Wednesday, March 30, 2016

6 Business Focus Elements That Get More Out Of Less

magnifying-glassIntuitively, many entrepreneurs and businesses believe that the key to faster growth and success is more products, features, and markets. Since we all have limited resources, and can’t add more hours to the day, the result is usually more things done poorly, rather than a few key things done better than anyone else. The message here is focus, reiterated by every advisor and investor.

Good examples of startup focus before success include Google with their search engine, Facebook with friends networking, and Apple with personal computers. Later, after that initial success builds resources, and your penetration of the target market approaches 30 percent, it’s time to expand your horizons and make anticipatory changes to your focus. Don’t wait for a crisis.

For larger and mature companies, the hard part seems to be giving up the familiar space that isn’t working so well anymore, so that you can focus on a new segment or opportunity. This was highlighted in a recent book “Do Less Better,” by John R. Bell, an experienced business expert, who highlights the power of strategic sacrifice in today’s complex business world.

Bell calls this change hesitation the failure to kill your darlings, or the fall from a specialist to a generalist. All entrepreneurs must succeed first as specialists, using pivots as required to zero in on the real and current market. It’s a tough world even for big-company generalists, who take on the complexities of product diversification. Just ask J.C. Penny, Radio Shack, and many others.

I particularly like Bell’s discussion of business culture characteristics that create the necessary focus and being the best in any business environment. This culture must be maintained by every company at every stage of maturity. I’ll paraphrase several of the key elements here in the context of entrepreneurs and startups:

  1. An overriding sense of urgency and passion. Nimbleness and urgency to get the job done will set you apart from your competitors in so many ways, particularly with customers. It comes naturally with a small highly motivated team, but it’s increasingly difficult to maintain in the face of size and success. Build it at the start and don’t ever lose it.

  2. Well-articulated goals and metrics. Your success or failure must be quantified by such key business indicators as market share, financial ratios, brand awareness, new product launches, and execution within the deadlines. Like the refrain of an old country song, if you don’t know where you’re going, you will probably end up somewhere else.

  3. Innovation-driven mindset and actions. Startups can’t hope to outspend a giant with a fat balance sheet. Rather you must outsmart the giant with innovative thinking, pivoting on a dime, and impeccable execution. Innovation initiatives of any appreciable scale require a formal, intentional resource commitment, and work best bottoms-up.

  4. Zero tolerance for complacency and status quo. Always strive to increase your lead, and while competitors scramble to catch you, unleash your next breakthrough product, service, or promotion. It’s easy for complacency to creep in unnoticed in the face of initial success. Continually move up the bar to re-test your personal limits and your team.

  5. Maintain an intimate knowledge of the competition. You must know what your competitors are planning, and how they think, corporately and individually. Study their moves and engage your team for an analysis of updates. Avoid egotistical price wars and emotional outbursts, but make competitors think you are prepared to win at all costs.

  6. Focus on the few things that really matter. No organization, large or small, can manage more than five goals and priorities without becoming unfocused and ineffective. Keep these balanced and aligned between people and process, and keep the scope realistic. Concentrate your actions on preemptive projects that are within your control.

In the long run, to have a long run, your company needs a narrow and memorable focus that is constantly being updated in innovative ways. It’s easy to think that doing less as a company means you’re slacking, but results and longevity are all that count. Every entrepreneur and executive must learn how to build and maintain a culture of doing fewer things better.

Marty Zwilling

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Monday, March 28, 2016

8 Good CFO Attributes That Every Entrepreneur Needs

Adam DeWittThe job of chief financial officer (CFO) may sound like a nightmare assignment to technical entrepreneurs, but the tasks and skills required are key to every new venture. In addition, if you are already a CFO, this position is a great springboard to the chief operating officer (COO) or even the CEO position in the startup, based on recent reports. Investors love to see a former CFO running a new business.

Twitter and GrubHub are just a couple of examples where CFOs have been asked to absorb COO responsibilities in the last couple of years. In the case of GrubHub’s Adam DeWitt, he ended up with a salary exceeding that of the CEO. Here are some key attributes normally associated with the CFO position that will maximize your value now and in the future.

  1. Every startup role requires managing to financial realities. In a corporate environment, you can leave financials to someone else, but not in a startup. Every team member, from engineer to CEO, lives or dies based on cash flow, so the more they can tune their activities to revenue and expenses, the more valuable they become.

  2. Finding creative ways to fund activities. While the CFO usually takes the lead in finding professional investors, everyone needs to look for ways to reduce the burn rate and maximize alternative funding sources, including bartering for services, finding partners willing to accept deferred payments and talking to friends and family.

  3. Creating operational processes and procedures. As startups grow from development organizations to a sustainable and repeatable business, processes must be documented, employees hired and trained and customer-support organizations built. The best entrepreneurs take the initiative on these rather than wait for a CFO to drive them.

  4. Be a trustworthy advisor and mentor to others. The fastest way to win a leadership position in a new company is to communicate value from your insights to other team members and executives. Don’t count on the CFO or CEO to be the source of all knowledge and direction in your business. Leadership is earned rather than appointed.

  5. Communicate the range of your talents. A good CFO has to be able and willing to tackle many challenges outside the financial realm, usually including creating legal documents, evaluating and signing vendor contracts and even human resources activities. With the advent of the Internet, you too can show expertise in any discipline.

  6. Capitalize on your past industry experience. As a CFO brings real value from previous financial experience and training, every entrepreneur should work to highlight previous industry or technical activities and relate them to the task at hand. Great entrepreneurs are adept at applying things learned to a current context from a previous one.

  7. Demonstrate your passion, commitment and work ethic. Investors know that the startup road is long and challenging. Thus, they look across the team of entrepreneurs for the ones who show confidence, resilience and dedication to efforts at hand. They expect to find it in all C-level executives but are always looking for the next executive team.

  8. Able to focus on strategic issues and long-term outlook. Aspiring entrepreneurs seeking to position themselves as C-level executives must do more than perform day-to-day jobs well. They must immerse themselves in strategic and financial issues, just like a CFO. They also must sharpen leadership, collaboration and communication skills.

As you may conclude, the job of a good startup CFO is a hands-on role, focused not only on financials but also on the myriad of operational and strategic issues. Thus, every entrepreneur can benefit from demonstrating the same attributes, leading from financial sensitivity. If your preferred career path includes running your own startup, it pays to pay attention to your CFO.

Marty Zwilling

*** First published on Entrepreneur.com on 03/18/2016 ***

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Sunday, March 27, 2016

5 Ways To Check Your Investor Intent Before Signing

investor-relationshipEven though the color of their money is always green, all startup investors are not the same. Struggling entrepreneurs are often so happy to get a funding offer that they neglect the recommended reverse due diligence on the investors. Taking on equity investors to fund your company is much like getting married – it is a long-term relationship that has to work at all levels.

Investor due diligence on a startup is not a mysterious black art, but is nothing more than a final integrity check on all aspects of your business model, team, product, customers, and plan. Reverse due diligence on the investor is a comparable process whereby the entrepreneur seeks to validate the track record, operating style, and motivation of every potential partner.

If all this checking sounds a bit paranoid and unnecessary, it may be time to take another look at some questionable investor practices and onerous term sheet requests. Beyond the technical issues, if the chemistry isn’t right, the impact on your startup and future business is likely to be similar to that of a bad marriage. It’s no fun for either side.

Thus, here are the minimum steps that I recommend to every entrepreneur in completing an effective reverse due diligence effort:

  1. Get a perspective from peer investors. Of course you need to discount any investor competitive positioning, but local investment group leaders will quickly tell you the strengths and terms of active investors in your area. If your investor is unknown, or peers offer no positive attributes, take it as a red flag. A sample of three views is adequate.

  2. Personally visit another startup funded by this investor. Through networking with other entrepreneurs, you should find one or more to visit that have relationships with this investor. Another approach is to ask the investor for references, where their involvement has made a real difference, leading to success.

  3. Do research on investor visibility via Google and social media. Start by checking the profile and credentials of investor principals on LinkedIn and industry associations. Check for positive or negative news articles, press releases, relationships, and support of community organizations.

  4. Invite the investor to dinner or fun-related activity. Outside of work is where you can best evaluate the chemistry match, and decide whether you can enjoy and learn from the relationship. Enjoy a sports event together, or find common non-profit causes to participate in. As with any relationship, it doesn’t pay to close in a heated rush.

  5. Conduct a routine credit and background check. Look for investor experience in your business domain, as well as evidence of integrity and trustworthiness. Check the content of the investor’s website, and pay particular attention to the source of funds. Personal funds imply the most commitment, and offshore funding is most suspect.

Investor agreements should always be reviewed by an attorney who is familiar with startup equity investment deals. To get the terms you want, it’s better to start with your own term sheet. It’s even better to let the attorney do the negotiating, since many innocent-sounding protective and governance provisions can have long-term negative consequences to you.

While I recognize that there continues to be a shortage of venture capital for new entrepreneurs, compared to the demand, don’t succumb to the temptation to take funds from investors that you are not totally comfortable with. The result will likely be business demands that you can’t meet, loss of key personnel, potential lawsuits, and certainly not the fun lifestyle you expected.

The only successful entrepreneur-investor relationships are win-win ones. That means you and your business must benefit from both the money and mentoring from the investor, and the investor will win from getting a larger return sooner. Win-win relationships get better over time, whereas win-lose go downhill fast and rarely survive the honeymoon period. Know your partner well before you get married.

Marty Zwilling

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Saturday, March 26, 2016

5 Ways Our Lives Are Being Chronicled By Big Data

humanizing-big-dataWe are now solidly in the era of big data, where computers are capturing and processing the details of everything we do with all our interconnected devices in real time. Businesses see this as the Holy Grail for finally being able to predict who, where, and when customers will buy their existing solutions, and what their future solutions must look like to be attractive.

By some estimates, humankind now captures the same amount of data in any two days than in all of history prior to 2003. That’s a lot of data, but the jury is still out on whether technology can make any sense of the data, or derive new meanings from it in our fast-paced and rapidly changing world. So far, we haven’t been very good at predicting the future in life or in business.

For me, the first step in understanding the potential is to better understand what human data really looks like as it comes in from all these sources. I found some help in this regard from a recent book, “Humanizing Big Data,” by leading consumer researcher Colin Strong. I will paraphrase here the keys ways he outlines that our lives are becoming increasingly datafied:

  1. Datafication of emotions and sentiment. The explosion of self-reporting on social media has led us to provide very intimate details of ourselves. Many market research companies now use this data by ‘scraping’ the web to obtain detailed examples of the sentiment relating to particular issues, brands, products, and services.

  2. Datafication of relationships and interactions. We are now not only able to see and track the ways in which people relate, but with whom they relate, how they do it, and when. Social media has the potential to transform our understanding of relationships by datafying professional and personal connections on a global scale.

  3. Datafication of speech. Speech analytics is becoming more common, particularly as conversations are increasingly recorded and stored as part of interactions with call centers, as well as with each other. As speech recognition improves, the range of voice-based data and meaning that can be captured in an intelligible format grows.

  4. Datafication of offline and back-office activities. Within many data-intensive domains such as finance, healthcare, and e-commerce, there is a huge amount of data stored on individual behaviors and outcomes. Add to that the emergence of image analysis and facial recognition systems processing in-store footage, traffic systems, and surveillance.

  5. Datafication of culture. There is a whole new discipline of ‘cultural analytics,’ which uses digital image processing and visualization for the analysis of image and video collections to explore cultural trends. For example, Google’s Ngram service has already datafied over 5.2 million books from 1800 to 2000 to let anyone analyze cultural trends.

Of course, there is a big jump needed from data to real insights, intelligent decisions, and future predictions. This book author also explores some of the major challenges associated with humans making sense of big data, and using it effectively, including the following:

  • The human psychology of cognitive inertia. Humans seem to be wired to resist change, with a set of cognitive ‘rules of thumb’ which focus us on short-term loss-averse behaviors. Human are inclined to rely on familiar assumptions and exhibit a reluctance to revise those assumptions, even when new evidence challenges their accuracy.
  • Cognitive ability to make sense of data. Even though computers can process and store large volumes of data, assessing the implications still falls primarily in the realm of humans. Sense-making is the process of deriving meaning from experience and situational awareness, which seems to be a struggle for both people and computers.
  • Information overload and data quality. In reality, more data does not necessarily lead to better decisions. More information usually means more time is required to make a decision, perhaps leading to inertia, or volumes of one type of data bias the decision in the wrong direction, since more data is not always better data.

As we continue to become more data connected online and offline, there is no question that our digital exhaust will tell more and more about us, allowing better short-term projections of our buying habits and interests. Yet, the challenge of really predicting future needs and behavior is much tougher. Thus, I predict that humans will be driving big data in business, rather than the other way around, for a long time to come.

Marty Zwilling

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Friday, March 25, 2016

How To Get New Customers By Targeting New Markets

Target-MarketMany entrepreneurs assume that everyone will love their solution as much as they do, so they tune their marketing focus based on their own needs and wants. That’s the right place to start, but real growth and scale requires attracting customers who are not like you. Expanding your market into these areas requires thinking outside your personal box.

For example, Starbucks found initial success with professionals aged 25 to 40 in urban areas and with moderately high income but later looked to a new market of millennials who wanted a place to sit and chat, study or work. More dramatically, both Facebook and YouTube started out focusing on people dating but expanded their focus when they found dating was giving them limited growth.

To make the step outside your target market, here are some key initiatives I recommend for every company seeking new sources of growth.

  1. Update your technology to reach new customer segments. Today’s customers want to be mobile and location sensitive. Make sure you website is mobile-friendly, totally user-friendly, includes a blog and provides for customers review and feedback. Include mobile-app support and new social-media channels. Word-of-mouth is an inadequate strategy.

  2. Incorporate social consciousness into your message. Make sure your marketing focus incorporates the greater good of society and culture sensitivities. Make your offering part of improving customer lifestyle rather than just solving a problem. Do the same for your employees to get a new level of commitment, creativity and loyalty.

  3. Immerse yourself in customer domains you are missing today. Talk to industry advisors and industry experts to identify customer sets you are not getting. Use social media and personal discussions to isolate their interests and needs. Identify your built-in biases and define compensating development and marketing strategies.

  4. Extend your solution features to meet new interests. It may be small feature extensions, packaging and distribution that can make your solutions attractive and more competitive for new market segments. Pay particular attention to customer values and wants as well as needs. This step validates the efforts to reach out to new customers.

  5. Overhaul the buying and service experience. New customers are looking for the best buying and support experience as well as the best product. They are looking for online reviews and social-media recommendations from their friends. They are also looking for employees who are motivated and empowered to go the extra mile to build unforgettable experiences.

  6. Test drive marketing programs outside of your comfort zone. I’m talking about highly targeted efforts on specific demographics with pre-defined metrics, not the “spray and pray” -- spray your message broadly and hope it sticks somewhere -- approach. This “narrowcasting” approach allows you to penetrate and understand a new audience.

  7. Fortify your online brand reputation. Proactively increase interactive communication to your core market to reduce negative comments and reviews. Protecting a brand reputation requires more positive reviews earlier to offset the occasional negative one. Responding to all feedback from reviews is required online and all social-media channels.

Like Starbucks, an obvious place to explore is generational segments outside your core focus. You personally can’t be experienced in all five of the core segments – matures, boomers, gen-X (40s), millennials (20s), gen-Z (tween). Each has different interests, spending habits and priorities. After you have mastered the first one, broaden carefully.

I recognize that the conventional wisdom you hear from business advisors and investors is focus, focus, focus on a targeted market segment. While I agree this strategy is key to getting your startup funded and off the ground, when you see sales starting to plateau, it’s time to pivot from that strategy per the initiatives outlined here. Change is the only constant in businesses that survive and prosper.

Marty Zwilling

*** First published on Entrepreneur.com on 03/16/2016 ***

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Wednesday, March 23, 2016

10 Thinking Disciplines That Can Kickstart Innovation

Hashmi_WEBInnovation is the key to long-term business success, both in startups as well as established organizations. Yet every business and every entrepreneur I know struggles with this challenge, focused on hiring the right people and implementing the right process. Yet, in my experience the key seems to be more a discipline of innovative thinking from everyone, driven from the top.

I was happy to see my own view reinforced in a new book, “Innovation Thinking Methods for the Modern Entrepreneur,” by long-time entrepreneur and innovation expert Osama A. Hashmi. He provides dozens of ideas and examples to illustrate how this discipline can work, and the power it brings to any organization. Here are ten key lessons from his book that we can all learn from:
  1. Utilize first principles thinking. The idea is to seek fundamental truths that will always remain true, after you remove all the things that don’t necessarily have to remain true. Then, when you are unable to remove more layers, you can build up to the fastest and most efficient way of getting that base thing done. Elon Musk recommends this approach.

  2. Practice the one-sentence method. Distilling a field of work down to a single sentence describing the core elements helps to innovate and keep ahead of the curve. If you keep fixated on that core essence, and figure out the rest along the way, you have a better chance of innovating and trying out new things. That’s how an industry reinvents itself.

  3. The future history assessment approach. Start the product design process by thinking about what a historian in the future would look back on as the one big thing that changed everything. This idea helps to distill down the most important things to make or sell in a product. Amazon uses this technique internally for all new product design efforts.

  4. Challenge the fundamental assumption. Ferret out the fundamental assumptions that everyone keeps making whenever they make a product of this type. Brainstorm with the intent of changing these assumptions, and radical innovation will follow. An example is the evolution of computer control to screen touches and gestures, versus keys and mice.

  5. Outsource services back to the customer. Pervasive access to the Internet and social media have allowed customers to take an active role in helping other customers, with customer support, requirements definition, and open source development. This has facilitated innovation in responsiveness, as well as profitability. The trend has only begun.

  6. Re-analyze the context of the last change. We tend to view present and future solutions in today’s context, rather than the context of the last change. Market dynamics change rapidly, so thinking back to why things changed in a previous time can generate new and innovative approaches, based on the new market context and technologies.

  7. Force original intent thinking. When people live in a certain status quo long enough, they start to forget what they originally set out to do. “It has always been this way” becomes the way of thinking and stalls innovation. When you provide a solution that gets customers closer to their original intent, they’ll be quick to drop current lessor solutions.

  8. Force the innovator’s dilemma on competitors. This is the concept that successful competitors have a hard time investing in new products that will cannibalize their existing core business. Focus thinking on what you can innovate, and how you can position it in the market to make it impossible for incumbents to follow without killing themselves.

  9. Explore the negative space of possibility. For innovation-thinking, what people are doing today or even wanting today may not be an interesting-enough question. What’s more interesting is what people are not doing today, or what they should be using to make their lives drastically better. Don’t just chase the space that already exists.

  10. Pick an impossible target and get mad about it. The obsession of solving a problem once and for all frames a certain type of thinking – one where you start to feel that no other product or company in that market gets it, and no one else has been able to crack it because all the solutions are awful. Now you have the right mindset to break barriers.
There are many more existing innovation-thinking methods, and more to be discovered, but this selection should be adequate to get you started. As an entrepreneur, it’s your responsibility and your challenge to be the leader and role model in fostering and rewarding innovation-thinking in your business. Your long-term survival and satisfaction depend on it.

Marty Zwilling

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Monday, March 21, 2016

5 Attributes Of People Who Will Grow Your Business

sprout-grow-your-businessA question I often get asked as an advisor to startups is how to recognize and attract the best people to grow the business. The reality is that entrepreneurs usually don’t have the money or time for executive recruiters to do the filtering and selection for them. If your primary source of candidates is friends, family and Craigslist, is it possible to get any high-quality team members?

In my experience, these sources are viable, but the process with them requires even more effort and time, and you have to know what to look for. First, you need to carefully define and advertise your requirements in terms as specific as possible to your startup. Next comes the more arduous process of reviewing every applicant, looking for key attributes including the following.

  1. Good communication skills. On a business team, the ability to communicate verbally and in writing is more important than technical depth. Thus, applicants who have poorly written resumes or verbally communicate poorly should be filtered out, no matter what the skills. For new businesses, communication inside and outside the company is critical.

  2. Motivation and commitment to results. The most effective and productive team members are positive, driven and want to be measured by results rather than hear work hours, perks or stock options. Look for indications of these attributes in the resume and phone interviews. If you see and hear a focus on past job descriptions, skip to the next.

  3. Personal character and chemistry. You can find the smartest and most experienced person in world, but if he or she isn’t trustworthy or unable to work with you, you have a liability -- not an asset. Honesty and belief in the same values as the culture you are trying to build are keys to a happy team and a successful business.

  4. Willing and able to collaborate. Today’s business world generates too much data and changes too rapidly for any single individual to be effective alone. Teamwork inside the company and interacting with customers and partners outside the company are mandatory activities. Find evidence that new candidates have collaborated successfully.

  5. Already possesses key skills required. It’s tempting to believe that friends, family or eager newcomers can learn quickly with your coaching and training, but entrepreneurs often don’t realize that coaching new employees will double the leader’s workload at the worst possible time and will leave a critical position not fully filled for many months.

Recognizing the right attributes is actually the easy part. The hard part is finding the time and diligently following a process to attract people who are a good fit for your requirements, evaluating them against key attributes and other candidates, negotiating and closing the deal and integrating them into your organization. Here are the key process steps I recommend

  • Create a one-page job description on the position you want to fill.
  • Get it reviewed and approved by peers, including salary and perks.
  • Communicate job opening via your web site, craigslist and personal emails.
  • Filter all digital responses to a list of the top-five candidates through phone screening.
  • Conduct on-site interviews for each of the top-five with you and at least two peers.
  • Compare rankings, reference check and prepare an offer for the selected candidate.
  • Follow-up personally with the candidate to close the deal.
  • Iterate as required, until the position is filled.
  • Provide required team integration, training and ongoing coaching.

I suspect that many of you will see these process steps as intuitively obvious, and yet I find them rarely followed by new entrepreneurs. As a business advisor, I regularly hear excuses such as, “My first candidate was so great, I hired her on the spot,” “I was so busy that I had to delegate the hiring to another team member,” or “I hired a bright intern who agreed to a salary I could afford.”

Attracting, evaluation and hiring direct reports is a task that should never be delegated. There is no more important task than making your team and your business successful. You can’t build a business alone, and the right people are always as important as the right funding. If you haven’t yet focused on attracting and managing the right people, it’s still too early to look for funding.

Marty Zwilling

*** First published on Entrepreneur.com on 03/11/2016 ***

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Sunday, March 20, 2016

The 4 Stages From A Startup To A Sustainable Business

business-stagesAccording to most definitions, an entrepreneur is one who envisions a new and different business, meaning one that is not a copy of an existing business model. Many entrepreneurs have a passion and an idea, or even invent a new product, but are never able to execute to the point of creating a startup. Even fewer are able to grow the startup into a viable business.

As a mentor and advisor to entrepreneurs and startups, and an Angel investor, my passion is to find and nurture those entrepreneurs with innovative business ideas and acumen, to make them into successful business owners. I fully realize that for some of the best entrepreneurs, success is surviving the journey, and they can’t wait to hand off the new business and start another one.

Thus, in my view, entrepreneurship is an evolution of an idea through a series of developmental stages, culminating in a self-sustaining business. A business is an entity which exchanges goods and services with people outside the business (customers) for money, social good, or something of equal value. Here is a summary of the key stages along the way:

  1. Idea and seed stage. In this first stage, a specific idea or passion is solidified into an executable plan. Typically this is done by one or more entrepreneurs with personal or family resources, with no business entity yet formed, so they would not yet be considered business owners. Market research and a business plan should be the focus at this stage.

  2. Startup and development stage. The development stage normally begins with designing and prototyping a product or service, and creating the company legal entity. While legally the entrepreneur has created a business entity, there is nothing of value yet to own since the company has no solution to offer, no customers, and no revenue.

  3. Funding and rollout stage. At this point investors should be interested in buying a chunk of the business. It is arguably sustainable with a proven value proposition and business model for customers, and operations processes that work. The entrepreneur now becomes a business owner, and must start thinking like one to get to the next stage.

  4. Growth and scaling stage. This is the stage where most entrepreneurs exit, get pushed out, or learn to operate as full-time business owners. Business owners know that growth as a business versus a startup requires replicable and documented processes, a focus on marketing and sales, personnel management skills, and detailed planning.

Another way of determining when an entrepreneur becomes a business owner is to look for the mindset change required to build and maintain a successful business. Every entrepreneur needs to compare his strengths and aspirations to this business mindset:

  • Satisfaction from business success versus the big idea. Business owners get their satisfaction from happy customers and happy stakeholders. Entrepreneurs are more focused on thinking big, stepping into the unknown, and changing the world. They embrace risk, while a business owner seeks to reduce and manage risk.
  • Seeking a stable environment now versus a better future one. Good business owners like a predictable market where they can make calculated decisions to improve and grow. Entrepreneurs love to envision breakthroughs and disruptive technologies, with tough problems to overcome, which will allow them to create lasting change.
  • Relish repeatable activities and processes versus new challenges. Most small business owners enjoy the completion of daily and weekly tasks, and cyclical processes, like inventory and receivables. True entrepreneurs are always thinking many months out, anticipating the next opportunity and the next recognition for innovation.
  • Long-term attachment to the business versus the idea. If you see the business as the core of your worth, you will make a great business owner. Entrepreneurs see their value in the change they accomplish, and their impact on the future. True business owners dream of keeping the business in the family, and making it a long-term success.

Yes, there are notable entrepreneurs who make the transition from the big idea to a big business owner, including Bill Gates and Mark Zuckerberg. But there are thousands more whose interests revolve around being a better entrepreneur. Others start and end their careers as business owners, by buying an existing business, inheriting a family business, or buying a franchise.

So I believe the bottom line is that most entrepreneurs never really become business owners. They may step into that space for a few years to maximize the impact of their idea and personal return, but their heart is in their next venture, and that’s the way it should be. Neither money nor business success will buy you happiness if you aren’t doing what you love. You decide.

Marty Zwilling

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Saturday, March 19, 2016

6 Strategies For Finding Truly Disruptive Solutions

disruptive-technologiesEvery entrepreneur with a new technology tells me that his innovation will be industry-disrupting, meaning that it will render the existing technology obsolete, and create a new market. Yet truly disruptive innovations, like the smartphone from Apple and the rise of the Internet, are very rare, and are generally unpredicted. So why would any investor ever believe any of these claims?

In fact, as a mentor to entrepreneurs and an investor, I recommend that entrepreneurs avoid using the term disruptive with investors, since many see it as implying extra high risk, a long time for payback, and extensive marketing to build the new market. Yet a win in this department clearly has huge implications for success, and a very real potential to change the world.

Thus, it’s worth some extra effort to understand attributes of the market, in concert with your new technology, which might really indicate that industry disruption is possible with your innovation. In a recent book, “Disruption by Design,” by the renowned innovation consultant Paul Paetz, I found a list of common patterns and recognizable attributes that I like, called disruption fingerprints.

I suspect that several of these will surprise most entrepreneurs as being counter-intuitive to their thinking. Entrepreneurs tend to look for big changes and big markets when seeking disruptive opportunities, when the opposite may be more effective. I agree with Paetz that the following approaches are often more likely to find a disruptive opportunity around the corner:

  1. Initially address a small market niche. Disrupting a huge market intuitively has greater potential, but it’s also like turning an aircraft carrier. It takes a long time and lots of effort to overcome existing momentum, and both investors and customers want to see results on a small scale in their lifetime, before they line up to join the movement.

  2. Pick a technology that somehow seems inferior to the major incumbents. Existing players normally think in terms of bigger, better, and faster, whereas more customers may really be satisfied by smaller, cheaper, and simpler. Think personal computers compared to mainframes, or smartphone cameras compared to professional cameras.

  3. Target large but moderate-to-low-growth segments. Usually these are low-growth for a reason – a new technology or price point could easily be the trigger to a large opportunity. On the other hand, high-growth segments may look more attractive, but are likely being attacked by the big players and many other competitors.

  4. Look for sizable customer populations unattractive to incumbents. These may be people who can’t afford existing products due to income levels or location, but need the solution. Remember the explosion of cell phones throughout the world when cheap versions and new pricing models were introduced a few years ago.

  5. Explore industries where you are an outsider. Most business advisors recommend that you stick with the business area you know, where you have inside knowledge. Often entrepreneurs are more able to think outside the box and bring disruptive change to less-known business domains. Consider Apple’s move into music, telephones, and watches.

  6. Compete against non-consumption and non-existing markets. The most disruptive products are ones that never existed before, and no forecasts are even available to size the opportunity. Facebook built the social media market before customers even knew they needed it. Naturally, these are very high risk efforts, but have unlimited potential.

Of course, entrepreneurs looking for disruptive opportunities should never forget the more likely disruptive alternatives, such as bypassing existing channels to go direct to the customer, finding an order-of-magnitude cost breakthrough, addressing underserved needs, or offering dramatic improvements in ease-of-use and convenience to new and existing users.

Yet, even with these alternatives, market disruption is rarely predictable – it’s obvious only in hindsight. Every entrepreneur should aim for it, but restrain themselves from highlighting that focus to early investors, or even early customers. It’s one of the quickest ways to lose your credibility, and maybe even your opportunity. Pitch your innovation against today’s market.

Marty Zwilling

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Friday, March 18, 2016

A Five-Minute Tutorial On How To Value Your Startup

kevin-olearyAs an entrepreneur looking for professional investors, one of the quickest ways to lose credibility and get rejected is to start with a ridiculously high pre-money valuation. I see it happen often in my angel investment group, and you can see it happen almost every week on the Shark Tank TV show. It’s like trying to sell a home still being built at next year’s dream market price.

Equally bad is professing no valuation estimate at all, asking investors to “make me an offer.” You look like a chump, and probably won’t like their low-ball response. Investors know that valuations at startup early stages are negotiable, but they do expect that smart entrepreneurs understand the top three elements of a startup valuation would include the following.

  1. First priority is real revenue, customers and contracts. If you have a proven business model with some sales, it’s credible to apply a multiplier of five to 10 times this number for the first element of valuation. Thus, $100,000 of gross revenue in the last 12 months might be extrapolated to $500,000 to $1 million in valuation. Future revenue projections are not relevant at the pre-revenue stage.

  2. Team strength and experience is value. If the founder and team members have built a previous startup in a related business domain, that fact may add up to an additional $1 million in valuation for your startup. Investors will look to see how many employees are full-time and paid, versus week-enders or volunteers. Connections to industry experts and channels are another positive to highlight.

  3. Registered intellectual property adds value. Patents filed, even provisional, as well as trademarks, copyrights and trade secrets count as barriers to entry and sustainable competitive advantages. A rule of thumb used by investors is that real intellectual property can justify an additional $1 million in valuation.

According to the Angel Capital Association (ACA) blog, the average startup valuation for new ventures receiving angel investments has been around $2.7 million. I think you can see how the three elements listed above can be used to justify a valuation in that range for your startup. Of course, there are several additional elements which may be relevant, and should be considered to increase the valuation:

  • Your startup owns physical assets with significant market value. Most new ventures have not yet acquired test equipment, buildings or other expensive items that could be resold or would be hard to replace. Take a hard look around and add valuation for anything you find in this category.
  • Value of solution work to date which cannot be replicated easily. If you have a finished solution that would cost anyone a million dollars to reproduce, it makes sense to include that in your valuation. Investors usually discount these claims, since they know you had a learning curve and potentially several throw-away iterations.
  • Factor in rapid growth and large future revenue projections. Using discounted cash flow (DCF) on future projections only makes sense if you can show you are already making revenues on the curve of your projections. This factor is more relevant to venture capital investors who come in at a later stage and expect more traction to qualify.
  • Get premium for billion-dollar markets with double-digit growth rates. If your target market segment is very large and growing, an additional goodwill factor of a million dollars may be justified. It also helps to show that you have a big lead on competitors, there are very few alternatives at this point, and the barriers to entry are very high.
  • Relate your startup to similar startups funded with a higher valuation. The concept of "comparables" applies to your startup, just like it does when you sell your house. If you can compare your startup favorably to another one recently funded down the street, it’s highly likely that you can get a similar valuation, no matter what the size.

As you can see, the valuation of an early-stage startup is not rocket science. The calculations of investment in mature businesses, including earnings multipliers, financial ratios and inventory analysis do not apply. Investors are not looking for precision but do expect you to understand the basics. You don’t want to be accused of giving away the company or find your dream dying due to grandiose expectations that can’t be met before your startup runs out of money.

Marty Zwilling

*** First published on Entrepreneur.com on 03/09/2016 ***

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Thursday, March 17, 2016

Will People Ever Be Comfortable Sharing Data Online?

Avatar_girl_faceNeither people nor computers can really help you as a personal assistant unless you are willing to share data about what you like, what you feel, and who and what’s important to you. Even the best technology can’t read your mind, which is why a simple Google search often gives frustrating and irrelevant results, and online advertisers bombard you with opportunities of no interest.

In addition, consumers have traditionally been reluctant to share personal information with any non-human entity, fearing some misuse or privacy invasion. As an advisor to entrepreneurs and a technologist, I’m happy to report that the tide may be turning, and we are experiencing a new era of opportunity for entrepreneurs, and a new appreciation of the power of the digital world.

In his new book, “Digital Context 2.0: Seven Lessons in Business Strategy, Consumer Behavior, and the Internet of Things,” David W. Norton, Ph.D., a leading researcher on consumer behavior and the impact of digital, reports that decision makers, social media users, and younger demographics are more and more comfortable sharing data in order to close the gap between thought and action.

His latest study breaks the online consumer audience into the following four categories, based on their level of comfort with sharing personal information, likes, and needs online:

  1. High-comfort consumers – 12 percent. These are willing to share data with a variety of companies if there is a perceived beneficial effect to the consumer behind the sharing. They believe that the benefits of sharing data are very much worth the price of providing access to their data. These are typically decision makers, shoppers, and early adopters.

  2. Context-comfortable consumers – 27 percent. For these people, data is willingly shared when it leads to more empowerment and better control. Examples cited include biometrics, tool productivity, environmental control, social visibility, relationship data, and brand insight. This is the most rapidly growing segment, based on year-over-year data.

  3. Reluctant consumers – 44 percent. This shrinking group is willing to share location, brand history, and tool productivity data, but is still reticent to share social, biometric, and environmental data. They continue to be more strongly influenced by traditional purchase motivators, such as store discounts, recommendations, and proximity to a retailer.

  4. No-comfort consumers – 17 percent. These tend to be older consumers, with an average age of 52. They neither frequently use nor derive much satisfaction from social media, and would be classified at late adopters of new technology. They still experience feelings of creepiness online, and feel more susceptible to impulse purchases and offers.

Not surprisingly, brand trust plays a big role in consumer willingness to share data online, across all categories. Google scores high for tools, location, and social media data sharing, but not for biometric data. Apple gets great marks for consumer productivity, Walmart for brand data, and Fidelity for finance data. Another key factor is perceived value, such as rewards and discounts.

The concern over the ability of companies to maintain security and a level of privacy of consumer data is still the biggest inhibitor to consumer comfort with digital systems. Continuing incidences of personal identity theft, as well major personal data breaches, including Heartland Payment System (2008), Target (2013), and Anthem (2015) still weigh heavily on their decision process.

The biggest positive is the inherent ability of digital tools and digital channels to organize and prioritize the natural consumer tendency to meander and try to do multiple things at the same time. Digital channels create queues and allow truly parallel processing capabilities for individuals, despite the daily distractions of life and business. That’s real value for everyone.

With the advent of the Internet of Things (IoT), every ordinary household object has the potential of becoming a digital tool that can communicate personal data to the owner, businesses, and other consumers. Thus it’s both a challenge and a business opportunity for every entrepreneur to expand into new markets and grow their business. Is your business ready to ride the wave?

Marty Zwilling

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Wednesday, March 16, 2016

How Well Versed Are You In Startup Investor Jargon?

Unicorn_(PSF)Whether you are talking to peers, competitors or investors, you as an active entrepreneur will be judged on your familiarity with today’s startup and funding jargon. I’m not recommending that you saturate your discussions with lingo, but responding with a blank stare once-too-often won’t convince anyone that you can build the next world-changing business or outpace the market.

In that context, I offer you my latest collection of popular investor-to-entrepreneur terms and concepts. See how many of these you have personally encountered or feel confident that you can confidently discuss with investors -- or even explain to friends and family.

  1. Unicorn. This term is currently applied to recent startups who profess a current valuation which exceeds $1 billion. Prime examples include Uber, Airbnb and Snapchat. People are even talking about “decacorns" -- investable companies with net worth now exceeding $10 billion -- like Dropbox and Pinterest. Could your startup be the next one?

  2. Frothy startup valuations. Overvalued stocks have been called "frothy’" for some time, but now the term is being tossed around in lieu of the word "bubble" in the new world of perceived overvalued startups. It implies runaway investor speculation on future values, fear of missing out on trends, and it leads to unicorns. Frothy is good for entrepreneurs.

  3. Seed-round investment. This term refers to an initial venture-capital investment, often wrongly sought to seed early product development. In fact, most often, it is limited to seeding a startup business rollout or scale-up after development is completed from friends and family. A seed round is intended to be followed by a bigger Series A round.

  4. Super-angel investors (micro-VCs). These terms refer to a class of professional investors who invest their own money, like angels, but have the larger resources and scope of venture capitalists with other people’s money. Ron Conway, of SV Angels, and Reid Hoffman, LinkedIn's founder, are names often mentioned in this category.

  5. Deep-dive meeting. After viewing your slide deck, if investors are still interested in your startup, they will ask for a deep-dive meeting to drill in on any hard questions before commencing due diligence. Although the term may sound negative, it’s actually a very positive sign. Expect your skills, insights and motivation to be tested -- so be prepared.

  6. Sweat equity. Startup founders typically invest some real dollars into their new startup as well as months or years of their time with no salary. This unpaid work component is sized in dollars, added to any funds contributed, to represent the total contribution of a founding partner and converted to an equity ownership percentage in a new startup.

  7. Equity crowdfunding. Hundreds of crowdfunding sites claim to help you get funding for your startup in the form of a donation, pre-order or a token reward. But recent changes in the law, associated with the JOBS Act of 2012, have made it possible to sell small chunks of ownership or equity to non-accredited investors -- regular people on the Internet.

  8. Ramen-profitable. When a startup proclaims that it is cash-flow positive but pays no salary yet to the founders, investors call this Ramen-profitable. It implies that founders are living on inexpensive Ramen noodles and barely covering living expenses in order to re-invest all returns back into the business. It’s a term of respect and endearment.

  9. “Growth-hacking” marketing. This term is used to describe non-traditional ways to incent growth such as social-media and viral marketing. These alternatives are used in lieu of traditional media such as radio, newspaper and television. Growth hackers are the marketing equivalent of clever software hackers and are highly respected by investors.

  10. “Acquihire” a startup. Sometimes investors are very impressed with the skills and expertise of a startup team but are not so impressed with the business potential of the current idea. They may decide to acquire the startup in order to hire the team for another project in their portfolio. These deals usually come with retention packages -- so be careful.

Just for fun, I’ve come up with a scoring system on my own non-scientific survey to help you rate yourself on your level of startup investment acumen. How many of the terms defined above have you personally used in a conversation or explained in the context of your startup?

  • 8 to 10: Excellent startup investment savvy
  • 5 to 7: Average, but watch out for investment sharks
  • 2 to 4: Newbie entrepreneur, in real need of an angel
  • 0 or 1: Stick to bootstrapping for your startup

The world of investing in startups has shed much of its mystery over the past few years and now extends well beyond the arcane science of a few venture capitalists to the world of accredited angel investors and more recently to regular people through crowdfunding. The new entrepreneurial age is here, but you can’t be competitive if you don’t speak the language.

Marty Zwilling

*** First published on Entrepreneur.com on 03/04/2016 ***

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Tuesday, March 15, 2016

6 Business Essentials To Keep Your Startup Thriving

startup-accounting-systemI’ve noticed a great tendency among startup founders to ignore the essentials of business accounting in the early stages of their startup. Just because you are not profitable yet, doesn’t mean you can skip the record keeping.

In fact, just the opposite is true. When you anticipate losses for the first year or two, it is more important to properly document all expenses, including tricky ones like business travel, business meals, and your home office. Sloppy documentation and reporting of these expenses is an open invitation to an IRS audit, which is the last thing you need or can afford during the busy startup period.

Expense accounting is just one of the key record-keeping requirements for a successful business:

  1. Expenses and income. You'll need a check register, a cash receipt system, and a record of bills. Also you should include tax records, bank statements, cancelled checks, bank reconciliations, notices from and to your bank, deposit slips, and any loan-related documents. Keep good backups of all computer files.

  2. Invoicing and payments. You can’t make any money unless you bill your customers on a timely basis, and follow-up regularly on missed payment commitments. If your average receivables period exceeds 45 days, your cash requirements go up fast. I recommend one of the many cloud-based and low-cost tools to help, such as the Viewpost business network.

  3. Corporate records. Include here articles of incorporation, bylaws, shareholder minutes, board minutes, state filings, stock ledger, copies of stock certificates, options and warrants, and copies of all securities law filings. In all cases, don’t forget permits, licenses, or registration forms required to operate the business under federal, state or local laws.

  4. Contracts. All the contracts you have, even expired ones, should be saved indefinitely. These would include equipment leases, joint venture agreements, real estate leases, and work-for-hire agreements. It is also good to keep correspondence sent and received by mail, faxes, and important e-mail that you might want in hard copy.

  5. Employee records. Include here completed employment applications, employee offer letters, employee handbooks or policies, employment agreements, performance appraisals, employee attendance records, employee termination letters, W-2s, and any settlement agreements with terminated employees.

  6. Intellectual property records. This is an especially important category. Make sure you file a copy of all trademark applications, copyright filings, patent filings and patents, licenses, and confidentiality or nondisclosure agreements.

Of course, these days you need a personal computer or laptop dedicated to your business with some basic software tools. You should investigate the wide variety of software systems that are on the market, and pick one you makes you comfortable, since you will probably be doing the basic data entry yourself. This not only will save you money, but it will keep you intimately aware of all expenses and the condition of your overall business. In my experience, the most common small business accounting system I see in startups is QuickBooks Pro by Intuit.

Even if you have the money to hire an accountant, you should keep a grip on your business financial affairs. You should be able to explain to yourself how much money you owe out to others, how much others owe you, and how much cash you have on hand. Don’t be shy about investigating local classes as adult education, or even a seminar with the SBA on bookkeeping.

An accountant may not be necessary, but you still can’t skip the tools. You can't walk in with a bag full of receipts. The more organized you are, the more organized you will be when presenting this material to an accountant. That translates to reduced bills from the accountant, and a reduced tax bill from the IRS. You will save time and money, and be more confident about your status.

Good record-keeping practices are required to comply with tax laws, and to operate your business properly. When you incorporate your business is the right time to establish the records system. Don’t let your dream get killed by ignoring business basics.

Marty Zwilling

Disclosure: This blog entry was sponsored by Viewpost but the views expressed here are solely mine.

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Monday, March 14, 2016

Think Like An Entrepreneur And Boost Your Career

entrepreneur-thinkingNo matter what people may proclaim, everyone in business is looking to achieve the highest possible level of satisfaction and financial success in their career. For best results, my advice is to think like an entrepreneur, even if you are a corporate employee. According to many studies, entrepreneurs tend to be happier, and 80 percent of self-made millionaires are entrepreneurs.

Entrepreneurial thinking in a corporate environment brings many positive career opportunities to the table, and many advantages to your company. I saw these highlighted well in a new book, “Get Smart!” by prolific author and renowned business consultant Brian Tracy. He lays out seven thinking strategies for both entrepreneurs and employees that will make them business winners:

  1. Focus on the customers at all times. Corporate thinkers often become preoccupied with doing their jobs and following rules, not pleasing customers. Company people, whether employees, managers, or executives, can view customers either with disinterest or as problems. They don’t realize that customers are the source of all business payback.

  2. Committed to the success of the company. Many researchers conclude that more than 60 percent of employees at large corporations are not committed to their business. Entrepreneurial thinkers see themselves as self-employed and act as if they own the companies personally. They continually seek ways to be more valuable in this mission.

  3. Constant search for ways to increase sales and profitability. More sales are the only way to reach real business success. Entrepreneurial thinkers see their business mission as enriching the lives of customers, rather than being a better producer of products and services. Entrepreneurs relish change and new technology, which lead to new sales.

  4. Think like your ideal customer seeking value. Entrepreneurial thinkers describe their product or service in terms of the problem it solves and benefits to their customer, rather than more features and performance. The ideal customer is one who sees so much value that price is unimportant. Businesses fail when customers don’t see real solution value.

  5. Maintain a meaningful competitive advantage. For any company to be successful, it must dominate a market or niche. Corporate thinking is often focused on more products in more markets, with hope that the total impact will be greater than the sum of the parts. Entrepreneurial thinking is focused on dominating a segment of a competitive market.

  6. Continually evaluate the essential elements of the business model. In the corporate environment, the business model is a given, rather than a tool for tuning the business. Entrepreneurs continually review their model to reach new customers, optimize value received, improve marketing and sales, reallocate costs, and provide better service.

  7. More concerned with what’s right rather than who’s right. This is called zero-based thinking -- if we started over today, knowing what we know now, what would we do differently? Entrepreneurial thinking does not penalize mistakes and assumes learning. New ideas and methods for better results are embraced, no matter what the source.

At the very least, adopting these thinking initiatives in any company, corporate or startup, will allow you to grow in your career. Business leaders all understand the benefits of allowing their team members to take ownership of their roles. The risks they take, and successes, can be applied to processes throughout the business at a fraction of the cost of expert consulting.

The difference between an entrepreneur and an employee is really as simple as the way the person thinks about their work, and the degree to which they follow-up on that thinking. Adopt the entrepreneur mindset today to help you find your full potential, and it might even make you rich.

Marty Zwilling

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Sunday, March 13, 2016

5 Strategies For Leading Breakthrough Market Changes

personal-drone-cesEvery entrepreneur realizes that change is now the norm, and they have to adapt their business quickly to survive and prosper. In fact, the best entrepreneurs seem to see breakthrough changes coming even before they really happen, and are able to turn them into huge new opportunities. In the trade, this rare capability is called the ability to see around corners.

While only a few people seem to be born with the right genes, I’m convinced that it is also a skill that can be learned and even institutionalized. In a recent book, “The Attacker’s Advantage,” by world-renowned business advisor Ram Charan, I found some real guidance on what skills are required, what to look for, and how to react in time. Here is a summary of his five basic strategies:

  1. Always on the alert, sensing for signals and meaning of change. Technically, this is known as perceptual acuity. Smart entrepreneurs compare perceptions with a diverse group of leaders and experts on a regular basis. They search for impending changes across multiple environments, and reflect on these to spark new ideas for growth.

  2. A mind-set to see opportunity in uncertainty. Uncertainty is an invitation to go on the attack and entrepreneurs need to be always ready to take their business to a new place in the changing landscape. They should never be defensive, and accept reality when core competencies are actually a hindrance to moving in a more promising direction.

  3. The ability to see a new path forward and commit to it. Leading entrepreneurs don’t wait for everyone to agree with their view of where to take the business, and have the courage of their convictions. They pursue new opportunities with tenacity, identify the obstacles they need to overcome, the blockages that stand in the way, and attack them.

  4. Adeptness in managing the transition to the new path. These entrepreneurs stay connected to both external and internal realities to know when to accelerate and when to shift the short-term/long-term balance, with a sharp eye on cash flow and debt. They create and meet short-term milestones to win credibility with investors and stakeholders.

  5. Skill in making the organization steerable and agile. No business leader can succeed in driving change without being able to bring key people on the team along. They learn to be agile, or steerable, by linking the external realities in real time to assignments, priorities, decision-making power, funding, and key performance indicators.

Examples of recent entrepreneurs who exemplify these attributes include Steve Jobs, who moved Apple from a computer company to smart phones and music, Elon Musk, who seems to be capitalizing on structural changes in the auto industry and space travel, and Jeff Bezos, who parlayed selling books on the Internet to a whole new paradigm for shopping from home.

Too many entrepreneurs allow the pressures of daily crises and total immersion in tactical details to narrow their thinking and to lower the altitude of their view. Everyone needs to find and hone the techniques that work for them in maintaining that perceptual acuity. Here are a few that both Charan and I recommend to get started:

  • Set aside ten minutes of each weekly staff meeting for that purpose.
  • Seek contrary viewpoints from people you respect, rather than compiling support.
  • Regularly dissect the past, to look for change signals you and others missed.
  • Continually increase your mental map of key changes in multiple industries.
  • Evaluate who might use an invention, patent, or new law to create a bend in the road.
  • Use outsiders to multiply your capacity to scan for disrupting patterns.
  • Watch the social scene, looking for new consumer behaviors and trends.
  • Be a voracious reader in all forms of media, both online and offline.

Even if you can’t see around the corners, it helps to have the perceptual acuity to see bends in the road before others. With that, and the courage to accelerate towards them as opportunities, rather than slowing down to mount a defense, you too can be a winner, rather than a victim in today’s uncertain but unlimited market.

Marty Zwilling

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Saturday, March 12, 2016

4 Insights For Identifying Exceptional Team Members

business-exceptional-team-membersEvery startup founder rightfully starts out as the single leader of the startup, but as the business grows, many entrepreneurs struggle with relinquishing any control, or fail to recognize and allow other leaders to emerge. The result is that the business becomes dysfunctional as growth stagnates, and entrepreneur health and happiness decline.

The right alternative is to focus on finding and delegating some control to the hidden leaders in your startup. These leaders are those exceptional team members who have proven themselves or developed the strength of character, behavior, and learning to be the drivers of the next phase of your business growth.

Yet, unless you know what to look for, the natural human tendency is see all team members in the same light, or see them as never changing from the day they joined your team. In a recent book “The Hidden Leader,” by Scott Edinger and Laurie Sain, I found four great insights into recognizing the behavior and results of team members who are likely the leaders you need:

  1. Seek out those who demonstrate real integrity. It’s important to recognize consistent individual integrity in everyday work actions – by noticing how each team member makes decisions, handles challenges, collaborates, and more. Of course that means that the entrepreneur has to foster a culture that enables and rewards integrity.

  2. Recognize team members who build win-win relationships. Team members who demonstrate great interpersonal and collaborative skills, including giving credit to others, initiating business discussions, and forging emotional connections are demonstrating emotional maturity. Entrepreneurs need to recognize and nurture these as future leaders.

  3. Demonstrate a focus on business results. Few things make a difference in a startup like hidden leaders who are focused on results. Normally this indicates the ability to take the initiative and maintain the big picture perspective, both of which are required to be a leader, if kept in balance. The result is higher productivity for everyone in the business.

  4. Driven first by the needs of your customers. Team members who are truly customer purposed, meaning proactively envisioning how every task affects the value provided to the customer, are potential business leaders. This includes a customer service focus, but goes beyond today to include more visionary preparation for tomorrow’s customer needs.

Once an entrepreneur recognizes potential or hidden leaders, the challenge is to engage and capitalize on their performance and leadership potential. Here are some key recommendations for entrepreneurs that the authors and I agree are required to further develop this emerging leadership potential:

  • Up the ante on your communication practices. Leaders on the team want to act out the value promise of your business, and bring your strategy to life. But they can do so only in an environment where the value promise is clearly understood by them, and everyone on the team. Personally discuss your strategy and goals with new leaders.
  • Make sure that startup goals are aligned with tactics. Cultures that align strategies and goals with tactics allow everyone to see the relationship between what they do and the contribution of others. With good alignment, power and leadership can be shared among people at many levels. Everyone feels confidence and a sense of leadership.
  • Embrace change and innovation as positives. Change is inevitable in a startup, and it needs to be a part of the culture for leaders to emerge. Find ways for new leaders to test their hypotheses in small, controllable experiments. Reward well-managed efforts, even if they do not work. Encourage innovative approaches, which can make everyone a leader.
  • Foster a culture of high engagement and commitment. This starts with a clear set of values and purpose. High levels of engagement will nurture hidden leaders in all corners of the business. When commitment is high, team members seek out leaders who can make the startup and everyone look good. Incent everyone to do their best work.

A startup is usually initiated by a single leader, but it requires many more to grow and scale. For maximum speed, team morale, and commitment, these new ones need to be developed from hidden leaders on the inside, and complemented by proven leaders recruited from the outside. Make this combination a key element of your sustainable competitive advantage.

Marty Zwilling

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Friday, March 11, 2016

8 Ways To Get Off The Ground With Angel Investors

Ron_ConwayAngel investors are still the lifeblood of early-stage startups, despite the surge of activity in crowdfunding and an increasing early interest from venture capitalists. According to the Angel Capital Association, at least 300,000 people have made angel investments in the last two years, totaling $24 billion in the U.S. alone. These are all accredited investors who risk their own money.

As an active angel investor myself, I understand how the process works, and I see the disappointment in the eyes of entrepreneurs who approach angel groups for funding and often get turned away for not being timely or prepared in the minds of potential investors. In the interest of getting you off on the right foot, here is my priority list of recommended preparation activities.

  1. Come with a product built and a proven business model. Contrary to a popular myth, angels don’t fund dreams. They expect to see at least a prototype solution, funded from your own resources, or friends and family or a grant. Angels are most interested to help you scale the business, once you have real customer traction and ready to break out.

  2. Assemble a team with the requisite expertise and experience. It takes more than one person, no matter how passionate, to grow an investible business. A business needs technical, marketing, financial and many other skills. If you are an inventor, for example, you need to line up the business side of your team before angels will be interested.

  3. Create and highlight your intellectual property portfolio. If your solution and brand are really new and innovative, you need to protect them with a patent, trademark or trade secret. These are required to show that you have a defensible competitive advantage or at least a barrier to entry. Investors are not interested in “me too” businesses.

  4. Prepare an executive summary and investor presentation. Angel investors expect to review a short executive summary before booking time to hear an investor presentation or taking the time to analyze a full business plan. Remember that angel investors are buying equity in your business, so they are not impressed with a customer presentation.

  5. Have a full business plan and financial model to close the deal. These may not be required, but they will help convince an investor that you have a real plan to execute and understand the variables that affect every business. The business plan should address all key questions, including valuation, funding needed, use of funds and exit strategy.

  6. Formalize the business structure before asking for funding. The excuse of waiting to incorporate to see what investors prefer will get you passed over quickly. Most viable startups are set up as C-corporations or Limited Liability Corporations, either of which can be done quickly and cheaply by the entrepreneur. Simplicity is preferred at this stage.

  7. Highlight existing presence on the Internet and social media. In today’s world, if your startup is not visible on the Internet, you haven’t started yet. Startups in stealth mode can’t get feedback from real customers and can’t be perceived as experts in their industry. In addition, your company and social media names are key intellectual property.

  8. Build a relationship with one or more investors before asking for money. Asking angel groups for money before knowing anyone in the group is not recommended. Investors are people too, and they expect new entrepreneurs to be visible in industry conferences, talks with peer investors as advisors or simply exploring investor interests.

Doing all these things won’t guarantee you an angel investor, but it will put you in the top few percent of startups seriously considered. Don’t be one of the 90 percent of startups now passed over quickly. Also, later when you need a larger round of venture capital, the same preparation will serve you just as well, so you might as well learn now how to fly with the angels.

Marty Zwilling

*** First published on Entrepreneur.com on 03/02/2016 ***

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Wednesday, March 9, 2016

4 Initiatives To Hone A Business Innovation Mindset

business-innovation-tabletWhy do a few entrepreneurs, like Steve Jobs and Elon Musk, seem to come up with all the real innovations, while the majority of business leaders seem stuck in the rut of linear thinking? I have always wondered if innovation required some rare gene mutation, or whether I might be missing a simple formula for unlocking the ability in any intelligent business person to innovate.

While searching for an answer, I was excited by a recent book, “The 4 Lenses of Innovation,” from Rowan Gibson, one of the most recognized thought leaders in business innovation. According to Gibson, you don’t have to be born with magic insights to be innovative. He connects breakthrough thinking to four initiatives, which I believe every entrepreneur should practice:

  1. Questioning deeply-held beliefs and assumptions. The willingness to challenge accepted approaches and propose non-obvious alternatives is one of the fundamental driving forces for innovation. This is a thinking pattern and a culture which all entrepreneurs needs to instill and nurture in every startup team member.

  2. Spotting and exploiting emerging trends. Innovative entrepreneurs have to start with a mindset of welcoming change, rather than trying to resist it. They don’t have to be futurists, they just have to be in the current time, not behind the times. Then they have to look for change, and continually hone their skills to turn discontinuity into opportunity.

  3. Redeploying skills and assets in new ways. Innovators leverage existing skills and assets in new ways, new contexts, and new combinations, rather than assuming that new resources are needed for new opportunities. Strategic partnerships with other companies are a good way to extend the boundaries of your business and recombine resources.

  4. Paying attention to unmet needs and frustrations. It all starts with a customer perspective to uncover problems and frustrations, and then design solutions from the customer backward. But customers also tend to think linearly, so they don’t always know what they want. It’s up to you to match what is possible with what is needed.

The next step to breakthroughs for entrepreneurs is to take advantage of the powerful digital tools available to foster innovation and ideas, like Innocentive and BrightIdea. There is also the wealth of social media digital tools, like Facebook, Twitter, and Yelp, which allow feedback, engagement, and collaboration with customers like never before.

Other smart entrepreneurs are building digital feedback loops directly into their products to understand exactly how customers use the products, as well as solicit real-time improvement feedback. Today entrepreneurs are already implementing the Internet of Things (IoT), where every device can be connected to the Internet, to provide insight and feedback to your company.

Finally, even with the right mindset and digital tools, creative ideas for entrepreneurs still don’t usually occur spontaneously, or come in a flash of inspiration. Every entrepreneur needs to adopt a more rigorous process, like this eight-step one developed and tested by Thomas Edison and many others to accelerate the production of big breakthrough ideas:

  • Select a specific challenge and focus on solving it.
  • Research the subject to learn from the work of others.
  • Immerse yourself in the problem, to explore possible solutions.
  • Recognize when you reach a deadlock, and capitalize on the creative frustration.
  • Back away for a while to let the problem incubate in the unconscious mind.
  • Be sensitive to any insights which might shift your perspective.
  • Extrapolate the insight into a new idea or solution.
  • Test and validate the new solution to make it work.

With the right mindset, tools, process, and a little practice, any entrepreneur can lead their startup to new levels of innovation, competitiveness, and success. So don’t wait for the next Einstein, or a magic Eureka moment, to get you into the game. You too can make business innovation look easy.

Marty Zwilling

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Monday, March 7, 2016

7 Ways To Keep Your Focus On Execution After The Idea

Google-leadersEvery startup begins with an idea, but from that point forward, it’s all about execution. Founders soon learn that customers only spend real money for solutions rather than ideas. Investors have also learned not to invest in ideas but only in entrepreneurs and teams who can deliver solutions. Success requires moving your passion quickly from the idea to the business implementation.

A good execution requires a plan and the right people, combined to create operational excellence and exceptional customer value. Companies that do this best become market leaders. Google, for example, was not the first Internet search provider (think Yahoo!, AltaVista, InfoSeek and others), but according to Investopedia, Google was the first to really monetize search.

As a result, Google has become a verb, and the company is a tech giant with record growth rates and a revenue of $74.5 billion in 2015. But Google is not unique. Many other companies have followed a similar set of execution principles which I believe are required for business success, no matter how great the idea:

  1. Tune the business model to optimize value for all constituents. Smart entrepreneurs architect a value chain that includes customers, partners and vendors, based on market dynamics. They then drive innovations and solutions to feed that value chain. A growth model without monetization for key players is not a long-term success strategy.

  2. Plan for pivots as improvements based on results. If every plan adjustment is a reaction to a crisis, you won’t take corrective action quickly enough and will never find new opportunities. Continuous improvement applies to the business model as well as the product. Set business goals and milestones, and use metrics to track performance.

  3. Enable team members to run the business as their own. Every team member needs the motivation, training and authority to make day-to-day decisions without review and approval. That means milestones have to be documented, measured and desired results rewarded. The whole team is required to deliver a winning customer experience.

  4. Two-way communication at all levels is always top priority. People who don’t know what is expected of them can’t do the job. Customers won’t be happy if you and your team don't listen to feedback and expectations. Strong leaders realize that effective communication becomes exponentially more difficult as the number of players increases.

  5. It’s hard to improve results that you don’t measure. In operationally excellent businesses, productivity and results are measured at every step in the value chain, not just at the end. Targets are benchmarked against competitors, customer reviews and industry expert expectations. Merely keeping up with previous results is falling behind.

  6. Define at least one worst-case scenario and recovery plan. Proactively engaging the team in building a plan-B is the only way to assure a timely response to key challenges. A passionate commitment to an idea alone will not carry the business over downturns in the economy, market evolution or customer trend changes. A great business must be agile.

  7. Optimize team efforts with the latest technology and tools. In this era of rapid technology advancement, an open mind must be the norm in leveraging the latest tools and process architectures. This means regular team training and update sessions, bringing in outside experts, and working with partners and vendors on win-win deals.

Business excellence is a convergence of technology and business elements to maximize customer value as well as company and partner returns. This convergence is not a one-time effort, but an iterative review and improvement mentality that has to be drilled into the team and built into every process and measurement. It has to start with the entrepreneurs at the top.

Google, with founders Larry Page and Sergey Brin leading the charge, demonstrated a technical leadership combined with the foresight to bring in business help, including Eric Schmidt and others, to optimize the business execution focus. Are you sure your startup is moving beyond the idea stage, with the execution principles outline here, to assure long-term business success?

Marty Zwilling

*** First published on Entrepreneur.com on 02/26/2016 ***

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