Saturday, May 31, 2014

The Correct Answers to 'How Will You Use My Money?'

American_CashEntrepreneurs looking for investor funding often fail to realize that all money comes with strings. For example, if you have watched the Shark Tank TV series, you probably noticed that the Sharks always ask the entrepreneurs for their intended “use of funds.” Those who respond with one of the wrong answers, such as “I want to pay myself a salary,” usually go home empty-handed.

You may think this question is just an artifact of good television, but let me assure you that in my experience as an angel investor, it’s a standard “make or break” inquiry posed to every entrepreneur. Here are some guidelines that will help you with the right answers, not only in closing your next investment, but in planning when and how much money to ask for:

  1. Investors are most interested in helping you scale the business.  That means they normally only invest in startups with a working product that has already been sold to at least one customer for full price (beta tests, giveaways and best friends don’t count). They are willing to cover marketing, inventory and scaling, but not product development.

  2. Make your focus and priorities clear. A long list of everyday expenses is not helpful here. I recommend that you simplify your use to no more than three items or categories, with a percent allocation to each. An example might be 50 percent for marketing, 30 percent for inventory and 20 percent for staffing. Have backup charts for investors wanting more detail.

  3. Funding for founder salaries at this stage is a red flag.  Investors expect you to “bet on the future” with them. You may pay salaries to your team, but your salary should come from earnings, when they occur. Taking your cut before earnings exist implies that you are not willing to take the same risk of no return, as you are asking of investors.

  4. Make sure allocation amounts are reasonable.  These days, even viral marketing requires real money, for events and promotions. Startups whose marketing budget is trivial lose credibility and most likely the investment. Conversely, a huge marketing budget implies an intent to “spray and pray,” in hopes that something works.

  5. Use of funds must be tied to projected cash flow negatives. If you ask for a million dollars, your financial projections better show a negative cash flow approximating that number (with a 20 percent buffer). Investors are not interested in giving you money to keep in the bank for backup, for investing in real estate or a fancy new car.

  6. Tie use of funds to real traction milestones.  A valid milestone might be closing a specific big-name customer or channel, such as Walmart, or it might mean getting your first 100,000 social-media followers, by a given target date. Building a huge inventory before you have a confirmed customer is not a convincing strategy.

If you are really looking for research and development money, and you didn’t sell your last startup for $800 million, professional investors are not the place to start. Hopefully, you can find some friends or a rich uncle who believe in your potential. The other alternative is to find a strategic partner who knows the space well and will benefit from your solution.

Professional investors always look for a proven business model and an existing revenue stream to minimize the risk. Then they look at the people behind the model, the execution status and how they might get their money back. Your proposed use of their funds will be seen in these three contexts. They will look to your business plan for cash flows and specific return on investment projections.

In all cases, your goal must be to explain how the investment will help you scale up the business and become more profitable sooner. You should always be prepared to mention a plan B, if possible, to grow more slowly by reinvesting initial earnings over time. Confessing that you are in survival mode, desperate for money now, will not improve your odds with investors.

Whether it be in the context of a five-minute elevator pitch or a more formal presentation to professional investors, the projected use of funds should be summarized and prioritized into three “chunks.” These must remain focused on scaling the business.

Investors want to be convinced that your use of their money will maximize their returns in the first five years, as well as yours. After that, all you have to do is make it happen. Have fun!

Marty Zwilling

*** First published on Entrepreneur.com on 5/22/2014 ***


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Sunday, May 25, 2014

Customer Engagement Is Key To Branding Yourself

branding-your-startupThe days are gone when a techie or a genius could build things in his garage and customers would find and buy the product, based purely on the “wow factor” of the technology. New technologies are everywhere today. People have seen so much that they are blasé, or actually fear pure technology. They want a personable brand, before they will consider the product.

They are overloaded by the media with amazing advertising messages, and people now realize that you can’t believe anything you see in pictures, and even videos can be edited to deliver any message. In fact, we are all media companies now, with our cell phones, computers, and professional-looking publishing tools.

Thus customers and partners rely more and more on personal engagement with people. Social media, like Facebook, allow them to convince themselves that they are engaging on a personal level, even when they aren’t. They definitely look for more personalization, and more “me, myself, and I” in the message.

David L. Rogers talks about this phenomenon in his book, “The Network is Your Customer: Five Strategies to Thrive in a Digital Age,” and suggests some strategies to improve your perceived engagement level. I’ve focused these more towards startups and entrepreneurs:

  1. Show a personal face. Engage customers by showing a personal side and an authentic voice in digital content rather than the authoritative voice of an institution. That means a startup should never use the old-fashioned anonymous website, with no names, addresses, or personal pictures. Show people you are an approachable real person.

  2. Focus on each particular segment and need. Focus on niche audiences and their specific needs and interests, rather than trying to engage every possible customer with the same content. Use the power of available tools to provide video, interactive, and highly targeted messages to each segment of your audience, and each business partner.

  3. Try branding yourself, not selling a product. Offer a story, entertainment, or a compelling idea that you can link convincingly to your brand, rather than trying to sell products or services directly. People buy from people, and in a startup, you are the brand. Sell yourself as the expert, and business sales will follow.

  4. Offer utility to each audience member. Provide content and interaction that helps solve a problem or answers a critical information need for your audience. Avoid the abstract value calculations that don’t apply to the segment you want. Use the power of the new media to deliver the right message to the right customer at the right time.

  5. Make it an enjoyable experience. Use the interactive, goal-based play of online games to engage customers for fun, education, and relationship-building. People today are used to multitasking, and have very short attention spans. Keep the messages short and sweet.

As the digital media continue to evolve, you have to change your content rapidly to keep up. Shorter books, for example, transfer better to phones and other modern reader devices. Links and interactivity become more important as high-speed Internet access becomes pervasive on more devices and appliances.

The key is an ongoing “engage” strategy, producing relevant, sensory, and interactive content that is at the heart of your customer networks. So start now to think of your startup as a media company, rather than an outsourcer of advertising from some anonymous experts. If you can build a product, but not a brand, then you are not quite ready to start a business today.

Marty Zwilling


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Friday, May 23, 2014

In The World Of Startups, Consultants Need Not Apply

Business_presentationLet’s face it, consultants have a bad image. Businesses want experienced people who get their hands dirty, rather than experts who give presentations, make recommendations, and disappear. Even consultants don’t like their job, since they don’t often get to see results, and too much of their time is spent looking for the next gig.

The Internet has changed the world. If you need to know how to do something, just look it up online. You will probably find more current alternatives and more recommendations on any given subject than any consultant could muster. For example, there are a dozen articles like this one for every area of expertise.

But certainly the Internet doesn’t do the job for you. My message today is to avoid the consultant stigma by signing up to do the job, not just talk about it. Then lead by example. There are a myriad of ways to make this happen in the world of startups. Here are a few:

  • Take the end-role directly. An approach I suggest these days is for freelancers to contract for the actual role, probably part-time, of startup CFO, VP of Sales, or President. In this mode they take on the “doing” role directly, rather than any “consulting” role.
  • Specialist versus consultant. Small groups of consultants have now become groups of specialists – CFO Services, Marketing Services, or Management Services. Specialists are consultants who do the work, rather than just make recommendations.
  • Charge by task or fixed-rate. Another mistake many consultants make is to charge by the hour, and customers lose track and lose confidence as things change. A fixed rate will make sure there is no surprise at the end, and you will stand out in the crowd.
  • Report within the organizational structure. In the past, consultants were taught to report only to the top executive, and to assume leadership rights in the organization. Today’s specialists have to earn their leadership, and prove their contribution to the department executive.
  • Dress to fit in. Gone are the days when you can make a great impression by over-dressing. Dress to fit into the company culture, no more, no less. Share the everyday life of the startup team you are working with.
  • Produce results. “Results” these days are not PowerPoint slides, or theories and recommendations. If you are the CFO, showing results means you set up the accounting system, and generate the first P&Ls. Speak to people, rather than write a document every time you want a change.
  • Have "customers", not "clients." This is a minor semantic point, but an important one to the customer. A "client" implies that the consultant is in charge, while "customer" suggests that the service provider is beholden. All aspects of customer service apply.
  • Be exceptionally easy to find. When your customer phones or emails you, his timer starts, so it behooves you to return his call or email quickly. Scheduling of a meeting at the end of the next week definitely tags you as a consultant whose focus is elsewhere.

So for all you consultants, maybe it’s time to consider changing your mode of operation as well as your title. If you have real experience in key business roles, or you are an expert in any one, then you have a good set of modern credentials. Use your credentials to figure out how to join a startup team.

Don’t be an outsider in attitude, recommendations, clothes, or rules of engagement. Every startup I know is looking for more team members, but none are looking for more consultants. If you find the right team, and do the right work, you won’t even need to look for a next gig.

Marty Zwilling


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Monday, May 19, 2014

Don’t Forget Grants If You Need Early Seed Money

UscapitolindaylightIn the US, many entrepreneurs see grants as “free money,” since they are not loans and don’t have to be repaid. A grant is not an equity investment, so the entrepreneur doesn’t have to give up a stake in the company either. Typically they can be used to fund product development and commercialization that would otherwise require outside investors.

A good place to start looking is the Small Business Innovation Research (SBIR) program, which is a lifeline for high-tech startups. A more general approach is to check out Grants.gov, which is a searchable directory of more than 1,000 federal grant programs. An advanced search tool is provided to search for a grant by eligibility, by issuing agency, or category.

Grants start as small a few thousand dollars, but can provide millions of dollars in capital to new ventures. But before you conclude that your funding problems are solved with grants, you should consider the direct and indirect costs of grant funding:

  • Grant applications are bureaucratic. Even experienced people dealing with grants tell me that it can take a couple of months of concerted effort to gather data, fill out the forms, and get the necessary certifications to submit a credible grant application. That is time and resource that you must add to the million other high-priority startup tasks.
  • Processing and approvals take time. If you meet all the requirements, complete all the paperwork, and submit your grant application today, it will likely be six to nine months before you see any money. In today’s fast moving technology world, that may give your competitor the edge, or your startup may wither and die waiting.
  • Professional help costs money. Of course, there are “experts” at grant preparation, available for a fee, and even people who can introduce you to key decision makers in the grant approval process. For all the value of a large grant, isn’t it worth a small investment to get your application “on the fast path,” and optimize your selection probabilities?
  • Stringent spending controls. Since government grants are funded by tax dollars for specific industries and research, usage of grant funds is carefully monitored. For example, federal and state governments don’t provide grants for starting a business, paying off debts, or covering operational expenses. Violations can lead to jail time.

Here are a few tips that I would recommend to startup clients, on how to position themselves for funding success through grants:

  1. Use local university connections. For university professors, grants are their lifeblood, and they know the process well. They need you, since grants associated with commercializing products are favored over ones allocated simply for academic study and papers. If they do the application for you, and get to publish the results, that’s a win-win situation.

  2. Pursue grants and investors in parallel. Putting your grant application intent and status in your business plan will greatly enhance your potential to get Angel funding for the interim. To the investors, it means less dilution and lower overall risk.

  3. Research related tax credits and incentives. You need to enhance your business plan and marketing with all the benefits to your customers of the multiple “stimulus” plans and tax breaks now being put together, especially related to alternative energy products.

  4. Extend your networking. Let’s face it, the business world and the political world are getting tightly intertwined. It’s time for you to meet state and local government officials, make them aware of what you are doing, and get them excited and working for you.

Money has always been tight for high-tech entrepreneurs who need to raise capital from investors willing to gamble on a new idea. Even though the situation is improving, and we now have crowd funding to fill in the gaps, there is never enough investment money to go around. Now is the time to get on the grant bandwagon, but do it with your eyes open, and budget for it.

Marty Zwilling


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Friday, May 16, 2014

Execution Trumps Everything In A Startup

Elon-MuskI’ve always said that startups are all about execution. Sometimes I encounter self-proclaimed entrepreneurs who have been “thinking” about a concept for many years, and haven’t started yet. Some of these may be visionaries, but none are real entrepreneurs - yet. Elon Musk has built several innovative companies, including SpaceX and Tesla Motors, and is worth about $12 billion. I’m told he spent more time executing than thinking about any one of them.

Great entrepreneurs live by the principles discussed by Leonard A. Schlesinger, President of Babson College, in his book titled “Action Trumps Everything” which he wrote in conjunction with friends Charlie Kiefer and Paul Brown. In it he explains how the power of entrepreneurial action helps people create what they want in an uncertain world.

One of these principles is that action trumps thinking, when the future in unpredictable. This one caught my eye, since the future of everything for startups on any day is unpredictable. Here are ten key reasons that I can certainly relate to:

  1. You find out what works and what doesn’t. Every startup will tell you that no matter how certain they were of their solution, and the path to success, they had to pivot a few times in the face of unforeseen challenges. Great solutions are never obvious before the fact.

  2. If you never act, you will never know if you are right or wrong. You may think you know, but you won’t be able to point to anything concrete to prove you are right. The problem with that, as Mark Twain pointed out, is: “It ain’t so much the things we don’t know that get us into trouble. It’s the things we know that just ain’t so.”

  3. You will find out if you like it or you don’t. Your action, for example, the decision to take steps toward starting a restaurant, may cause you to find out that you love the cooking but hate talking to people, may convince you to go into high-end catering and hire someone to deal with the clients.

  4. Acting leads to a market reaction, which could take you in another direction. Action leads to evidence, which becomes fodder for new thinking. You act, therefore something changes, and in observing that reaction you gain knowledge that could never have been gained from thinking alone.

  5. As you act, you can find people to come along with you. For example, in talking to your suppliers, you end up meeting the world’s most organized person. She may soon be a 10% owner running the day-to-day operations of your catering business.

  6. As you act, you can find ways to do things faster, cheaper, better. You discover, after making your world-famous chicken Parmesan fifty times, that you can prepare the dish in eight steps instead of eleven.

  7. If you act, you won’t spend the rest of your life wondering “What if . . .?” If all you ever do is think, you can gain tons of theoretical knowledge, but none from the real world. You become like that woman in the fable who knows the price of everything but the value of nothing.

  8. If all you do is think, you are less interesting as a person. In other words, if all you ever do is think . . . all you do is think. Who would you rather sit next to on a plane, someone who started a rock-climbing store, or someone who only thought about it?

  9. If you act, you learn from other people. You always want to know what’s real. Talking to people is acting . . . at zero cost. You can learn an awful lot, and it usually doesn’t take much time. Just make sure you act on what you learn.

  10. Thinking without acting feels like zero cost, but actually may have a huge opportunity cost. From a dollars-and-cents point of view, zero cost may be right. But while you are still thinking, somebody else could be stealing your market or the opportunity itself may end.

But before you act, you should always double check to see that the future is as uncertain as you think. If there is a more than reasonable chance that the future is knowable, you are better off going with a prediction, and that is a good thing.

If there is no way of knowing what the future will be like, act. It is the quickest way to learn. Take one small step toward your goal when it is far away or difficult to accomplish. Then evaluate where you are. A journey of a thousand miles really does begin with a single step.

Marty Zwilling


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Wednesday, May 14, 2014

Every Small Business Should Celebrate the Positives

Sponsored by VISA Business

City_Hall_ribbon_cuttingRunning a small business as an entrepreneur is a never-ending challenge of new products, customers, competitors, and an unpredictable economy. This week is National Small Business Week in the US, so it’s a good time to celebrate your successes, and allow the rest of us to acknowledge your dedication and innovations.

Too many entrepreneurs never find the time to reflect on the positives of their lifestyle, or even take a break. They forget that they became entrepreneurs, according to the “DNA of an Entrepreneur” study a while back, 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 celebrate National Small Business Week, and maybe even decide to take some time off and enjoy the family. You earned it, and you need the rest. We couldn’t make it without you!

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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Sunday, May 11, 2014

7 Steps To Making A Great Entrepreneur Impression

President Barack Obama talks with Facebook CEO Mark Zuckerberg before a dinner with Technology Business Leaders in Woodside, California, Feb. 17, 2011.
 (Official White House Photo by Pete Souza)
This official White House photograph is being made available only for publication by news organizations and/or for personal use printing by the subject(s) of the photograph. The photograph may not be manipulated in any way and may not be used in commercial or political materials, advertisements, emails, products, promotions that in any way suggests approval or endorsement of the President, the First Family, or the White House.Entrepreneurs are all about firsts, and the most important is you making a great first impression – on investors, customers, new team members, and strategic partners. Poor first impressions can be avoided, but I’m amazed at the number of unnecessary mistakes I see at those critical first introductions, presentations, and meetings.

The key message here is “preparation.” People who think they can always “wing it,” bluff their way past tough questions, or expect the other party to bridge all the gaps, sadly often find that what they think is a win, is actually a loss which can never be regained.

We've all met people that we instantly like because of a great first impression, and want to do business with. Here are some common sense things that they do and you can do to maximize the first impression that you impart in any business environment or discussion:

  1. Dress appropriately from the perspective of the person you are trying to impress. This one is so obvious that I hesitate to mention it, except for the fact that I see it ignored so often. Maybe you love wearing Hawaiian shirts to work, but when you visit a traditional banker to close on a loan, it will be worth your time to put on a solid shirt and jacket.

  2. Always research the person online before a first meeting. In today’s world of LinkedIn and Facebook, there is no excuse for not recognizing a person as you meet them for the first time, and knowing their accomplishments, if not their interests and academic background.

  3. Google the organization and the role they represent. It’s polite to ask a professional you just met about their company affiliation, but it’s much smarter to ask them about a current issue, making it clear that you already know a good bit about their company, and their role in that company.

  4. Find a common business link or friend to warm up the connection. The best introduction to a new customer, or potential angel investor, is a warm introduction from a common friend, rather than a cold call. In my opinion, this approach will double or triple your probability for success, no matter what the transaction.

  5. Be prepared to concisely state your key objective. Before the other party has to ask, you should look for an opportunity to net out what you are here to accomplish, and even have a couple of questions in mind that you would like to get answered. Think of it as not forgetting to ask for the order.

  6. Know a lot, but don’t flaunt it. Some people do all the right legwork, but then kill themselves by appearing arrogant or obsequious in the way that they can’t stop talking about everything that they know. When you meet someone new who is important, your first words after “Hello” should be a question rather than a long personal dissertation.

  7. Be positive, courteous, on time, and attentive. We have all met people who, when asked “How are you?” provide a long litany of their latest woes, or a diatribe on current political issues. Obviously, being late to your own meeting, or appearing distracted or uninterested, will also leave a bad first impression. Smile and relax.

All of the common first impression mistakes are avoidable, and elements of the right approach are easily learned. Most entrepreneurs have spent months, and hours of hard work, preparing the necessary business plans, executive presentations, and financial models to impress investors. Just apply the same diligence in preparing yourself for all those “first” opportunities.

That image of you that you first present usually lasts longer and has more impact that any document you can prepare. In the book “You Are the Message,” media executive Roger Ailes wrote that your first impression will be solidified in the first seven seconds. Use them wisely.

Marty Zwilling


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Saturday, May 10, 2014

Don't Let These 7 Excuses Sink Your Startup

Lusitania_When I heard a friend and business mentor say, “Your startup won’t fail if you don’t quit,” I realized that every entrepreneur should adopt “never give up” as their mantra. Rather than quitting, there are always alternatives, like pivoting the business model or merging with new partners for support. Either could improve the statistic that most startups fail within the first five years.

Nothing is more discouraging to aspiring entrepreneurs than the high failure rate. So why do most startups fail? Many experts say that running out of money is not the primary reason. The number one reason seems to be that the founders just walk away. Of course, they may be out of money as well, but that is often more of an “excuse” than a reason.

Here are some common excuses that I hear from entrepreneurs abandoning their startup, along with some suggested alternatives to the hard stop and exit:

  1. “I’ve lost my passion. I’m not enjoying this anymore.” This suggests that you've become discouraged with your current business model, possibly because of an unanticipated problem or pivots you made to avoid a competitor or make more money. My suggestion is to morph the current business idea back into one than you can love and enjoy rather than your quitting and accepting an employee role that's not your preference.

  2. “My idea is just too far ahead of its time.” You probably realize that the leading edge is very near the bleeding edge, where only early adopter customers dare to tread. On the other hand, if you wait for competitors to get there first, you may be left in the dust with no customers. Yet if you already have some early adopters, that's a good indication that real marketing and education will likely bring your product or service mass acceptance. So hang in there and get busy. 

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

  4. “The people on my team are not really committed.” We all make people mistakes or set employees' expectations too high. So you made some bad hiring or partner decisions. Now is the time to face up to these issues and reset your expectations or move out the people who don’t fit. The sooner it's done, the happier you all will be.

  5. “I just don’t have the business skills I need to compete.” Acquiring business skills is not rocket science; they can be learned on the job, as well as supplemented by coaching from an experienced team and advisors. If you knew all the answers, you would be bored and lose interest (see number 1).  Half the fun lies in the learning challenge, so don’t quit now.

  6. “It’s now obvious that there is no market for what I created.” It has never been enough to build a solution and then wait for people with the right problem to find you. There are a wealth of tools available today, relying on social media and marketing, to create or foster the market your company needs. Big markets never spring up fully grown out of the ether.

  7. “My company grew too fast, and the pressure and costs are killing me.” Perhaps it's time to reset your course to focus on business basics, so you can lighten your load. Or maybe it’s time to scale back and focus more on organic growth. But quitting right as your company is encountering success is foolish. Professional investors would love to help you scale your business

Most people agree that entrepreneurs learn more from their mistakes and pivots than they do from easy successes. Investors tell me that they are wary of funding an entrepreneur who refuses to admit any prior failure. So it’s smart to admit your struggles, rather than let them defeat you or drive you to excuses.

It's worth remembering that nothing really important is all that easy. Starting a business is just like building a new relationship; it takes work. At times you might feel like running your business is not worth all the effort, but just walking away is not very satisfying. Learning, solving some hard problems and achieving success are a lot more fun than failing. Why not make “never giving up” your mantra?

Marty Zwilling

*** First published on Entrepreneur.com on 4/29/2014 ***


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Sunday, May 4, 2014

Don’t Let Investors Conclude Your Startup Is A Hobby

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

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

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

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

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

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

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

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

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

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

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

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

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

Marty Zwilling


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Friday, May 2, 2014

Entrepreneurs Need To Play Favorites With Customers

favorite-customersMost startups are happy to find any customer, and will hang on for dear life to every one. Only later do they realize that some of these cost more than they are worth, or lead into commitments they can’t sustain, but no business wants to violate the golden rule that every customer needs to be treated as if they were the only customer.

In reality, the real world is full of pragmatics. Every smart entrepreneur needs to realize that trying to treat every customer the same, with limited resources, may mean that you are treating them all poorly, or at least limiting your own growth. Mike Michalowicz, in his satirical book “The Pumpkin Plan,” makes some excellent points with the analogy of how growing a business is like a farmer who struggles to grow championship-size pumpkins.

They generally treat all pumpkins with respect, but they don’t treat them all the same. Likewise, you have to rank your customers, fire the troublemakers, and eliminate unfit ones. Then you can focus your energy on the core client group, and keep these folks so happy that they will never leave you for the competition. Here are some key principles we both recommend along the way:

  1. Favoritism . . . it’s a good thing. Playing favorites is nothing to feel guilty about. It’s simply good business, and mandatory for your success. Your top clients or customers need to know they are special, to feel special. Go out of your way to help them grow their own business. Don’t try to make every pumpkin a giant pumpkin, because it never works.

  2. The customer isn’t always right. But the right customer is always right. Make them your favorites. Think of your business as a membership organization, with reasonable rules to join. The rules are for you and your team only, so no potential customer needs to feel excluded. Your goal is to grow every joining member into a record-breaking pumpkin.

  3. Under-promise and over-deliver. This ability seems to be a lost art these days, which makes it so powerful in making your special customers feel special. Masters of this process plan to have the work done before it’s due, so there is no panic and no freaking out. Remember, you will be measured by your actions, not your words.

  4. Don’t hide the secret sauce. With the Internet, the days are gone when you could hide your key advantage, to keep competitors from catching up. Be the first to share the knowledge that demonstrates you are better. Secrets make people nervous. The more they trust you, the more they rely on you, buy from you, and sell for you.

  5. Keep yourself an inch ahead of your competition. It only takes an extra pound to beat the world record. Equal isn’t good enough. But manage your focus and resources carefully to be a little bit better, a little bit more helpful, and a little bit more creative for the long haul, as well as for the moment. Both you and your customers will be the winners.

On the other side of this equation, how do you fire a customer that doesn’t fit your business? Mike suggests the following approaches, which do take effort and discipline, and need to work within accepted norms and legal business practices:

  • Prioritize the stars. When the best clients call, they get services first. The cringe-worthy customers get pushed to the back of the line. Each will get the message you are trying to send, and you will have the differentiation you want.

  • Eliminate services. Sometimes this simply means you need the will power to not accept customer requests that you can’t satisfy. Another approach is to explain that you have shifted all your resources to another segment, and can no longer help this customer.

  • Raise prices. If you really want to see bad clients run for the hills, raise your prices. If your prices go up, your perceived value will go up, and you may no longer be the whipping boy of commodity customers. Point them to big-box providers for low prices.

  • Refuse to two-time. Another way of breaking ties with a demanding client is to explain that you have an agreement with a major client that prohibits you from servicing anyone else any longer. Introduce them to an alternate vendor, to make it positive.

The net message from “The Pumpkin Plan” is to plant the right seeds, weed out the losers, and nurture the winners, for maximum growth. Discover the unfulfilled needs of the customers you want, innovate to make their wishes come true, and over-deliver on every single promise. Just be aware that it’s easier said than done. Maybe it’s time to take an audit in your own startup, to check your own words versus actions, and the results.

Marty Zwilling


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