Saturday, January 31, 2015

Startups Without Business Plans Are Expensive Hobbies

business-idea-plan-action If you sold your last startup for $800 million, you probably already know how to build a business, and even conservative investors won’t worry about the quality of your next business plan. But, for the rest of us, don’t believe the Silicon Valley myth that all you have to do is sketch your million-dollar idea on the back of a napkin, and investors will line up to give you money.

Based on my experience as an investor and mentor to aspiring entrepreneurs in Silicon Valley and elsewhere, one of the quickest ways to kill your credibility and your startup is to offer a poorly written business plan, or none at all. There really is no excuse these days, with samples on the Internet, business-plan books in every bookstore, and dozens of apps to automate the process.

A great business plan doesn’t have to be a book in length, with extensive financial statements. Most good ones I see are in the range of 25 pages, which is more than enough to describe concisely all the business what, when, where, and how. The plan must simply answer every relevant business question that you could imagine from your team, partners, and investors.

In fact, the process of organizing and documenting these elements is the best way to make sure you understand the answers yourself. Would you be comfortable buying a house from a builder, or building one yourself, with no plan on timeframes, costs, and features? I hope not. Most investors tend to think of startups without a plan as expensive hobbies.

There is no magic formula for a formal business plan format or sequence, but I would recommend the following ten sections, in this sequence, with relevant content:

  • Executive summary
  • Problem and solution
  • Company description
  • Market opportunity
  • Business model
  • Competition analysis
  • Marketing and sales strategy
  • Management team
  • Financial projections
  • Exit strategy

A business plan that skips one or more of these topics is not complete, so don’t jeopardize your one chance to make a great first impression by offering a partial plan. It only takes a little extra work to make it a professional document, with a cover page, table of contents, headings, and page numbers. Don’t try to impress constituents with technical terms, jargon, and acronyms.

If you don’t have the time to write things down, or your writing skills leave something to be desired, don’t be afraid to get some help. No executive I know writes all his own contracts, but every smart one owns every one that is written for him, and understands every element. An entrepreneur who can’t manage a plan, probably won’t be able to manage the new business.

Of course, if you don’t yet understand all the elements, it’s time to learn. My advice here is to check your ego at the door, and find a mentor or a partner who has business experience and domain knowledge to help you plan a viable business. Your idea may be technically right, but without a business plan, it could be dead right, which is not the result anyone is looking for.

There are no guarantees, but various studies have found that entrepreneurs who create a good plan generally double their chances of securing funding and building a successful business. In any context, and especially in the high-risk world of startups where more than 50 percent fail, you need every advantage that you can get.

Marty Zwilling

** First published on Entrepreneur.com on 1/16/2015 ***

0

Share/Bookmark

Friday, January 30, 2015

How Introverts Like Mark Zuckerberg Build A Startup

Mark_Zuckerberg_CEO_Facebook You can’t win as an entrepreneur working alone. You need to have business relationships with team members, investors, customers, and a myriad of other support people. That doesn’t mean you have to be a social butterfly to succeed, or introverts need not apply.

It does mean that you need to look, listen, and participate in the business world around you, and network through all available channels, like business-oriented social networks online (LinkedIn), local business organizations (Chamber of Commerce), and events or conferences in your school or industry.

I hope all this seems obvious to you, but I still get a good number of notes from “entrepreneurs” who have been busy inventing things all their life, but can’t find a partner to start their first business, and others trying to find an executive, an investor, or a lawyer.

What these people need is more relationships, not more experts, more blogs, or more books. So I thought I would drop back to some essentials in building and nurturing business relationships (most of these apply to personal relationships as well):

  • Build your network. These are people of all levels that have been there and done that, meaning people who know something that you need to know. See my article a while back “Entrepreneurs Learn Best From Business Networking” on how and where to get started. You don’t need a thousand friends, but a few real ones can make all the difference.

  • Give and you will receive. Relationships need to be two-way, and can’t be just all about you. If you are active in helping others with what you know, they will be much more open to help you when you need it. The more you give, the more you get in return, both literally and figuratively.
  • Work on your elevator pitch. This is a concise, well-practiced description of your idea or your startup, delivered with conviction to start a relationship in the time it takes to ride up an elevator. It should end by asking for something, to start the relationship.
  • Don’t skip all business social settings. Face time is critical, even with the current rage on social networks, phone texting, and email. Studies show that as much as 50-90% of communication is body language. That’s usually the important relationship part.
  • Nominate someone as your mentor. Build a two-way relationship with several people who can help you, and then kick it up a notch with one or more, by asking them to be your mentor. Most entrepreneurs love to help others, and will be honored to help you.
  • Cultivate existing allies. These are people who already know and believe in you, but may not be able to help you directly in your new endeavors. But don’t forget that each of these allies also has their own network, which can be an extension of yours, if you treat them well.
  • Nurture existing relationships. We all know someone who claims to be a “close friend,” but never initiates anything. They never call, they never write, and wait for you to make the first move. If you don’t follow-up on a regular basis with someone, there is no relationship, only a former acquaintance.

On the positive side, many attributes of an introvert lead to better business decisions, such as thinking before speaking, building deep relationships, and researching problems more thoroughly. Mark Zuckerberg, Facebook founder, is currently the most famous introvert entrepreneur, so don’t let anyone tell you it can’t be done.

One of Mark’s secrets seems to have been to surround himself by extroverts like COO Sheryl Sandberg, and people who have a complementary energy. But working alone doesn’t get you very far. It takes a team to win the game of business, so take a look around you to see how you are doing so far.

Marty Zwilling

0

Share/Bookmark

Wednesday, January 28, 2015

Startup Founders Face Serious Business Culture Myths

Ethical_Compliance New entrepreneurs tend to focus only on getting the product right, and assume that the right culture and ethics will come later simply by hiring good people. In fact, they need an early focus on developing their moral compass, as well as setting the right ethical tone. Building an ethical business is more than just compliance and meeting legal requirements, and it has big paybacks.

One 11-year study of over 200 companies, detailed in “Corporate Culture and Performance,” found that those working on their culture improved revenue by 516%, and increased net income by 755%. Conscious Capitalism, a recent business movement which includes a large focus on culture and ethics, claims 3.2 times the return of other companies over the last 10 years.

One of the keys to setting the right ethical tone is understanding and avoiding the myths and pitfalls of others. I saw a good summary of these in a recent book, “Ethical Leadership,” by Andrew Leigh, an expert in this area. I like his specifics for business leaders on improving and sustaining the best company cultures, and his summary of the culture myths facing new business leaders:

  • It’s easy to be ethical. This myth ignores the complexity surrounding ethical decision making, particularly within business organizations. Ethical decisions are seldom simple. For example, people often do not automatically know that they are facing an ethical choice. Any given individual may not recognize the moral scope of the issues involved.
  • Business ethics are more about religion than management or leadership. Behind this myth lies the confused belief that ethics are a means of altering people’s values. The reality is different. An ethical culture deals with managing values between the individual and the company, to best handle the inevitable conflicts that crop up in every business.
  • Hire only ethical people, so further time on business ethics is not needed. This is usually an excuse for not developing ethical policies and practices. These can be as simple as how to handle customer over-payments, or more complex in how to handle the choices every employee may face between conflicting customer and company interests.
  • Business ethics are best left to philosophers and academics. Deal with this myth by sharing with colleagues some of the highly practical tools for making sense of the issue – such as ethics audits, behavior codes, risk strategies, targeted training and leadership guidance. Business ethics is a discipline that must be practiced every day by everyone.
  • Ethics can’t be managed. While codes of behavior do not guarantee an ethical culture, they do clarify desired behavior and articulate for employees what is expected of them. Every business has complex and diverse dilemmas which are not specifically covered in documented procedures, so employees need clear values leadership for guidance.
  • We’ve never broken the law so we must be ethical. Many perfectly legal actions can still be deeply unethical. As an example, companies often realize that faulty products are slipping out, but they delay a recall, sighting that strictly legal requirements are being met. Unethical behavior can even with something low key which initially goes unnoticed.
  • Unethical behavior in business is just due to a few ‘bad apples.’ In reality, most unethical behavior in business happens because the environment tolerates it, usually through benign neglect. When it comes to ethics, even good people tend to be followers, and if told to do something, they will do it, without considering the ethical implications.

Company ethics are a prime example of where you and your company only get one chance for a great first impression, and if you lose it, it’s almost impossible to regain. Don’t follow the examples of institutions in the recent financial meltdown, or certain oil companies working offshore, or the many smaller company examples we have seen in our own neighborhoods.

Every business, new or old, needs to remember that an ethical culture, or lack of it, shows in the actual behavior and attitudes of all team members, rather than just in policy documents and videos from the top. A successful business is far more than a good product and a good business model – it’s equally about projecting and executing with a great culture. Can you vouch for the culture and ethics of your company, from top to bottom?

Marty Zwilling

0

Share/Bookmark

Monday, January 26, 2015

7 Keys To Being Seen As A Superhuman Startup Founder

Michael-Dell In the beginning all businesses are just people playing out an idea. It’s never the other way around – there is no idea so big that it doesn’t need people to make it succeed. Investors know this, hence the saying “Bet on the jockey (founder), not the horse (idea).” A great jockey is a great role model.

Like it or not, everyone looks to the entrepreneur as the jockey role model in a new business. Typically this energizes new startup founders, but some struggle trying to live up to their own, as well as everyone else’s expectations. In reality, nobody really expects anyone to be superhuman, but it can feel like that.

We certainly wouldn't expect superhuman behavior from the people looking to us for guidance, nor would we want them to expect flawless behavior from themselves. If not flawless behavior, what characteristics and actions do they look for? Here are some frequently mentioned ones:

  1. Demonstrate confidence and leadership. A good role model is someone who is always positive, calm, and confident in themselves. You don't want someone who is down or tries to bring you down. Everyone likes a person who is happy with how far they have come, but continues to strive for bigger and better objectives.

  2. Don’t be afraid to be unique. Whatever you choose to do with your life, be proud of the person you've become, even if that means accepting some ridicule. You want role models who won't pretend to be someone they are not, and won't be fake just to suit other people.

  3. Communicate and interact with everyone. Good communication means listening as well as talking. People are energized by leaders who explain why and where they are going. Great role models know they have to have a consistent message, and repeat it over and over again until everyone understands.

  4. Show respect and concern for others. You may be driven, successful, and smart but whether you choose to show respect or not speaks volumes about how other people see you. Everyone notices if you are taking people for granted, not showing gratitude, or stepping on others to get ahead.

  5. Be knowledgeable and well rounded. Great role models aren't just "teachers." They are constant learners, challenge themselves to get out of their comfort zones, and surround themselves with smarter people. When team members see that their role model can be many things, they will learn to stretch themselves in order to be successful.

  6. Have humility and willingness to admit mistakes. Nobody's perfect. When you make a bad choice, let those who are watching and learning from you know that you made a mistake and how you plan to correct it. By apologizing, admitting your mistake, and accepting accountability, you will be demonstrating an often overlooked part of being a role model.

  7. Do good things outside the job. People who do the work, yet find time for good causes outside of work, such as raising money for charity, saving lives, and helping people in need get extra credit. Commitment to a good cause implies a strong commitment to the business.

True role models, like Jeff Bezos of Amazon.com and Michael Dell before him, are those who possess the qualities that we would like to have, and those who have changed the way we live. They help us to advocate for ourselves and take a leadership position on the issues that we believe in.

We often don't recognize true role models until we have noticed our own personal growth and progress. That really implies that it takes one to know one. Thus, if you are asking the question, that may mean you are well along the road to being that role model already. Don’t stop now.

Marty Zwilling

0

Share/Bookmark

Sunday, January 25, 2015

Check Your Startup For Symptoms Of This Malaise

businessman-founder Founders almost always cite lack of money as the reason for failure, but if you look deeper, I believe the reason is more often about dysfunctional people and leadership. Sometimes it comes right back to the founder, in terms of a malaise often called “founder’s syndrome.” A few years ago I was intimately involved with a promising startup that taught me about this issue.

I’ll be short on specifics here, to protect the guilty, but I hope you get the idea. It’s not a disease, but it can kill your startup. You can find a more complete discussion of founder’s syndrome on Wikipedia, but here are a few of the “symptoms” I observed in the founder and CEO in this case:

  1. Advisors and staff hand-picked from friends and connections. Personality and loyalty are apparently the key criteria, rather than skills, organizational fit, or experience. The executive is looking more for cheerleaders, rather than people with real insights and ideas.

  2. Reacts defensively and talks constantly. Sometimes it's time for quiet listening rather than talking. A strong and confident leader will always realize that a defensive response before the input message is complete does not impress investors, nor anyone else on the team.

  3. Staff meetings are for one-way communication. This founder holds staff meetings only to report crises, rally the troops, and get status reports on assignments. There is no concept here of team strategy development, and shared executive agreement on objectives.

  4. With no input and no “buy in” from the team, sets extremely ambitious objectives. These objectives are set based on the desires and dreams of the founder, with no recognition of technical realities, costs, or time required.

  5. Over time, becomes more and more isolated and paranoid. The first clue is some veiled comments about the motives of staff members, advisors, and investors. These become more specific as the situation gets more dire, to the point where key members begin to desert the ship in disgust.

  6. Highly skeptical about planning, policies, and advisors. Claims "they're overhead and just bog me down." The founder perception is that his experience is more applicable than the input of others, and formal planning and policies are just a way of introducing unnecessary bureaucracy.

In the beginning, we all found our startup founder to be dynamic, driven, and decisive. He had a clear vision of what his organization could be. He seemed to know his customer's needs, and was passionate about meeting those needs. Just the traits one would expect for getting a new organization off the ground. However, he had other traits, including the ones listed above, which became major liabilities.

The undoing of the company began when a potential investor, after months of search, was ready to put up $1 million dollars, but made it clear that his firm would likely need to replace the founder with someone with more credentials and experience in this industry. With that revelation, the founder killed the investment deal, and every other potential deal which raised the same issue.

Of course, no situation is this simple. There were product development problems, pricing problems, and early customers who demanded more features and delayed contractual payments. The ultimate result was a startup founder who exhausted his personal funds, drained the investments capability of friends, and drove away the team one by one.

For me, this is a most frustrating and difficult problem for any advisor or team member to deal with, since communication and learning can only occur when someone is open and listening. If any of you out there have seen this, or have some experience or ideas on how to deal with this situation effectively, let me know. You can be a hero if you have the cure.

For all you founders out there, if you find this article anonymously taped to your computer, it might be time to take a hard look at yourself in the mirror. We can’t change you, but you can change yourself. It could save your startup!

Marty Zwilling

0

Share/Bookmark

Saturday, January 24, 2015

Non-Disclosures Can Protect Your Idea, Or Destroy It

non-disclosure-agreement Most entrepreneurs I meet are reluctant to disclose anything about their idea to investors before getting a signed confidential disclosure agreement (CDA). Professional investors and advisors, on the other hand, usually refuse to sign these agreements today due to the risk of litigation and administrative workload, and will walk away. How can you make this a win-win opportunity?

First of all, I will admit that there is some risk involved with talking to any potential investors, even with an agreement, just as there is risk in all the elements of your plan, product and market opportunity. Yet I can assure you that people who are paranoid, or want to avoid all risks, won’t be happy as entrepreneurs, so it’s all about balancing the risk-reward scale.

Thus, based on my experience as an entrepreneur as well as a startup investor, there are indeed situations where a non-disclosure is highly recommended, and others where the potential good far outweighs the risk. Here are the key considerations from my perspective:

  1. Dealing with known or trusted investors and advisors. If you are approaching a recognized venture capital group, or even an accredited angel investor, a non-disclosure agreement is counter-productive. These professionals value their integrity, like your therapist or financial advisor, and will not share your business details nor steal your idea.

  2. Unsolicited proposals or requests for information. If you receive an email requesting details on your plan from someone you don’t know, you should respond with a CDA, as well as begin a more serious cross-check with reliable sources. The same is true for people who may approach you at networking events or industry conferences. Build trust first.

  3. Discussions with potential strategic partners. Most often, the best potential partners are already in a business complementary to yours. They could easily be your competitor, or copy your business, so a mutual non-disclosure is required here for protection in both directions. It pays to talk to competitors about the business, but not your business.

  4. Disclosures relative to patents. Entrepreneurs should never disclose the details of a planned or current patent application to any outsiders, even with a CDA in place. Potential investors don’t need this data, except perhaps as part of a final due diligence after agreement on terms. Product details in the public domain can never be patented.

  5. Sharing trade secrets. Some entrepreneurs avoid the patent process, since patent details become public once a patent is issued. Trade secrets, which may be recipes, formulas or processes, should only be disclosed on a need-to-know basis, even to employees, and then always accompanied by a CDA.

  6. Select a reasonable agreement duration. In today’s world of rapid innovation and new technologies, any individual or company should be hesitant to sign an agreement that limits their activities for 10 years or more. In most cases, a term of two to five years should be adequate. If required, all agreements can be renewed before they expire.

The content of a non-disclosure agreement should be kept simple and straightforward, with a minimum of legalese. There are many samples available from trusted sources, including this one from Entrepreneur. I would be suspicious of any similar agreement more than two pages long.

Professional investors often challenge early non-disclosure requests for an idea or concept, since it’s an implementation that makes a business, rather than an idea. They have probably heard the idea a dozen times already, and are waiting to back the right team on the implementation. The last thing they need is an agreement to constrain their actions.

In fact, if you have a good idea, you need smart investors to spread the word to other good investors, so you really want them to talk about you. Remember that without a CDA, you can still explain how your idea works in marketing terms, without revealing how it is implemented or manufactured. If that doesn’t get their attention, it probably won’t get any customer attention either, and that’s the best feedback you can get at that stage.

Marty Zwilling

*** First published on Entrepreneur.com on 1/16/2015 ***

0

Share/Bookmark

Friday, January 23, 2015

The Right Marketing For A New Business Costs Least

social-media-marketing The power and influence of paid media advertising, including print ads, TV commercials, radio, and even online digital campaigns is waning, in favor of unpaid earned and owned messaging from your website, social media, key market influencers, and existing customer word-of-mouth. But startups need to remember that even zero paid media doesn’t mean that marketing is free.

The case for zero paid media as the new marketing model was highlighted in a recent book, “Z.E.R.O.” by Joseph Jaffe and Maarten Albarda, both experienced marketers working with new companies, as well as larger firms. They advocate investing in their new framework, where the Z.E.R.O. initials take on meaning as follows:

  • Zealots, disciples, and influencers. New products and startups often require a culture shift to drive acceptance, which can best be accelerated by zealots or a visible chief disciple, like Steve Jobs. Other sources stronger than paid media today include key social media influencers, such as “mommy bloggers” and popular YouTube events.
  • Earned media. This is media exposure from a neutral third-party, such as an unpaid news story on your product or service to highlight innovations or social value. This exposure is highly credible, since you don’t control the message, and extremely valuable since it is not viewed as part of any advertising context.
  • Real customers. Marketing media content from real customers in real time is now commonplace via sites like Yelp, Foursquare, and online reviews. This word-of-mouth media source is also highly credible and valuable, since it comes from “peer” customers, rather than you as the source, or any paid source.
  • Owned media. This includes your website, blog, and presence on social media platforms, including Facebook, Twitter, Pinterest, Tumblr, Instagram, and many more. These usually provide a customer’s first impression of your offering, and should not be blatantly self-promotional, but instead informative, educational, and even entertaining.

As I mentioned, this framework is powerful, but none of these elements are free. A while back in a blog article, I pointed out that none of these justify a startup business plan with little or no budget for marketing. All require planning, deliberate actions, and quality content and event creation which will likely absorb all the savings from reduced paid media campaigns.

In any case, reframing the conversation from paid media marketing to the new framework requires a balance, and measurements along the way to better manage return on investment. In the book, Jaffe introduces three new sets of metrics for gauging progress:

  • Medium-term metrics. This is essentially a series of interim forecasts not dissimilar from mile-markers in a marathon race that advise whether it’s time to pick up the pace or slow down to smell the roses. Examples include counting members of an advocacy program, app downloads, tenured customers, or subscribers to an e-mail list.
  • Long-term sales. We often talk about short-term sales and long-term relationships in mutually exclusive terms. They are polar opposites in terms of their time frames, but how about building a bridge of compromise between them? Whereas every short-term initiative is akin to a traditional campaign, the long-term sales effort is the commitment.
  • Short-term wins. Accountability is not optional, as it’s still important to have something to show for your efforts quickly. Only this time, consider the large “W” (big win), the small “w” (small win) or in some cases even the small “l” (small loss), which represents failing fast or failing smart, insights, lessons, learnings, or pleasing initial results.

I’m not suggesting that paid media channels should be seen as dead to young companies, since even the revolutionaries, like Google, Facebook, and Apple, still rely on paid media to optimize their own efforts. And paid media are hardly standing still, continually figuring out ways to be more effective, using big data and other innovations to get more customer attention.

Thus while I see startups quick to jump on the zero paid media bandwagon (for budget reasons), I recommend a balance. First, go for that earned and owned media channel, using the same budget parameters you might have previously allocated for paid media. Later, you can lower the budget as the metrics show results, or apply the remainder to paid media as a follow-on step.

In all cases the tone and resources must be focused on capturing today’s customers, who are looking for engagement and connection, rather than the traditional loudest noise. Z.E.R.O. marketing is not zero marketing.

Marty Zwilling

0

Share/Bookmark

Saturday, January 17, 2015

How Smart Startups Survive Investor Due Diligence

investor-due-diligence For the elite startups and entrepreneurs who manage to attract the investor they dream of, and survive the term sheet negotiation, there is still one more hurdle before the money is in the bank. This is the mysterious and dreaded due diligence process, which can kill the whole deal. In reality, it is nothing more than a final integrity check on all aspects of the business and the team.

Some entrepreneurs do very little to prepare for due diligence, assuming all the talking has already been done, and the business plan and results to-date tell the right story. Others schedule exhaustive training sessions for everyone on the team, including showcase customers, to make sure that everyone paints a consistent picture. My best advice is to stick to the middle ground.

The Founder needs to remember that meetings up to this point have been primarily off-site, with staged demos, and managed personally by the CEO or a small team. Due diligence always involves on-site visits, informal discussions with any or all members of the team, vendors, and good customers as well as bad.

If there are conflicts within the team, or differing views of the strategy, or evidence of missing processes and tools, the investment process will likely be terminated. Even if the entrepreneur feels that all is well, it’s well worth the effort to prepare with the following actions:

  1. Make sure the whole team is up-to-date on the plan. That might start with the CEO giving the investor pitch to the whole organization, and distributing the current business plan document to everyone. Make sure all business processes are documented and integrated. If everyone has a different view of reality, you have no reality.

  2. Take time to review and resolve any personnel distractions. You need to brief the investor early if there are pending changes that have to be made, or conflicts that may become apparent during the due diligence process. Make sure everyone accurately posts their role with your startup on social media profiles, resumes, and references.

  3. Communicate what is happening and why to everyone. Don’t let the due diligence process be a surprise to the team. Make yourself available to answer any questions, show your enthusiasm, and explain both the positives and negatives of the external investment process.

  4. Visit reference customers, partners, and vendors. Use this opportunity to validate their satisfaction and support for your company and your solution. If you find open issues that can’t be immediately resolved, be sure to proactively communicate these to investors, with an action plan, rather than hope they won’t be found.

Based on the size of the investment, and the runway available, the due diligence process can take several weeks, or even a couple of months to complete. In any case, before the process starts on your startup, you should be doing your own reverse due diligence on the investor, as outlined in this recent article.

For reference, here is a quick summary of key elements which most investors include in their due diligence process:

  • Key personnel review. In all cases, an investor will ask to talk to all key players, and will likely follow-up by calling references and prior associates to verify background, commitment, and experience. Since investors tend to invest in people, more than the idea, the personnel review is normally the highest priority item.

  • Status of the solution. Here investors are looking for feature problems or quality issues on the current product. A hard look will be taken at the technology maturity, the current development progress, and customer satisfaction with early product shipments. In addition, manufacturing and inventory levels will be reviewed.

  • Review of opportunity and segmentation. A key criteria for a good investment is a large opportunity with double-digit growth. This should be a validation of prior assessments, based on any recent changes in trends, economic conditions and customer feedback data.

  • Traction in the marketplace. A smart investor will take an independent final reading in the market on barriers to entry, active competition, demographics, and price sensitivity. Sales and distribution channel activity will be analyzed, as well as cost of customer acquisition, to make an independent assessment of your financial projections.

The key theme for a successful due diligence is full disclosure and no surprises before or after the commitment. If more marriages were subjected to the same rigor, the divorce rate would likely not be in the current 50 percent range. In business as in other relationships, people on the team that have to be above reproach, committed, and working on the same page.

Startup equity investments imply a long-term business relationship, lasting an average of five years. During that period, it is very difficult for either party to get out of the deal, since there is no public market for the stock, and business divorces normally mean bankruptcy. It’s worth your time to do a little extra work here, and make the honeymoon phase a win-win one for both sides.

Marty Zwilling

*** First published on Entrepreneur.com on 1/9/2015 ***

0

Share/Bookmark

Wednesday, January 14, 2015

Many Startup Cultures Cannot Match The Market Pace

Webvan Successful startups seem to follow similar paths to greatness, and unfortunately all too often that path leads them back down the hill much faster than they went up. Big company powerhouses, like IBM and Xerox, took fifty years to make the cycle, but new companies today, in the age of the Internet, often make the cycle in five to ten years, or even less. Consider MySpace and Webvan.

Thus it behooves every entrepreneur to start watching these things more carefully from the very start. By definition, most startups begin as a result of some innovation in product, process, or service. The problem is that innovations in most business areas are coming so fast these days that yours can be overrun while still be scaled across geographies and other products.

In other words, the challenge today is to build a culture of continuous innovation, as well as continuous scaling, and continuous consolidation, all concurrently. That’s a tall order, especially when your business culture has to fit into the myriad of international and local cultures that are part of every market these days.

In a recent book, “Fish Can’t See Water,” Kai Hammerich and Richard D. Lewis explore these culture issues, both national and international, that can make or break your company strategy. Incidentally, I love that book title, which seems to me applicable to most aspects of business (and even people), as well as business culture.

To set the stage for all the cultural issues and timing, the authors start with a summary that I like of the five lifecycle phases every company is likely to experience over the long-term or short-term, regardless of culture:

  1. Innovation. This business phase is where every entrepreneur starts. It’s a volatile period for every company, where most struggle with getting commercial and technological traction, usually based on a single product or service. A particularly critical moment is when the founders hand over the leadership to a more managerial regime.

  2. Geographic expansion. This phase is characterized by rapid expansion either regionally or globally for growth (scaling up). This is where the culture of the startup has to adapt to the cultures of the markets served. A common practice is to hire local employees who know the geographic culture, even though this may well dilute the company culture.

  3. Product-line expansion. For additional growth, most companies expand the product portfolio to cater to more customers, and sell more to existing customers. The challenge during this phase is to stay innovative and agile. This usually marks the end of organic growth, as partnerships and alliances aid growth, but again dilute the focus on culture.

  4. Efficiency and scale. As the business matures, there is a natural drive towards more efficiency often through sheer scale and a desire for a stronger market share. Companies with an innovative and creative bias, which thrived during the innovation phase, usually struggle in this period. The emphasis is on global processes and tight execution.

  5. Consolidation. This is the end game for an industry, and many companies, characterized by mergers and acquisitions to a few dominant players. Value creation for major shareholders is frequently hampered by integration issues and culture clashes. The crises definitely hits here, if not earlier, and even the survivors can be dragged down.

In fact, crises can and do hit an any phase, due to poor execution, complacency from success, less competitive strategy, change of leadership, and many other reasons. It’s important to note that a company under crisis often will revert to its core national culture, which only further exacerbates the problem.

Thus it’s important to set your company culture early to be a global company, without a specific national bias, since the speed of change is so great. You need the global outlook, even though digitalization and Web 2.0 means you don’t have to have a physical presence in other countries to participate in the global market.

As companies grow in today’s high-speed Internet environment, with constant pivots and new products, they won’t even see the lifecycle phases flashing by, and in fact may be experiencing all of them concurrently. There is no time to be changing your culture to match the lifecycle. How hard are you working to avoid the “fish can’t see water” syndrome?

Marty Zwilling

0

Share/Bookmark

Saturday, January 10, 2015

10 Ways An Entrepreneur Can Make No Feel Like Yes

just-say-no Every entrepreneur I know can’t find enough hours in a day to do the good things they want, and yet they often find themselves saying yes to new requests. Perhaps because they are optimists by nature, or they just hate to disappoint others, they end up hurting their health, credibility, and effectiveness by not being able to deliver on everything they promise.

In addition to saying yes too often, some entrepreneurs under pressure say no poorly, by attacking the requestor or by avoiding any definitive response. Either of these approaches always make a difficult situation worse, often leading to guilt or a later accommodation.

A successful entrepreneur must be accountable for all commitments, and manage expectations to make this possible. So here are some tips I have learned over the years from strong leaders that can help you say no without damaging current business relationships or future opportunities:

  1. Establish boundaries and honor them for all to see. Let your constituents know your priorities and limits. Don’t continually break your own rules about when you are available or what requests are acceptable. Your actions must match your words, so don’t say yes when you mean no, or hope to squeeze out later.

  2. Ask for time to check your calendar. It’s acceptable business practice to review your schedule, or converse with other principals, before committing to an answer. Don’t respond with a quick yes that you can’t deliver, or a quick no that will ruin a relationship. In all cases, it’s important to commit to a date or time for a final yes or no.

  3. Give credence to your initial instinct. Recognize that your brain and your body often register information that is more accurate than an optimistic emotional reaction, or a negative reaction after a long hard day. Take a deep breath, clear your mind of any external distractions, and analyze your gut reaction before providing any answer.

  4. Voice both the pros and cons to a trusted cohort. Speaking the considerations out loud will help you make sure you understand the full implications of either a yes or a no answer. Every yes answer increases your workload, and every no answer may cut off an opportunity you need down the road. Talking it out also buys you time.

  5. Explore the possibility of a reciprocal favor. This will help the requester understand the impact of the request, and potentially reconsider. In other cases, you may actually get back more than you give up. Every yes should be a win-win proposition, just like strategic partnerships can bring huge growth to both businesses, despite the work.

  6. Explain your constraints before saying no. Rejection without giving a context implies an unreasonable request or a problem with the requestor. People making a request may not understand your budget limitations, current workload, or competitive pressures. In this context, you can also make an encouraging statement about future requests.

  7. Say yes to the person and no to the task. Make sure the requestor understands first how positively you feel about them, despite the fact that the requested task cannot be accommodated in your current workload, strategy, or other boundary. Requestors are then less likely to be left with the impression that your rejection is a personal affront.

  8. Sandwich your no between two positives. Make your answer more palatable with a positive explanation. For example, if your partner asks you to cover a conference, but you have development deadlines at risk, explain these commitments (first yes), how they lock you in town (no), and finish by confirming your focus to an on-time product (second yes).

  9. Defer the decision to a better environment. Ask for the opportunity to discuss the request when you can give the requestor your full attention. When you are in the normal chaos of the startup day, both parties can be easily misinterpreted. Pay attention to body language and tone that often make the negative response more difficult to receive.

  10. Make sure your words are non-defensive but clearly stated. No one wins when a requestor reads your softly spoken no as a yes or a maybe. Long detailed explanations are usually read as defensive or confrontational. The answer should be strong and non-emotional. Just say no clearly, and smile as you say it.

You don’t have to be viewed as a yes person to be viewed as a leader. In fact, if you look at the leaders around you, they are not afraid to say no to the conventional wisdom, and they gain respect for doing it. They have learned the art of saying no with the same conviction and passion they use in saying yes. That’s the best way to change the world and save yourself, so start today.

Marty Zwilling

*** First published on Entrepreneur.com on 1/2/2015 ***

0

Share/Bookmark

Friday, January 9, 2015

Don’t Let Your Business Be A Dead Startup Walking

scott-fearon As an entrepreneur mentor and startup investor, I see with sadness the 50 to 90 percent that fail. If you ask them for a reason, most will insist that they couldn’t get funding, or they ran out of money too early. But I’m not convinced that it’s as simple as that. Many are just not facing the reality that their passion had a critical business flaw.

As I was reading a new book “Dead Companies Walking,” by Scott Fearon, who runs a hedge fund that profits from businesses headed toward bankruptcy, I realized that his insights on the common ways that mature companies often doom themselves apply equally well to startups. Every business, young or old, needs to avoid the following six mistakes that he outlines:

  1. Anticipating success based on the recent past. This fallacy, often called historical myopia, essentially involves extrapolating only from recent positive events, and ignoring the reality that markets saturate or evaporate. With the success of Facebook and Twitter, I still see new social media startups almost every day, with most destined to fail.

  2. Relying on an old formula for success. The fallacy of formulas that “can’t fail,” and holding on to troubled ventures, is alive and well in startups. It’s tempting to believe that one more new platform will win for crowd funding or video games, like Indiegogo and Wii. Actually, great new customer solutions lead to great platforms, not the other way around.

  3. Extrapolating you as the target customer. Never mix up what you like with what your customers will buy. Just because you would have loved to have your groceries picked out and delivered, doesn’t mean the mainstream customer was ready for Webvan in 1999. Or ask PlanetRx, an online service for prescriptions, before the Internet was pervasive.

  4. Falling victim to a magical mania or bubble. Perhaps the most famous bubble for startups was the dot.com craze that crashed 15 years ago, where the highest valuations were given to companies with massive user growth, but minimal revenue or profit. This one may be back, and due for another crash. See point #1 or watch history repeat.

  5. Failing to adapt to tectonic shifts in the market. Blockbuster failed to recognize that their industry had fundamentally and permanently changed, and even NetFlix has suffered from the same issue, as video streaming takes over. Things happen fast these days, so don’t get caught re-arranging deck chairs on the Titanic. Fail fast and pivot.

  6. Physically or emotionally moving yourself above the business. More than one smart entrepreneur has been caught in the lofty lifestyle of big money investors, viral growth, and movie star status. Startups can go down many times faster than they go up. Just ask MySpace, eToys, and Pets.com. Never take your eye off the ball in business.

Of course, there are many other common reasons for startup failure, including inexperienced teams, inadequate marketing, no intellectual property, business model doesn’t work, or just giving up too early. Every startup is a step into the unknown, making it a higher risk of failure, so there is no room for complacency or assumption.

In reality, failure is not a bad thing. In a healthy economy, capital markets and discriminating customers fuel growth and new ventures by handsomely rewarding well-executed ideas, and ruthlessly starving out even long-running ventures that refuse to adapt and innovate. A smart entrepreneur learns to embrace failure as a badge of learning that provides a competitive edge.

The lesson here is that even the most promising startups and experienced teams can be misled by sticking with business models that worked in the past, and market opportunities that may no longer exist. While there should be no stigma for failure, there is no joy in being a dead business walking. The quicker you heed these messages, the sooner you will be able to enjoy and celebrate the entrepreneur lifestyle.

Marty Zwilling

0

Share/Bookmark

Wednesday, January 7, 2015

8 Keys To Improving Entrepreneur Delegation Habits

President Barack Obama signs legislation in the Oval Office, Dec. 22, 2010. (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.  For a few, delegating comes easily, maybe too easy. For others who are perfectionists, letting go of even the most trivial task is almost impossible. If you are in this second category, you probably don’t like the references behind your back that you are a “control freak” or a “micro-manager.”

London business school professor John Hunt notes that only 30 percent of managers think they can delegate well, and of those, only one in three is considered a good delegator by his or her subordinates. This means only about one manager in ten really knows how to empower others.

The challenge is delegating the right things, and not delegating the wrong things. If you don’t get it right, you are busy, but working on the wrong things. Almost every entrepreneur needs to improve their skills in this area, so I did some research on the basics. Jan Yager, in her book “Work Less, Do More,” has outlined eight key steps to effective delegation which I endorse:

  1. Choose what tasks you are willing to delegate. You should be using your time on the most critical tasks for the business, and the tasks that only you can do. Delegate what you can’t do, and what doesn’t interest you. For example, non-computer types should consider delegating their social media, website, and SEO activities.

  2. Pick the best person to delegate to. Listen and observe. Learn the traits, values, and characteristics of those who will perform well when you delegate to them. That means give the work to people who deliver, not the people who are the least busy. This requires hiring people with the right skills, not the least expensive or friends and family.

  3. Trust those to whom you delegate. It always starts with trust. Along with trust, you also have to give the people to whom you delegate the chance to do a job their way. Of course the work must be done well, but your way or the highway is not the right way.

  4. Give clear assignments and instructions. The key is striking the right balance between explaining so much detail that the listener is insulted, and not explaining enough for someone to grasp what is expected. Think back to when you were learning, when you were a neophyte.

  5. Set a definite task completion date and a follow-up system. Establish a specific deadline at the beginning, with milestones. In this way you can check up on progress before the final deadline, without fuzzy questions like “How are you doing?”

  6. Give public and written credit. This is the simplest step, but one of the hardest for many people to learn. It will inspire loyalty, provide real satisfaction for work done, and become the basis for mentoring and performance reviews.

  7. Delegate responsibility and authority, not just the task. Managers who fail to delegate responsibility in addition to specific tasks eventually find themselves reporting to their subordinates and doing some of the work, rather than vice versa.

  8. Avoid reverse delegation. Some team members try to give a task back to the manager, if they don’t feel comfortable, or are attempting to dodge responsibility. Don't accept it except in extreme cases. In the long run, every team member needs to learn or leave.

Almost everyone who has grown their startup from a one-person entity to a going concern with many employees has struggled with letting go of any task. On the other hand, executives who come from a large company to a startup tend to delegate too much, resulting in high costs and lack of control.

Finally, every entrepreneur needs to set aside their fear of delegating. If you do it right, as outlined above, every task will likely be done better than you could do it. The only thing you can't delegate is “the buck stops here” role. That can only be done by the person in charge, and it better always be you.

Marty Zwilling

0

Share/Bookmark

Sunday, January 4, 2015

Entrepreneur Business Forecasts Are Not Black Magic

topper-black-magic Most aspiring entrepreneurs understand that you can’t build a business if you won’t commit to delivering a product or service, but many are hesitant or refuse to commit to any financial forecasts. Yet every business requires revenue and volumes, as certainly as it requires a product to sell. Thus, financial projections for up to five years are a necessary element in every business plan.

External investors will demand a financial forecast, but it’s equally valuable to you, even if bootstrapping. How else will you be able to convince yourself and your team that your business is viable? You need these projections to set internal goals and milestones, and to measure your progress toward reasonable success objectives.

For investors, and even for yourself, it’s also a bit of an intelligence test. Per the words of an old country song, “if you don’t know where you’re going, you will probably end up somewhere else.” If you don’t have a destination, don’t waste your money trying to get there, and don’t expect anyone to support you along the way

Projecting financials is a natural extension of the homework every entrepreneur needs to do on customer opportunity size, product costs, pricing, competition and customer value. There is no black magic involved in predicting the future, if you use these four simple steps, with my basic rules of thumb to keep you on the right track:

  1. Determine your margin on sales. Per-unit cost less cost of goods sold is your gross profit or margin. If you are losing money on every unit, it’s hard to make it up in volume. As a rule of thumb, most viable businesses need a gross margin above 50 percent, even on wholesale prices, to cover operational expenses and survive as a business.

  2. Forecast sales-volume expectations. Project based on your market size how many widgets you will sell in every channel. This should always be a “bottoms-up” commitment from your sales team, not your own optimistic guess. Don’t assume penetration numbers greater than 5 percent in early periods. Doubling revenue each year is a good target.

  3. Quantify overhead costs. It’s amazing how fasts costs escalate as you grow. You need 5 percent or more of revenue for marketing, maybe more for ongoing development, and people costs will double as you add benefits, insurance, training, IT and new processes. Check competitor numbers and industry average statistics to get you in the right range.

  4. Calculate investment amounts and timing. Initial sales success means more cash will be needed for inventory, receivables, facilities and people. Project your cash burn rate to keep at least 18 months between venture capital or angel investments. Controlling cash flow is critical as founders move from working “in” the business to working “on” the business.

From a planning and strategy standpoint, I offer these additional recommendations to maintain your credibility with outside investors, and to balance your risk due to market uncertainty:

  • Always buffer your investment requests. Investment requirements should always be based on financial projections and cash-flow calculations, not on what you think you can negotiate. If your cash flow shows a shortfall of $750,000, add a 33 percent buffer, and ask for a million. Be willing to give up 20 to 33 percent of your equity to support this.
  • Update your financial projections every quarter. Financial forecasts for startups are assumed to be estimates that will be updated as real data comes in. Plan to re-forecast revenues quarterly or even monthly, and replace forecasts with actuals as soon as a period ends. A business plan with old projections instead of actuals has no credibility.
  • Avoid conservative projections, as well as irrational ones. Investors want entrepreneurs to be aggressive, but don’t make projections that make you look like the next Google. Entrepreneurs tend to be driven by their own targets, so pick an aggressive one, and you will likely do better that starting with a conservative one.

I always recommend that entrepreneurs do their own financial projections, rather than rely on an outsider, because it’s the process that adds the value, more than the numbers. For additional value, I suggest the use of a spreadsheet such as Excel as a financial model, with a few variables, like price and volume. This allows a quick analysis of price change and revenue impacts.

You don’t need an MBA to do financial projections for a startup business plan. On the other hand, without financial projections, you don’t have a business plan. When you start a business, as in most other venture, having no plan is a plan to fail. That’s no fun for you, your investors or your customers.

Marty Zwilling

*** First published on Entrepreneur.com on 12/26/2014 ***

0

Share/Bookmark

Saturday, January 3, 2015

Don’t Be A Product Leader Still Failing In Business

success-failure-business In building successful businesses, I find that creating a new and innovative product or service is usually the easy part. The hard part is providing the leadership required to align and motivate all the constituents and players – from engineers, to investors, vendors, and ultimately customers. Great entrepreneurs are not just idea people and then managers, they are extraordinary leaders.

Most investors admit that they invest primarily in people, not ideas, and they inherently believe that they can sense this leadership ability needed to get the rapid growth and 10x return we all strive for. Yet beyond a list of noble attributes, like vision, courage, and integrity, it’s hard for them to define what separates an ordinary entrepreneur or manager from an extraordinary leader.

I saw a new approach in the book “Leadership Transformed: How Ordinary Managers Become Extraordinary Leaders,” by Dr. Peter Fuda a while back, which identifies seven leadership themes, presented as metaphors. I believe these will really help anyone recognize great leaders, and even more importantly, accelerate their own entrepreneur leadership transformation:

  1. Demonstrates a burning ambition and a burning platform (fire metaphor). These are the forces that initiate and sustain transformation efforts. The top two on the personal side are “urgency” and “desire,” but these have to be matched on the business side with the willingness to burn the platform (change any aspect of the business) without a crisis.

  2. Sense of accountability and momentum (snowball metaphor). This means no excuses and no rationalization, sweeping team members into mutual accountability. The leader then builds momentum from small successes into a snowball that will grow into a large, powerful, and eventually unstoppable business. Have you addressed all sources of drag or friction on your snowball?

  3. Artfully applies tools, and strategies for change (master chef metaphor). New entrepreneurs are really amateur chefs learning to cook a new business. Existing business frameworks are the recipes, and great entrepreneurs creatively use new tools and strategies to hone these frameworks, just like a master chef.

  4. Works with other team members on mutual aspirations (coach metaphor). It is not about leaders becoming coaches; it’s about leaders letting themselves be coached by others – advisors, team members, and even customers. A team’s captain is dependent on the support of their teammates, requiring trust and respect from both parties, and humility on the part of the leader.

  5. Does not mask authentic self, values, and aspirations (mask metaphor). Too many entrepreneurs put on a mask to conceal personal imperfections, or they adopt an identity not aligned with their authentic self, values, and aspirations. This façade is a burden soon recognized, so dropping the mask is more effective, as well as more comfortable and more fun.

  6. Enhance their self-awareness and edit their own performance (movie metaphor). Great entrepreneurs recognize that leadership is like a movie, and it can be honed and improved by disciplined reflection (see yourself as others see you), edited for impact, and directed by experts on your team. Reflect on how often you operate from judgment as opposed to perception. Think about who could help you reflect-on-action.

  7. Embed their personal journey within the business journey (Russian dolls metaphor). Business is really a set of journeys that interact with an entrepreneur’s personal journey. Up-line this may be your interaction with your Board, investors, and family. Down-line it’s the leadership model you use with your internal teams and external partners. Focus on improving your up-line and down-line dolls with your personal journey.

In addition, here are five strategies that Dr. Fuda and I both agree will lead to a more empowering approach to entrepreneur leadership, and help you optimize all the themes described above :

  • Shift your focus from your business content to market context.
  • Spend more time showing others what is required, rather than telling them.
  • Focus more on collaborating with others, rather than competing.
  • Evolve from guru to guide, and coaching others to find answers for themselves.
  • Move from critic to cheerleader, from what is going wrong to what is going right.

If you are an investor, you need to recognize and mentor entrepreneurs to extraordinary leadership. If you are a startup Founder or executive, you need to strive continually to change yourself and your business to build and maintain the leadership you need to out-perform your competition, and generate the results to meet personal and financial objectives. How many of these themes and strategies are you practicing today?

Marty Zwilling

0

Share/Bookmark