Wednesday, June 29, 2016

Bold Entrepreneurs Now Create New Market Categories

Dragon_V2_unveiling,_Elon_MuskHave you noticed that the really big startup wins in the last couple of decades have come from creating and dominating new market categories, more than just new solutions? Steve Jobs was a master new category king, by preaching the need for new thinking as he introduced the iPad, iPhone, and Apple Watch. Uber and Airbnb did the same for transportation and hospitality.

As a startup advisor and aspiring angel investor, I’ve long been wary of startups trying to create new markets out of problems people didn’t know they have, or problems generally accepted as unsolvable. In traditional investor parlance, these markets take years to develop and more money and risk than anyone should consider, so look first for a painful problem in a known market.

But now I believe that times have changed. Customers are acclimating to change faster than ever before, technology is evolving very rapidly, all markets are instantly global, and the cost of entry is lower than ever. Bold entrepreneurs such as Elon Musk now routinely attack undefined markets, like privatized space travel with SpaceX, and high performance electric cars with Tesla Motors.

I just finished a new book, “Play Bigger,” by Al Ramadan, et al, that outlines the how and why of new category design to create new demand where none exists, and be the king of that market. The authors describe how early winners have done it, including notable failures, and the key traits needed for category design as an explicit strategy rather than just for support for a new product:

  1. Focus first on building a category, not just a product. The need for a new category, such as software in the Cloud by Salesforce.com, needs to be proselytized and analyzed before assuming that your new product will drive the category. You can sell vision before you have a product, and the vision will make you the category king, and keep you there.

  2. Overtly design the ecosystem as well as product. Most founders design products and allow others, such as Gartner Group, to define the ecosystem and position their product. Bold entrepreneurs put more effort into communicating the new market ecosystem value, and their natural product fit. They make a long-term strategy come alive for customers.

  3. Make thinking different part of the company culture. If your vision is building a new market category, then category design needs to be the key criteria for people you hire, and the type of community you build with investors, partners, analysts, and journalists. You, as the entrepreneur, have to set the culture by everything you say and do.

  4. Create a powerful and provocative story of a new view. Bettor solutions may be cheaper or faster, but they are not always different. Different requires a new view with logic or an emotional appeal that stretches a customer’s brain, allowing people to see themselves benefitting from the solution, outside the normal justification parameters.

  5. Able to condition the market to generate desire and need. Category design is marketing, public relations, and advertising focused on conditioning the market to desire and need the new category. It’s about changing people’s consumption, usage, and buying decisions. Messaging and branding must come later, after the need is evident.

  6. Connect all components to work together and feed off each other. A new market category needs momentum, and a good category design orchestrates all the elements of change, including culture, lifestyle, and social priorities, rather than just products. This helps people move away from the way they used to think, to a new frame of reference.

Many entrepreneurs tout their new technology and solutions as disruptive, implying that the change is so dramatic as to open new markets and new categories. In many cases, this approach fails by scaring investors and confusing customers. The goal of category design is to orchestrate major change without disruption, by making it seem natural and even the customer’s idea.

Thus if you are an entrepreneur who wants success as well as a legacy to be remembered, it’s time to start adopting category design as a key part of your strategy. It won’t guarantee winning, but it does give you an advantage over others around you, who expect the lightning in their solution alone will change the world.

Marty Zwilling

*** First published on Forbes on 06/22/2016 ***

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Monday, June 27, 2016

6 Principles for Personal and Business Success

success-personal-businessThe startup lifestyle is known to be stressful and challenging, but it’s also meant to be satisfying and fulfilling, with you as the entrepreneur in control of your own destiny. Unfortunately, it doesn’t always work out that way, based on my many years of experience with entrepreneurs and advising startups. The business can be successful, while the entrepreneur feels like a failure.

As an example, I know one highly driven startup founder whose business is growing at a reasonable pace, but the entrepreneur regrets the toll it has extracted from his family, his health, and his ability to relax and enjoy the fruits of his labor. I know several other CEOs that were pushed out of their own successful companies by investors, leaving them feeling like failures.

The challenge is not to let success come without personal satisfaction, or at the expense of the ones you love. To do that, you need to follow a set of personal principles that drive your business principles, not the other way around. Here are some key ones that I espouse:

  1. Define your personal goals and purpose early. Your personal goals should drive your business goals, not the other way around. You will never be satisfied or happy if you are not true to your core beliefs, personal interests, and a higher purpose. Write down your goals, and then take ownership to make them happen and feel the satisfaction.

  2. Focus on strengths rather than fixing weaknesses. If you don’t see business as one of your strengths, you likely won’t be happy leading a startup. Many technologists refuse stubbornly to let anyone else take their invention from a product to a business, assuming they can easily fix their business weakness. Both they and the business end up suffering.

  3. Create some short-term milestones on the path to your dream. Dreams alone won’t make you happy or successful, so start early in defining and executing against a set of milestones to celebrate progress along the way. Satisfaction is not a one-time event at the end of your career; it’s a series of good feelings driven by results along the way.

  4. Be honest with yourself about practicing what you preach. Many business executives can give a great talk to their team about sustaining their health and maintaining a balanced family life, but they let the business override their own needs. Similarly, don’t compromise your own ethics and integrity for the sake of your business.

  5. Don’t stop believing, learning, and growing as a person. The world of entrepreneurs is ever-changing, so if you aren’t learning and changing, you are falling behind. In business, setbacks must be seen as normal and expected challenges, not as indications of failure. Successfully recovering from problems should be a key source of satisfaction.

  6. Take satisfaction from team success, at work and at home. Being an entrepreneur is not a one-person show, so accept that fact, and build a team that can complement you and support your weaknesses. If your business and private teams are motivated and satisfied, their happiness will radiate to you. A motivated team is a successful one.

An over-arching principle for success and satisfaction for every entrepreneur is respect – for yourself, and in business respect for every customer, investor, and employee. Another generic attribute close behind in value is persistence. No amount of talent or genius can take the place of persistence.  Many experts believe that one of the top reasons for startup failures, as well as personal failures, is simply giving up too early.

In fact, people giving up on unsatisfying corporate careers is one of the primary sources of entrepreneurs. Most don’t realize that the same satisfaction and success principles apply in both worlds – and ignoring them in both will have the same negative consequences.

Switching from either lifestyle to the other will give you a whole new set of challenges, but it won’t automagically bring you happiness, satisfaction, or success. In either case, I’m a believer that you make your own success. Now is the time to start.

Marty Zwilling

*** First published on Entrepreneur.com on 06/17/2016 ***

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Sunday, June 26, 2016

5 Reasons Startups Need Revenue As Well As Users

twitter-growthSome analysts argue that revenue drives growth, while others say user growth drives revenue. Both have worked. Google reached $1B in revenue within five years of incorporation, and now has a market capitalization of over $400B. Twitter showed no focus on revenue in the first five years, but was able to parlay 500M users into a $22B public company, now growing revenue.

Every startup dreams of achieving that milestone, when they can focus more on scaling the business and enjoying their earnings, rather than fighting for another investment infusion. Most are still confused about the right priority. Should they focus on increasing revenues and profitability, or entice more and more users with “free” services, to increase their valuation.

Traditionally, it was simple. A business only achieved critical mass by becoming cash-flow positive. Revenue growth (top line) then had to be converted into profit growth (bottom line), before a business was deemed to be self-sustaining and worthy of public investment.

It’s only been in the last ten years that social media companies, like Facebook and Twitter, have achieved market valuations in billions of dollars, while clearly sacrificing revenue to gain users. In my view, the pendulum is swinging back, with investors looking more for the traditional indications of business integrity, stability, and growth:

  1. Some element of organic growth is a good thing. The purest form of capitalism has always meant charging a fair price and making a fair profit. Re-investing profits to grow the business is organic growth. The concept of free goods and services to get you hooked, financed by deep pockets, or advertising, seems marginally ethical to many.

  2. Long-term stability requires revenue growth and profit. Most modern investors still look for a business model that embodies a gross margin over 50%, and a net margin in the 20% range. A healthy business, ready to scale, has been doing this for a year or more, with an existing customer set generating a non-trivial and growing revenue stream.

  3. High customer loyalty and high team passion. Startup productivity is embodied in key ratios, including low cost of customer acquisition, high retention, and high revenue per employee. High customer churn and lackluster team members are still indicators of a high-risk investment opportunity, to be avoided by both public and private investors.

  4. Growing appreciation for the value of the solution provided. These days, you need customer evangelists who see the value and will pull in their friends through viral actions to keep the business growing. Too many of the high user growth startups have been fads, and numbers can go down as fast as they go up, as per Friendster and MySpace.

  5. Understanding competitive early mover requirements. First movers in a new space need users more than revenue to maintain market share, so investment pitches need to highlight this priority in requests for funding resources. More complex and defensible businesses should highlight their organic drive to profitability and brand leadership.

Unfortunately, the Internet and heavily funded startups have nurtured a customer expectation of free web services and free smartphone apps. In these domains, it is now difficult to monetize at all until you have a large critical mass of users. In these cases, growth scaling is important, both before and after revenue flow begins. The business plan must reflect both growth phases.

Thus even after a startup has achieved a critical mass of users, the expectation of long-term revenue growth and profitability does not go away. Twitter is facing this challenge right now, as the large majority of public investors expect a near-term financial return on their investment, every quarter of every year.

So a higher focus on user growth may be necessary early, but is never sufficient. If you are in it for the long run, don’t forget the basic business principle that if you lose money on every customer, you can’t make it up in volume.

Martin Zwilling

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Saturday, June 25, 2016

Checklist For Becoming A More Effective Team Leader

team-leader-businessEntrepreneurs need to be effective team leaders, since no one can transform an idea into a product and a business without some help. Unfortunately many founders I work with as a mentor are experts on the technical side, but have no insight into leading a team. But fortunately, team building is a skill that can be learned and practiced, for those willing to put in some effort.

The only real alternative is to find a co-founder who can build and lead the team, while you focus on the product. Otherwise, in my experience, the startup will fail. The importance and the specifics of practical team leadership were re-confirmed to me recently in a recent book, “Unlocked,” by Robert S. Murray, who is a recognized expert in the field of business leadership.

I recommend his checklist as a starting point for developing team connections and building engaged team members as a key step in becoming an effective team leader, even if your team is spread all over the country:

  1. Consciously reduce time spent on outside activities. You won’t be viewed as the team leader if you spend most of your time on activities that are not relevant to your team. Being visible and engaged on a random part-time basis, due to other jobs, won’t do it. If your team has trouble finding you, you won’t make productive connections.

  2. Be compulsive about scheduling time for your team. Even busy entrepreneurs need to schedule regular and predictable times which will be devoted only to working and interacting with the team. Possibly an hour in the morning and an hour in the afternoon may be enough, if you make it happen consistently.

  3. Maintain a weekly “huddle meeting” with the entire team. This can even be done remotely via Skype, but it’s important that every team member attends. You need to listen as each summarizes their accomplishments for the last week, and their plan for the week ahead. Leadership is making sure they have resources and understand the strategy.

  4. Have monthly reviews with each team member. Team members need and crave feedback, much more frequently and informally than the annual performance review. I recommend scheduled monthly 30-minute informal checkpoints, as well as quarterly updates on objectives and performance. Ask what you can do for them in every review.

  5. Practice leadership by walking around (LBWA). I personally have found this to be one of the most effective ways to find out what is going on, as well as an opportunity to provide feedback on strategy and direction. Go for walks every day and stop at people’s desks. Ask them what is going on, both in the team and outside of work. Listen.

  6. Recognize team members for individual efforts. Communicate individual results as well as team results to everyone. Most leaders don’t say “thank you” enough. Recognition in front of peers is often more motivating that monetary awards. This is the time to talk about wins with customers and what is coming on the horizon, and the team role in each.

  7. Be real and authentic in every interaction. If you are not, your team will see right through it and you will be worse off than if you stayed locked up in your office. Make sure you’re treating all team members as you would want to be treated. Be genuinely interested in learning something new every day from your team, and they will follow you.

The value of startup teams with the founder as an effective leader is many times the value of many strong individuals working independently. It’s not only your connection with the team, but their connection with each other that is critical. Only a dedicated leader can spot those special powers in each member and then build a well-oiled team which can win the startup war for you.

The result is not only more productivity, but also a startup where everyone loves to contribute, and the whole team feels the energy and satisfaction of accomplishing your dream. Now your personal leadership becomes business leadership, which can actually change the world.

Marty Zwilling

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Friday, June 24, 2016

8 Ways To Pivot Your Business To Kickstart Growth

pivot-businessEvery entrepreneur I know starts out with a strong conviction that their solution is a perfect match for their target market, and yet almost every one later admits a need to “pivot” before finding their groove. Course corrections, or pivots, are normal for new ventures, so expect them and don’t make excuses. Failure is the unwillingness to learn and change based on better information.

Few entrepreneurs know that even the most successful startups had pivots, which rarely get mentioned. For example, you probably never heard that both Facebook and YouTube started out fully intending to be dating sites, but pivoted to something more unique when they found that dating had already become an over-crowded market. Their pivots were early but real.

The types of pivot are innumerable, but there are some more effective ones that I think every early startup should contemplate on a regular basis during their early growth period. Here is my list, based on my own experience as a startup advisor, talking to other angel investors, and derived from the lean startup principles of venture advisor and entrepreneur Eric Ries:

  1. Strip the solution down to a focus on a key feature. No solution can be everything to everyone, but your initial passion can make it feel that way. This confuses customers, and dilutes your marketing impact. I would call this the “less is more” or the “keep it simple” pivot. After initial traction, there is plenty of time to bring back more features.

  2. Add that “grabber” feature to make your solution stand out. Solutions that integrate all the features of multiple products, like Facebook and Twitter, rarely get broad visibility. You need a new and innovative addition to get customer attention, and stand out above competitors. Existing users are trained by use, and rarely move for usability alone.

  3. Hone your definition of target customer demographics. Facebook was aimed initially at college students, later aimed at consumers in general, and more recently found a lucrative growth path with businesses. Pivots thus are a normal and necessary process in expanding the market, and recognizing cultural shifts as well as kick-starting growth.

  4. Switch to a more attractive and lucrative business model. Often entrepreneurs start with a direct-to-customer business model, but learn that many domains only work with distributors or value-added resellers. Other popular business models to try include the subscription model, the razor-blade model, and free solutions supported by paid ads.

  5. Change competitive positioning and pricing to improve traction. Many high-margin, low-volume startups are forced to consider the price-volume tradeoff. Of course, a move on price also puts them in the realm of new competitors, including e-commerce vendors and big-box stores. You can’t be on both ends of this spectrum at the same time.

  6. Consider alternative technology platforms for the solution. Sometimes a startup has to pivot to a new technology to stay competitive or improve margins. Other domains like transportation have found the need to pivot, to meet environmental directives and alternative forms of energy. The world around us changes quickly, even for a startup.

  7. Adapt to an emerging customer need or pain. As economic conditions change, and government regulations evolve, businesses are motivated to seek new tools and processes for risk reduction and continued growth. It can be extremely valuable to pivot the focus of your new software technology tool from productivity to compliance.

  8. Position your business as a social enterprise versus commercial. I see many young entrepreneurs with a passion primarily for social change, who don’t realize that changing the world costs money. The best are able to keep their social focus while pivoting their business strategy to make money. These two objectives are not mutually exclusive.

To me, a pivot is as natural in a startup as seeking outside funding or shuffling executive roles to better match founder strengths and weaknesses. You don’t wait for a crisis to start thinking about it, and you need not hide your pivots for fear of showing weakness. The sooner you recognize the need to make a change, the less it costs, and the greater the return. Are you still hesitating?

Marty Zwilling

*** First published on Entrepreneur.com on 06/15/2016 ***

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Wednesday, June 22, 2016

Traction Metrics Seed Real Startup Funding And Growth

Hiriko_1Almost every entrepreneur looking for outside investors has heard the annoying rejection, “You are just too early – come back when you have more traction.” That should make you wonder - how do you measure traction in a metric? If it’s so important to investors, perhaps you should be using traction to measure your own progress, independent of a need for additional funding.

According to most experts, business traction is evidence that somebody really wants your product. It’s business momentum, independent of whether you have a product delivered, proven the business model, or significantly penetrated the opportunity. Admittedly, it’s not as precisely defined as financial ratios, but every savvy business person recognizes traction when they see it.

While thinking about the parameters of traction, and how to measure it, I was impressed with a new book, “Scaling Lean: Mastering the Key Metrics for Startup Growth” by Ash Maurya, a serial entrepreneur, and creator of the one-page business modelling tool Lean Canvas. I like his set of action items, and have added a few of my own for measuring early traction leading to growth:

  1. Turn initial customer goals into measurable traction metrics. These need to go beyond the traditional revenue, cost, and volume metrics which may not yet have data, and can mislead you about real customer acceptance. Early examples would include website traffic, positive reactions from potential customers, and blogger support.

  2. Build outside relationships with media and analysts. It’s never too early to build relationships with industry analysts, influential bloggers and the media, and show how these have grown over time. These show real traction even before you ship a product through heightened anticipation and pre-orders. Visibility increases over time are traction.

  3. Build an inside advisory board of influencers and experts. Customers and investors alike measure traction by your formal advisors. If Bill Gates has agreed to be on the board of your software startup, that’s major traction, even with no paying customers. In addition, advisors of this caliber will accelerate growth by experience and connections.

  4. Validate every key element of your business model. Use experiments to test every element of your business model – cost, price, marketing, sales channel, customer acquisition cost, lead conversion rate, and lifetime value. Traction is the measure of how many of these have been validated, and their projection to your business valuation.

  5. Show increasing acceptance by major consumer outlets. Traction starts with calls returned, positive expressions of interest, signed letters of intent, and contracts in place. Each of these should be measured and celebrated internally, as well as communicated to investors and other constituents. Continued activity drives momentum and growth.

  6. Benchmark your business progress as a customer factory. The job of every startup is to make customers. Like a factory, it starts with attracting potential customers, creating delivering, and capturing value from these customers, to creating happy customers out the door. These customers bring in many new ones as traction and growth multipliers.

  7. Define known growth constraints and breakthroughs. Growth constraints would include staffing shortages, funding needs, quality problems, and sales coverage. Traction is the removal of a constraint, and the identification of the next bottleneck. A useful traction metric is how many constraints have been removed, with resolution times.

  8. Show evidence of growing and unsatisfied customer demand. If you have orders in hand from recent trade shows that you can’t satisfy without funding, that’s traction that will appeal to any investor. If the rate of order arrival has doubled over the past month, that shows traction, momentum, and growth. Use these metrics rather than hide them.

Don’t wait to be surprised too late by conventional revenue metrics indicating passion has masked a lack of early traction. Define realistic traction metrics to validate your business goals and funding needs.

Talking longer and louder to me as an investor or advisor won’t convince me you have more traction, and it won’t add anything to your bottom line. Traction and growth are not about emotion.

Marty Zwilling

*** First published on Forbes on 06/14/2016 ***

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Monday, June 20, 2016

7 Attributes of An Entrepreneur's Startup Dream Team

Eric_Schmidt_GoogleThere is a common belief in the angel and venture capital community that you put your money on the best team, rather than the best idea. Thus the top priority of every entrepreneur who wants funding should be to build and highlight their “dream team” of co-founders, executives and advisers, to attract the biggest and best investors. Solo entrepreneurs rarely find an investor.

In my angel investor mode, I often find myself flipping to the “management” section of a business plan, even before I read the solution description and opportunity. Imagine my lack of excitement if that section is missing, or it’s basically a list of names and titles that I don’t recognize. To win, you need to tell your best story and highlight how the team hits any and all of the following points:

  1. Prior entrepreneurial wins and losses. Building a startup business is not the same as corporate executive experience, so prior titles in a big business may actually be seen as a negative. On the other hand, having failed in an earlier startup may be an advantage, if positioned properly, and some learning is evident. Focus on prior results, not titles.

  2. Business credentials and functional coverage. If your team has a depth of expertise in software, that won’t help you get funding for a new hardware solution. Even if your product is a technological marvel, I look for balanced strength on the team in finance, marketing and operations. Fill in gaps with expert advisors to make it whole.

  3. Team members have investor relationships. Investors talk to each other and they love warm introductions to up-and-coming entrepreneurs. Investors are usually smart business people who love to be asked for guidance and direction, before they are asked for money. Do your networking with investors well before the funding pitch.

  4. Executives exude confidence and energy. Investors all know that the startup road is long and hard, so they look for people who have put and will continue to put “skin in the game” -- time, sweat equity, and money. They look for passion and optimism and more importantly, the willingness to listen, learn and get things done.

  5. Able to communicate on every level. It starts with having a vision and an ability to get the message across in your elevator pitch, in a written business plan and one-on-one with potential investors. Fundable entrepreneurs have to feel comfortable talking and listening to engineers, financial people, marketing and especially customers.

  6. Relish the challenges of problem solving. Startup leaders have to be relentlessly resourceful in overcoming obstacles and competition. Investors look for “street smarts,” or examples that didn’t come from a school book or a corporate process. When pitching to investors, weave in real-life stories of your best past creative solutions.

  7. Not afraid to make a decision. Investors are wary of “equal partners,” who may jeopardize a timely decision. They want to see decisions based on logic and backed up by emotion, rather than the other way around. They want to hear what you learned from the last economic downturn and the last funding shortfall.

Ironically, investors see funding opportunities correlated to past successes, rather than future success dependent on funding. Thus, it’s more important to highlight what you have done that demonstrates your team’s potential, rather than talking about how great it will be in the future. Investor focus is on facilitating the scaling of a startup, after you have proven the business model.

If you are new to the entrepreneur funding game, like Google founders Larry Page and Sergey Brin were back in 2001, it pays to bring in a CEO such as Eric Schmidt to find investors, who was well-known to the investment community for his accomplishments at Sun Microsystems and Novell. Now, of course, Page and Brin have that same credibility with their successes at Google.

Dream team startups rarely just happen -- they are the work of a diligent entrepreneur, who understands personal strengths and weaknesses and are not too proud to ask for help and offer a chunk of their startup equity in return. Even if you are not looking for external funding, the same team principles apply, since you are your own biggest investor. Build your dream team early.

Marty Zwilling

*** First published on Entrepreneur.com on 06/10/2016 ***

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Sunday, June 19, 2016

5 Steps To Avoid Solutions Looking For A Problem

future-virual-realityTechnical entrepreneurs love their technology, and often are driven to launch a startup on the assumption that everyone will buy any solution which highlights this technology. Instead, they need to validate a customer problem and real market need first. Don’t create solutions looking for a problem, since investors ignore these, and customers other than early adopters may be hard to find.

Exciting new technologies these days range from the easier to use social media software platforms I see almost every week, to new transportation models, like consumer space travel and hydrogen fuel autos. These founders all seem to be pushing their technology, rather than highlighting their solution to a painful need. Customers buy solutions, not technology.

In fact, outside of those few early adopters, technology by itself has negative value to the majority of potential customers. Most people are wary of change, and know that new technologies take time to learn and stabilize, so customers prefer solutions based on tried and tested proven technologies. Smart entrepreneurs build market-driven solutions, per the following principles:

  1. Size the opportunity and customer interest first. Your passion isn’t enough to create a market. If there is a growing opportunity, an accredited market research group like Forrester or Gartner will already have data to quantify your excitement, and help make your case. Prototype your solution for customers, and discount friends and family.

  2. Look for customer willingness and ability to pay. Just because users support your free trial doesn’t mean they will pay for the solution. Nice to have does not motivate a revenue stream. Technologies that cure world hunger may find that that hungry people don’t have money, and government agencies as customers are a very long sales cycle.

  3. Limit the features and complexity. Technologists tend to add more features, just because they can. More features usually means more complexity in operation and support. The best solutions, from a customer perspective, are able to mask the technology with a very simple and usable interface that focuses on their problem only.

  4. Take a hard look at alternatives and competitors. New technology does not necessarily make better solutions. If you claim no competition, investors may perceive that you have no market, or you haven’t looked. Neither is positive. Customers may be perfectly happy with existing alternatives and competitors.

  5. Work in a familiar domain, on a problem you have experienced. The most successful entrepreneurs tackle problems that have caused them personal pain, in an area they know well. Every business domain looks simpler to outsiders who have no insights into the complexities that increase your risk.

None of these principles is meant to imply that technology is not important in building new solutions. In fact, some technology leaps are so great that they enable a whole new class of products, or a whole new market. These are called disruptive technologies or the next big thing, in the sense that existing markets or economies of scale are disrupted by the scope of change.

Examples of solutions from disruptive technologies include the appearance of personal computers, smartphones, the Internet, and the first social media platforms. Even for these, which can indeed change the world, the aforementioned principles still apply, in conjunction with a couple of additional considerations:

  • Time frames for acceptance are longer and the risk is higher. Based on history, the acceptance period for major technology changes is much longer than innovative evolutionary changes – sometimes taking 20 year or more for pervasive acceptance. Investors thus tend to shy away from these startups, meaning you need deeper pockets.
  • Disruptive technologies require customer education to create a new market. Customers tend to think linearly, so existing customer feedback is unlikely to lead to, appreciate, or pay quickly for the new solutions from world-changing technology. This means more time and money for viral marketing, product iterations, and promotions.

So the more you emphasize the technology of your offering, the more you need to be prepared for increased costs, reduced investor interest, slow customer acceptance, and a longer wait for any return. On the other hand, the longer-term impact and return of disruptive technologies is likely to be huge, if they survive the early challenges.

My recommendation for first-time entrepreneurs, and the rest of us who don’t have deep pockets, is to focus on customer problems that are causing pain today, and customers who are willing and able to spend real money on a solution.

You will more likely get the investor resources you need, the guidance from existing experts, the opportunity to hone your business skills, and the confidence from success. Then when you sell your first company for several hundred million, you will be ready to tackle that favorite disruptive technology leading to the next big solution to change the world.

Martin Zwilling

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Saturday, June 18, 2016

Why Every Entrepreneur Needs A Startup Co-Founder

Drew_HoustonIt seems like every entrepreneur I meet these days is quick to proclaim themselves a visionary, expecting that will give more credibility to their startup idea, and improve their odds with investors. In reality, I’m one of the majority of investors who believe that startup success is more about the execution than the idea. Thus, unless the visionary highlights a cofounder who can take the vision and execute, I assume the worst.

It’s true that gifted visionaries bring many good things to an organization, including big picture ideas, seeing around corners, and a hunter mentality. Yet they also come with a set of shortcomings. These were outlined well, with some good recommendations for overcoming them, in a recent book, “Rocket Fuel,” by Gino Wickman and Mark C. Winters, both with a wealth of experience in this domain.

My bottom-line recommendation and theirs is that every visionary entrepreneur needs to be matched with a cofounder or key team member who has the required execution attributes. Let’s take a hard look at the key potential weaknesses of a visionary, and the value of an execution-oriented partner, which the authors call an integrator:

  1. Staying focused and following through. Visionaries tend to get bored easily. To spice things up, they start creating new ideas and direction, which gets everyone excited. This may cause a wonderful 90-day spike in performance, but in the end often sabotages their original vision. Many projects get started but few are completed, and momentum is lost.

    To compensate, every visionary entrepreneur needs to find a partner who gets great satisfaction from results, and loves the discipline of making things happen on a day-to-day basis. This person is the glue that can hold the people, processes, systems, priorities, and strategy of a developing startup together.

  2. Too many ideas and an unrealistic optimism. Most true visionary entrepreneurs have unusual energy, creativity, enthusiasm, and a propensity for taking risks. This can be disruptive, as they love to break the mold. They often show little empathy for the negative impact this can have on capacity, resources, people, and profitability.

    Again, the solution is a partner who is the voice of reason, who filters all of the visionary’s ideas, and helps eliminate hurdles, stumbling blocks, and barriers for the whole leadership team. Titles for this role in a startup are not fixed, but usually show up as president, COO, or chief architect.

  3. Cause organizational whiplash. Due to founder visibility, the team is so tuned in to the visionary and current direction that every turn to the right to pursue a new idea turns the whole team to the right. The organization can’t keep up the pace of change, and soon loses motivation, productivity, and all sense of where they are headed.

    Every organization needs a steady counter-force that is focused on directional clarity, and great at making sure people are communicating within the organization. Good integrators are fanatical about problem resolution and making decisions. When the team is at odds or confused, they need this steady force to keep them on track with the business plan.

  4. Don’t manage details and hold people accountable. Visionaries typically don’t like running the day-to-day of the business on a long-term basis, and aren’t good at following through. Even communicating the vision itself can be quite a challenge, since it’s so crystal clear in their head that they can’t imagine having to repeat or clarify for others.

    Balance here comes again from the operational expert, who is very good at leading, managing, and holding people accountable. They enjoy being accountable for profit and loss, and for the execution of the business plan. When a major initiative is undertaken, they will anticipate the ripple of implications across the organization.

  5. Tends to hire helpers and not develop talent. Idea people are so bright that they don’t see the need to leverage the capabilities of others, or hire people smarter than they are in any given domain. They are usually too self-centered to see the need for developing skills and leadership in the other members of the team, or building a succession plan.

    Here also the solution usually is a partner with prior experience, who has learned how and when to hire real help, and implement metrics and processes to measure results. They enjoy the coaching and development role, and are able to match work assignments to people’s strengths, promoting both people and company growth.

Of course, many will argue that the visionary entrepreneurs can simply fix their shortcomings, and thus save resources by satisfying both roles. But in my experience, very few entrepreneurs have the bandwidth to make this work, and the adapted entrepreneur ends up doing both jobs poorly.

I’m a proponent of capitalizing on your strengths, rather than focusing on fixing your weaknesses. If your strength is being a visionary, use that vision to attract a complementary partner, and make it a win-win opportunity for both of you.

Marty Zwilling

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Friday, June 17, 2016

7 Ways to Keep Your Customers Begging for More

customer-focusFor too many small businesses, customer service is still seen as a “burden.” Entrepreneurs don’t realize that this burden is actually costing them over $200 billion in repeat sales, according to a recent study by the W. P. Carey School of Business. The report also indicates that customer problem experiences continue to increase, up four percent to 54 percent since the last study.

The proper time to put a formal program in place to improve your customer experience, with measurements of both cost and value, is before your first product or service hits the market. Don’t wait for the first bad review to hit Yelp, or for friends to stop recommending you to friends. These days, relationships and online reviews are key drivers for over 80 percent of new customers.

As an adviser to startups, I’m convinced that most understand the need, but many still simply don’t know how to show their customers that extra love and support. The need to bridge the gap between minimally satisfied and totally excited customers who go on to be your best brand advocates. In my experience, and the eyes of experts in this arena, here are some practical tips:

  1. There is no substitute for a personal touch. We all know it’s less expensive to automate the support role, through web site forms and touch-tone phone systems. But beware of false economies, as customers still strongly prefer to talk to human beings who can sense their emotion, relate to their values and customize responses accordingly.

  2. Make the process quick and frictionless. No customer likes keying in account numbers or repeating information before any meaningful action is started. Indeterminate and long waits before or during a session can and must be eliminated. If a customer feels like they are doing all the work, satisfaction will never be forthcoming.

  3. Connect, do not just answer questions. Every customer wants to feel a personal connection with a person, not with a non-human business. Relationships are all about empathy, passion and going the extra mile. Today’s generation is accustomed to relationships via social media and texting, as long as social protocols are honored.

  4. Provide training and empowerment. Every support situation is different, such that written policies and edicts from the top are not enough. Unusual situations require creative solutions and the authority to make these solutions happen. Outsourcing your support team to a far-away country and culture is not the way to start.

  5. Measure support against competitors. This means asking your support team to sample the support of competitors on a monthly or quarterly basis. The goal should not be to match levels of customer repeat business, but to exceed every time. Rewards and bonuses should be based on wins against competitors.

  6. Have a sense of urgency and promptness. Waiting for an email response, for a chat session to start, or listening to elevator music on the phone won’t endear you to customers and won’t convince them that their satisfaction is urgent for you. They will reflect your lack of urgency into no repeat business and no mentions.

  7. Admit mistakes, be proactive on specials. Everyone has a story of a service business which offered specials to new prospects, while existing customers were paying higher rates. Similarly, customers are often left to feel that they are paying for a mistake never admitted. Generate trust and respect for repeat business and customer advocacy.

As examples of “far-exceeds” customer service, Starbucks once addressed an order mix-up by first making the customer whole and then providing a $50 store credit. Trader Joe’s once took an order over the phone from an elderly man who was snowed in and then went the extra mile to deliver it without charge. You can bet these customers will be back and will tell their friends.

Customer service is now considered to be a key part of every customer’s total experience. You wouldn’t ask a customer ordering on your e-commerce site to wait a few days for an email response, so don’t do it when they have a support question. You know what it takes to keep you begging for more, so just treat every customer like your best friend, rather than another burden.

Marty Zwilling

*** First published on Entrepreneur.com on 06/08/2016 ***

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Wednesday, June 15, 2016

How To Make Digital Marketing Excel For Your Startup

word-cloud-digital-marketingToo many entrepreneurs still believe that “if we build it, they will come.” With today’s overload of information from digital as well as conventional sources, even the best new solutions and services won’t get traction without real marketing. Digital marketing is the cost-effective place to start, utilizing the internet, mobile phones, display advertising, and other digital mediums.

The challenge is where to put those limited resources of every startup, to get the biggest return for your investment. It is search engines, web content, blogs, social media, e-mail direct, on one of many mobile-phone approaches? Every entrepreneur needs a strategy, and some metrics to measure what’s working and how much it costs. Firing randomly to see what sticks doesn’t work.

As I was scouting around for some guidance on this subject, I came across a new book, “Get Scrappy,” by Nick Westergaard, who is a recognized expert on brand strategy and digital marketing. He offers a framework I like with lots of practical guidance on how to evaluate possibilities, overcome obstacles, and generate measurable results:
  1. Identify alternatives that make sense for your business. The first challenge is to resist falling prey to the latest “shiny new thing” online – new platforms, channels, and tools. Eliminate the big budget items if your budget is small, and don’t try to satisfy every checklist. Put your brains before your budget, keep it simple, and find ideas everywhere.

  2. Define a unique spark for your brand, and its promise. Every entrepreneur needs to market a brand with something to say, something that stands out and ignites everything the brand does. Digital marketing is all about telling memorable stories with your brand, establishing a voice, and visuals with engaging icons, colors, patterns, and movement.

  3. Determine the best digital channels and marketing objectives. There is no one-size-fits-all approach for selecting a channel. Press releases, social media, partnerships, and influencer outreach are a few of the alternatives. Objectives need to be specific, measurable, attainable, relevant, and time-related. For excellent guidance on the best digital channels, see this recent article, Top 14 Content Distribution Companies.

  4. Create and leverage engaging and relevant content. A digital marketing content path most often comes in the form of a blog, podcast, video, or newsletter. Build a strategic map and a plan to get to your final destination (objective). Remember that what’s engaging and relevant depends on your target customer needs, not solution features.

  5. Encourage ongoing social media customer conversations. The key to customer interaction is listening first, then asking questions about what customers need and like, not telling them what you have. Social media is the ideal vehicle for these conversations. Questions fuel content, spark conversations, and turn fears into opportunities.

  6. Convey a single brand message and unified brand experience. Integrate marketing touchpoints to convey a meaningful message across all channels and platforms. For example, use social channels to mine for newsletter content, and connect to your blog account, where you include email sign-up forms. Content that doesn’t connect doesn’t fit.

  7. Simplify marketing over time and measure what matters. Simplification starts with a strategy to filter all initiatives. This should be followed with a consistent schedule and editorial calendar. Content can then be relentlessly repurposed, from social media to a blog to a white paper to an e-book, and results measured. For good content, less is more.
While we are focusing here on digital channels, good marketers have other forms of media working in parallel for them as well. These should include in-store signage, product packaging, marketing collateral, and business cards. Let’s not forget the non-digital channels, including broadcast media, direct marketing, public relations, and trade shows.

In summary, marketing is more important than ever to the growth and vitality of a startup, and digital marketing is the way to excel without breaking your budget. Yet, to be effective, even digital requires a strategy, focus on the relevant channels, and the integration of your brand spark and promise into every message. The best entrepreneurs figure out how to do more with less.

Marty Zwilling

*** First published on Forbes on 06/08/2016 ***

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Monday, June 13, 2016

Even Social Entrepreneurs Need Profit to Meet Goals

African_Womens_Entrepreneurship_ProgramIt’s very fashionable these days to declare yourself a social entrepreneur, working for the good of society, the environment and a better life. Most social entrepreneurs don’t like to talk about making money, but often they still ask for help finding investors. As an adviser, I have to tell them they should be looking for philanthropists, who look for social value rather than financial returns.

It fact, social ventures really need profit to survive and prosper without donations, just like any other business. Delivering social value always costs money. Thus I’ve never understood why so many of these assume they can operate as non-profits. The labels of non-profit and for-profit are merely tax designations, and using the wrong label only complicates matters for the entrepreneur.

On the surface, the non-profit label appears attractive, since these entities should be simpler, easy, safe, and exempt from U.S. federal income tax (Section 501(c) of the Internal Revenue Code). Most countries have similar exemptions for similar organizations. In my experience, however, starting and running a non-profit is actually far more difficult for the following reasons:

  1. Having a tax-exempt business is expensive. Obviously all founders wants to minimize their taxes, yet the initial setup for non-profits is bureaucratic, takes up to two years of time, and costs thousands. For comparison, I was able to set up a simple for-profit Limited Liability Company (LLC) in a month for less than $100.

  2. Retaining a qualified team is challenging. A non-profit has all the same business issues as a conventional organization, and many more. Yet right or wrong, the pay scales are usually lower, so more experienced professionals are pulled away. Managing volunteers and seeking donations is an even bigger challenge.

  3. No equity investors for a non-profit. Professional investors are looking for a reasonable financial return, and non-profits by definition are outside this realm. This fact makes finding money for staffing, advertising, and manufacturing very difficult. You can always use crowdfunding, but don’t count on going public or merging with a for-profit.

  4. Multiple financial watchdogs. In addition to the Internal Revenue Service (IRS), other organizations, including the Charity Watch, regularly analyze and publish the ratio of funds in to those applied to the causes supported. All perform in-depth evaluations of spending practices, and can jeopardize your strategy.

  5. Advertising is expensive. In a for-profit business, everyone understands that you have to spend money to make money. Yet in a non-profit, the watchdog organizations and even strong supporters don’t always appreciate money spent to get the word out, and expect low amounts to be spent on wages and facilities.

  6. Funding is dependent on the economy. When times are tough, strong supporters withdraw their contributions to focus on their own challenges. Thus non-profit businesses have a very limited ability to survive when needs and interests of consumers change. Very few social entrepreneurs can claim to be “recession proof.”

  7. Innovation is hard to find. Many non-profits still don’t have enough computers to automate manual processes, much less take advantage of the latest applications to keep up with innovation in their industry. This is a result of the difficulty in funding, operational constraints, and the availability of strong leaders.

Even worse, I sometimes hear entrepreneurs espousing the creation of dual entities, one for-profit and one non-profit, to capitalize on the advantages of each. I don’t recommend this approach, due to the temptations for violating the ethical and legal constraints on both. Professional investors, as well as the IRS, will frown on any combination of these two entities.

Thus my recommendation to social entrepreneurs is to treat the development of your business sustainability with the same passion as you apply to your cause. There need not be a conflict between these two priorities. It takes a sound and profitable business to provide the long-term value proposition that you envision for society. Anything less is a loss for all concerned.

Marty Zwilling

*** First published on Entrepreneur.com on 06/03/2016 ***

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Sunday, June 12, 2016

How To Talk About Competitors And Gain Credibility

goats-butting-headsMost entrepreneurs spend far too much time thinking negatively about competitors, and can’t resist making derogatory statements to their own team, to investors, and even to customers. This approach only makes these important constituents question your integrity, intelligence, and your understanding of business basics. Pointing out flaws in others does not give you strength.

As an investor, I always listen carefully to what an entrepreneur says, and does not say, about competition. Every business area has competition and every customer has alternatives, so a smart entrepreneur needs to acknowledge these as a positive in defining a big market, and position the features of a new solution in this context. Here are seven key ways to do this:

  1. Frame the competition as manageable. Investors want to see evidence of specific competitors who make the market, and your sustainable competitive advantage to hold your own. They don’t want to hear of no competitors, or a long list implying a crowded space. Use three generic categories, and relate your position to a key player in each.

  2. Highlight your positives to suggest competitor shortcomings. Talk about competitors with positive statements about the advantages of your own product. For example, “While Product X has worked well in the server market, my product also provides Cloud support, to drastically reduce IT costs and maintenance.”

  3. Emphasize intellectual property and dynamic product line. Patents and trade secrets are more powerful advantages than missing competitive features, which might be quickly filled in as you gain traction. Be careful with the first-mover claim, since big competitors have deeper pockets and can accelerate to quickly eliminate this one.

  4. Demonstrate expertise on the range of competitors. You don’t need to talk about every competitor, but you better know every one, just in case someone challenges you. Do your research thoroughly on the Internet, with industry experts, and advisors. Build your credibility by presenting balanced competitor leadership and team histories.

  5. Become a thought leader on industry evolution. Make it evident that you have learned and evaluated competition from a higher perspective – meaning the evolution of industry technology and trends. Show that you have thought about indirect competitors and alternative solutions, like airplane technology versus a better train.

  6. Develop a timeline showing continuous innovation. Make your competitive position a long-term advantage by presenting a timeline of technology evolution, rather than a comparison at time of first rollout. Investors don’t like an apparent “one-trick pony,” or a momentary advantage that can be quickly overcome by smart competitors.

  7. Position your solution in the world market. Every market and every opportunity these days is global, so successful strategies and positioning are done with that in mind. Your rollout needs to be focused and targeted locally in the near-term, but competition needs to be addressed in a much broader long-term way.

Don’t forget that the primary objectives of every competitive positioning are to demonstrate your business acumen and integrity, as well as the strengths of your solution. Any overly negative comments you make about competitors doesn’t help you on either of these objectives, and will kill your momentum with investors and potential customers.

Spot comparisons are also less and less valuable these days, as the market tends to change quickly, and competitors can pivot and recover just as quickly. Remember that smart competitors are likely working on new features with resources greater than yours, and timeframes to delivery that may be shorter than yours.

In addition, thinking positively about competitors is what your customers will do, and what every smart investor or potential business partner does. You have to get on the same wavelength to optimize your solution, maximize your credibility, and minimize the competitive risk. The alternative of being an entrepreneur full of negativity is no fun for either side.

Martin Zwilling

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Saturday, June 11, 2016

Startup Founders Can Learn From Reality Television

Daymond_johnAs an advisor to entrepreneurs and active angel investor, I often get questions about the realism of the Shark Tank TV series, compared to professional investor negotiations. The simple answer is that with all the staging of TV lights and billionaire investors, it’s nothing like Silicon Valley. Yet the process is eerily realistic, and every entrepreneur can glean some important lessons.

Here are eight key points that I believe should be taken from the show by every startup founder looking for investors in real life, across the range of venture capitalists, angel investors, or even friends and family:

  1. You will be judged first as a person, then by your idea. If you’ve watched the show, I’m sure you remember entrepreneurs who appeared doomed by their presence, almost before they started. Others with the right confidence and personality were able to garner funding, despite a weak business plan. Investors invest in people, more than ideas.

  2. Grab investor attention in the first couple of minutes. Skip the background story and customer pitch, which every investor has heard all too often. Investors want to hear a quantified problem, a simple solution description, opportunity size, competition, traction, team qualifications, how much money you need, and what equity you are willing to give.

  3. Personalize your presentation, if possible, for every investor. Smart Shark Tank presenters have done their homework on each investor, and customize their sample product or anecdote for each. In a more general sense, find out as much as you can about every group and person you address, and tune your pitch ahead of time to match.

  4. There is no substitute for knowing your business. We have all seen the entrepreneur who believes that passion and emotion will overcome all investor objections and requests for answers. The most common failures on the show, and in real life, are people who don’t know their margins, cost of customer acquisition, channels, or other key data.

  5. Dress to impress and be credible to investors. A colorful costume may catch TV viewer attention, but may hurt your image and turn off investors. Remember that most business investors are from an era where sandals and frayed jeans were not associated with hard work and business success. Exceed the expectations of the investor.

  6. Keep calm, and never get defensive when questioned. Entrepreneurs who interrupt investor questions, or show a temper, will quickly lose investor respect, and likely lose the deal. Be sure to pose your counterpoints as clarifications rather than disagreements. Agree to evaluate investor views on subjective issues, rather than just dismissing them.

  7. The value of an investor goes far beyond cash. Many entrepreneurs feel that investor money is all green, and thus the same. On Shark Tank, you can easily see that some people need Lori and QVC, while others need Damon and his apparel connections. Investor knowledge and experience routinely have more value than the money.

  8. The initial outcome is the beginning, not the end. All handshakes in investor forums, or on the show, are subject to follow-on due diligence reviews. According to reports, the investors on Shark Tank close as little as one-third of the deals you see them make on the show. On the other hand, many who don’t get an initial deal win later through good visibility and connections. Based on my experience, both of these are also true in real life.

Thus, while the forums and investors are different in the real world, there are many relevant lessons than an astute entrepreneur should take away from Shark Tank. So if you plan to face any forum of potential investors in the near term, position and practice your own pitch with advisors until you are ready to calmly face the bright lights. The last thing you want to hear from any of them is “I’m out!”.

Marty Zwilling

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Friday, June 10, 2016

Are You Selling Solutions Through The Right Channel?

sales-channel-conflictEven the best products and solutions won’t go anywhere unless you sell them through the right channels. For example, if you watch the TV show “Shark Tank,” you will remember several entrepreneurs with specialty products doing well online who want money to move into big box retail. They usually get chastised and declined for ignoring the realities of the retail channel.

The right channel for marketing and distribution is one of the basic “four Ps” of business (product, promotion, price and placement). For growing revenue and market share, it’s a key element of your overall strategy, and one that can make or break you. The most common channels in use today include e-commerce, direct to customer, wholesale to dealers, and value-added resellers.

In many product areas, especially retail, the channel is the market. In other words, you may have a great new product, but no distributor penetration means no shelf space and no customers. Here are some practical steps that I advise every entrepreneur to follow in setting their channel strategy:

  1. Focus on only one channel to begin. Every startup has limited resources and people, so rolling out your solution in multiple channels will likely mean a weak implementation in all, and customer confusion. Do your homework on industry norms for your product, competitor placements, and margins achievable. Set marketing plans accordingly.

  2. Resist the channel sales pitch for exclusivity. For your new and innovative offering, you won’t know how customers react or how a channel will perform until you can see and measure results. If necessary, you may have to negotiate limited time frames and limited territory arrangements. Recognize that terminating an exclusive arrangement is costly.

  3. Treat distribution partners as part of your team. The goal must always be a win-win relationship, rather than a contentious win-lose one. Distributors know their customers, usually do their own marketing, and can help alleviate your cash flow issues. In international territories, they have localization expertise that you need badly.

  4. Optimize existing channels before adding new ones. Just like it’s cheaper to sell more to existing customers than acquire new ones, it’s important to saturate existing channels before adding new ones. As your business expands into new regions, or adds new product lines, the opportunity for new channels should be evaluated.

  5. Expect some channel conflict as a cost of doing business. With multiple channels, there will always be inequities and disagreements. These must be dealt with openly, and in a proactive manner if at all possible. For example, if a new partner wants to offer new terms or prices, disclose and negotiate with existing partners before it becomes a crisis.

  6. Avoid direct sales forces and wholly owned channels initially. These are not recommended for startups, who have neither the money nor customer access of outside channels. Use them only when no other alternatives exist, or business success has given you the means to take full control, and make your channel a competitive advantage.

  7. Always use analytics and listen directly to customer feedback. Sometimes external channel partners will attempt to buffer you from your real customers, insisting that all input and measurements come through them for filtering and control. For any business, especially new ones, this is a mistake. You need to stay in the dialog with customers.

  8. Don’t treat globalization as just another territory expansion. Every international market is unique in channel expectations, purchasing behavior, and pricing. Before you expand into this arena, make sure you have the resources and expertise on the ground, and have done your homework on cost versus return. These expansions can be lucrative, but may require more complex strategic partner arrangements or even acquisitions.

For every startup, these steps and the evaluation behind them should be a key part of developing your go-to-market strategy. But like everything else in a startup, your go-to-market and channel strategy are not one-time things – they need to be revisited and optimized several times each year. Don’t let an innovative solution and a great business model get lost in the wrong channel.

Marty Zwilling

*** First published on Entrepreneur.com on 06/01/2016 ***

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Wednesday, June 8, 2016

Don’t Let Outside Funding Kill Your Startup Passion

Michael_Dell_2010One of the myths I often hear as an advisor to many entrepreneurs is that their lifestyle would somehow be better if they could more easily find other people’s money to build their startup. They don’t realize that according to statistics, more than 90 percent of satisfied entrepreneurs use bootstrapping, since other people’s money always comes with strings, most of them negative.

For example, Bill Gates founded and grew Microsoft, and Michael Dell built a great technology company, both with no outside funding until they went successful enough to go public years later and sell shares to common stockholders. In fact, Michael Dell has recently taken his company private , in his words to “unleash again the passion of our team members.”

Maintaining your team’s passion and freedom to focus first on innovating for customers are only a couple of the reasons for thinking hard before you seek money from crowdfunding, angel investors, venture capital organizations, or attempt to qualify for a public stock offering. Some of the specific challenges that always come with other people’s money include the following:

  1. You will stay awake nights worrying about how to pay it back. Most entrepreneurs never forget for a moment that having investors means owing money, even if they can legally argue that equity is not debt. Many times friends and family have been broken by failed investments. Usually it pays to move a startup slower rather than risk relationships.

  2. Investors want board seats and a vote on key decisions. Of course, this can be positive if you really need the help and experience in making key decisions. But I suggest that a small advisory board with the right people might give you better guidance (no near-term financial bias), and you can always choose to ignore it if your insights are strong.

  3. Pre-defined milestones and deadlines in an uncertain world. No entrepreneur enjoys the stress of committing to dates and results on an innovative and unpredictable journey to change the world. Yet every investor, including a rich uncle, will likely ask for specific progress evidence. Bootstrapping gives you the flexibility to explore creative alternatives.

  4. You left your corporate job to get away from budgets. When you are spending other people’s money, they want to know how much and when. Startups don’t come with the discipline on payables and receivables that you left at corporate. Investors quickly learn the only control they really have is financial, so they will use it to apply any constraints.

  5. Pivots become a source of pain rather than positive learning. Every startup I know has had to pivot at least once, no matter how certain they were of their solution and market. Pivoting early brings satisfaction and saves money and time, except when you don’t pivot due to investor evidence required, and the pain of explaining your mistakes.

  6. Explaining actions to investors takes time you don’t have. Very few entrepreneurs I know have the patience and time to communicate to the satisfaction of all investors. It’s usually the small investors who want the most frequent updates, or phone calls before every direction change, and investor relations costs only go up as your business grows.

  7. Investors will become the toughest boss you ever had. It’s very common for founders who find venture capital funding, to soon find out that they are being replaced by a CEO who has “more experience.” Other founders, even with experience, are forced out by disagreements over strategy or progress. You won’t be fired if you use your own money.

Of course, bootstrapping does imply living within your means, and it may require you to postpone your startup efforts while you build up an investment fund of your own. It also may mean finding alternatives to cash for attracting team members, or bartering services to expand your access to infrastructure or expertise. It also may just mean taking less money later.

On the other hand, avoiding outside funding means you can apply your passion and innovative solution without investor challenges, and remain in full control of your destiny. Isn’t this why you were attracted to the entrepreneur lifestyle in the first place?

Marty Zwilling

*** First published on Forbes on 06/01/2016 ***

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Monday, June 6, 2016

Follow These Steps For Your Next Job After A Startup

Job_interview_0001Startups don’t last forever -- they either mature into sustainable businesses, get merged into another business or acquired, or sadly join the 50 percent or more that fail in the first five years. Very few startup founders even want to stick around for the long haul, since their passion and expertise is in creating a new business, not managing people issues and repeatable processes.

The challenge for these entrepreneurs is to know when to exit, and how to do it smoothly in a win-win fashion for themselves and the business. In my experience as a mentor to many entrepreneurs and an angel investor, the keys to experiencing a satisfying and timely exit are included in the following steps:

  1. Look at your strengths and motivators. Some entrepreneurs are leaders, others are good managers and still more are happy to be the do-ers. Almost every startup has multiple founders, with complementary skills. Look at yourself objectively, and analyze where you fit best. It’s time to move on when you no longer fit.

  2. Set career and life goals, evaluate other paths. If your long-term goal is to achieve a stable balance between business and personal activities, the serial startup lifestyle is probably not for you. You may want to stick with your first company as a sustainable business, or exit your startup to find a conventional business position.

  3. Evaluate for realistic outcomes. Most entrepreneurs I know convince themselves that they can grow and sell their startup in a couple of years, and move on to their next idea. Many ultimately struggle for five to 10 more years, before they achieve “overnight” success, or a liquidity event. Maybe it’s time to cash out now.

  4. Exit at your peak, rather than be pushed out. It’s always smart to move on and be remembered for operating excellence. No one needs a legacy of overstaying their welcome, or fighting angry constituents to the death. Don’t wait for a crisis to get you thinking -- be proactive in talking to advisers and mentors on timing and alternatives.

  5. Seek opportunities to increase learning, skills. If you find yourself too comfortable in a current startup, it’s probably time to exit. The best entrepreneurs enjoy the challenges of the journey, more than the destination. They perform best when they are in maximum learn mode, taking new risks, and adapting to change in the market.

  6. Expand your business relationships. In the heat of a startup, it’s easy to become isolated and lose perspective on exit alternatives and new opportunities. Smart entrepreneurs expand their connections to include large company executives in their domain, to see if they fit, or convince everyone it’s time to move on.

  7. Plan to stage your exit and follow-on. You will more likely enjoy the transition and what happens next if you make it happen, rather than wait for it to happen to you. Good things often take a while, and it’s more fun to live life incrementally, and plan for each element. Recovery mode is no fun, bouncing from one crisis to the next.

Certainly we can all think of a few famous entrepreneurs who never exited and iterated, including Bill Gates of Microsoft and Mark Zuckerberg at Facebook. But I believe these are the exceptions, rather than the norm. Many others, including Elon Musk, Richard Branson and Steve Jobs, are known for their role in many businesses. Not all of these exits were positive, but they recovered well.

Every executive recruiter will tell you that the best time to look for a new job is when you are riding high in your current one, but are smart enough to realize that the current one won’t last or won’t keep you happy forever. They’re right -- now is the time to start following the steps outlined here. No efforts will work if you wait too long.

Marty Zwilling

** First published on Entrepreneur.com on 05/27/2016 ***

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Sunday, June 5, 2016

7 Criteria To Help Startups Find The Right Investor

Jeffrey-Carter-Mind-Of-An-InvestorToo many entrepreneurs tell me they are looking for an investor, and can’t differentiate between venture capital (VC) investors versus accredited Angel investors. They argue that the color of the money is the same from either source. They fail to realize that the considerations are quite different for each, which can make or break their investment efforts, and ultimately their startup.

Let’s consider some basic definitions. Accredited Angel investors are non-professionals investing their own money, while venture capitalists are professionals who invest someone else’s money (usually from large institutions). The amounts from Angels start as low as $25K, while minimum venture capital amounts usually start in the $2M range.

That doesn’t mean you should always go for the big bucks first. In fact, the reality is quite the opposite. Angels are more likely to fund new entrepreneurs, and early-stage or seed rounds, while VCs tend to focus on entrepreneurs with a successful track record, and later stage rounds. Of course, between these extremes is a large overlap of interest and potential.

More importantly, the focus on numbers tends to hide other more subjective issues that could be more important for any given startup. These considerations include the following:

  1. How much ownership and control are you willing to give up? VCs tend to demand more control of your spending and strategic decisions, with required board seats and lower valuations. Angels will likely agree to simpler term sheets, better valuations, and less restrictive terms on potential dilution, voting rights, exit options, and executive roles.

  2. How big is your startup opportunity? If your targeted business plan opportunity is not at least a billion dollars, most VCs won’t even be interested. Both Angel and VC investors are looking for solutions that scale easily (product versus service businesses), and both expect revenue growth that can reach the $20M mark by year five.

  3. How large is the financial return you project? VCs will be looking for a 10X return on their investment in 3 to 5 years, or 30% annual IRR (Internal Rate of Return). That may sound high, but they know that up to 9 out of 10 startups fare poorly, so they are looking for one big win. Angel investors wish for the same return, but may accept a 5X deal.

  4. How many investment rounds will be needed? Angel investors are usually constrained to making a single investment per startup, but very few entrepreneurs make it to cash-flow positive on a single round. VCs tend to protect their initial investment, and they have the resources to make several multi-million-dollar rounds as required.

  5. How experienced is your team? First-time entrepreneurs rarely catch VC interest, unless they have one or more people on their team who have a track record of startup success, in the same business domain. Angel investors often have emotional motivation to give-back, and assume their own expertise and involvement will assure success.

  6. How good are your connections in the investor community? Sending unsolicited business pitches to every Angel and VC investor you can find on the Internet is a waste of your time as well as theirs. You need a warm introduction for most VCs, to get their attention. For Angel investors, you only need to do some local networking to get interest.

  7. How much help do you expect and need? Both VCs and Angels can and will help you, but VCs are likely to be more “hands-on.” They tend to have partners focused on a given business area, with current insights, executive connections, and the ability to bring in new team members. If you are looking for money alone, Angels are the better alternative.

If your startup can’t yet relate for any of these considerations, then your alternative is that popular first tier of investors, called friends, family, and fools (FFF). With these, you are on your own in negotiating amounts, valuations, and roles. These are people who believe in you personally, without evidence of previous startup experience, no current traction, and lack of valuation.

In all cases, investors tend to invest in people, more than the idea, or even the stage of execution. They are looking for a win-win deal, with entrepreneurs that demonstrate a positive chemistry and open communication. The color of any investor’s money may look the same, but it won’t help you if the price you pay is higher than the value it brings.

Marty Zwilling

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Saturday, June 4, 2016

5 Realities That Frustrate All New Business Founders

frustrated-entrepreneurThe best part of being an entrepreneur is having the independence to make your own decisions, the flexibility for a better work/life balance, and personal satisfaction from driving change. But nobody said it would be easy. The road to business success is filled with challenges and frustrations that most aspiring entrepreneurs never even imagined.

In my role as advisor to many startups, I try to prepare them for the inevitable bumps in the road ahead, as well as to provide practical guidance on how to build and maintain the traction needed to survive and prosper. Of course, experiences and failures are the best teachers, but I find that learning from other people’s experiences is a much faster and less painful approach.

In his classic book on building a business, “Traction: Get a Grip on Your Business,” Gino Wickman, a similar experienced business consultant and developer of the Entrepreneurial Operating System (EOS), outlines five common frustrations that we both hear from entrepreneurs, as follows:

  1. You are the boss, but you don’t have control. You don’t have enough control over your time, investors, the market, or your startup. Instead of controlling the business, the business is controlling you. By definition, the world of startups today is one of rapidly changing unknowns, where the inputs you receive will often conflict. It’s very frustrating.

  2. All the constituents have their own agenda. You continually get frustrated with your team members, customers, vendors, and partners. They all have their own objectives and priorities, and don’t seem to listen, understand you, or follow through with their actions. You only expected that kind of a challenge from your competitors.

  3. Persistent profit and cash flow shortages appear. Simply put, there’s frustratingly never enough profit or cash. Even when orders are clearly on the upswing, you need more funding to cover inventory and lagging accounts receivable. Then there are the expenses you never could have anticipated, driving down margins.

  4. Constantly bumping your head on the growth ceiling. No matter what you do, you can’t seem to break through and get to the next level. Your growth has stopped, and you feel frustrated and unsure what to do next. You never have the time and resources for International expansion, acquisitions, venture capital investors, or going public.

  5. Conventional strategies don’t seem to work for you. You have tried all the popular initiatives and quick-fix remedies, including social media, search engine optimization, and content marketing. None have worked for long, and as a result, your staff has become numb to new strategies. You are spinning your wheels, and need traction to move again.

My first answer to all these frustrations is to step back and focus on the basics. Every great business is made up of a core group of key components. Wickman outlines six of these in his book as the Entrepreneurial Operating System for success:

  • Vision – Communicate a compelling image to everyone describing where the business is going, and how it’s going to get there.
  • People – Surround yourself with great people. You can’t build a great company without help. It’s having the right people in the right seats.
  • Data – Define a handful of key metrics to free you from managing personalities, egos, subjective issues, emotions, and intangibles.
  • Issues – Constantly provide updates and direction on the challenges and obstacles that must be overcome to execute on your vision.
  • Process – These describe your way of completing each key element of your business. Each must be documented clearly and refined regularly.
  • Traction – Entrepreneurs gain traction by executing well, with focus, accountability, and discipline.

There is no magic here, and none of the six key components is rocket science. In my experience, entrepreneurs who are highly frustrated in their startup have overlooked or have dropped their attention to one of the six basic business components.

Learn from the frustrations of other entrepreneurs, or you are doomed to relive their pain. Put your entrepreneurial operating system in place, and you too can trade in your frustrations and join that select group who enjoy making their own decisions, achieve their work/life balance, and relish the personal satisfaction of their dreams.

Marty Zwilling

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