Tuesday, December 31, 2013

10 Clues That An Entrepreneur Is In Over His Head

drowning-entrepreneurIf an entrepreneur doesn’t find themselves in over their head at least 20% of the time, they are probably not pushing the limits, not taking enough risk, and probably not working on an idea that’s worth doing. The challenge in to know when and how to ask for help, and not let bravado and ego mask anxieties. The best people know when they don’t know, and know how to find the right help.

Unfortunately, too many entrepreneurs I know are terrible at finding and accepting help. Perhaps it’s because they jumped into this lifestyle because they are passionate and stubborn about following their own vision, and they enjoy being their own boss. Too often they are also hesitant, inexperienced, and fearful of hiring people or a mentor to be the partner they need.

In the spirit of mentoring and helping entrepreneurs recognize their own weaknesses, here are ten key indications from my experience that you as an entrepreneur may be in over your head, and it’s time to look for some help:

  1. You start seeing every business problem as a personal affront. Your business is not all about what is best for you, but what is best for your customers. In reality, your customers care more about your product and service, so feedback on product shortcomings or service glitches are meant to help your business, not hurt you.

  2. Startup challenges become more depressing than energizing. The best entrepreneurs thrive on being able to push the limits, and tackling the tough challenges that ultimately result in real innovation which can change the world. If you find yourself dragging in to work, and dreading the next surprise, you may be in over your head.

  3. You have no idea how to pivot with the latest market trends. Successful entrepreneurs pride themselves on always having more ideas than can possibly be explored, so they are never at a loss for new alternatives to explore. If you don’t see a new trend as a new opportunity, you may be in over your head. Seek help or get out.

  4. You are completely surprised by a negative event you should have foreseen. At the end of a given month, you suddenly are totally out of cash. You know you should have been tracking the burn rate, or inventory requirements, or late receivables, but have found yourself totally distracted by a flock of emergency daily issues.

  5. You know what is required, but you continue to procrastinate. Sometimes it’s obvious that closing a deal requires some tough negotiation or sales calls at the top, but these are not your forte, so you can never find the time or energy to get them done. Maybe it’s time to find an advisor, or a board member with the right connections.

  6. Angry outbursts become more common than real leadership. Too many executives revert to bullying and micromanaging when they are in over their heads. In the long run, this tactic does not work, and your business suffers, as well as all those around you. If you catch yourself acting out in anger, get some help before more damage is done.

  7. You start playing the blame game. We all know entrepreneurs that are quick with an excuse for every problem, like we were too early for the market, the vendor let me down, the economy took a downturn, or my competitor is cutthroat. Every startup founder has to remember that the buck stops with them, and they must learn from every mistake.

  8. Lives in a state of denial, and misrepresents the truth. When an entrepreneur is in over their head, they can’t face the hard facts of business losses and missed customer commitments, and they can’t face their team. Thus they find themselves communicating less and less, and downright lying to people, while rationalizing that this causes less pain.

  9. Jeopardize their integrity to hide shortcomings. If you catch yourself saying things and doing things that violate your own sense of ethics, you are likely in over your head. These could include cutting quality corners, shorting vendor payments, and sabotaging team members. Now is the time to get help before you destroy yourself and your startup.

  10. Letting a sense of entitlement show through. It’s easy for an entrepreneur in over his head, and frustrated with all the challenges, to convince themselves that they are entitled to that fancy sports car or a six-figure salary once the first investor money rolls in. They let the burn rate go up too fast, and the business burns down before it really starts.

As a serious entrepreneur, you need to differentiate these symptoms from the plateaus we all feel from time to time as we jump from one learning curve to the next. In most cases, if you focus for a couple of months, you will find yourself happily afloat at the new level. That is just getting in over your head in a healthy way, rather than an unhealthy one.

According to Whitney Johnson in a recent Harvard Business Review article on this subject, the smart recovery is to send out an SOS (stop, organize, secure) before you drown, when you find yourself really in over your head. As an entrepreneur, you are expected to swim in unexplored waters, so there is no shame in accepting life preservers, as long as you learn from the waves.

So remember, none of us is perfect, and almost no entrepreneur gets it right the first time. If you never make mistakes, you are not taking enough risk to win in today’s market. But always be self-aware, and not be afraid to take a hard look in the mirror. Do you like what you see, and are you willing to change it?

Marty Zwilling


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Monday, December 30, 2013

7 Questions Test Entrepreneur Focus Before Funding

snail-moneyThe first question most people seem to ask when contemplating a new startup is where they will get investor money. That’s certainly a valid question, but all the money in the world won’t make your business work if you don’t have a plan to use it, or hate what you are doing. I suggest that there are several important questions before assuming that funding is the gate to your success.

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

  1. Do you really need investor funding to make this work? From your plan, calculate the absolute minimum amount you need to make your plan work, and then buffer it by 25%. Consider the non-cash alternatives, like offering team members equity instead of cash and bartering for services. Fundraising is stressful and difficult, which is why 90% of successful entrepreneurs do bootstrapping.

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

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

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

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

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

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

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

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

Starting a business is a marathon, so do your preparation and training before you ask for that bottle of water. Finding money is tough, but it’s not the hardest part. The hardest part is to do it all while enjoying the journey. Start slow like a snail, and make sure you enjoy the walk before you start running after money.

Marty Zwilling


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Sunday, December 29, 2013

You Can’t Run A Startup And Fear Speaking In Public

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

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

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

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

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

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

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

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

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

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

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

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

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

Marty Zwilling


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Saturday, December 28, 2013

Eliminate Complainers Before They Kill Your Startup

complainingThroughout my career in small companies and large, I’ve always been appalled by the number of people who seem to complain all of the time. These people don’t seem to realize that they are hurting themselves, as well as other people’s productivity, and the company they are working for.

I’ve always thought that I might be overly sensitive, until I saw an old survey done by badbossoloy.com, which claims that a majority of employees spend 10 hours or more a month complaining or listening to others complain, and nearly one third spend 20 or more hours. No startup can afford that huge cost in emotional capital, as well as productivity!

In the survey, negativity is seen as an indictment of bad managers, but I believe it is also an indictment of employee whiners as well. Ten to twenty hours a month is a lot of time to waste, not to mention the indirect time lost of the listeners, and the morale impact.

What does all this mean, and how do you correct it, or prevent it in your startup? Here are some recommendations from experts for proactive and recovery actions by all parties to minimize the problem in both employee and management ranks:

  1. Executives have to be the role model. If you as the founder, or other members your executive team are chronic complainers, the disease will spread rapidly through the rest of the organization. Don’t play the blame game, give negatively charged emotional speeches, berate employees in public, or wear an angry face at the office.

  2. Use the hiring process effectively. Too many startups give short shrift to the hiring process, because they are too busy, don’t want to pay market prices, or have no experience. It’s actually easy to spot whiners during the interview process, by listening to them run down previous employers and not accepting accountability. Don’t hire them.

  3. Encourage regular self-assessment. Encourage your management team and employees to always check themselves before making unsolicited comments against the following criteria: “Will this comment add value to our company, our customers, the person I am talking to, or the one I am talking about? If not, don’t say it.”

  4. Openly reward positive suggestions. Maybe it’s time to establish or re-activate the old-fashioned “suggestion box.” Make it work by regularly handing out real accolades, as well as real money, to people who add value or reduce costs in your business. A positive can-do attitude should also be recognized in job performance feedback.

  5. Quietly deal with people who won’t change. Some whiners have been that way all their life, and don’t know how to change their stripes. With proper counseling, they need to be moved out of your business before they do more damage. How quickly and quietly you deal with these problems will be the loudest message you can send to others.

Some people will use “honesty” as the excuse for negative and insensitive comments. In fact, the most honest and productive comments are always positive recommendations on how to fix a problem, rather than the complaint that someone or something is a problem. Even if some of your co-workers are jerks, you have no moral, ethical or legal obligation to broadcast this view.

Everyone needs to understand that complaining about salary or pay, criticizing colleagues and bosses, or vendors and customers, will generally just reflect negatively on the whiner, rather than accomplish any positive results.

The truth is that optimists lead better lives, and startups with positive teams are more successful, simply because they believe that what they are doing is going to work. Negativity also is a self-fulfilling prophecy, with an outcome that can be the demise of your startup.

Marty Zwilling


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Friday, December 27, 2013

Startup Early Execution Can Be Better Than Planning

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

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

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

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

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

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

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

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

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

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

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

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

Marty Zwilling


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Thursday, December 26, 2013

A New Era For Entrepreneurs And Startups Has Begun

TwitterSince the recent recession, and at least partially sparked by it, I’m seeing a real resurgence of entrepreneurial spirit, and more startup activity than ever before. I believe the days of the “job work” mentality are thankfully waning, with more people looking to get satisfaction by making the world a better place, rather than just tolerating brain-numbing work to fund enjoyment elsewhere.

According to the Kaufman Index of Entrepreneurial Activity (KIEA), the entrepreneurial rate in the U.S. is already well above the dot.com bubble of 15 years ago, although we have slipped a bit this year from the high point of 320 new entrepreneurs out of 100,000 adults in 2011. It still adds up to over 20 million non-employer businesses out there today, with more starting every day.

There is additional encouraging news for aspiring entrepreneurs on many fronts, just in case you are thinking about joining the existing ranks:

  1. Valuations of successful startups have hit an all-time high. An unprecedented number of startups, easily 25 and possibly exceeding 40, are valued today at $1 billion or more, according to a recent NY Times article. A year from now that’s projected to go as high as 100. Thus a record number of entrepreneurs (and employees) are getting rich.

  2. Initial Public Offerings (IPO) are back as an exit strategy. According to a report just out, a record 156 operating companies went public in the U.S. in 2013, with aggregate proceeds of over $38 billion. That is a 65% increase in the number of IPOs over 2012, and the highest proceeds raised since the year 2000. Twitter was one of the most notable, with a market capitalization now up to $38 billion all by itself.

  3. Funding for early-stage startups is more available than ever. According to David S. Rose, CEO of Gust, venture capital investors funded about 1500 startups last year, with Angel investors backing over 50,000 more. Of course, with more startups, this is still a tough space, with VCs funding only one out of 400 requests they get, and Angels limiting their focus to one out of 40. No wonder 90% of the successful startups still bootstrap.

  4. Cost of entry for a startup is at an all-time low. I can remember when creating a web site for eCommerce could easily require a million dollar investment. Now you can create a web site for almost nothing - and be on your way with your latest invention or personal services. Smartphone apps can be built for less than $10K, so who needs an investor?

  5. Startup incubators and accelerators are popping up everywhere. Business incubators were all the rage before the dot-com bubble (700 for profit, many more non-profit). After the bubble burst and the recession, more than 80% of them disappeared. Now they are back in every community, with the best even waving money at graduates.

  6. The world is a now single market, both homogeneous and heterogeneous. Entrepreneurs now can think globally about the opportunity, from day one but start locally. This approach, popularly known as “glocalization,” means you design and deliver global solutions that have total relevance to every local market you plan to attack.

  7. Social media is a boon for entrepreneurs and startups. With the key social media platforms today, an entrepreneur can tune a product, build a brand, and grow the business with very low cost and a high interactivity never before possible. The elements include communications, mobile platforms, and location-based services.

  8. Large corporations have lost their ability to innovate. Conglomerates, which were the engines of growth and vitality in the twentieth century, have proven themselves unable to innovate, and have a tarnished public image due to financial woes and poor management. Most now routinely buy startups for new technology and new products.

  9. Women are a growing force as entrepreneurs. Almost 20% of young women now aspire to run their own business today as entrepreneurs (15% in 2008), according to a recent poll by The Telegraph. They inherently have an advantage, since women already control over 70% of household income and over $20 trillion of consumer spending.

  10. Baby Boomers are joining the fun in record numbers. The percent of entrepreneurs who are Baby Boomer starting a business since 1996 has grown from 14.3 percent to 23.4 percent last year. In fact, in every one of the last 15 years, Boomers between the ages of 55 and 64 have had a higher rate of entrepreneurial activity than Gen-Y.

Looking ahead, a National Venture Capital Association and Dow Jones press release predicts that 2014 will bring further good news for entrepreneurs across several fronts, including more investment, greater IPO volume for exits, greater employment opportunities at startups, and even more improvements in the economy.

They also remind us that all is not rosy, with continuing economic challenges and a gridlocked Congress that could change everything. One of the great things about being an entrepreneur today is that you can lead in countering these challenges, and actually changing the way we think and behave in business, in our community, and our society.

The image of an entrepreneur is at an all-time high, so why would you continue to work in a job that you hate, or provides no satisfaction? Step into a new entrepreneur era where the definition of “work” is something you love. It’s not too late to start.

Marty Zwilling


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Wednesday, December 25, 2013

Every Entrepreneur Needs Holidays To Rest And Relax

business-christmas-2013-greeting-cardIt’s been a challenging business year, but I hope you are all taking some time off this long holiday weekend, to celebrate with the family. Even those of you who are not Christian and see Christmas as just another day should still enjoy the holiday spirit, take a break from work, and enjoy your loved ones.

Yet there will be some entrepreneurs can’t seem to make the decision to take a break. They forget that they probably became entrepreneurs, according to the recent DNA of an Entrepreneur study, for just this flexibility. Almost nine in ten respondents (87%) found benefits from running or working in a small company, like flexible working hours and being in control of your life.

Related benefits cited include the ability to influence the direction of the business (45%), and greater pride in your work (43%). Other studies show that only about 30% list money as a key benefit of running their own firm. This indicates that lifestyle and satisfaction factors are usually more important than financial ones.

As with everything in life, there are advantages and disadvantages to every choice we make. Choosing entrepreneurship is no exception. Beyond the obvious advantages mentioned above, there are some additional advantages that get mentioned often.

  • High level of excitement. Entrepreneurs love the continuous challenges of a startup, and the satisfaction of tackling them. Some are so high on this life, that they hate the fact that they have to "waste" part of their life in sleep!
  • Minimal rules and regulations. Work in a conventional job is often difficult to get done because of all the "red tape" and consistent administration approval needed. With a startup there are no rules, until you make them.
  • Challenge of originality. A good entrepreneur feels the incentive to offer a new service/product that no one else has offered before. That’s the same challenge an artist feels on every new canvas, or every musician feels when composing a new work.
  • Beat the competition. Entrepreneurs are driven to offer a new or better product at the same cost, or an existing product as a lower cost. Competition drives innovation, and innovation drives competition. The cycle never stops.

Of course there are some disadvantages that every entrepreneur knows all too well:

  • No regular paycheck. Starting your own business means that you must be willing to give up the security of a regular paycheck. In fact, most startup founders work for no salary during the first year or two of company operation.
  • Few benefits. There will likely be no medical and dental benefits, and no vacations or other perks during the formative years. Don’t expect a staff to do the accounting, handle correspondence, or even clean the bathrooms.
  • Decision responsibility. All the decisions of the business must be made on your own, better known as “the buck stops here.” This may sound like an advantage, but is actually a major source of stress and loneliness for startup CEOs.
  • Staffing challenges. Hiring and firing decisions are hard, and that’s just the beginning. Often times, you will find yourself working with people who "don't know the ropes" and require extensive coaching and assistance. Then you have to deal with the mistakes.

By definition, if you see the rewards here as outweighing the risks, you are an entrepreneur. So you should fully appreciate the right to decide to take some time off, and enjoy the family. Take time this holiday season to savor the dream. You earned it, and you need the rest. Happy Holidays!

Marty Zwilling


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Tuesday, December 24, 2013

Smart Entrepreneurs Don’t Overstay Their Welcome

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Marty Zwilling


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Monday, December 23, 2013

The Smartest Entrepreneurs Bootstrap Their Startup

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

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

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

  • Need employees and professional services. Of course, every company needs these, in due time. In today’s Internet world, enterprising entrepreneurs have found that they can find out and do almost anything they need, from incorporating the company to filing patents, without expensive consultants, or the cost to hiring and firing employees.
  • Need expensive resources up front. Many people think that having a proper office and equipment somehow legitimizes their business, but unless your business requires a storefront, everything else can be done in someone’s home office, or a local coffee shop, on used or borrowed equipment. Consider all the alternatives, like lease versus buy.
  • Need to spread the risk. Some entrepreneurs seem to get solace and implied prestige from convincing friends, Angels, and venture capitalists to put money into their endeavor. If nothing else, these make good excuses for failure – no freedom, wrong guidance, etc.

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

  • Sales are strong – too strong. If you are not able to keep up with demand due to lack of funds for production, and your company is too young for banks to be interested, you will find that investors love these odds, and are quick to go for a chunk of the action.
  • Your company has outgrown you. Some entrepreneurs are quick with creative ideas, and even excellent at managing the chaos of initial implementation. That’s not the same as instilling discipline in a larger organization, where most the challenge is people.
  • You need a prototype. When you have invented a new technology, you need expensive models and testing, including samples for potential customers. If you don’t have the personal funds to make these happen, investors might be your only option.
  • You need specialized equipment. If your solution depends on high-tech chips, injection molding, or medical devices, and you can’t get financing from suppliers, giving up a portion of the company to investors is a rational approach.
  • General startup expenses are beyond your means. Investors are not interested in covering overhead, unless they are convinced that you have already put all your “skin in the game” (not just sweat equity), and have real contributions from friends and family.

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

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

Marty Zwilling


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Sunday, December 22, 2013

Entrepreneur Happiness Is An Elusive Achievement

markzuckerbergBuilding a startup is hard work for low pay, it’s risky, and it requires total responsibility to make it work. Yet, many entrepreneurs are the happiest people I know. On the other hand, I know many unhappy individuals who are always partying, have minimal commitments, and little responsibility. I suspect the real parameters of happiness have eluded these people.

According to one of my favorite authors, Brian Tracy, in his book “The Power of Self-Discipline,” happiness is not even a goal that you can aim at and achieve in and of itself, but it is a by-product that comes to you when you are engaged in doing something you really enjoy while in the company of people you like and respect.

He defines the five key ingredients of happiness that every potential and existing entrepreneur, including Mark Zuckerberg (and every non-entrepreneur), should evaluate relative to their own situation:

  1. Happy relationships. Fully 85 percent of your happiness – or unhappiness – will come from your relationships with other people. For entrepreneurs, that includes business colleagues, but it also still includes spouse, children and friends.

  2. Meaningful work. You must be doing things that you love and give you a sense of fulfillment, as well as making a contribution. Studies have shown that the three most motivating business factors include challenging work, opportunities for growth, and pleasant coworkers.

  3. Financial independence. The happiest of all people are those who have reached the point at which they no longer worry about money. That doesn’t mean unlimited funds, but enough that they don’t fear being destitute, without funds, or dependent on others.

  4. Health and energy. It is only when you enjoy high levels of pain-free health and a continuous flow of energy that you feel truly happy. For many, health is only a “deficiency need,” meaning you don’t think much about it until you are deprived of it.

  5. Self-actualization. This is the big one, the feeling that you are becoming everything you are capable of becoming. Before this can happen, you must first feel that all deficiency needs are satisfied, and you have achieved self-esteem:

    • Survival. Basic survival is the top deficiency need, meaning sufficient food, water, clothing, and shelter to preserve your life and well-being. You cannot be happy, and you will experience tremendous stress, until survival requirements are met.

    • Security. The second deficiency need encompasses financial, emotional, and physical security. You have to have enough money, security in your relationships, and physical security to assure that you are not in imminent jeopardy of any kind.

    • Belongingness. The final deficiency need reminds us that we are social people, and we need social relationships with others, both at home and at work. You need to be recognized and accepted by other people who count in your world.

    • Self-esteem. Your self-esteem is the core of your personality and largely determines how you feel about everything that happens to you. Are you liked and appreciated by peers, doing a good job and being recognized for it, and achieving your ideals?

According to Abraham Maslow, a noted psychologist, less than two percent of the population ever reaches this height of self-actualization and personal fulfillment. But the wonderful thing about self-actualization needs is that they never need to be completely satisfied. As you stretch yourself in this direction, you experience a steady flow of happiness and contentment.

In all of these areas, you need to exert self-discipline and willpower to overcome the tendency to take shortcuts. When you keep going in spite of all obstacles and hardships, you feel powerful. Your self-esteem and self-confidence increase, and then as you move, step by step, toward your ideals, you feel genuinely happy. Are you a satisfied entrepreneur?

Marty Zwilling


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Saturday, December 21, 2013

Organic Growth Startups Won’t Scale Competitively

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

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

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

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

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

  • New product or service lines. Organic growth assumes innovation in the product or service, but non-organic growth through white labeling and strategic partners may add totally new brands and services to your revenue stream.
  • Fresh customer base. Teaming with another company, or buying another company, can add new geographical locations and new customer segments to the business. These relationships need not require cash investments; often they are done with exchanges of equity or assets.
  • Economies of scale. In many cases business opportunities with competitors (coopetition) will open up a new marketing channel, and definitely give you the cost advantages of scale. Economies of scale also apply to marketing, distribution, and sales.
  • New management skills. New business relationships mean new perspectives and new executives working on the opportunity. This can be a significant competitive advantage over major competitors, and overall reduces competition in the market place.

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

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

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

Marty Zwilling


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Friday, December 20, 2013

10 Lessons For Entrepreneurs To Weather The Storm

Weather-the-Perfect-StormA "perfect storm" is an expression that describes an event where a rare combination of circumstances aggravate an environment drastically. In the entrepreneur world, I feel we are in such a situation now for new startups, with the confluence of business recovery, the explosion of new digital technologies, and the political turmoil around the world.

It’s easier and cheaper to start a company than ever before, yet it’s tougher than ever to survive. It takes a “well-oiled” multi-disciplined and motivated team to win, and yet I see and hear all too often about teams that are well-funded and smart, but don’t work well together, or are downright dysfunctional.

The challenge they face is not unlike that described in the recent book “Into the Storm,” by Dennis N. T. Perkins, where a team of amateur sailors applied some key lessons in teamwork while surviving and winning a recent treacherous Sydney to Hobart Ocean Race. Here are ten lessons from the book that I’ve easily extrapolated to the business startup environment:

  1. Team unity: Make the team, not an individual, the rock star. Flat management is the business term to describe an environment where all members of the team feel they are part of the whole, that each has a key role to play, and each can express their views without jeopardy. There are no individual superstars or bosses with special perks.

  2. Prepare, prepare, prepare: Remove all excuses for failure. Winning teams set out to ensure that every element of the system is known to all and is functioning to the best of their combined ability. Make sure no one has an excuse for failure. That means preparing for things that could go wrong, as well as driving things efficiently that go right.

  3. Balanced optimism: Find and focus on the winning scenario. In business, startups will inevitably encounter setbacks, and need to pivot. The first step is to define “winning.” Is it more customers, more revenue, more profit, or killing competitors? Of course, all of these are important, but everyone needs to prioritize the same way during a crisis.

  4. Relentless learning: Build a gung-ho culture of leaning and innovation. The very best teams learn the most quickly from experience. That means they take action, reflect on outcomes, and gain insights that help them continuously improve. Innovation and new ideas are the norm, rather than maintain status quo, or charge straight ahead.

  5. Calculated risk: Be willing to sail into the storm. Great business teams accept that every startup is “a big risk,” and there is no quick path to safety. Winning requires situational awareness, which means always understanding the critical success factors, and working to stay aware of current business realities around you.

  6. Stay connected: Cut through the noise of the wind and the waves. The information blizzard in business is just as noisy as on the stormy ocean. Don’t let it be further clouded by political concerns and turf battles. Everyone needs to personalize communication, warn others of big waves, and even break protocol to help others when required.

  7. Step into the breach: Find ways to share the helm. In adversity, any given team member can be faced with a burden too heavy for one person to carry. A good team draws on each other’s strengths, and shares the load. At the top, this is called distributive leadership, which lessens the burden on the formal leader.

  8. Eliminate friction: Step up to the conflict, and deal with the things that slow you down. Fix the problem, not the blame. Confront differences in ability without blame, and add training, coaching, or education, and eliminate excess weight, before the storm. Humor can help alleviate anxiety and mitigate conflict, providing time to solve the crisis.

  9. Practiced resilience: Master the art of rapid recovery. Startups need people who thrive under pressure, meaning they are resilient and have a high stress hardiness. They enjoy change and look at problems as a challenge, rather than a burden. They measure success in terms of recovery time, and strive to make it shorter.

  10. Tenacious creativity: Never give up – there is always another move. Determination and creativity under pressure make a team unstoppable – on the ocean or in business. The “proud moments” of successful teams are the times when they come together in the face of adversity and win.

Some startup founders try to dodge the team-building challenge by single-handedly doing all the work, or establishing a monarchy where only one voice counts. Neither of these strategies can succeed, since even a small business will soon scale too big for one person to manage everything.

If you are a new entrepreneur, you need to realize that you can’t win by sailing around the edges of the perfect storm ahead. You have to hit it with an innovative plan, and you need a confident and disciplined team to get you through it. Are you ready to rock and roll?

Marty Zwilling


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Thursday, December 19, 2013

10 Skills An Entrepreneur Needs To Get Things Done

jeff-bezosGetting things done effectively in a startup requires total individual and team accountability. You can’t afford excuses and multiple people doing the same job. In my view, “taking responsibility” is the core element behind accountability. Many people hear responsibility as an obligation, but I hear it as “the ability to respond.”

Unfortunately many people don’t have the ability to respond, because they lack confidence in themselves, or simply don’t have the skills required. Therefore an entrepreneur’s first requirement is to hire or team only with people who are accountable (already have the confidence and skills you need) – training them on the job is prohibitively expensive when you have minimal income.

Even with the best people, accountability must be nurtured, since it can be killed more quickly than it can be grown. Here are some characteristics of current business leaders, like Jeff Bezos of Amazon, who foster responsibility, and keep it growing:

  1. You need to walk the talk. Above all else, you as the founder or executive have to be a role model of accountability. You need to exemplify the “buck stops here,” and never play the blame game. Reward accountability consistently and often.

  2. Communicate continuously. You need to make sure that your team members understand your expectations, and you need to proactively listen and understand the expectations of all stakeholders. Frequent and consistent communications, both verbal and in written processes, are required. Take away the “I didn’t understand” excuse.

  3. Measure objectively. Goals and objectives must be unchanging and measurable, based on results, with benchmarks for comparisons. Accountability assessments must be based on facts, not distorted by opinions, politics, and desire for power. Frequently changing expectations does not lead to accountability.

  4. Give control before expecting accountability. A sense of responsibility and accountability requires a sense of control. If several levels of approvals are needed for a specific decision, no one will feel accountable, and no one can be held accountable. Real delegation is required.

  5. Align functional groups with business goals. If key inputs are not under the control of the proper group, then they will cede accountability as well. If your sales group is measured on profitability, but is required to process leads from outside sources paid by volume, you have a conflict where everyone loses.

  6. Manage up the line and support your team. You need to be the sponsor and the advocate for every member of your team. Team members who take risks through accountability need to see your overt support up the line, with no blame and no scapegoats.

  7. Provide timely feedback on performance. High performance teams need immediate and useful information on how to improve, as well as regular full performance reviews, individually and as a group. Help people, including yourself, look in the mirror and see reality.

  8. Conduct humiliation-free problem analyses. Getting to the source and fixing problems should never be a “name and shame” game. Leaders need to provide safe havens where difficult issues can be discussed without assigning blame. The goal should always be to solve problems, not hurl accusations.

  9. Provide tools to support accountability. No tools and no data lead to total subjectivity and biased interpretations. Absolute dependence on tools leads to abdication of personal responsibility. Provide adequate tools, but trust the people.

  10. Differentiate accountability from entitlement. Accountability is hard, so no one is entitled to be right every time. Don’t punish people for making a mistake, but make it clear the mistakes have consequences, sometimes painful ones, that we all have to live with. Higher responsibility means more work and more skills needed.

Many executives subscribe to the misguided notion that you can hold people accountable. This is usually a ploy to control others and hand off responsibility, without being accountable yourself. People need to make themselves accountable, and accept the consequences of their actions. Remember that you are the model, and what goes around, comes around.

Marty Zwilling


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Wednesday, December 18, 2013

Smart Entrepreneurs Anticipate Market Segment Gaps

innovation-adoption-lifecycleEveryone in the business world has heard of the old bestseller by Geoffrey A. Moore titled “Crossing the Chasm,” but most entrepreneurs have no idea how it relates to them. In fact, it’s all about the “focus” required to get early stage technology products across the deadly chasm from early adopters to mainstream customers.

Most investors and startup professionals expand this concept of focus to apply to key issues of every aspect of strategic and tactical planning in a startup. Missions and products that are too broad confuse your team, your customers, and potential investors. There are other chasms out there just as deadly as the technology one, such as the ones below:

  • Market requirements chasm. The first chasm is getting the customer requirements right, product or service, to satisfy a real need that a large number of customers will pay real money to satisfy. It takes focus to resist adding a long list of features that seem to make the opportunity larger, but dilute to focus of both you and potential customers.
  • Product development chasm. Another common chasm is never-ending product development. Focus is required to resist adding a few more neat features, made possible by the new technology, which in fact make the product more complex to use, impossible to test, and very expensive in time and cost.
  • Marketing and sales chasm. Lots of people still believe the major cost of a new product is development. These days, with all the clutter in the marketplace, the highest cost is usually marketing. Focus is required here to pick the low-hanging fruit, break through the clutter, and then move on to the next segment. Marketing costs can be a deep hole.
  • Customer support chasm. Products that have features which are unfocused, or aimed at too broad an audience, can be almost impossible to support. Customers need lots of help with installation, or can’t make the product work the way they expect. The result is that customer satisfaction in unachievable or at least very expensive.

In his book, Moore limits his discussion to the transition between customers that are visionaries (early adopters) and customer pragmatists (early majority), in the context of high technology products that appear “disruptive,” meaning they move innovation in that arena to a new level.

Here are the five customer segments outlined in his analysis:

  • Innovators – they love the challenge of a new technology and expect problems
  • Early adopters - customer visionaries driven by technology who expect it to work
  • Early majority – pragmatists that buy only with peer review, references and support
  • Late majority – conservatives who wait until the product is no longer state-of-the-art
  • Laggards – skeptics who will only adopt when forced or the need is critical

The reason that his book was so popular, and is still studied in MBA programs and talked about by investors, is because his analysis has proven to be right so many times. There is a big gap between people who love to try new technologies, and the rest of us, who tend to be much more “technophobic.” Startups need to show real traction before attempting to cross the chasm.

I always recommend focus as the key to avoiding Moore’s chasm, as well as the others highlighted here. Start your business with a narrow niche and a focused strategy, but don’t stay there. As the company matures, and you learn more about your customers and your market, then it is time to go broader or deeper.

Build an overt strategy with feedback triggers to enhance the product to meet the needs of another segment of customers, and add more features to serve additional needs for the customers you already have. With this approach, you will find it a lot easier to jump all the chasms without crashing or breaking a leg.

Marty Zwilling


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Tuesday, December 17, 2013

10 Metrics To Drive Your Annual Business Review

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

As the end of the year approaches, it’s a good time for every startup to assess the metrics, technology, and platforms they’re using to manage the business. Maybe it’s time for an upgrade to get you to the next level. For starters, here is my selection of some key metrics that every six-sigma joint like GE tracks without thinking, but that too many small businesses haven’t yet formalized:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Marty Zwilling

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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Monday, December 16, 2013

8 Key Questions To Expect In Investor Due Diligence

startup-employee-due-diligenceIf you really want to impress a startup founder as a potential employee, or you want to be a smart investor, you need to know the right questions to ask. These are the questions that get past the hype of a founder “vision to change the world,” and into the realm of real business strengths, weaknesses, and current health.

Some founders try to deflect these questions by talking incessantly, so you often need to be calm, patient, and persistent to get the answers. My advice to founders out there is to not volunteer too much, but be open and honest in the face of direct questions like the following:

  1. What is your burn rate and runway today? These are investor slang terms referring to how fast money is being spent, with an implicit question of how long the startup can survive before breakeven or another cash infusion is required. You need to know this as a future employee, since it probably gates how long your new job will last. If the runway is less than six months, with no new source signed, both you and the startup are at risk.

  2. How much “skin” is already in the game? The intent of this question is to determine the level of commitment of founders, both cash and “sweat equity,” and how much others have already invested into this plan. Implicit in the analysis of the answers is how much progress has been made for the investment, and how stable the business is now.

  3. What’s the total history of this company? Gaps in the history of a startup are big red flags, just like gaps in your resume. If the company was incorporated five years ago, and is still in early stages, with the same founding team, chances are slim that it will suddenly get back on track with you as an employee, or you as an investor.

  4. How well do the founders get along with each other, and with the team? The smartest people are often the most eccentric, so some conflict in the ranks is normal. Excessive conflict, lack of communication, or lack of mutual respect is indicative of a dysfunctional team, and eventual failure of the startup. You won’t get this answer from the founder, but it’s not hard to get it by talking to other team members.

  5. What’s in this deal for me? Investing in a startup, or joining a startup, is always a very big risk, so the potential return better be large. As an employee, you salary will likely be low, your job security low, so the job title better be large, and the stock options better be large. As an investor, look for an ROI that is 10x your initial investment, based on something more than a dream from the founder. What traction can be measured today?

  6. Who do you have as outside board members? The only true outside board or advisory members are not family members, not current investors, but are experienced entrepreneurs with deep knowledge and connections in the relevant business area. They should be asking to speak to you if you are a potential investor or a superstar hire. If you talk to them, they better know the answers to the previous questions.

  7. Who is a real customer that I can talk to? Real customers are ones who have paid full price for the product, have it installed and in use, and are still satisfied. Free trials don’t count, betas don’t count, and “excited about the potential” doesn’t count. If there are no customers yet, when will the product ship, and how many times has the date been set?

  8. How solid is the intellectual property? Provisional patents, or lawsuits pending, don’t add up to a strong sustainable competitive advantage. You need to know these things before you put your money on the table, or bet your career and your family’s future on this startup.

Again, I’m not suggesting that you go on the attack to get answers to these questions. But don’t let management divert you with comments on your failure to understand “the vision and the big picture.” If you are a potential employee, it probably makes sense to get the job offer first before you tackle some of these, always staying calm and assertive.

In the parlance of an investor, asking these questions and getting answers is the heart of that mysterious “due diligence” process. Now you know. If you are a potential employee, you need to do the same due diligence before you sign on. Every good founder will have done the same on you, before they make you an offer.

Marty Zwilling


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Sunday, December 15, 2013

How Good Is Your Business At Reading Weak Signals?

Thinking-in-new-boxesWhen the economy tanks as it did in the recent recession, that’s a strong signal that things have to change, and it’s hard to miss. But most of us in business have to deal most of the time with weak signals, or change that is happening in a far more subtle way. These changes can be cultural, like the increasing need to be social, spawning Facebook and a hundred others, or technological, like the explosion of mobile devices around the world.

No business or startup wants to be the next Myspace, or even the next RIM (BlackBerry), where changes in the marketplace were subtle. Recognizing and interpreting weak signals into timely decision making is critical to your business, and it takes skill and focus.

The challenge is knowing what to look for, and how to react. I saw some real guidance in a new book by Loc de Brabandere and Alan Iny, “Thinking in New Boxes.” While the focus of the book is really on business creativity, the following triggers were outlined as weak signals which should not be overlooked in your efforts to think outside the box, or think in a new box:

  1. A changing value proposition. For example, if it’s getting harder to charge a price premium for the product you’re marketing, or others are offering your subscription service for free, it may be time to start thinking in a new box. Another example is seeing substitute versions of a product, like eBooks, for a low price displacing hardcover books.

  2. New unmet consumer or customer needs. Perhaps you own a consumer products store and see that following the introduction of the new iPad, there are no attractive protective cases for them yet available. Or you notice that people are getting overnight delivery from Amazon, but your retail store offers no home delivery options.

  3. The entry of new competitors and new suppliers. You are selling several successful computer video games, but notice more and more new ones popping up on smartphones. Or you notice that your line of high quality tools is being undercut by cheap knockoffs manufactured in other countries.

  4. The advent of new breakthrough technologies. You are still providing conventional digital wristwatches while a crowd-sourced new company is offering a high-tech new version that syncs with your smartphone. Or you are still delivering coupons via the local newspaper, while new entrants are loading them onto your loyalty card or smartphone.

  5. Changes in your organization’s core performance metrics. For example, quarterly sales on one of your most important products suddenly decreases, or your inventory across a whole category has surged. If one metric changes, it may not be significant, but someone needs to monitor whole categories for fluctuations that may be a weak signal.

  6. Unfulfilled business and other potential opportunities. Sometimes you might be astonished to notice something that has not yet occurred, and therefore signals to you an opportunity, like new transportation alternatives. Taxi or bus companies are often slow to recognize a new popular travel location based on population shifts or resort communities.

  7. Broad disruptive events. Everyone notes macro changes, but the weak or secondary implications are often overlooked. Look hard for unanticipated consequences of events like new government regulations on financial processes, changes in environmental patterns, or sociological changes in other countries. First responders are the winners.

  8. Premonitions, anxieties, and/or intuitions. Weak signals may be even more subtle or insidious. Perhaps your assistant mentions that your phone has been ringing much less lately. Or you sense that some of your best people are getting bored. Such inklings and realizations can be valuable warnings of significant impending change.

All weak signals need to be treated with a continuous innovation mindset and urgency, to stay competitive and current. Here is the recommended five-step approach to thinking in new boxes:

  • Doubting everything you think you know.
  • Probing the possible issues to fully understand what is happening.
  • Divergent thinking to create many new boxes, concepts, and hypotheses.
  • Convergence through testing and validating back to a small number of viable changes.
  • Re-evaluating relentlessly for the agility to survive.

New entrepreneurs are notoriously great at capitalizing on new opportunities, both weak and strong. But nurturing this ability after the first burst of creativity, to accomplish the necessary pivots, and keep from getting seduced by their own initial success, is a more rare commodity, even in the startup community. If you aren’t reacting to weak signals almost every day in this era of fast-paced change, then you are missing opportunities and falling behind. What new boxes are you implementing these days?

Marty Zwilling


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Saturday, December 14, 2013

5 Key Steps For Every Startup Roadmap To Revenue

KristinZhivago-RoadmapToRevenueEntrepreneurs always work hard to create an innovative product or service, but often count on standard seller marketing for sales. But the reality is that sellers are no longer in charge of the customer buying process. Reports suggest that 90% of today’s shoppers skip marketing pitches, to research online before they buy, and over 50% check user reviews before making a decision.

The Internet and smartphones have changed everything. Kristin Zhivago, in her book “Roadmap to Revenue,” makes the point that the selling system is broken, since sellers no longer sell the way customers are buying. Here is my summary of her roadmap which I believe can get you back on the right track with a “customer-centric” approach rather than a “company-centric” approach:

  1. Find out what customers want and how they want to buy it. The best way to do this is with real customer interviews. Customers will tell you things when being interviewed that they will never tell you while you are selling to them. She recommends phone interviews by you, by appointment, with structured questions, and you document results.

  2. Debate and adjust your offering to better match what customers want. Distribute an Executive Summary and Recommendations report, as well as transcripts of your interviews, to all the key players in your company. Schedule and run the necessary sessions to update strategic product offerings, processes, and marketing programs.

  3. Align your business model to how your customers want to buy. Don’t start from how you want to sell. Start with a new understanding of the real customer need, their search process in finding you (referral, website, social media), and most desired payment model, like one-time payment versus subscription, or lease versus purchase.

  4. Integrate the customer buying process into your support operation. Decide which parts can be automated, people resources required, and customer service points of contact. All of these processes should be documented, and should explicitly include the customer buying process and perceptions as the base. Their perception is your reality.

  5. Build and deploy a revenue growth action plan. This is your rollout of the new product offerings, business model updates, and process changes to map to the new understanding of the customer buying process. Include planned measurements and metrics. Start where the customer wants you to be and work backwards.

As you start making the shift to customer-centric, if your team doesn’t “get it,” then you haven’t communicated effectively. Communicating change is always hard, so pay careful attention to the central message, repetition opportunities, and “walking the talk.” People are quick to make things up to fill a vacuum, and rumors or myths die hard.

Make sure your own motivation is strong, and don’t let anyone view these efforts as a one-time push. It has to be managed and sold internally as a culture change, requiring everyone’s help. Experience has shown that the best way to change a process is to set up the new way of doing things, then flip the switch (flip method), rather than making incremental changes (drip method).

Every business needs to take advantage of the new tools and technologies which can assist you in making this shift in strategy and measuring effectiveness. These range from basic search engine optimization (SEO) tracking, like Google Analytics, to a new generation of marketing platforms, like HubSpot.

There are multiple benefits to both you and your customer. The customers will get what they want, when they want it, and you will see more revenue, greater brand loyalty, real relationships, and a competitive edge. That sounds to me like the recipe for business success that every investor is looking for.

Marty Zwilling


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