Monday, October 27, 2014

The Good, The Bad, And The Ugly Of Software Patents

software-patent-minefield I always advise software startups to file patents to protect their “secret sauce” from competitors, and to increase their valuation. The good news is that a patent can scare off or at least delay competitors, and as a “rule of thumb” patents can add up to $1M to your startup valuation for investors or M&A exits (merger and acquisition).

The bad news is that patent trolls (non-producing companies that make their money from licensing patents) can squeeze the lifeblood out of unsuspecting entrepreneurs, as exemplified by the recent mess around Lodsys suing small Apple IOS developers. This patent holding company has charged infringement and demanded royalties from every app developer for the iPhone and Android, for a feature most agree has been in apps for many years.

Yes, the software patent process is a mess. I say this with conviction even after I survived the process, and have a software patent pending. Consider this list of commonly recognized software patent flaws, as summarized from my research, Paul Graham’s “Are Software Patents Evil?” original essay, and the “Enough is Enough” emotional Lodsys article by VC Fred Wilson.

  • Process is onerous, expensive, and time consuming. Count on spending $10K to $20K per patent just for a USA application today, unless you do most of the work. Even after your application is accepted, the issuing process takes a lifetime in today’s technology (4-5 years). Then you need to repeat the process for every country of interest.
  • Patents have become a tax on innovation. A lot of companies, like Lodsys above, buy up software patents that are over-broad, and hold startups hostage after the fact, through royalties and litigation. They know that these entrepreneurs don’t have the skill or resources to defend themselves. Patents only help the big guys who want no change.
  • Software technology changes rapidly. Software changes fast and the government moves slowly. The USPTO has been overwhelmed by both the volume and the novelty of applications for software patents, and they can’t maintain a qualified staff. Patents currently last 20 years, which is way too long in the software business.
  • Patents granted that don’t meet the criteria. To be patentable, an invention has to be more than new. It also has to be “novel” and non-obvious. Moreover, patent law in most countries says that software “algorithms” aren't patentable. So lawyers routinely frame a software algorithm as a "system and method" to meet the criteria.
  • Valid patents have been overturned by unpatented prior art. Until mid-2013, the USPTO still operated on the doctrine of “first to invent,” rather than first to patent. This hit RIM (Research In Motion) a few years ago, and cost them $650M to recover. At least that shouldn’t happen again, as the US process is now consistent with the rest of the world.
  • Applying for a patent is a negotiation. As a result, lawyers always apply for a broader patent than they think will be granted, and the examiners reply by throwing out some of the claims and granting others. They don’t insist on something very narrow, with proper technical content.
  • Different rules around the world. What I have described so far is the situation in the US. In Europe, software is already deemed not patentable, and other parts of the world are somewhere in between. In some countries, software patents are not recognized, and in others they are not enforced. We need a global solution.

So what’s the answer? I would argue to simply eliminate the software patent – since software is an implementation and is already covered by trademark and copyright law anyway. Others put their hopes in patent reform legislation, to tighten the definition of software patents and targets trolls. This legislation seems stalled in its tracks for now, due to lobbying efforts of the bio-pharmaceutical industry, along with universities and trial lawyers.

Either way, new computational technology algorithms would still be patentable, as long as the algorithm meets the defined requirements for novelty, usefulness and inventiveness. I’m a big supporter of building and protecting a portfolio of real intellectual property, and maximizing your startup’s valuation, but it shouldn’t be just a legal game.

Marty Zwilling

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Sunday, October 26, 2014

Entrepreneurs Work On The Business As Well As In It

live_image_presentation Over 25 years ago, Michael E. Gerber wrote a best-selling business book called The E-Myth: Why Most Businesses Don’t Work and What to Do About It. The E-Myth (“Entrepreneurial Myth”) is the mistaken belief that most businesses are started by people with tangible business skills, when in fact most are started by “technicians” who know nothing about running a business. Hence most fail.

Some pundits argue that the E-Myth principle is now outdated, due to the instant access to information via the Internet, pervasive networking via social media, and courses on entrepreneurship at all levels of education. Perhaps an innate business savvy is no longer a requirement for starting a successful business.

Let me assure you that based on my experience, I’m not convinced. I still see too many businesses started by technicians who haven’t acquired the basic skills or knowledge, or still assume that business acumen is a minor part of the new business equation. I also see no evidence that the percentage of new business successes has gone up in the last couple of decades.

I believe that most entrepreneurs today, at least in the technology domains I frequent, still work in the business (“Technician’s Perspective”), rather than on the business (“Entrepreneurs Perspective”). Here are some key ways these views differ:

  • The Entrepreneurial Perspective asks the question: “How must the business work?” This perspective looks at the business as the product, competing for the customer’s attention against a whole shelf of competitors. The Technician’s Perspective asks: “What work has to be done?” In this view the product features, cost, and support are the key to success.
  • The Entrepreneurial Perspective sees the business as a system for producing outside results for the customer, resulting in profits. The Technician’s Perspective sees the business as a place in which people work to produce inside results for the Technician, producing employee income.
  • The Entrepreneurial Perspective starts with a picture of a well-defined future, and then comes back to the present with the intention of changing it to match the vision. The Technician’s Perspective starts with the present, and then looks forward to an uncertain future with the hope of keeping it much like the present.
  • The Entrepreneurial Perspective envisions the business in its entirety, from which is derived its parts. What’s important is the business as a whole: how it looks, how it acts, how it does what it is intended to do. The Technician’s Perspective envisions the business in parts, constructed from the bottom up, based on technical tasks.
  • The Entrepreneurial Perspective is an integrated vision of the world, where the customer need is an opportunity to make meaning. The Technician’s Perspective is a fragmented vision of the world, where customer satisfaction represents a series of problems to solve, with price, features, availability, and support.
  • To the Entrepreneur, the present-day world is modeled after a vision of a better way, one that will stand out with customers from all the rest in the past, and give the joy and satisfaction of success. To the Technician, the future is modeled after the present-day world, the model of past experience, and the model of getting paid for effort or results.

The challenge of every Entrepreneur and Technician is to maintain the right balance of views to get things done, win in the marketplace, and keep everyone happy. As startups grow, they quickly realize that they need a third personality, called the Manager, to build systems and processes. The Manager craves order, and often ends up cleaning up after the other two.

Perhaps someday our education system and other resources will facilitate everyone starting a business to have that balanced view, but I don’t see it happening any time soon. In the interim, I recommend you use social media and the Internet to find your alter-ego. Two heads are still better than one, to get the right business started, and get it started right, without worrying about the E-Myth.

Marty Zwilling

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Saturday, October 25, 2014

Answer These Ten Key Questions To Beat Competitors

change-the-model Change is hard. I see entrepreneurs every day who are trying to change the world with a new idea, and startups that are trying to survive their hyper-growth phase by changing processes to meet demand. In both cases, it’s easy for them to become frustrated and give up, since most have never been trained in change management, and don’t even know what questions to ask.

A while back, I spotted a new book for change management leaders in large organization, and I realized that many of the issues they face are the same as ones faced in every growing startup. Phil Buckley, in “Change With Confidence,” provides practical answer to fifty of the biggest questions that keep change leaders up at night.

Here are ten of the key questions that apply equally well to the world of startups and entrepreneurs, as they do to large organizations. If entrepreneurs answer these questions for their startup, they will definitely stay ahead of most of their competitors in the startup world:

  1. What is the “secret sauce” that my startup brings to the problem? Your passion is necessary but not sufficient to motivate real change. You need to quantify change results that constituents can see, feel, smell, or taste. Words alone, like “improved efficiency”, “paradigm shift,” and “breakthrough technology” won’t convince people to follow you.

  2. Who are the stakeholders who can most influence success? Stakeholders are key people impacted, or leaders who influence key people. For example, early adopters may be easily sold, but new technology product success really hinges on adoption by certain demographics, perhaps more influenced by celebrities or mommy bloggers.

  3. What do I need to know before I commit to deliverables? The last thing you need in a startup is a false start, where you can’t deliver on a product change deadline, or a new marketing channel. Deliverables and the resources you have to achieve them are two sides of the same equation. Make sure they match before you commit.

  4. How do I measure success? Define hard (data) and soft (anecdotal) metrics on the change, as well as on the quality of your leadership. That means you have to start with assessing the current state against the same metrics, before you can assess progress or change. Make sure metric results are available to the team, to keep them motivated.

  5. Will my proposed change actually achieve the desired outcome? It’s important to separate optimism and dreams from market realities. Ask yourself, “If I were an investor, would I support this effort, given the costs and promised returns?” Just because Google sales hit $1.5 billion in 4 years doesn’t mean any other startup can do it.

  6. How do I avoid scope creep? Expanding a project without additional time or resources is called scope creep. It takes a strong team and strong leadership to manage it. What works is a documented change request and review process, as well as quantification of resources required as well as anticipated incremental results.

  7. What does a good plan look like? A good plan is a written one, approved by all key players, which maps out all activities and provides a framework for leaders and team members to follow. Calibrate the plan with resources available to deliver it. Keep the plan simple, focused, and flexible.

  8. How do I know what resources I need? Without adequate resources to support your efforts, you will be faced with trade-offs that often lead to a poor transition to new ways and a burned-out team. What works is documenting early a fact-based resourcing plan, using credible sources, with a reserve allowance of 10% for contingencies.

  9. How do I prepare people to work in the new ways? Most important changes require new ways of working: a combination of new knowledge, skills, mind-sets, behaviors, relationships, and processes. Provide step-by-step job aids, training, and hiring for critical aspects of the new plan. Allow adequate time for this preparation before implementation.

  10. How do I reduce risk? A key aspect of mitigating risk is to first identify the risk elements before you start, and build in contingency plans, in case the risks materialize. Then establish trigger points to clarify when contingency plans need to be activated. This will speed up remedial actions and minimize damage.

Everyone learns and celebrates changes done well during startup hyper-growth from zero to a profitable business, and everyone loses when a promising but challenging startup fails. I hope these points illustrate that the best strategy for every startup evolution is to answer the key questions early, and don’t wait for the first crisis to think about risks and contingencies.

The ultimate objective of every entrepreneur and every team is to make change an opportunity for success, rather than an excuse for failure. When was the last time you approached change with confidence, rather than fighting it all the way?

Marty Zwilling

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Friday, October 24, 2014

Make Every Member Of Your Startup Act Like An Owner

people-entrepreneurs Every startup lucky enough to get some traction gets to the point where they decide to hire some “regular employees” for sales, marketing, and administrative tasks. Then they are surprised to see productivity and creativity take a big dip. What they should be doing is hiring only “entrepreneurs,” meaning people who think and act as if this is their own business.

This commitment to hire people who think like entrepreneurs, or instill an “owner’s mindset” in every employee, should be a high priority in every business. It’s what every customer looks for in every transaction. Most people will tell you this is impossible, but I found a book, “Army of Entrepreneurs,” by Jennifer Prosek, where she seems to have actually accomplished this.

I like how she was able to motivate, train, and reward employees, including the implementation of an incentive program to get every member of the team actively involved in generating new business. She also identifies the typical myths against using this approach, and describes how to overcome each one:

  • “Entrepreneurs are born, not made.” The reality is that all entrepreneurial skills are learnable skills. The entrepreneurial mindset is a function of motivation, priorities, and risk versus reward, all of which you set or enable by your leadership and example. Hire employees who have strong skills, with the motivation to learn new ones.
  • “Employees will care only about work they create.” This is really an issue of the quality of the people you hire rather than the management or compensation system. The key is to hire people with the right mindset, and communicate it daily to your whole team, by your actions as well as your words.
  • “Junior people shouldn’t be involved in new business.” This is the platitude of an obsolete corporate culture where you had to “pay your dues” in menial jobs before adding creativity or making decisions. In today’s marketplace, junior staffers are often the most intimately connected to the market, technology, and the customer network.
  • “Employees will lose focus on their work.” Old management models encourage employees to optimize their own task, often at the expense of the overall company objectives. There is new evidence that people want to understand the bigger picture, and business growth financial incentives will increase productivity, rather than lower it.
  • “Sales will be the organization’s sole focus.” Again, you get what you demand and reward. If sales are the only way to get rewarded in your organization, then sales will take precedence over other activities. Motivate for a spectrum of entrepreneurial behaviors, and you will see results.
  • “We don’t need to reward lead generation.” For a startup, you don’t have a recognized brand to bring in the leads. All businesses need to proactively seek leads, rather than simply attract them, with the creativity and initiatives of every employee rewarded for every contribution.
  • “There is too much risk associated with decentralized decision making.” When you have to move and change quickly to survive, centralized decision making is too slow. You become the bottleneck. If you train people properly, empower them, trust them, and they understand the business, your evolving business can become a revolution.

Every large company wishes they could harness the power of a thousand entrepreneurs within their employee ranks to re-create the exceptional business growth they once knew. Instead, for growth, most have resigned themselves to buying startups that exhibit these characteristics.

Thus, the last thing you need as a growing startup is a “regular employee.” Hire entrepreneurs like you, grow like an entrepreneurial company, and stand above competitors in the acquisition process to carry that fire forward. That’s a win-win for everyone in this new culture and new economy.

Marty Zwilling

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Wednesday, October 22, 2014

Ideas Are Only The Beginning Of Startup Innovation

google_innovation_ideas Most people think innovation is all about ideas, when in fact it is more about delivery, people, and process. Entrepreneurs looking to innovate need to understand the execution challenge if they expect their startup to carve out a profitable niche in the marketplace, and keep innovating to build and maintain a sustainable competitive advantage.

Everyone thinks they know how to make innovation happen, but I can’t find much real research on the subject. At the same time, myths about innovation are commonplace in business. Vijay Govindarajan and Chris Trimble, in their book “The Other Side of Innovation: Solving the Execution Challenge” have done some good work on this subject.

They take you step-by-step through the innovation execution process, in the context the ten most common myths about innovation, which I think makes their approach particularly instructive:

  1. Innovation is all about ideas. While it is true that you can’t get started without an idea, the importance of the Big Hunt is vastly overrated. Ideas are only beginnings. Without the necessary focus, discipline, and resources on execution, nothing happens.

  2. A great leader never fails at innovation. When it comes to innovation, there is nothing simple about execution. The inherent conflicts between innovation and ongoing operations are simply too fundamental and too powerful for one person to tackle alone.

  3. Effective innovation leaders are subversives fighting the system. Effective innovation leaders are not necessarily the biggest risk takers, mavericks, and rebels. The primary virtue of an effective innovation leader is humility. What you want is integration with real world operations, not an undisciplined and chaotic mess.

  4. Everyone can be an innovator. Ideation is everyone’s job, as are small improvements in each employee’s direct sphere of responsibility. Yet most team members don’t have the bandwidth or interest to do their existing job, and well as address major innovations.

  5. Real innovation happens bottoms-up. Innovation initiatives of any appreciable scale require a formal, intentional resource commitment. That requires the focus and resources from top executives to sustain, even initiate, relevant efforts.

  6. Innovation can be embedded inside an established organization. Some forms of innovation can be imbedded, like continuous product improvement, but discontinuous innovation is basically incompatible with ongoing operations.

  7. Initiating innovation requires wholesale organizational change. Innovation requires only targeted change. The first principle is to do no harm to existing operations. A common approach that works is to use dedicated teams to structure innovative efforts.

  8. Innovation can only happen in skunk works. Innovation should not be isolated from ongoing operations. There must be engagement between the two. Nearly every worthwhile innovation initiative needs to leverage existing assets and capabilities.

  9. Innovation is unmanageable chaos. Unfortunately, best practices for generating ideas have almost nothing to do with best practices for moving them forward. Innovation must be closely and carefully managed, during the 99% of the journey that is execution.

  10. Only startups can innovate. Luckily for entrepreneurs, many large companies are convinced that they must leave innovation to startups. Yet research suggests that many of the world’s biggest problems can only be solved by large, established corporations.

Everyone agrees that the goal of innovation is positive change, to make someone or something better. Entrepreneurs need it to start, and established companies need it to survive. The front end of innovation, or “ideating” is the energizing and glamorous part. Execution seems like behind-the-scenes dirty work. But without the reality of execution, big ideas may not turn out so well, even in startups.

Marty Zwilling

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Monday, October 20, 2014

Right Entrepreneurs In The Right Place Get Funded

startup-fundingI’m a strong believer that investors invest in people, before they invest in a business plan, or an idea. But I continue to learn that there are a host of other factors, maybe not even related to you or your business, that could keep you from getting the funding that you need. You may not have control over many of these, but it helps to know, for planning purposes, what is really happening.

Obviously, a key factor is always the state of the economy and the mood of the venture capital community. The good news is that both of these are looking up these days. According to the Silicon Valley Venture Capitalist Confidence Index® for the First Quarter 2014, the Q1 increase marks seven consecutive quarters of positive sentiment among Silicon Valley venture capitalists.

On the other hand, venture capital doesn’t get smoothly spread across the geographic and demographic landscape, and the number of active firms has dropped sharply. An older but still relevant study, published by CB Insights, Venture Capital Human Capital Report, summarizes a variety of characteristics for private early-stage Internet ventures funded in the US. The significant findings include the following:

  • Founders need to live in the right place. No surprises here. California (Silicon Valley), New York (NYC), and Massachusetts (Boston) are the places to be in the US for venture capital attention. Almost 80% of the funding handed out in the US consistently comes from these three locations.
  • Whites and Asians lead the race. 87% of funded founders are white, which is not too far above the US population of 77% white. More notably, the second largest group receiving funding was Asians, at 12%, despite comprising only 4% of the population.
  • All-Asian founding teams raise the largest rounds. Asian teams in California raised median funding rounds of $4.4M, significantly higher than the $3M raised by mixed or all-white founding teams. In other locations, the trend was more equal, even somewhat reversed in New York and Boston.

  • Wunderkinds don’t have the magic touch. The average age of founding teams getting funded is in the Gen-X 35-44 year age range. However, the highest median funding did go to those in age range 26-34 years old. Amazingly, no founding teams in the Gen-Y 18-25 year range received any funding in California.
  • Experience does count. Fully 39% of founders funded were formerly CEOs or had founded prior companies. Other common previous roles were executives in Sales, Marketing, and Product Management, all suggesting that VCs back experience.
  • More founders generally means more money. Overall the majority of companies have two or more founders, but over a third are led by one founder. More founders does not necessarily result in larger funding rounds, but the highest median funding generally goes to companies which have two or more founders.
  • Going solo works better on the East Coast. Co-founder companies are the norm in California, but 40-50% of the startups in New York and Massachusetts have only one founder. In New York, these solo efforts even raised more money, with a median of $4M.

If you don’t live in these corridors, don’t assume that you can simply incorporate in the state, or email your proposals there and be considered a local. At minimum, you need to get an introduction from a local player, or better yet, set up a local office and network there. Investing is all about people-to-people relationships.

If you are from outside the US, especially Asia, experts tell me that the focus is even more on relationships. George Wang, founder and chairman of the Beijing-based Chinese Professional Network (CPN), recommends that anyone from the West wanting to get involved in Chinese start-ups slow the pace down and “Spend six months and get to know the place and the people.”

If you need funding, focus first on the human side of venture capital, before you rush to pitch your plan. The evidence confirms that from a funding perspective, a successful startup is more about the right people being in the right place at the right time, versus the technology or solution.

Marty Zwilling

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Sunday, October 19, 2014

How To Recognize The Greatest Boss You Never Had

the-greatest-boss Everyone can recognize a great boss a mile away, so why is it so hard to find one? We all remember a few that are “legends in their own mind”, but that doesn’t do it. In fact, the clue here is that the view in your mind is the only one that matters, rather than the other way around.

Almost every one of us in business can remember that one special manager or executive in their career who exemplifies the norm, who commanded our respect, and treated us like a friend, even in the toughest of personal or business crises. In commemoration of Boss’s Day this past week on October 16th, let’s all tip our hat to that unique and rare business person we wish everyone would emulate.

I’ve asked many peers for the traits or attributes they saw in that person, and most will list the following positive functional traits of a good boss:

  1. Leadership. Shows outstanding skills in guiding team members towards attainment of the organization’s goals and the right decisions at the right point of time. As Drucker said, "management is doing things right; leadership is doing the right things."

  2. Plan and delegate. Possesses foresight and skills to understand the relevant capabilities of team members, and then scheduling tasks and delegating to the right people to get tasks done within deadlines. You are a guide, not a commander.

  3. Domain expert. Demonstrates complete knowledge of his field and confident about that knowledge, with the common sense to make quick productive decisions, and ability to think outside the box.

  4. Set clear expectations. Employees should always know what is expected of them. One of the easiest ways to do this is to set deliverable milestones for each employee over a set period of time. Then review the performance vs. the roadmap or deliverable at least six months prior to a performance review and discuss ways to improve.

  5. Positive recognition. Immediately recognize team members, publicly or privately, when they complete something successfully or show initiative. Congratulate them on a job well done. Most employees are not motivated by money alone. Good managers know that employees want regular recognition that their job is being done well.

In my view, these are all necessary attributes, but are not sufficient to put you in that great category. Most people recognize that it takes more to be great, but the attributes are a bit more esoteric, and harder to quantify. Here are a few of the great ones:

  1. Active listener. Shows traits such as listening with feedback, optimistic attitude, motivating ability, and a concern for people. Listening to what is said as well as what is not said is of the utmost importance. It is demoralizing to an employee to be speaking to a supervisor and be interrupted for a phone call. All interruptions should be avoided.

  2. Shows empathy. This refers to the ability to "walk in another person's shoes", and to have insight into the thoughts, and the emotional reactions of individuals faced with change. Empathy requires that you suspend judgment of another's actions or reactions, while you try to understand them, and treat them with sensitivity, respect, and kindness.

  3. Always honest. Simply put, today’s managers live in glass houses. Everything that a manager does is seen by his employees. If a manager says one thing and does another, employees see it. Managers must be straightforward in all words and actions. A manager must “walk the talk.” That also means recognizing weaknesses, and admitting mistakes.

  4. Sense of humor. People of all ages and cultures respond to humor. The majority of people are able to be amused at something funny, and see an irony. One of the most frequently cited attractions in great personal relationships is a sense of humor.

  5. Keep their cool. A great manager is an effective communicator and a composed individual, with a proven tolerance for ambiguity. He/she never loses their cool, and is able to correct the team members without emotional body language or statements.

Whole books are written on this subject, but hopefully you get the picture. Great managers and bosses must do the technical job well – and they also must do the people job very well. Now that you understand these things, I’m not sure why it is so hard to find a great boss. I guess an even harder question I should ask is why is it so hard to be one?

Marty Zwilling

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Saturday, October 18, 2014

How To Maximize Your Odds With A Part-time Startup

020614-N-0552D-001 Many experts will tell you that you can’t succeed as a part-time entrepreneur, as any good startup will require a 100 percent commitment of your time and energy. But not many of us have enough savings to live for a year or more without a salary, fund the startup, and still feed the family. Thus I often recommend that entrepreneurs keep their day job until the startup is producing revenue.

Of course, if you have investors anxious to give you money, or a rich uncle to keep you afloat, there is nothing wrong with a dedicated and full commitment to the startup, with commensurate more aggressive milestones and growth expectations. We all understand the risk of competitors quickly closing in, and market factors changing before we can roll out our solution.

For those of you who do decide to keep your day job, here are some pragmatic recommendations I espouse on how to make the most progress in your startup, while simultaneously juggling your other critical family and employer roles. In fact, these suggestions have tremendous value, even if you are dedicated and committed full-time to your new startup:

  1. Find a co-founder who can keep you balanced. Two co-founders, both working part-time are actually better than one founder full-time. You both need the complementary skills, ability to debate alternatives, and the tendency to keep each other motivated, that neither could match working alone. One still needs to be the agreed final decision maker.

  2. Schedule fixed times and days for the startup, working with the team. Building a startup is hard work, and requires discipline to get it done. Working part-time doesn’t mean all working randomly alone. Commit to a regular weekend time and a couple of specific nights per week where you meet with the team and focus only on the startup.

  3. Get better at saying ‘no’ to your friends. Learning to manage your own time is critical. Everyone around you enjoys adding things to your schedule, and reducing their to-do list. The key is learning to say no without offering a long list of excuses, or whining about how busy you are. It’s never possible to satisfy everyone, so be true first to your own priorities.

  4. Set realistic milestones and take them seriously. It’s easy for part-timers to make excuses that other priorities caused you to miss milestones, but predictable results and metrics in this mode are even more critical than for full-time members. Use the 80/20 rule to maximize productivity – get 80 percent outcome from 20 percent of focused efforts.

  5. Select a business idea that has a longer runway. Some startup ideas are dependent on a rapidly emerging fad, or have many competitors fighting for a limited market. You can’t move fast enough on a part-time basis to win in these areas. On the other hand, if you have a new technology, with patent applied for, maybe you more time to get it right.

  6. Prepare yourself for a longer journey to success. Seth Godin is famous for saying that the average time for overnight success in a startup is six years, even working full-time. Like any startup solution, the first version will likely be wrong, and require one or more pivots. Learn to look for small indications of success to keep you motivated.

  7. Make learning your full-time vocation. No matter how many full-time, part-time, and family commitments you have, you always need to carve out time for learning new things. Learning is not stealing from any employer, and it prepares you for all your futures. Don’t wait for anyone to pay your way to class, or give you time off for training. It won’t happen.

The advantage of quitting your day job early is that it removes all excuses, and all qualms from you and others, that the new startup is only a hobby. There is nothing that drives an entrepreneur like being hungry, dependent on the outcome, and seeing mounting debt. Without self-discipline, many aspiring entrepreneurs find that a single focus is the only way anything ever gets done.

There is certainly additional risk associated with working a paying job during the day, and working on your startup nights and weekends. First is the risk to your health and family life, which if you lose these, all the business opportunity in the world doesn’t matter.

Then there is the risk of antagonizing your current employer by missing deadlines, reduced productivity, or even getting embroiled in a legal conflict of interest or intellectual property ownership rights. I suggest it’s best to be up-front with your employer, with an honest commitment that your startup work will not impact company commitments or results.

Potential conflict of interest issues with a current employer should be explored openly, and resulting agreement documented, to preclude the possibility that you might lose everything later as your startup succeeds. On the positive side, your employer may like what you have in mind, and become your first investor and biggest supporter.

If your conclusion after all these pros and cons is that the risk is too high for you, you probably need to keep your day-job long-term, and give your startup idea to someone else. There certainly isn’t anything wrong with a regular well-paid job and career, with health-care benefits, and a competitive retirement plan. But the entrepreneur lifestyle is still more fun, even part-time.

Marty Zwilling

*** First published on Entrepreneur.com on 10/10/2014 ***

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Monday, October 13, 2014

Public Company Executives Rarely Adapt To A Startup

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

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

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

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

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

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

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

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

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

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

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

For startups, the time to do the people filtering and fit analysis is before the hire. Look at previous company results, and listen for evidence of self-sufficiency, problem solving, and a thorough understanding of your product, technology, customers, and the market. Most importantly, don’t assume your favorite Fortune 500 executive is the best role model for your entrepreneurial startup.

Marty Zwilling

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Saturday, October 11, 2014

Do You Have The Commitment To Succeed In Business?

truly-committed-entrepreneurWe’ve all heard the old joke “In a bacon-and-egg breakfast, the chicken is involved, but the pig is committed.” This quote epitomizes the true essence of commitment. We all know at least one small business owner who claims to committed, but seems to treat the business like a part-time hobby. They don’t put personal skin in the game, and are quick to give up when things are tough.

There are no middle roads to real commitment, and if you are not ready to fully commit to all the rigors of owning a business, you are better off sticking with some lessor role taking orders some someone else. For your calibration, here are some characteristics that you and others need to recognize in yourself as a truly committed entrepreneur:

  1. Actively seeks leadership and responsibility. Many people need the comfort of following, rather than leading. When things go wrong, it’s then easier to point to someone else as the scapegoat. As an entrepreneur, the promises anyone makes on your behalf are yours. You need to be ready to accept “the buck stops here” and make it work.

  2. Exhibits surging raw ambition. Successful entrepreneurs are generally ambitious and confident in their abilities. They may have many ideas, some of them are more workable than others. Failure is viewed as a learning opportunity, so it’s no disaster that some ideas don't actually get done the first time.

  3. Minimum positive feedback required. As I’ve said in previous articles, it’s lonely at the top. If your psyche is one that needs regular positive feedback, and a commensurate paycheck, to stay motivated, you need to find a real job rather than an entrepreneurial one.

  4. Social life is not the highest priority. If you find yourself unable to clear your head of work-related thoughts at the end of the day, that’s committed. Social relationships are important, and you do need to blank out work from time to time, but if social priorities are at the top of your list, you probably won’t enjoy the role of entrepreneur.

  5. Comfortable with unpredictable working hours. Some people need a predictable schedule, for family reasons, or just peace of mind. Entrepreneurs need to be flexible, and assume there will be long working hours. If you are annoyed rather than exhilarated at the long or unpredictable schedule at your startup, you are involved but not committed.

  6. See vacation as an interruption. Most entrepreneurs I know can’t remember the last time they had a “real” vacation (without bringing their work along). This may not be healthy, but it illustrates the level of commitment that you are competing with in the marketplace. If you insist on vacations “without checking in,” go and work for a big company that gives you a holiday allowance.

  7. Haven’t even thought about retirement. Many people involved with startups are working hard, but are looking forward to retirement. The committed entrepreneurs wouldn’t think of retiring, even if they made millions from the current project. They enjoy work too much to stop, and can’t wait to start their next venture.

Making a commitment is a serious matter and one which should not be taken lightly, especially in a startup venture where the team needs to pull its weight together to achieve goals. Individuals who need structure and workload predictability won’t be able to maintain the high levels of enthusiasm and motivation of a startup team.

This isn’t a statement of right or wrong, just different strokes for different folks. The next time you have the urge to chuck your day job and live the dream of being your own boss, remember to test yourself for how committed you really are, before you jump off the cliff!

Marty Zwilling

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Monday, October 6, 2014

Apply Lessons Learned To Gain From Startup Failure

success-failureYour startup is gone, it’s never coming back, and you are in mourning. An entrepreneur whose business fails grieves similarly to anyone who has lost a loved one. The pain of losing a business is not only about a significant loss of income, but can send your entire identity into turmoil.

Most entrepreneurs define themselves by their business projects. They calibrate self-worth by what they accomplish or do not accomplish. In other words, if a project fails, then they are failures. If a project takes off, then they are wonderful. It’s the universal entrepreneur reaction.

The loss of a startup is very much like losing your job, as characterized by Debbie Mandel a while back, so don’t be surprised if you experience:

  • Sleep disturbances, and difficulty waking up in the morning
  • Eating and craving the wrong foods or stimulants
  • Fatigue
  • Irritability
  • Cocooning at home
  • Loss of ambition; the perception that there are no other opportunities out there
  • Submissive or abusive behavior

The knee-jerk reaction is to ask, “Why me?” or to cast the blame on the powers that be: “The economy killed me,” “My partner was a jerk,” or “Investors stole my business.” However, the blame game is an energy drain and will leave you without the energy to move on.

We have to assume responsibility for our actions, rather than play the part of a victim. Try answers like: “My timing was wrong,” “I picked the wrong partner,” or “I’m better at bootstrapping.” Everyone will respect your integrity, and you will be ready to tackle the world again more quickly.

Similar to Dr. Kubler-Ross’ five stages of grief for a death, losing a business requires processing each stage in order to adapt to the changing daily activities. Everyone falls down, but not everyone picks himself up. Here are some suggestions to survive the normal stages and turn failure into triumph:

  1. Denial: The psyche needs to protect itself and absorb what has happened little by little, instead of all at once. Recite the business loss story over and over to take the sting out of it; distract yourself with positive friends, outdoor activities, or your community center.
  2. Anger: Release anger in a healthy way through exercise, visualization and breathing. Exercise intensity or length of time should correspond to your anger level. Reinterpret the scenario with compassion; be kind to yourself, and everyone else.
  3. Bargaining: This is “the what if or I should have” stage. Be aware of negative thought streams to objectify them, and have a logical discourse with your thoughts. Then you can invest your energy into moving on.
  4. Depression: The sadness sets in and the feelings need to come out. Maybe you need to have a good cry. Laughter is always a wonderful pick-me-up. It will release feel-good chemistry. This will help reset a realistic optimism. Tap into positive friends.
  5. Acceptance: This is the point where we think and feel that the loss really happened. We accept the blow to our self-esteem and the disappointment. This is the time when we are ready to rebuild our balance and confidence.

It is how we handle this failure that will determine our next success. Because we are acquainted with loss and failure, we will not fear it again like the first time. Paraphrasing Thomas Edison in finding the right filament for the light bulb, now you know a thousand things that don’t work.

Thus, the best way to stop mourning a failed business is to start another one, relishing all the lessons learned from the previous experience. Investors are convinced that entrepreneurs often learn more from a failed startup, than a successful one. If you approach the next one with a newfound sense of passion, your peers, investors, and your customers are likely to do the same.

Marty Zwilling

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Wednesday, October 1, 2014

Leadership Principles To Move Up A Level From Smart

smart-and-wiseMost of the entrepreneurs I have met are smart, but many are not always wise. That means they may show great insights into a new technology that has marginal business value, their passion may motivate team members more than customers, or they may allow themselves to be pulled over the ethical line in their success drive. Wise leaders are authentic, timeless, and enduring.

Of course, experience is the ultimate teacher of the differences between smart and wise. But none of us can afford to make that many mistakes, so it helps to understand the basic principles that are key to making wise, as well as smart, decisions. In their recent book on the subject, “From Smart to Wise,” Prasad Kaipa and Navi Radjou offer some great observations, based on their years of research and consulting experience with hundreds of leaders.

I’ve summarized their basic principles here, in the context of early-stage entrepreneurs and startups, in the hope of providing a head start, and fewer mistakes to recover from, for every entrepreneur:

  1. Broaden your perspective for your passion, to the greater good. Perspective is what defines us, and shapes our thoughts and actions. For technologists it drives the passion to take new ideas to new realities. Wise leaders tend to connect their worldview and ideas, to help everyone find a larger meaning in life. Steve Jobs espoused this principle.

  2. Act authentically and appropriately as your perspective changes. Wise entrepreneurs are sensitive to the context they operate in and fine-tune their actions accordingly, while continuing to serve their higher purpose. They never forget their moral compass, and maintain credibility by always bridging the saying-versus-doing gap.

  3. Learn to perform any role well, without forgetting who you really are. We all know a smart entrepreneur who wouldn’t give up the CEO role, and lost the company. Wise leaders give up an existing role when it is time. They willingly act as trustees or servant leaders in whatever actions and roles they accept. Bill Gates seems to fit this model.

  4. Expand horizons to make every decision win-win versus win-lose. Smart leaders tend to make decisions instinctively, based on their own experience, with little attention to the larger context. Wise decisions win in the long run for the broader purpose, as well as problem at hand. Don’t let practical execution or emotions sway strategic deliberations.

  5. Know when to hold and when to fold, with flexible fortitude. Many smart leaders tend to stick with a decision, without any re-alignment to a rapidly changing external context. Wise leaders show courage in following the context, and grace in letting go when appropriate. This flexible fortitude keeps them aligned with the long-term benefit.

  6. Act and lead with enlightened self-interest, to serve others. This world is now too complex for one entrepreneur to have all the resources and products needed to satisfy their customers. That means nurturing partnerships and cooperation with competition, for the greater good. It’s a move from pure self-interest to enlightened self-interest.

  7. Strive to create your own authentic path to wise leadership. First adopt the six leadership elements including perspective, action orientation, role clarity, decision logic, fortitude, and motivation. Then integrate these in your own path to wise leadership, building wise cross-functional teams, wise organizations, and wise communities.

Smart people impress us all with their intellectual power and uncanny ability to achieve their goals. But smartness alone is not always sufficient to keep entrepreneurs out of trouble and sustain their success. Wise entrepreneurs ultimately are the ones that create lasting value for both stakeholders and society.

Evolving from smart to wise requires nothing more than reflecting on the best practices of other wise entrepreneurs and practicing them appropriately in your own personal journey and roles. Now is the time to measure where you are along the path, and build the roadmap for your journey. Have you assessed your leadership style lately against these principles?

Marty Zwilling

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