Saturday, September 14, 2019

8 Strategies To Avoid The Entrepreneur Arrogance Trap

Cigarette-Man-SmokeIn my years of mentoring entrepreneurs, a problem I have seen too often is low self-esteem, and over-compensating through arrogance and ego. These entrepreneurs find it hard to respect customers or team members, and their ventures usually fail. As a team member, low self-esteem leads to low confidence, poor productivity, and no job satisfaction. Fortunately, both can be fixed.

Organizational change expert Paul Meshanko, in his classic book “The Respect Effect,” explores the human science behind these issues, confirming that people with a healthy self-esteem perform at their best and treat others with respect, getting their best. All of us shut down when disrespected. He assures us that anyone can train themselves to get on track to stay on track.

With my insights to focus on entrepreneurs, I like Meshanko’s eight steps to help build business self-esteem and avoid the ego trap, which support a broad range of attitudes and behaviors that are individually and organizationally beneficial to startups as well as mature companies:

  1. Identify the qualities and skills most closely linked to your idea of success. Current research is conclusive that self-esteem is linked to our sense of competence in the areas that are important to us. As you look at your entrepreneur goals, make sure you are following your own definition of success that gives you pride and passion in its pursuit.

  1. Identify your current strengths and establish plans for improving. Once you have clarified your personal definition of startup success, examine where you currently are relative to where you want to be. Whatever your goals, there are few things more esteeming than knowing you’re making progress toward your picture of success.

  1. Be on the lookout for new opportunities to grow your talents and experiences. Part of our sense of self-worth comes from the belief and confidence that we have the ability to grow the business both today and in the future. Entrepreneurs have a natural base for adventure and curiosity, and should relish trying new things each day to stretch them.

  1. Identify and redirect unhealthy competition and comparisons. Make you the base, not others. Your sense of worth should not be determined by other startups, or what you think peers expect of you. Competition sabotages teamwork and leaves feelings of isolation and alienation. Use others as a source of inspiration, rather than envy.
  1. Forgive yourself for past mistakes and poor decisions. From a rational point of view, berating ourselves for past startup failures makes no sense. Free up your energy to be spent on more productive activities, and learn from past efforts. The great entrepreneur Thomas Edison said that every wrong attempt discarded is another step forward.
  1. Hold yourself completely accountable for your actions, decisions, and outcomes. The legitimate place for short-term guilt and remorse is making these lead to some type of behavior change. Failing to hold yourself accountable sends subtle messages that may damage others self-esteem, and it doesn’t promote lasting confidence or competence.
  1. Develop a pattern of self-talk that validates your worth and abilities. Each of us has developed a way of interpreting and explaining the business world around us. It’s important that our stories neither damage us nor free us from blame. We should continue to feel worthy, accountable, and capable, with a mindset that allows us to continue to follow our entrepreneurial passion.
  1. Focus on what you can control, not what you can’t. Our short-term destiny is not always in our control. What we can do is make a commitment to do our best in whatever entrepreneurial environment we find ourselves. We can also make sure we build strong relationships with successful business leaders in advance of our needing their wisdom.

For every entrepreneur, a healthy self-esteem, leading to self-confidence, is critical to a constrained ego and more success, since every startup is entering uncharted territory, and must take risks to seize a new opportunity. Not all entrepreneurs have a background to start from a position of strength in this area, but all have the ability to learn and the passion to succeed.

In my experience, the most common cause of entrepreneur failure is giving up too early, rather than running out of money. Are you selling yourself short on your own potential, and not working on your own self-esteem, thus jeopardizing your business success and job satisfaction?

Marty Zwilling

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Friday, September 13, 2019

10 Academic Courses To Kickstart Your Business Career

Harvard_University_Academic_HoodsI’m sure that every one of us who has been out in the business world for a few years can look back with perfect hindsight and name a few college courses that we should have taken. What’s more disconcerting to me is that I can name a few that aren’t usually even offered, resulting in more than a few students graduating ill-prepared for the real business world!

I won’t even try to cover here the ones you didn’t find for your personal life, like managing personal finances and credit. But on the business side, here is my list of useful courses that we wish existed, but as far as I know, still aren’t generally available:

  1. Basic Office Politics. Office politics involves the complex network of power and status that exists within every business, large and small. Don’t you wish that someone had prepped you on how to read the body language, interpret office gossip, and when to hit the delete key on your email rather than the send key?
  1. Business Email and Texting. Writing in business is not the same as in an academic environment. In school, you're taught to stretch weak ideas to reach your document page limit. The business world expects exactly the opposite. The challenge is to communicate your idea in one page, and close the deal quickly. As for business texting – use sparingly.
  1. Touch-Typing for Business. How many hours a day does the average professional and executive today spend hunched over a computer keyboard “hunting and pecking”? Throughout a career lifetime, just think of the return on that investment. Any symbols you can’t find on a typewriter, like smiley faces, should never be used in business.
  1. Business Dress for Success. “You are what you wear” works in business, just like it did in high school. But no one tells you the business norms, so some continue to come to work in jeans, baseball caps, tattoos, flip-flops and expect to be treated as executives. A basic benchmark is to dress better than the executives who hold the positions you want.
  1. Demystifying Employee Logic. Another term for this is how to be a skeptic. Understand the ways people can mislead deliberately or accidentally with numbers, bad logic and rhetoric. There's some untruth hidden in 99 percent of everything you're told. Can you find it, and do you know how to respond?
  1. Business Budgets and Benefits. The focus here would be on the actual nuts and bolts of how things get budgeted and financed in business. This will pay big dividends in getting your favorite project funded, or justifying your own salary, or negotiating a bonus. The tenets of entitlement do not apply.
  1. The Art of Selling and Closing Business. We can find tons of "marketing' courses in colleges and universities but everyone must think that “selling” is intuitively obvious. The art of selling is complex blend of relationships, persuasion techniques, negotiation, and knowledge. Follow-up and persistence are a rare natural phenomenon.
  1. Root-Cause Problem Analysis. Business professionals need to analyze problems from a big picture perspective. Most classes in college focus on a narrow area of interest, which just teach students to focus on problems through one lens. That's how unforeseen consequences stay unforeseen, and happen repeatedly in business.
  1. Maximizing Business Productivity. In the office world there is always far more work than there is time to do it. You need to be able to figure out what not to do, and how to not do it, by organizing and prioritizing, and still impress your boss with your thoroughness. Productivity is much more than doing everything faster.
  1. Job Hunting Basics. People need realistic expectations about how much effort and time it takes to get just about any job. Atrocious resumes and social network antics will kill your career. The difference between job descriptions and accomplishments seems to elude most business professionals.

The real problem for many of these, I suspect, is finding qualified instructors to teach. Until then, the best alternative I can recommend is to sign up for job internships at every opportunity, while still in school. You might find on-the-job experiences more valuable than all your other courses, or you might change your major.

Amazingly, it seems that people in business are more highly educated these days, but less well prepared than ever before. What’s another course that you wish you had taken in school, but didn’t realize was missing until too late? There’s another generation right behind us that needs to know.

Marty Zwilling

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Wednesday, September 11, 2019

6 Founder Actions That Can Kill A Promising Business

founder's-syndromeIn my experience as an advisor to entrepreneurs, business startup founders most often point to a shortage of funds as the primary cause of their startup failure. Yet I often see evidence that points right back at the founder or business owner, attempting to maintain excessive power and influence over of the effort, leading to a wide range of problems and a dysfunctional team.

In fact, this problem is so common among business startups, that is has been tagged with the name “founder’s syndrome” or “founderitis.” I experienced a case of this firsthand a few years ago as a supporting executive in a promising startup that unfortunately didn’t survive. I’ll mask some specifics here to protect the people involved, but I suspect you will easily get the key indicators:

  1. Autocratic leader who sets arbitrary goals with no input. Every business founder needs to have a vision and ambitious objectives, but needs to elicit real validation and buy-in from the team before embarking on an high-risk journey. Key elements of every startup challenge include timeframes, costs, people required, and technical realities.

    For example, in our case we were all told that the product had to be developed in six months, with a large list of innovative features. The founder ignored multiple push-back efforts from key members of the team, and suggested more commitment as the solution.

  2. Co-founder and advisors are picked from loyal associates. Some founders seem more concerned about surrounding themselves with cheerleaders than people who have complementary skills, and the confidence to stand up and be heard. Prior friendship and a compatible personality for them are key attributes, rather than expertise or experience.

    In my situation, the founder brought with him a couple of loyal business associates from a prior business, into a new business arena, where they had no direct experience. Since he and they had been successful in the previous business, all assumed success in this one.

  3. Founder minimizes the focus on formal plans and reviews. This founder is an outspoken opponent of “bureaucracy” and prefers to be able to change priorities on a daily basis. He or she tends to rely on their gut and prior experience, and is skeptical of written plans and processes. Project reviews are “ad hoc,” based on the latest crisis.

    In our case, on a positive note, the founder did meet regularly with new potential customers. Unfortunately, each visit raised at least one new requirement for the product, which resulted in required feature additions, development reviews, and new priorities.

  4. Weekly staff meetings become working crisis sessions. Rather than getting status reports on plan progress and jointly developing near-term strategy, the founder is more interested in deep dives into perceived bottlenecks and rallying the troops to get back on schedule. Top managers grow accustomed to getting their marching orders for the week.

  5. Founder gets more defensive, talking more than listening. A successful startup requires a strong leader who listens, questions, and learns from the team. It’s hard to learn anything while talking and defending your position. A clear symptom of founder’s syndrome is more excuses, more demands, and more direction without input.

    At this point the organization becomes more and more dysfunctional, as team members lose their drive and motivation, frustrated by apparently not being heard or appreciated. The level of productivity goes down, people stop communicating, and more crises occur.

  6. Leaders become more and more frustrated and paranoid. Defensive talk and excuses start to become personal, questioning the motives of staff members, advisors, and investors. Loyalty and commitment disintegrate, and key members of the team begin to desert the ship in mentally and physically. The startup is now doomed to failure.

In many cases, a founder with this syndrome is not evident in the beginning. Most founders start with a sincere intent to be a great leader and communicator, but the pressures of running an emerging business can bring out a whole new set of traits, despite his or her best efforts.

Therefore, if you are looking to join a startup, or invest in one, I recommend that you beyond a quick inspirational interview or two with the founder, before making a decision. Look at past history, and talk to peers and other advisors who may have seen this founder under stress.

If you are a founder, and find this article taped to your desk chair, it might be time to take a hard look at yourself in the mirror. Your team can’t change you, but you can change yourself, and become the founder of the thriving startup you always dreamed about.

Marty Zwilling

*** First published on Inc.com on 08/28/2019 ***

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Monday, September 9, 2019

New Entrepreneurs Are Rebuilding Our Business Engine

business-millennialsLarge corporations and conglomerates, the engines of growth and vitality in the twentieth century, have lost their edge and their image. They have proven themselves unable to innovate, and they have lost more jobs than they create. My friends who “grew up” with lifetime careers in General Motors, Exxon Mobil, or even IBM, are now often too embarrassed to even mention it.

On the other hand, everyone wants to be an entrepreneur. We can all aspire to grow companies like Google, Facebook, and Apple, which have the aura of fun, while still improving your lifestyle and offering the dream of untold riches.

In his classic book “The 3rd American Dream,” thought leader Suresh Sharma summarizes the large corporate accomplishments of the 19th and 20th centuries, and then lays out the potential of a new entrepreneurial business ecosystem for the 21st century. His focus is on entrepreneurs in America, but what he says applies to every other country as well.

I agree with Sharma that it’s time to move on to a new way of thinking, living, and doing business, especially after the relatively recent demoralizing recessionary times. This next frontier lies in building enterprises as an entrepreneur, rather than waiting for innovation and opportunity from large corporations. They have become a by-product of innovation rather than the cause of it:

  1. Conglomerates grew from industrialization, not innovation. Most of their new claims to innovation are acquired through mergers and acquisitions from the entrepreneurial pipeline. Internal corporate processes thwart innovation due to inherent inefficiencies of scale, high overhead, and the risk of impact on the corporate bottom line.
  1. Existing technologies have been “commoditized” globally. Many countries have learned to make products cheaper and better. Competitive advantages are rapidly vaporizing on these. Having only a large capital base and distribution channels, with no innovation, is not a sustainable business model.

  1. Large corporations no longer create jobs in their home location. There is no shortage of data to support the assertion that the old large corporations have lost more jobs than they’ve created at home. Outsourcing and manufacturing “offshore” have become the norm. Entrepreneurs growing companies create more value and more jobs.
  1. Non-industrial large organizations cling to outdated business models. Financial institutions, for example, count on pure capital plays without innovation that can disappear quickly. Government bail-outs do not promote innovation. These companies usually end up going extinct, like Lehman Brothers, WorldCom, and Enron.

The new corporate model is a distributed entrepreneurial model. Customers today demand products and services personalized or tailored to local needs with embedded quality of life services. Scaling is done first by customer alliances through social media, and later by distributed joint ventures and coopetition. We need the new wave of entrepreneurs to facilitate:

  1. A new era for manufacturing enterprises. New emerging manufacturing technologies (e.g., digital and 3D printing) in small shops or a town’s industrial and innovation hub can bring manufacturing back home. The new twenty-first century corporation can be born virtually anywhere. Single-node factories may be home-based with a global market.
  1. New goldmine of innovations and technology. Universities and other R&D groups have created a large number of new inventions and innovations, mostly lying dormant on the shelves of our researchers and labs, waiting to be commercialized by aspiring entrepreneurs, with minimal up-front costs for licensing.

  1. Next wave of economic expansion. The time is ripe for the new entrepreneurial dream. People are emerging from recent economic disasters with a new appetite for change, and making the world a better place. Gen-Y is approaching the business world with solid personal goals, and expect to create something that is creative, fun, and rewarding.

  1. The cost of entrepreneur entry is at an all-time low. With e-commerce, Internet, and smartphone apps, anyone can be an entrepreneur today for a few hundred dollars, without a huge investment, bank loans, venture capitalists, or Angels. With the global market, the growth opportunity is huge, starting local and scaling at any pace.

If you are already in the entrepreneur lifestyle, you probably realize that it’s hard work and very risky. Nobody said it would be easy, but nothing that is easy satisfies for long. The days of easy and safe jobs in the large corporate world are over, and certainly not very satisfying either.

We need this new generation of entrepreneurs who relish the challenge and the opportunity of rebuilding our business engine to fit the culture and the global needs of the twenty-first century. What’s holding you back from jumping on the wave?

Marty Zwilling

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Sunday, September 8, 2019

Some Good Startups Don’t Qualify For Equity Investors

Bill_and_Melinda_GatesAngel investors and venture capitalists don’t make equity investments in nonprofit good causes. The simple reason is that it’s impossible to make money for investors when the goal of the company is to not make money. Yet as an active angel investor, I still get this question on a regular basis, so I’ll try to outline the considerations in common-sense terms.

A nonprofit organization is generally defined as an organization that does not distribute its surplus funds to owners or shareholders, but instead uses them to help pursue its goals. Examples include charitable organizations, trade unions, and public arts organizations. In the US, a nonprofit is technically any company who qualifies as tax exempt through IRS Section 501(c).

Obviously, these companies still need money to get started, or finance growth, just like a for-profit company. What options do they have available to them, since they can’t sell a share of the company (no equity investment)?

  1. Individual and institutional philanthropy. For a nonprofit, bootstrapping is self-funding from donations and fund-raising. The advantage is no time and effort is spent searching and preparing for the other alternatives, and no repayment terms or collateral are required. There is no discussion of equity, or return on investment.
  1. Loans from a bank or other financial institution. Non-profits can apply for a bank loan or line-of-credit, just like any other individual or company. However, like anyone else, they will first need some collateral, or someone to guarantee the loan, and some evidence of a viable business, like receivables and inventory.
  1. Personal loans from individuals, employees and board members. Personal loans are certainly an option, but should be avoided if possible. As in any company, they can lead to employee problems, or messy legal issues. A nonprofit can also issue bonds to board members and members as a way of borrowing funds from those same people.
  1. Government grants. The grant source often gets overlooked, but it should be a major focus these days when relevant due to the Obama administration initiatives on alternative energy and healthcare. The down side here is that real work is required to put in a winning application, and the award may be a long time in coming.
  1. Private endowments. This is a funding source for nonprofits that is made up of gifts and bequests subject to a requirement that the principal be maintained intact and invested to create a source of income for an organization. Endowments are usually limited to a specific area of interest by a philanthropist, and have many qualifications, so be careful.
  1. Bartering services. Bartering occurs when you exchange goods or services without exchanging money. An example would be getting free office space by agreeing to be the property manager for the owner. This could work to get you legal or accounting services, but won’t get you cash to pay employee salaries.

Hopefully you can see from this list that the people and processes involved in financing a nonprofit have little in common with angel investors, or the venture capital process. You still start the process with a business plan, but then you look for a philanthropist rather than an investor.

Some nonprofit entrepreneurs think they can skip the whole plan, rather than just the sections on valuation, equity offered, and exit strategy. All other sections, starting with a definition of the problem and the solution, opportunity sizing, business model, competition, executive team, and financial projections, are just as critical for nonprofits as for-profits.

A nonprofit is still a business, maybe even tougher than for-profit to run successfully, so the best angel is a great entrepreneur at the helm for fund-raising, as well as operations. In addition, the best nonprofits turn out to be the angel, rather than require one. That’s a higher calling.

Marty Zwilling

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Saturday, September 7, 2019

8 Indications Of An Entrepreneur Sought By Investors

entrepreneur-sought-by-investorsAn entrepreneur is literally “one who creates a new business.” The best new businesses are ones that have never been done before, so mastering creativity and recognizing creativity are key skills and mindsets. But how does one recognize and nurture creativity in a person or team?

In researching this question, I reviewed a classic book by Bryan Mattimore, “Idea Stormers: How to Lead and Inspire Creative Breakthroughs,” which details eight attributes of the most creative people, which seem to match the mindsets of some of the best entrepreneurs I know. Investors like me look for these in the people they fund, and you should be looking for them in yourself:

  1. Forever curious. Endless curiosity is the number one indication of the creative mindset. It allows entrepreneurs to challenge what is already “known” to extrapolate that to an original idea. Curiosity infuses you with the determination needed to figure out or learn how to turn an original or innovative idea into a reality.

  2. Always open to new things. Thinking this way can be viewed as quieting the opinions of the judgmental mind long enough to allow the creative mind the time and space it needs to generate interesting insights, associations, and connections. This opens creative possibilities, rather than categorizing new things into self-limited dead-ends.

  3. Embrace ambiguity. This is the capacity to entertain contradictory or incomplete information without discomfort and anxiety. To the creative mindset, contradictions are an invitation to more focused creative thought, to resolve the paradox, and derive a new un-ambiguous potentially great idea.

  4. Finding and transferring principles. There are two parts to this mindset. First is the mental habit or discipline of continually identifying the creative principles inherent in an idea in a given context. The second part is adapting the principle to another context to create a new idea. It’s the ability to work from the specific to the general.

  5. Searching for integrity. This is the desire to discover, and the belief that there exists, an insight or connection that will unite seemingly disparate elements into a single integrated whole. When it happens, it’s exciting and magical, and it feels absolutely, positively, and completely right. Integrity doesn’t need to explain itself.

  6. Knowing you can solve the problem. This is the confidence that you can tackle the difficult, even seemingly impossible challenges, with inevitable dead-ends, to make a creative breakthrough. As with a success mentality, knowingness is the persistence to make creativity a self-fulfilling prophecy.

  7. Able to visualize other worlds. This is the most imaginative mindset, with the ability to visualize whole new worlds and everything in them. It’s the province of game designers and creators of new social media platforms. It’s imagining original themes, people with new roles, and things with unique designs.

  8. Think the opposite. Some of the most creative entrepreneurs (and teenagers) always seem jump to opposite end of the spectrum from conventional wisdom. But many times, to think differently and creatively, you have to think illogically. Logic and common sense have a habit of leading us to the same conclusions.

Of course, it normally takes more than the right mindset to master the creative mind. Smart entrepreneurs leverage their startup creativity with techniques like involving everyone early and often, ideation, and attending to the details. Professional facilitation also helps. Most often, it’s a long hard road from a good idea to successful innovation.

The most creative entrepreneurs create more value and wealth, not only in physical products and services, but also in their intangible assets such as their brand, reputation, network and intellectual property. Of course, they are always looking to free up time and money for their next big idea. That’s really the best indication of a true entrepreneur.

Marty Zwilling

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Friday, September 6, 2019

10 Keys To Making Money By Investing In Entrepreneurs

making-money-puzzleInvesting in entrepreneurs and startups is a fun but different world from investing in conventional stocks, bonds, and commodities. First of all, it’s more of an investment in people than in a business, since the startup is usually an idea barely half-baked when they need your money. Secondly, the risk is very high, since as many as 90 percent of startups fail within a few years.

On the plus side, it’s an opportunity to get in early and really help make things happen that will change an industry, or change the world. It’s an opportunity for that “big bang” return of 10X to 100 times your initial investment, like early investors in Google, Microsoft, and Apple. Finally, it’s an opportunity to “give back” what you have learned in your own career for the next generation.

Today most startup investors still register with the SEC as “accredited” investors before they buy any startup equity in the U.S. This requires a simple signature that you have a net worth of at least $1M or have made at least $200K each year for the last two years. These requirements for equity investing have been relaxed only a bit, with caveats, with recent crowdfunding changes.

With all these considerations, I recommend the following steps and strategies for any investors newly interested in startups:

  1. Build a balanced investment portfolio. Just like a seasoned stock investor would never put all his investible resources into a single stock, don’t put all your money into startups. Begin with perhaps 5-10 percent of your total investment base, and be prepared to lose it all. The growth target should be 5-10 times your initial investment in five years.

  2. Start in a business domain you know well. Since there are no bellwethers like Apple or IBM in the startup arena, your best bet is to pick one in a business area you know well. Don’t be fooled by thinking that social networks are hot, so you should invest in the next startup you see in that realm. Remember that 9 out of 10 startups fail in every realm.

  3. Fund an entrepreneur you know and trust. In the business, this is called investing at the first tier for startups - “Friends, Family, and Fools (FFF).” Most entrepreneurs start asking for money from this tier, when they have very little more than an idea. Here you are definitely betting on the person, rather than the idea, but the upside potential is huge.

  4. Join an existing angel investor group. This is the second tier of startup investors, and offers the comfort of working with more experienced investors with similar interests, to help gather and vet startup investment proposals. Some of these groups also offer you the option of putting your money into a multiple-startup fund to spread your risk.

  5. Diversify your total investment across several startups. Angel investment amounts per startup per investor usually range from $25K to $250K. These may be aggregated by an angel group up to about $1M for an angel round. If a startup needs more than this in a single round, they should talk to venture capitalists, who invest institutional money rather than their own personal money.

  6. Use the surge of crowdfunding sites for small amounts. The hottest new way of investing in startups to go to popular online sites like Kickstarter and IndieGoGo. There you can get in for as little as $20, or even less. Typically these are used only for non-equity rewards or pre-orders, but the crowdfunding implementation does allow equity investments with many restrictions.

  7. Participate as a mentor in local startup incubators. Incubators are a great place to learn about potentially great startups, and participating as a mentor helps you learn which ones are a good fit for you. The best known ones, like YCombinator, started by Paul Graham in Silicon Valley, and TechStars, located in Boston, provide excellent networking to investors, and on-site technical leadership, which can make your investment less risky.

  8. Do your homework before investing. Public companies with stock usually have industry analysts and SEC filings to give investors a quick view of the company stock value. Startups are private companies with no common document filing requirements. Thus it is incumbent on every potential startup investor to ask for and read their business plans, current financial statements, and investor presentations.

  9. Invest locally and take an active role. Most angel investors only invest in companies and people local to their geography. Skip international and other opportunities you can’t touch and feel. Many negotiate a board seat for themselves as part of the investment term sheet. This allows them to ask for and get regular updates from the company, and allows them to have a say on how their money is used.

  10. Think long-term. It’s a lot easier to buy stock in a startup than it is to sell it. Once invested, you should expect no return until the first “liquidity” event in 3-5 years, maybe longer. Liquidity events include merger or acquisition (M&A), or Initial Public Offering (IPO) when the stock goes public. There is no “startup stock exchange,” so you can’t sell the stock at will.

In summary, investing in startups can be very rewarding, both financially, and in your ability to really help someone who needs help. But it’s always a risky proposition, probably well beyond the risk of the commodities market, since there are so many unknowns and few controls.

My advice to new startup investors is to start slowly, stick to business areas that you know well, and put more weight on your assessment of the entrepreneur and the team, than on the idea. Successful startups are all about the execution. You don’t want to end up on the wrong side of that equation, but you do want a bite of the next Apple.

Marty Zwilling

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