-stage ones that still don’t have a revenue stream, or collateral to back up their financing needs. A question I get all the time is “Can I ever expect any backing from my bank for a great opportunity?” The short answer is that some banks will help, if you do your homework.

The first thing to remember is that banks only do loans – they don’t do equity investments like angels and venture capitalists (and vice versa). To get a loan, you generally need to satisfy their 3 C’s – credibility, capacity, and collateral. That traditionally translates to at least two years of positive cash flow, with enough assets or receivables to cover at least 80% of the loan.

If you don’t have that, there are things that you can do to compensate. All banks are looking hard right now to get back in the game, and certain ones, like Silicon Valley Bank, are more focused on small businesses. I found a great discussion with Mark Horn, a former Silicon Valley Bank senior vice president, published by Jill Andresky Fraser several years ago but still relevant today, which outlines the issues I believe every startup must address when pushing the limits for a loan:

  1. A clear mission. You have to get past how great the product is to address clearly what your business rationale is, why it is different from the competition's, and why it will succeed. Be concise as well as complete. Show focus and your understanding that your company is something more than just a good idea.

  2. A winning product or service. Provide a simple yet complete description of your product or service and its competitive marketplace. Include any empirical evidence--including market research or technical analysis, if that's appropriate--in order to bolster your case about why you believe you will succeed.

  3. An impressive team. When we say 'team,' that's what we want to hear about: a group of people who are working with the person who had the original idea to give this company its market advantage, including salespeople and finance people. If you don't have a team on staff, then a banker is going to want to hear about outsourcing and advisors.

  4. Management with a strong track record. When describing each key person on your team, it's important to describe his or her employment history, with an eye toward convincing the banker that the person's experience will help your company achieve its goals. Here, too, focus on outside advisers as well as on key executives.

  5. Partnerships that lend credibility. Be comprehensive here. What a banker is looking for is validation of your idea. If you've succeeded in bringing savvy investors or corporate partners aboard, then that can be a pretty good sign that your idea can succeed in the marketplace.

  6. Money from other sources. This question gets to the heart of what bank financing is and isn't supposed to accomplish. Bankers do not contribute equity. What they're looking for is a situation in which others have already done that, so the bankers want to see the owner's money involved.

  7. A realistic cash plan. What any banker will want to know is, basically, how much money you've already raised and how quickly you've gone through it; how much you're currently spending; and finally, at what point you anticipate earning the revenues to sustain a positive cash flow.

Finally, remember that at almost any bank you will need to back up your financing pitch with audited financial statements, a well-thought-out business plan, credit check, and maybe even your personal tax returns as well. That's just reality.

In case you hadn’t noticed, the items highlighted by this banker are equally important to equity investors, so you need to do the work in either case. In the long run, bank loans are considered “less expensive” than giving up equity and giving up control, so a savvy startup should never skip this alternative.

Marty Zwilling


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Thursday, September 26, 2013

Shortcuts To Entrepreneur Funding Are Usually Scams

scam-truckSome aspiring entrepreneurs are so desperate for funding, or naïve, that they ignore the obvious signs of scams and rip-offs on the Internet, praying for a windfall. One would think that with all the sad stories and tools published over the past twenty years, this problem would be behind us. But people are still begging for more technology or laws, often to protect them from themselves.

As examples, I present my list of ten of the most common ways entrepreneurs can be victimized by ignorance or greed, based on questions and stories I get from entrepreneurs and associates. Most of these are easy to avoid if you do your homework up front, but can cost you dearly if you get sucked in. Use the common sense suggestions to avoid the pain:

  1. Decoy investor scam. Here someone who is not a registered financial broker contacts you on the Internet, tells you about all the people they know with money, then turns around to ask for a “retainer” or fee to cover their time and efforts. No real investor or venture capital firm asks for money from the company they are intending to invest in.

  2. Off-shore unsolicited investor offers. Unsolicited foreign investors that contact you on the Internet need extra scrutiny. If you feel confused by conflicting time zones, differing currencies, and up-front costs, it’s time to run the other way. The SEC and local law enforcement agencies can’t help you much with foreign scams.

  3. Deposit required to hold your terms. In this scam, you are offered a very attractive term sheet due to close in 90 days or so, with a deposit required to hold your position while due diligence is being conducted. Don’t count on ever passing due diligence, or even getting that deposit back. Professional investors don’t work this way.

  4. Loan offer in lieu of investment. Watch out for unsolicited loan offers via the phone or Internet that seem to offer quick approval, but require mandatory “premium fees” or “processing fees” up front, payable by money order or electronic transfer. Even if you pay the fees, you probably won’t see the money and won’t find the lender.

  5. Phantom fund investors. These solicitations, usually via the Internet, claim to represent a large fund that they can’t disclose, until you have been “qualified” for the investment. They promise to provide all the info at the time of close, after you sign a non-disclosure agreement. The close will never happen, but you will be stuck with large services fees.

  6. Pump and dump stock schemes. Don’t fall for claims from “insiders” who offer stock that you can turn around quickly. It’s usually stock that has been artificially pumped up by their big buy, who take their gain when you buy, and leave you with a big loss on their dump. A variation is “short and distort”, where their profit comes from short selling.

  7. Work at home to fund your startup. Beware of any offer that asks you to spend money before you can make money, to buy a starter kit, education, or tools. For more details, see a whole article I wrote earlier on this subject. Ignore these.

  8. Cash transfer assistance funding. I continue to be amazed that some government agency reportedly still gets 100 calls per day from victims of the Nigerian unclaimed cash scam alone. People who fall for this one must be really greedy. The best answer is the age-old wisdom that if it sounds too good to be true, it’s not true. Delete the message.

  9. Chain emails leading to a windfall. This is the classic pyramid scheme where you get an email with a list of names, asked to send a few dollars to the person at the top of the list, add your own name, and forward the updated list to a number of other people, resulting in a huge return to you. You risk being charged with fraud if you participate.

  10. Won the lottery. How can you win a lottery you never entered, usually in another country? A simple inquiry or response to one of these emails will get you permanently tagged as a prime scam candidate, meaning a flood of new deals. Delete these quickly.

Beyond the cases mentioned here, if the message or approach sounds suspicious, I recommend you visit Snopes.com, a website detailing thousands of known scams and hoaxes. With this website, and about 75 others like it, I find it hard to believe that user naïveté is the problem.

If people could get past their greed, hubris, sense of entitlement, and use common sense on the Internet, these problems would fade away due to lack of return. I’d rather see your entrepreneur resources focused on real opportunities to improve the world we live in.

Marty Zwilling


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Wednesday, September 25, 2013

How Entrepreneurs Can Sharpen Their Sales Focus

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

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

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

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

  • Claim your sweet spot. The sweet spot if the essence of your brand. The way to claim it is to name your expertise or specialty, describe for whom it’s meant and clearly state how it delivers on its promise (or what is called your unique payoff proposition). Make it real for you and your customers.
  • Craft your irresistible pitch. An irresistible pitch is a clear and concise explanation of what you do best, benefits to your customers, an honest statement of why you do what you do, a question that pulls the listener in, and words and language that engage the hearts and mind of your ideal customer.
  • Socialize your message. Generate leads using social media, but don’t rely on it alone to make sales. Use the media to initiate contact, highlight your human element, and communicate your specialty or expertise in a way that anticipates what your customers might be thinking about. Facilitate a transition to a private environment for closing a sale.
  • Engage graciously. Always treat customers with respect, honesty, and warmth to make the selling process more enjoyable, fun and delightful. The goal is to deepen the relationship, and discover if their needs match your offer. Listen closely for what they are saying and expressing. Don’t forget to follow-up. Skip the cold calling – it’s just too cold.
  • Discover your signature selling style. Learn to sell in a way that matches your personality and your strengths. Check the definitions in this book or other sources to see if you are the humanitarian, visionary, maverick, romantic, nurturer, mentor, or one of a dozen others. Tune your approach and you will find yourself enjoying the selling process.
  • Perfect your natural ask. As you go through the sales cycle with your customer, there comes a point when it’s natural for the transaction to conclude. Asking the customer for their decision demonstrates leadership on your part, shows you have confidence in your offering, and prompts them to make a final decision. You can’t win if you don’t ask.

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

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

Marty Zwilling


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Tuesday, September 24, 2013

Let Your Entrepreneurial Survival Instinct Help You

OvercomingAdversityWe all know entrepreneurs who have overcome adversity, like the recent business recession or personal setbacks, and achieved success. There are famous people like Walt Disney and Nelson Rockefeller, who overcame learning disabilities, and people like J. C. Penney and J. K Rowling who struggled through personal bad times before finding their true legacy.

I’ve always been interested in how this works, and why it’s true. I’ve listened to several speakers with personal stories of overcoming adversity, and the message is always that tough times can make you stronger, wiser, and better. I’ve seen real examples, so I believe it, but the how and why are more elusive.

In a book I read a while back, titled “The Power of Adversity,” Al Weatherhead details his personal story of overcoming family and personal obstacles, including alcoholism, heart disease, and serious arthritis, to become an inventor, a wealthy entrepreneur, and active philanthropist. For most, I think it starts with having the survivor instinct, rather than accepting the victim role.

Beyond that, Al outlines his techniques for mastering adversity, which I believe can add value for every entrepreneur out there. Hopefully, your adversities are not as disastrous as his, but applying the same principles should still have a strengthening effect:

  • Use the power of positive attitude and mindset. Developing a positive attitude about adversity seems essential to tapping its power to enhance and improve your life. A wise man once said, "Adversity has the effect of eliciting talents, which, in prosperous circumstances, would have lain dormant."
  • Meditation is the art of letting go. Practicing meditation creates and sustains your positive mindset. Don’t think of meditation in the classic Zen sense, as exercising or swimming daily is also a way of letting your mind go. You may realize that adversity is just another name for the series of choices called life.
  • Communicate your goals and desires. A great gift of adversity is coming to understand that you can only resolve your problems when you share your life with others. You simply must reach out to others, or you will never overcome adversity.
  • Practice sharing, not controlling. Don’t confuse the need to control with connection. As you truly connect with others – revealing, extending, and expressing yourself – the layers of adversity will peel away like an onion. Surround yourself with strong people who can help you get through the tough times.
  • Acceptance is the key. Adversity at some point in your life is inevitable. The more you refuse to accept it and deal with it, the more you will lose. Denial and running away never helps. Those who choose to be strong, rather than choose to suffer, will overcome it and may actually thrive.
  • Embrace the bounce. In business and your personal life, it’s all about being resilient. That means look beyond the challenges of the moment, and identify and integrate the new insights and convictions that adversity so often presents.

Your challenge, like Al’s, is to turn adversity into success. He believes that you have to be both creative and patient to discover the multiple solutions that will unravel the knots of your adversity. In these ways, you will move ever closer to mastering it, and be that much more at peace.

But even with all this, I’m still not sure that I understand why this works. I’m sure many of you out there have been through more adversity than me (my life has been a walk in the park, compared to Al). Help me understand what worked for you and why.

Marty Zwilling


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Monday, September 23, 2013

Don’t Be Fooled By All The Hype For Crowd Funding

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

So I have set out here to outline and offer some practical advice on the many different models currently used with the term “crowd funding” and “crowd sourcing.” The newest equity model was passed into law in early 2012 via the JOBS Act, and still has no scheduled date for availability in the USA, waiting for the rules to be defined by the SEC:

  • Startup equity crowd funding. This new model (now only legal in the UK) will allow large numbers of “regular” people to invest small amounts each online to get an ownership position in early startups. This is not a get-rich-quick vehicle for consumers. As a current Angel investor, I can attest that any investments in startups are more risky than the commodity markets, and you shouldn’t expect to see any return for many years.
  • Good-cause crowd funding. This model is a good thing, and has been around for years. Example sites include StartSomeGood and the Facebook Cause page. People can invest (donate) money to a project which has good moral/ethical value. No financial return should be anticipated, but contributors should enjoy the feeling of doing good.
  • Pre-order crowd funding. Here people make online pledges with their credit cards during a campaign, to pre-buy the product for later delivery, if it is ever built. Kickstarter is the big player in this space. It has had some notable successes for entrepreneurs (over $1M in funding), as well as non-starters. There is no concept of ROI other than product.
  • Rewards-based crowd funding. This is a variation on the two previous ones, where investors get the satisfaction of helping, and immediately get a pre-determined reward or perk of value, such as a t-shirt, or other recognition, but no equity or finished product. A good example site, and one of the earliest in this category, is IndieGoGo.
  • Debt-based crowd funding. In this model, sometimes called micro-financing or peer-to-peer (P2P) lending, you borrow money from a number of people online and pay them back after the project is finished. This has been popular in many countries for years via sites like LendingClub and Kiva. The allure is fat returns, but they come with a huge risk.
  • Ideas crowd sourcing. Technically, this model is not involved with funding at all, but “crowd sourcing” and “crowd funding” are often used interchangeably. Sites like IdeaBounty get your ideas off the shelf, and give you the wisdom of the crowds. Of course, this might also lead to investors, partners, and licensing opportunities.
  • Software crowd sourcing. This is basically the Open Source concept, where sites like IdeaScale facilitate the outsourcing of application development to the Internet community in the form of an open call. Sometimes contributors may get compensated later, but usually the rewards are just kudos and intellectual satisfaction.

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

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

Marty Zwilling


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Sunday, September 22, 2013

How To Avoid Investment Scams In The Startup World

investment-scamsAfter you have heard a few startup success stories, like Google, Facebook, and Microsoft, you may be tempted to invest some money yourself, maybe by pooling your funds with other investors who claim to have a great track record. My advice is to leave the investing in startups to the professionals (or friends and fools).

First of all, despite a few visible blowout successes, the odds of a payback from investing in startups is very low (that’s why VCs look for 10X returns to cover failures). Most investors agree the odds are better buying traditional public stocks, or even commodities. Even the hot new “crowdsourcing” companies springing up have yet to show any significant returns to investors.

Secondly, there are many scammers out there who look and act just like Bernie Madoff, even though he is safely tucked away in prison for the next 150 years. Most frauds are not on the scale set by Bernie, but even a few thousand dollars lost would hurt you and me as much as a few million did for some of his victims.

So what can you do, and what are the “red flags” to look for as you do your due diligence before pooling your money with other investors, or accepting money for your startup from investors? Here are some common sense tips:

  1. Get financial statements and verify. Every reputable investment firm is registered with FINRA and files regular reports with the SEC. Look for these and investigate thoroughly to check the truth of every statement about the company. Ask for references, and call or visit previous “successes” of the company to verify experience and satisfaction.

  2. Avoid “insider deals.” The Internet has just made it easier and faster for vultures to feed on entrepreneurs tempted by the possibility of an “inside deal.” Someone you don’t know promises you an “inside” deal. Why would a stranger pick you out to make rich? Does that make any sense?

  3. Listen for “unnamed sources.” Run away if all current investments are with “sensitive” clients, who are unnamed or unable to be contacted. Remember the old newspaper publishing rule of “All facts must be verified by two independent sources.” People claiming to be unbiased may actually be paid promoters or company insiders.

  4. Any mention of “offshore.” Watch out if someone has a complex plan involving offshore bank financing or gemstones or oil leases in Iran to make you rich. Why get involved in a complicated scheme you don’t understand, when there are plenty of opportunities that are legal and you can understand?

  5. Sounds too good to be true. The age-old wisdom here is that if it sounds too good to be true, it’s probably not true. I continue to be amazed at the fact that the Secret Service still gets 100 calls per day from victims of the Nigerian unclaimed cash scam alone. What are these people thinking?

Here are a few questions you should ask that might allay any remaining qualms, or convince you to run immediately:

  • How much am I paying in commission or fees?
  • Has your source been involved in any arbitration cases or lawsuits?
  • How do they get paid? By commission? Amount of assets managed? Another method?
  • Has the firm ever been disciplined by the SEC or a state regulator?

Unfortunately, in the startup and investment business, we are trained to rely on networking, connections, and professional integrity for many decisions. Remember that people who run scams may be highly polished and sophisticated, and can wrap their con games in such an air of legitimacy it may be hard to see the truth.

Don’t assume you are safe now that Bernie is out of the picture. If you have evidence of fraud, don’t be too embarrassed to contact the Securities and Exchange Commission. If others had done this sooner, his clones wouldn’t be out there today looking to help you out (of your money).

Marty Zwilling


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Saturday, September 21, 2013

Tips for Gen-Y On How To Be A Great Entrepreneur

elitedaily_zuckerbergA lot of executives have noticed that the workplace is being flooded by a new generation of workers, and they are questioning who will be the winners, and who will be the losers. In reality, Gen-Y is here, and they are already inheriting our businesses, so let’s figure out how to make them winners, or we will all be losers.

By definition, Gen-Y is the generation born between 1977 and 1995 (synonymous with Millennials). There are about 80 million of them, and nearly two-thirds of them are already in the work place as entrepreneurs or with jobs. They will inevitably be taking over after Gen-X from the Baby Boomers, who are now running most companies, but pushing 60.

In fact, according to new data from a recent j2 Global survey, Gen-Y is undergoing a significant career shift today, trending away from applying for jobs and toward launching businesses of their own. As the most connected and technologically equipped generation in human history, Gen-Y entrepreneurs are using today’s tools of communication, collaboration and mobility to build startups with little or no startup capital and few employees.

According to a recent Gallup® poll, fewer Americans aged 18 to 29 worked full time for an employer in June 2013 (43.6%) than did so in June 2012 (47.0%). More than half of Gen-Y (54%) have started their own business or have the desire to start one as found in a recent report by the Kauffman Foundation.

This ability to start a business with cost-effective (and sometimes even free) cloud-based and mobile tools, and the benefits of working wherever, whenever they want – combined with a youthful drive and energy –explains why the overwhelming majority (94 percent) of Gen-Y entrepreneurs are very optimistic for their businesses’ growth for the rest of 2013.

This same j2 Global Survey also offers the following tips how to improve your chances of success as an Gen-Y entrepreneur, or even as a young professional working for a larger organization:

  • Don’t let student loans rain on your parade. The federal government’s Student Startup Plan allows Gen-Y entrepreneurs to defer their loans or lower their interest rates to help them jumpstart their business, with an Income-Based Repayment Plan to make Federal student loan repayment more manageable.
  • Don’t let the lack of experience bring you down. The successes of Facebook’s Mark Zuckerberg and Tumblr’s David Karp show that experience is not always a key factor for success. Resources abound on the web to help Gen-Y business owners learn from others and become long-lasting entrepreneurs.
  • Lighten your load with technology. Gen-Y is learning that launching a business today takes far less cash than previous generations required. Cloud-based tools, like virtual phone solution eVoice®, let small business owners convey the image of a larger, professional enterprise for a fraction of the cost of a traditional business phone system.
  • Avoid all work and no fun. Being a small business owner requires hard-work and dedication. According to a press release on a 2012 eVoice® survey, more than 40 percent of small business owners juggle at least four roles for their organization. The good news is that 60% of Gen-Y founders said they plan to take a vacation this year.
  • Keep calm and carry on. The holidays will be around the corner, and for Gen-Y small business owners who are trying to capitalize the holiday hustle and bustle, it’s important to keep yourself together to win your staff’s respect. Explore ways to remain calm and prepare for problems that may come up.

For the rest of us, we have an opportunity to make an entire generation of 80 million people our competitive advantage early, or just wait until they take it away from us. Why not make it your strategic initiative, and a positive legacy for yourself? I’m accepting the challenge. How about you?

Marty Zwilling


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Friday, September 20, 2013

Hyperlocal Has Great Potential And Real Challenges

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

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

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

Much of this is still evolving, and I think it has great potential. Yet there are big challenges to hyperlocal, at least for consumer-focused hyperlocal startups, according to Sean Barkulis of UPlanMe, whose initial consumer-focused business model was an early casualty, condensed from his article on Street Fight:
  • Every site requires real curated local content to engage users. Building content is costly and time-consuming. If you don’t engage your users with an abundance of content the moment they open the app, odds are they will never return.
  • Local businesses won’t use a site until it has a critical mass of users. This is the old chicken-and-egg problem. Without users, business owners aren’t going to waste time promoting and marketing their content to your users. Getting these users costs money.
  • The burden of proof is on you to show value. In order for local businesses to buy in, they need to a) reach a large percentage of their customer demographic, b) save them time on their existing marketing efforts, and c) not duplicate any of their existing efforts.
  • Expanding city-by-city is expensive. What’s more difficult than building one successful startup? Try building 50 successful startups. This is essentially what you are doing when you try to launch city-by-city. Finding common elements for scaling is tough
  • The site may need consumer revenue to survive. It is possible to build a successful site that has components of #1, #2 and #3, but some good product or service right from the beginning helps viability. Maybe it’s selling local tours and taking a cut of the revenue.
  • Watch out for local sales force requirements. Look at how large Groupon and Living Social’s sales forces are, and they are still struggling to maintain profitability. If the sales force is too large, the site will probably not prosper. Look for new ways to sell.
  • Local business price points have to be low. Many of the customers in this space tell me that the figure is somewhere around $300 per year for their own internal break-even. They get many offers every month, so your entry offer better be low and convincing
  • Funding requirements are substantial. Word-of-mouth and cheap viral marketing won’t build critical masses of users, curated content, and direct sales forces. Foursquare has raised more than $112 million in outside funding, on $2 million in revenue in 2012.
Barkulis and I agree that your hyperlocal startup has a far better chance if you position it as a B2B and B2B2C startup, like Yext, Locu, and Yodle. Then you are building a solution for local businesses that helps them regardless of a direct consumer base. The site must either save businesses time on their marketing efforts, or solve a direct problem they are having. UPlanMe switched its focus as a B2B2C startup and is now thriving.

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

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

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

Marty Zwilling


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Thursday, September 19, 2013

Startups Need to Leverage Their Local Universities

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

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

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

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

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

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

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

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

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

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

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

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

Marty Zwilling


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Wednesday, September 18, 2013

Is There A Shortcut To Business Execution Success?

jeroen-de-flanderBusinesses always seem to take longer to succeed than an entrepreneur expects. Seth Godin once said that overnight success in startups takes about six years, and Seth is an optimist. Thus we all look for shortcuts. Execution shortcuts would be hidden strategies to achieve the endgame sooner, without losing 40 to 60 percent of the financial potential along the way.

The short answer is that there is no magic. But there is consensus from the experts that human dynamics are more the key, and the problem, rather than any particular business strategy or tactic. A new book, “The Execution Shortcut,” by Jeroen De Flander, a well-respected writer and speaker on business strategy execution, offers some good insights and examples.

If you aspire to get a better return from your strategy, De Flander asserts that you must learn how to position your strategy to capture the head, heart, and hands of your constituents. They need a full sense of awareness of where you are going, to care deeply about it, and maintain the highest energy to drive it. Here are ten ways he offers for an entrepreneur to enhance his strategies:

  1. Facilitate small choices that get you closer to the finish line. Provide prioritization guidelines to align day-to-day choices with the big choices. To make the right big choice, everyone needs to know who to focus on, and how to offer unique value to customers in the chosen segment. When to say no is also a critical part of any strategy.

  2. Keep the big choice clearly visible in all your actions and communications. People shorten and package messages all the time, causing message distortion which can hide the core of your big idea. So don’t pass messages down the line. Talk directly to every key constituency often, and make your messages as sticky as possible.

  3. Draw a finish line so key people know the real objective. Capture the core of your strategy and show everyone in an inspiring way what strategy success looks like. Everyone works harder when they know who’s winning and the distance to the end. The right finish line also motivates and gives purpose to those traveling the execution road.

  4. Define lead indicators, and regularly re-measure distance to the finish line. Everyone needs a limited set of lead indicators to provide feedback, and allow recalibration based on things learned along the way. Remove old signposts to prevent confusion, and work to prevent information overload.

  5. Share strategy stories for stickiness and heart connections. Story wrappers add context and emotion to the strategy to make people feel and remember the core message. People want to see what kind of small choices they have to make to contribute to the big choice.

  6. Climb the micro-commitment ladder with full engagement. Don’t settle for small commitments on big things. Go after big commitments on small things. The highest rung on the commitment ladder is “Yes, I will get it done no matter what.” This is the only level that represents full ownership of the task, and execution responsibility has really shifted.

  7. Go beyond self-interest to boost belief in others. The key to success is belief. Celebrating small successes along the road make people believe they can achieve a big success at the finish line. Success is a self-fulfilling prophecy, causing people to dig deeper, recover faster, and keep going longer.

  8. Constantly tackle complexity as your business grows. Complexity is the CO2 of the modern business world – the biggest performance killer in organizations. Embrace simplicity to create the most productive working environment. Be constantly on the lookout for best practices and tools to improve your strategy execution.

  9. Experience the power of habits to automate decisions. Each overt decision we make demands mental strength, and when there are too many decisions to take, our reserves run out. Remember how draining your first day on a new job was. Quickly the small decisions become habits. Group habits become your company culture.

  10. Find your 7-day rhythm. A daily rhythm or schedule creates habits faster, but is unrealistic in most business environments. A 7-day rhythm provides regular repetitions, and follows a more normal business flow. Be sure to connect decision horizons and find a spot for strategy in everyone’s weekly agenda.

We have all seen businesses and startups with great ideas that never seem to reach the finish line, while others with more mundane solutions seem to take some hidden path to success. In my experience, like that of De Flander, the difference is almost always related to the entrepreneur and their execution strategy, more so than to the solution provided.

So, the next time you talk to a potential investor, spend more time on your execution dynamics and less time on the product pitch. I suspect it will be a shortcut to at least the funding phase of your startup, and probably long-term business success as well.

Marty Zwilling


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Tuesday, September 17, 2013

How About A Matchmaking Site For Business Players?

INVOPeople tell me there are over 5,000 dating sites with scientific matchmaking algorithms, but I couldn’t find one that focused on scientifically matching companies or people for business-to-business (B2B) relationships. Yet, every business expert tells me that finding good business partners is just as tricky as a good marriage, without the sex.

Business partnerships come in all shapes and sizes, from finding a single partner to help you run your startup, to signing a strategic agreement with another large company for development, marketing, distribution, or international sales. As with personal relationships, unbalanced deals don’t work, since the dominating entity finds it hard to adapt and appreciate the value of a partner.

Everyone agrees that successful business partnerships can provide cash for growth, reduce costs, provide new geographic markets, or bring whole new customer sets to the table. Bad ones will suck the energy out of your company, and leave you wanting more. The thrill of the chase is always the fun part, but making it work is a lot harder.

Just like personal relationships, if you are contemplating a business partnership, the first consideration should be the characteristics of the key people involved. In addition, your company engines have to synchronize, which requires changes beyond the honeymoon period. Here are some of the key elements of both:

  • Principals on both sides need to be ready and willing to work with a partner. Some executives prefer to operate in solo mode. If you have worked for yourself for a long time, like living alone and making decisions without consulting anyone else, it may be hard to adapt to a shared decision-making environment.
  • Look for a match in operating style and work ethics. A business partnership doesn’t come with a no-fault divorce clause. During the “dating period,” look hard for those characteristics that suggest complementary strengths, compatibility, chemistry, motivation, and values. Consider a business “pre-nup” agreement.
  • Both sides should write down the shared objectives and vision. If there is nothing to write down, or the results are quite different, that’s a big red flag. At this point both need to put in some serious thought about common value systems and how integration will impact current operations and the “next generation.”
  • Agree on performance indicators measuring partnership effectiveness. Every relationship needs to be mutually beneficial to foster trust and common commitment. If the value is channeled to one beneficiary, with more cost and effort to the other, the equation won’t work for either.
  • Understand required changes to the current business model. These need to be understood up front, since implementation will likely require staff changes, process changes, and a more complex communication system. Both sides need to evaluate the intangible impact of these.

Even with the best of efforts, in my experience a high percentage of partnerships don’t work in the long run, because the underlying entities have different long-term objectives. This means prior planning for an easy dissolution. Document early the partner agreement detailing what each person is responsible for, who makes what decisions, and how disagreements will be resolved.

In summary, I did find a few sites, like BusinessMatchmaker and BoardMyBiz, which are a step in the right direction, but they still seem focused on letting you do most the work (like Facebook) to find the ideal partner. How about finding the best fit for you through something like eHarmony’s “scientific approach to matching” with 29 DIMENSIONS® of compatibility?

I wonder how many dimensions of compatibility there are to a good business partnership? I know it’s rarely love at first sight. There is still time for you to be the first eHarmony.com of the B2B crowd!

Marty Zwilling


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Monday, September 16, 2013

6 Business Success Myths Entrepreneurs Must Avoid

business-mythsAll true entrepreneurs operate off a set of tenets that are built into their psyche, or drilled into them from training and mentors. These are represented by sayings like “You never get anywhere unless you take a chance” and “Passion and persistence are the keys to success,” Unfortunately, there are still other old, reliable tenets that don’t work anymore.

In a book a while back by Jeanne Liedtka and Tim Ogilvie from the Columbia Business School, “Designing for Growth,” the authors encourage managers to think more like designers. I assert that designers have a lot in common with entrepreneurs, since both must innovate and start a deep understanding of what their customer really wants (“customer-centered”).

In most other respects, design thinking is the opposite of business thinking. For example, businesses must deal with reality as fixed and quantifiable, whereas design deals with subjective experience and a social constructs. Entrepreneurs need to bridge both these worlds, and I believe the authors outline the key business management myths that limit startup thinking:

  1. Myth: Think big. There are always pressures to be sure an opportunity is big enough, but most really big solutions began small and built momentum. To seize really new opportunities, it is better to start small and find a deep, underlying human need to connect with. A better maxim for entrepreneurs is: Focus on meeting genuine human needs.

  2. Myth: If the idea is good, then the money will follow. The truth about ideas is that we don’t know if they are good; only customers know that. Entrepreneurs often express surprise at funding challenges, confident that their good idea would attract money on its own merits. In that light, a better maxim for entrepreneurs is: Build the right team and customer need, and funding will follow.

  3. Myth: Measure twice, cut once. This one works fine in an operations setting, but when it comes to creating the as-yet-unseen future of a startup, there isn’t much to measure. Spending time trying to measure the immeasurable offers temporary comfort but does little to reduce risk. A better maxim for entrepreneurs is: Place small bets fast.

  4. Myth: Be bold and decisive. In the past, business cultures have been dominated by competition metaphors (sports and war being the most popular). Organic growth, by contrast, requires a lot of nurturing, intuition, and a tolerance for uncertainty. Placing bold bets falls well short of the new entrepreneurial maxim: Explore multiple options.

  5. Myth: Don’t ask a question you don’t know the answer to. This one is borrowed from trial lawyers, and it traveled into business because it always seems less risky to look smart. Unfortunately, new opportunities do not yield easily to leading questions and preconceived solutions. A better maxim for entrepreneurs is: Start in the unknown.

  6. Myth: Sell your solution. If you don’t believe in it, no one will. When you are trying to create the future, it is difficult to know when you have it right. The key is to be absolutely certain you have focused on a worthy problem. You’ll iterate your way to a workable solution in due time. Follow two maxims here: Choose a worthwhile customer problem. Let others validate.

There are many other design-thinking principles that entrepreneurs need to heed, such as the fact that products and services are bought by human beings, not target markets segmented into demographic categories. Great designs, as well as great products, grab customers at an emotional level first, then at the economic level.

Exemplified by Apple, and the success of their elegant products, design-thinking is proving to be more and more the competitive edge for entrepreneurs. This is not to say that sound business principles should be ignored in your next startup. The challenge for every entrepreneur, is to find that right balance between the myths and reality of business, and the power and inspiration of an innovative design.

Marty Zwilling


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Sunday, September 15, 2013

Freelancers Are The New Entrepreneurs For Services

freelance-jobsYou don’t need to invent an innovative product to be a real entrepreneur. Self-employed services specialists are just as important, and most often operate remotely (from anywhere in the world) in this age of the Internet. Many of these new entrepreneurs were regular employees a few years ago, focused on a skill specialty. They are not the generalists required for new product startups.

Some specialists have existed for some time with titles like business consultant, independent contractor, or freelancer. But these titles have lost their credibility and aren’t even descriptive of the roles. I propose we standardize on the “specialist” title, which is much more meaningful and focused, and can be applied to almost any role. Here are a few examples:

  • Marketing specialists. As your business starts up, you need marketing programs, Search Engine Optimization (SEO), Search Engine Marketing (SEM), a modern “pull” strategy based on social networks, and lead generation. This world changes rapidly and needs a highly focused specialist to keep up.
  • Administrative specialists. These were once called secretaries, who looked forward to a long career with a single company, starting in the typing pool, with careers often paralleling top executives. Now some never see the people they support, but are experts on the technology involved.
  • Writing specialists. Whether you are in manufacturing or software, you need experienced writers who can document your latest technology, write patents, and efficiently manage the multitude of data formats required by printing companies and advertisers.
  • Information specialists. With information technology (IT) and requirements changing so fast, it’s definitely cheaper to find specialists rather than hire young employees and train them. When it’s time for the new generation of technology, there will be new specialists waiting in the wings.
  • Software specialists. It’s hard to find employee programmers who can do rapid prototyping with “mashup” technology, as well as build scalable fail-over applications using the latest hardware and tools. Then your apps need to run on the new iPhone platform.

The days when these roles were stable careers for company employees are gone. Today we are seeing a rapid transition to independent specialists. Tomorrow, a similar change is likely to happen to sales personnel, customer service, even manufacturing and construction jobs. We are becoming a society of entrepreneurs.

So I believe we all need to learn how to be good entrepreneurs, in the sense of taking responsibility for our own education, skills, well being, and productivity. It shouldn’t be a huge transition. If you think about it, the best employees have always done this.

Independent specialists are becoming the preferred way to staff a business, regardless of the economy. Especially these days all businesses need to run lean and mean. Websites like Elance and Guru.com help you staff up with specialists, or find work if you are a specialist.

At any rate, you should realize that all businesses today are relying more and more on non-employee specialists to get their jobs done, for the practical reason that these minimize the long-term commitments to payroll and benefits, the expensive training, and the crises of downsizing and layoffs. Maybe it’s the incentive you need to jump on the entrepreneurial bandwagon.

Marty Zwilling


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Saturday, September 14, 2013

8 Intellectual Property Items Every Startup Needs

intellectual-propertyA large portion of your competitive advantage and your potential value to investors is the size of your intellectual property portfolio. When someone says Intellectual Property (IP), most entrepreneurs think only of patents. In reality, patents are only one of at least eight items that should be in your IP portfolio. You need all these before you start looking for funding.

Some of the other items may cost a lot less, and may be worth far more in the long run. Here are the key elements:

  1. Company name. The company name becomes your intellectual property at the moment you incorporate your startup as an LLC or a Corporation. Sole proprietorships need to trademark the name to protect it. Select it well – marketers will tell you that you will be selling your name, more than your products. Actual incorporation fees in many states are below $100, if you do it yourself. Don’t pick a company name until you are certain that you can get the comparable domain name, so Internet brokers won’t hold you hostage.

  2. Internet domain name. This name (www.domainname.com) is just as critical as the company name, and the two should match as nearly as possible. Significant differences will confuse your customers, and open the door to imitators and scam artists. Internet domain names can be acquired from most hosting providers or Network Solutions, for as little as $10/year each.

  3. Social media accounts. Immediately go to relevant social media sites and grab the same name, even if you never plan to use the accounts. Many companies like Sears, Coca-Cola, and Twitter have already been hurt by people using company names they don’t own on social sites. These days, every business needs a blog, so sign up your domain names accounts on TypePad, Wordpress, and Blogger, or all of the above, before someone starts blogging in your name.

  4. Patents. Remember that ideas cannot be patented, only novel implementations. But the application or provisional application has to be registered before you disclose the details to investors or consumers, or the implementation will be deemed un-patentable. Patent attorney fees start at around $5K.

  5. Trademarks. A trademark is a name, phrase or logo that tells the consumer the origin of the goods and distinguishes your goods from those of your competitor. Trademarks require a federal trademark registration from the United States Patent and Trademark Office. The cost for a single trademark is around $300.

  6. Copyrights. No registration and no cost is required to secure a copyright on written, audio, or video material that you create to be attributed to your company. Still, it is recommended that you add the familiar ©Copyright 2010 symbol at the beginning or end of each media and document segment.

  7. Trade secrets with employment agreement. Companies often use non-patentable but important trade secrets to run their business. These trade secrets need to be documented and coupled with an employment agreement, to keep them from migrating to your competitors when employees move on.

  8. Business Plan. Your business plan holds the keys to your kingdom, so you don’t want it in the hands of competitors. If you need early reviews or assistance by people you don’t know well, get them to sign a Non-Disclosure Agreement first. A sample agreement is available for free download from my website.

In cost, all of these elements of intellectual property may be acquired for a few hundred dollars (or a few thousand with an attorney), if you act early and quickly. Later, good intellectual property can be worth millions when your company valuation is set for investment purposes, or when the company is acquired or sold. In between, you need it to survive.

Marty Zwilling


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Friday, September 13, 2013

Most Startup Founders Spend Too Much Time Talking

talk-to-the-handWhen you are not presenting to investors or your team, try to spend more time listening than talking. You can’t learn anything new while you’re talking, yet many entrepreneurs seem to never stop. It’s a sad spiral, since the more you talk, the less people really hear, meaning they don’t learn anything either. If someone left this article on your desk, read extra carefully.

Building a business is all about building relationships, and one of the most important elements of a relationship is effective communication. Communication doesn’t happen unless both parties practice the art of effective listening. Check to see if you are practicing the key disciplines of listening, as outlined by Brian Tracy in “No Excuses: the Power of Self-Discipline”:

  • Listen attentively. Listen as though the other person is about to reveal a great secret or the winning lottery number and you will hear it only once. Since you always pay attention to what you most value, when you pay close attention to another person, you tell that person that they are of great value to you. You will be remembered.
  • Pause before replying. When you pause, you avoid the risk of interrupting the other person if they are reformulating their thoughts. It also enables you to hear not only what was said, but what was not said. Then you can respond with greater awareness and sensitivity.
  • Ask for clarification. Never assume that you automatically know what the other person is thinking or feeling. It is when you ask questions and seek clarity that you demonstrate that you really care about what he or she is saying, and that you are genuinely interested in understanding how he or she thinks and feels.
  • Feed it back. The acid test of listening is to see if you can paraphrase what you heard in your own words. It is only when you can repeat back what the other person has just said, in your own words, that you prove you are really listening, and understood the message. For all feedback, be sure to mirror the other person's pace and communication style.

Even good communicators average only about half their time listening. Yet experts assert that most people listen with only about 25 percent of their attention, hear about 25 percent of what is said, and after two months, remember only half of that. That’s not effective communication.

There are also things you can do to encourage others to listen to you, when you do speak, to improve the overall communication:

  • Lower voice, no emotion. This causes the other party to listen more carefully, and facilitates a more pleasant and more effective conversation.
  • Adapt to listener interests. Use analogies and terminology that are easy for the other person to relate to, and they will respond with attention and higher comprehension.
  • Choose the right environment. Wait for the right opportunity, when you can be easily heard and understood, and the listener is in the right mood.
  • Address people by name. This gets their attention and focus. Sometimes it helps to bring others into the conversation to support your input.

In business, you need to always be listening – to customers, to advisors, to investors, and to your team members. When you do talk, concentrate on making it effective. You don’t have the time to have things repeated to you four times before you really hear and understand them. Outbound marketing is all talking, and no listening.

Responsible, effective listening is a rare skill that will give you a sustainable competitive advantage over your peers and your competitors. It’s also a skill that can be developed with practice. You can never know enough in business, so even top entrepreneurs find time to listen. Are you learning anything these days?

Marty Zwilling


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Thursday, September 12, 2013

8 Tips To Help You Dodge Common Startup Mistakes

Visa Business_September Infographic_090513Behind most great startup success stories is a long list of mistakes! Unfortunately, for every success story you see, there is an even longer list of failure stories with mistakes that you don’t see. But rather than dwell on the failures, I’ve tried to extract from them a list of practical action items that will improve your survival probability.

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

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

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

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

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

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

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

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

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

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

Marty Zwilling

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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Wednesday, September 11, 2013

10 Reasons Why IPO Is No Longer A Good Startup Exit

Mark_Zuckerberg_CEO_FacebookIn the old days, every entrepreneur dreamed of someday taking their startup public, and making it a multi-national powerhouse. Today the rate of startups going public (IPO – Initial Public Offering) is at an all-time low, and most entrepreneurs avoid this option like the plague, knowing the process is painful, and public company executives are seen as greedy sharks.

According to an Ernst & Young report, the number of startups that have gone public in the US over the past decade is down about 75% from the previous decade, to about 10% of startup exits. Today, eight times as many successful startups are acquired, as compared to the number attempting to go public. In developing countries, like China and India, the statistics are reversed.

The reasons here are a lot more complex than the meltdown of key investment banks in the US a few years ago, so don’t expect a big recovery anytime soon. In my view, the key reasons that IPOs have lost their luster from an entrepreneur and investor perspective include the following:

  1. The US IPO process seems broken. Too many startups have experienced financial and technical glitches in recent rollouts, like the Facebook IPO, which antagonize individual investors and startup company executives as well. In addition, most ordinary investors are convinced that all the IPO rewards today somehow only go to insiders.

  2. Going public is an expensive process. Typical costs for startups today range from $250,000 to $1 million, even if the offering does not go through. In addition, huge amounts of executive time are required, as well as hits to key operational, accounting, and communication processes. The M&A alternative looks simple by comparison.

  3. Constant pressure to increase earnings. Because public shareholders usually take the short-term view, they want to see constant rises in the stock's price so they can sell their shares for a profit. Thus, there is tremendous pressure to increase current earnings, and little appetite for strategic investments.

  4. Startups going public are laid open to competitors and critics. Startups are typically run by a couple of executives who are reluctant to disclose via the prospectus and SEC reports all the decision-making criteria, operational financial details, and compensation formulas. With thousands of shareholders, dealing with critics is a onerous challenge.

  5. Complying with Sarbanes-Oxley requirements is a heavy burden. Public companies of any size must comply immediately with the full reporting requirements of the SEC. There is no accommodation for smaller public companies, who can’t be competitive in their space with the new accounting, documenting, and reporting processes required.

  6. Public companies are always at risk for takeovers. Friendly or hostile takeover attempts are just a couple of the many ways that company founders sense a loss of control of their own destiny. The board of directors, as well as public stockholders, are no longer part of the inside team focused on the founder’s vision to change the world.

  7. Increased liability risk exposure. Public company executives and directors are at civil and even criminal risk for false or misleading statements in the registration statement. In addition, officers may face liability for misrepresentations in public communications and SEC reports. Executives are also at risk for insider trading and employment practices.

  8. Violent market swings usually hit public companies first. Private companies in less-relevant market segments can often fly under the radar in turbulent times like the recent recession. Public stockholders are more easily swayed by emotion and the activities of the crowd, than real market conditions.

  9. Startup founders don’t fit in a public company. Most just don’t enjoy all the challenges of communicating to analysts, placating demanding stockholders, and keeping up with legal reporting requirement. They know they can be quickly tossed aside for not maintaining the right image and the right relationships with people they don’t like.

  10. The image of large public companies is negative. In the last couple of decades, the paternal image of large multi-national company leaders like Thomas Watson at IBM and Henry Ford is gone. Now the mistakes of large companies like Enron and BP have set a new image of public companies as being led by greedy and uncaring executives.

These negatives have largely overshadowed the potential IPO positives of increased capital for the startup, possible huge increase in personal net worth, broader access to investors, market for their stock, the ability to attract top-notch professionals, and the peer prestige of running a public company.

Thus most startups I know don’t even mention the IPO exit option, when applying for Angel funding, and most Angel investors will react negatively if you do mention it. As best, you should reserve this option for later stage VC discussions, once you have a well-proven business model, large market following, and substantial revenue.

More importantly, make sure first that you really want to give up the entrepreneur lifestyle for the challenges of a public company executive. I’m betting that Mark Zuckerberg of Facebook fame is having second thoughts, despite being worth $4 billion as a result.

Marty Zwilling


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