Monday, March 23, 2015

Is Your Advisor a Critic Posing as a Mentor?

critic-or-mentor Every startup needs a couple of advisors with deep experience and connections in your business domain or financial skills to complement your technical focus. Advisors need to be mentors, looking ahead and directing you on key actions to take or avoid. Unfortunately, many prefer the role of critic, looking backward to highlight your mistakes. These people don’t help you or your startup.

Obviously, you can learn from both, but mistakes already made cost you more in time and money to recover, while mistakes avoided save both. A mentor’s objective is to build your confidence and business understanding with forward-looking insights, while a critic tends to undermine your confidence and spend time on weaknesses rather than strengths.

The same considerations apply to every constituent inside and outside your team, including co-founders, investors, strategic partners and every team member. Here are some clues that will help you see and attract the best advisors, as well as the right team members:

  1. Is there a sense of trust and mutual respect? The most productive business relationships are built on trust and respect, where both parties have the other’s interest at heart. The results are win-win relationships. Mentors have no interest in win-lose relationships.

  2. Do advisor credentials include practical experience in the domain? Critics tend to rely on anecdotal or academic evidence to support their position, as opposed to a mentor’s insider perspective based on years of practical experience. Good mentors don’t talk in terms of right or wrong, but in terms of best practices and elements of risk.

  3. How effective are the advisor's communication skills? You need advisors that are effective and unemotional direct communicators, face to face, over the phone or via email. Beware of people who are prone to emotional outbursts, pick public forums for their discussions and hope to influence you through messages to friends and cohorts.

  4. Do advisor ethics match your own expectations and culture? You will not be well served by an advisor whose ethical rules do not match your business area or government rules. In ethics, one size does not fit all, particularly in international business roles and cultures. Questionable ethics are not a risk any entrepreneur can afford.

  5. Can you visualize a long-term relationship with this advisor? Advisors that are good mentors often lead to career-long relationships and friendships, such as the one between Bill Gates and Warren Buffett. An advisor’s value goes up over time as they better relate to both you and the business. Would you nurture a long-term relationships with your critics?

Nevertheless, you don’t always get to pick all your advisors, and we all have to anticipate some critics. Every entrepreneur needs to improve how they deal with critics to make their lives less stressful and more satisfying. Here are some recommendations that work, but all take self-discipline to implement:

  • Do not take every criticism personally. All critical comments are not meant to reflect on your personal character. If you take every criticism as a personal attack, and react defensively, even the best-intentioned advisor or mentor will stop providing you the feedback and recommendations you need to improve your skills and your business.
  • Be an equal-opportunity listener. It’s a natural human reaction to discount even good recommendations if they come from someone you don’t know well, is in a different age bracket or a non-native culture. Smart entrepreneurs learn to evaluate the content of the communication independently of the speaker.
  • Practice the pregnant pause before responding. Pushing to reply immediately prevents comprehension or even hearing any advice or feedback. Think before you respond, and always answer with a reiteration of the points of agreement, before answering any points of criticism.
  • Always respond with a smile and calm sincerity. Responding with anger and emotion leads to a confrontation. A smile projects confidence and a calm resolve to listen. The smile is contagious, and helps to put all parties at ease during serious and potentially volatile critiques. Your critic may actually see your perspective and become a supporter.

Most advisors I know really believe they are mentors and not critics. So before you sign up, it pays to check references or peers who have worked with them. True mentors are rarely confused with critics. Every entrepreneur needs help moving forward, and knows it’s hard to be a leader if you are always focused on the past.

Find more mentors and walk away from critics.

Marty Zwilling

*** First published on Entrepreneur.com on 3/13/2015 ***

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Monday, March 16, 2015

7 Critical Questions Before You Become an Entrepreneur

entrepreneur-questions As a mentor to aspiring entrepreneurs, the most common question I get is, “I want to be an entrepreneur -- how do I start?” The obvious answer is that you need an idea first, but I’ve come to realize that the process is really much more complex than that. Many people with great ideas never make it as entrepreneurs, and true entrepreneurs can make a business out of anything.

The first myth you have to get past is that having an idea will make you an entrepreneur. In fact, even implementing the idea into a solution doesn’t make you an entrepreneur. According to my definition and Wikipedia, an entrepreneur is someone who builds a new business. Based on my experience, creating the solution is usually the easy part of starting a successful business.

So before you quit your day job, tax all your friends and investors for money, or max out your credit cards to design and build a product, I recommend that you seriously contemplate the following more basic questions:

  1. Are you prepared to adopt the entrepreneur lifestyle? Starting a new business is not a job, but an adventure into the unknown, similar to Columbus setting out to find the New World. It’s a big step into a new lifestyle, like getting married after being single for many years. Yet startup founders are often lonely, since no one else can make their decisions.

  2. How strong is your passion for this opportunity? You have to enjoy working with people -- partners, customers, investors and more -- as well as products to start a business. You have to embrace making decisions and the responsibility of setting milestones, measuring progress and celebrating the victories and defeats.

  3. Are you confident and disciplined in facing tough challenges? Starting a business at home or on the Internet is hard work -- not a get-rich-quick scheme. You will be operating outside of any proven realm, no mentor can give you the answer, and it won’t help to blame anyone else for missteps and environmental changes you can’t predict.

  4. How familiar are you with the contemplated business domain? Remember that the grass always look greener on the other side of the fence. It may make more sense to work for a similar startup before charging ahead on your own. The ultimate best teacher is failure, but a less painful one is getting related work experience and training.

  5. Which business model best suits your mentality? Some people love to deliver services, where personal acumen is tested every day. Others love technology and products, to be replicated and sold while you sleep. If something totally new is not your forte, you can always buy a franchise, acquire an existing business or be a consultant.

  6. Have you mapped out a complete plan? Few entrepreneurs can assimilate and hone a complete plan in their head. That’s why I believe the process of writing down your plan is more valuable than the result. Also, a written plan multiplies your ability to communicate to constituents, and facilitates parallel feedback. Money is not a substitute.

  7. What is your funding situation and alternatives? Fundraising is stressful and difficult, which is why 90 percent of successful entrepreneurs choose bootstrapping (self-funding). Too much money too early kills many startups, according to investors. There are always non-cash alternatives, such as recruiting partners with equity and bartering services.

After asking yourself these questions, and finding yourself still determined to be an entrepreneur, you will have already started. From there, it’s a simple matter of forging a trail to success, and conquering all the problems and challenges that are sure to surface. Starting a business is a marathon, so you have to make an overt decision to enjoy the journey as well as the destination.

Marty Zwilling

*** First published on Entrepreneur.com on 3/6/2015 ***

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Saturday, March 14, 2015

Don’t Let Too Many Features Ruin Your Next Product

Space_Shuttle_Main_Engine “Scope creep” (or feature creep) is an insidious disease that kills more new business solutions than any other, especially high-tech ones, and yet most founders (who may be the cause) never even see it happening. This term refers to the penchant to add just one more feature to the product or service before first delivery, just because you can.

The instigators are all well-intentioned – executives talk to potential customers who “must have” a few more things; or the technical team edicts some “technically elegant” options that they can’t resist adding before release. The result is a bloated first product which finally collapses under its own weight, or is too late and too expensive for the intended customer.

The best product is one that is highly focused, and has the absolute minimum number of features to do the job. The solution is to do the right job up front on requirements, document and approve specifications, and have the toughest person you know do the project management. Here are five basic rules to live by:

  1. Document the requirements. A well-run requirements phase is your best chance to ensure that scope creep will be recognized when it happens, and it will. If initial requirements are not documented, then there is no base, and no one can recognize that the stack is getting higher as time passes.

  2. Lock down the sign-off authority. In all documents, clearly define who must sign off on content and provide business-side feedback. If you are the sign-off, don’t be afraid to say “no.” Draw the line between need versus want. Founders who constantly give in to changes will get more until the startup breaks.

  3. Final features approval event. Make a visible event at the executive level out of the final specification approval, detailing features, costs, and time frames. Make sure everyone knows that changes after this point will have personal consequences, and will delay the product and increase the cost.

  4. Define milestones for cost review and sign-off. Milestones are for early warning, because there is no recovery when you are out of time and money. Good milestones include completion of specifications, prototype, beta testing, final documentation, and final delivery.

  5. Implement and enforce a change process. Changes will be required to every project, so plan for them. The market changes, executives learn new things, customers demand changes, and technology changes. Change requests should be documented, sized, and tradeoffs presented for approval or disapproval.

Efforts to discourage scope creep are not designed to punish creativity. Rather, team members should be encouraged to contribute to a database of additional features that they think would be interesting and useful, and submit them as change requests on a weekly basis.

Change requests must be visibly reviewed by executives frequently. If the features are interesting but not necessary for initial release, they can be scheduled for further development on later releases of the project, whether it be new software, a car, or any other sort of device.

There's always going to be something newer, something faster, something bigger; and the perfect product is a never ending chase — but only if you allow it to be. Remember that in new product development, as in writing, addition by subtraction is the Golden Rule.

Scope creep causes your project to become slowly less elegant and very un-simple, which is a startup’s worst nightmare. Startups need to know when to stop chasing the leading edge, or they will be cursed to live and die on the bleeding edge.

Marty Zwilling

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Sunday, March 8, 2015

Startups Need Great Execution More Than Great Ideas

Elon-Musk-Tesla-Spacex A popular approach for aspiring entrepreneurs these days seems to be to corner anyone who will listen, with a pitch on their current “million dollar idea.” The initial monologue usually ends with the question “How much money do you think this is worth?” In my opinion, ideas are a commodity, and are really not worth much, outside the context of a visionary leader who can execute.

Over the past couple of decades, experts have perfected the art of brainstorming and other idea-generation techniques. Executives and investors are now increasingly exposed to a wealth of ideas. The result is that ideas are no longer in short supply, and no longer a differentiator in competition.

Visionary execution, on the other hand, is not so common. A visionary is someone who can make sense out of the wealth of ideas, and weave together a plan for implementation that will make a difference in the world. Elon Musk, for example, likely receives thousands of ideas from friends, but he has been able to focus a few of these into initiatives that demonstrate real innovation.

What separates an idea person from a visionary leader? Most experts agree that a visionary leader not only has ideas, but also has a vision of where these ideas can lead, with strong core values, key relationships, and demonstrates innovative actions, as follows:

  • Commitment to core values. Visionary leaders radiate a sense of energy, strong will, and personal integrity. This usually results in a focus on multiple related ideas, leading to real innovation, rather than bouncing from one idea to the next, looking for the Holy Grail.
  • Positive inspirational communication. People with vision usually start by communicating an inspirational picture of the future, and then integrating individual innovative ideas into this fabric, and show how to get there. The best ones can make the impossible look easy, so everyone, including investors, line up to commit.
  • Build strong relationships with strong people. Great relationships are key to every leader. They see people as their greatest asset, and listen as well as talk. Theirs is not the autocratic style of leadership, which tells people what to do and dominates them, but a style which treats partners, investors, and customers as family.
  • Willing to take bold actions. These actions somehow always seem to embody a balance of rational (right brain) and intuitive (left brain) functions. Visionaries are often “outside the box” of conventional approaches and move toward long-term change and innovation. They are proactive and anticipate business change, rather than reactive to events.
  • Radiate charisma. People with a real vision can communicate ideas with almost a spiritual charisma that energizes people around them to go a step beyond normal boundaries, to solve a technical problem, sign on as a team member, or invest resources, when conventional wisdom would suggest otherwise.

Every investor wants to fund the true visionary leader, but the truth is that these people often don’t need funding, or don’t ask for it. The best investor pitch, then, is to sell the vision with such conviction that people want to be a part of it, with their money, their skills, or whatever they can bring to the table.

But not every entrepreneur has to be a visionary. There is still plenty of room for incremental improvements, and creativity in providing solutions to short-term problems. This is really the realm of bootstrapped startups, and a small segment of the Angel investor community that is looking for a “quick hit” with a quick return.

So my message to entrepreneurs is to tune your approach and your expectations accordingly. I’m always impressed with entrepreneurs who pitch how they plan to bootstrap an idea, but if you need a million dollars, you better be able to communicate and lead with a vision.

Marty Zwilling

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Saturday, March 7, 2015

8 Questions To Help Set Expectations With Investors

entrepreneur-investor-dreams One of the big questions that every entrepreneur struggles with is how much funding they should request from investors in the first round. They know from forums such as Shark Tank on TV that asking for either too much or too little will derail credibility in the eyes of the investor, and leave the entrepreneur with no money and a struggling startup.

Strategies that I do not recommend include opening the discussion with a big number, hoping to make a more reasonable value feel like a good deal, or starting with a tiny number, hoping to entice interest from everyone. Both of these will brand you as an amateur to avoid, rather than a savvy business person with an exciting new opportunity.

The right answer is to ask for an amount that is just right, based on your real needs, and consistent with the capabilities and interests of the investors you are addressing. Here are eight key questions that will you get in the right ballpark with the right investors:

  1. Who is your investor audience? Every type of investor has comfortable ranges and limits. Angels usually won’t consider requests above $1 million. On the other hand, venture capital organizations typically look for needs that exceed $2 million. If you are talking to your rich uncle, do your homework to find his limits before you meet.

  2. What business milestones have you met? If you have a good idea, but haven’t started yet, only friends, family and fools will likely be interested. Angel investors will perk up if you have a prototype or a few real customers, while venture capitalists will likely choose to wait until you have achieved several million in revenue or customer count.

  3. How much do you really need for the next 12 to 18 months? Here is where projections of cost, pricing, volumes and cash flow are critical. If your financial model projects a negative cash flow in this period of $400,000, you should buffer this amount by 25 percent, and ask for $500,000. Be prepared to explain your business model.

  4. Can you justify your use of funds to this investor? Professional investors expect to see your top three use of funds categories, and how these relate to scaling the business, rather than initial development. Ancillary objectives, like retiring existing debt, buying a building or paying salaries to people with equity ownership will not get traction.

  5. How much equity ownership are you willing to offer? This is all about setting a credible current value on your startup -- not future value. If you ask for more money than your company is now worth, no investor will bite. The average valuation for angel investments is $2 million, which will get you $500,000 for 20 percent of your startup.

  6. Are you flexible on the terms of the investment? Most professional investors will expect preferred stock, a board seat, rights to later rounds and perhaps anti-dilution protection. If you refuse to offer these, or balk at negotiating even more restrictive terms, the amount of a viable investment will be compromised.

  7. Are you willing to offer milestones for staged investment delivery? Many investors like to reduce their risk by delivering their investment in stages or tranches, based on your successful achievement of specific milestones during the period covered. However, this reduces your ability to plan or pivot quickly based on unforeseen events.

  8. Can you project a compelling rate of investor return? Equity investors typically look for 10 times return projections, since they expect many of their investments to fail totally. The best way to show return on investment is to declare an exit strategy, such as being acquired or going public in the next five years, which allows the investor to cash out.

In fact, the most successful entrepreneur strategy is to bootstrap or fund your own startup, such that you don’t need to expect or require any external investor involvement. Despite all the hype you hear on attracting investors, more than 90 percent of startups are still self-funded, and avoid the hassle of dealing with partners and giving up a portion of the company.

The best and happiest entrepreneurs build a successful startup that attracts investors, rather than waiting for an investor to kick-start their success.

Marty Zwilling

*** First published on Entrepreneur.com on 2/27/2015 ***

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