Monday, March 8, 2021

Startups Spawned By Big Companies Have Extra Hurdles

business-startup-hurdles“Intrapreneurs” are entrepreneurs inside big companies, who do corporate spin-offs. A spin-off is merely a startup spawned by a mature parent (company), and conventional logic would dictate that it has a survival advantage over the lowly startup. Yet spin-offs seem to most often fail to launch in the real world. I was part of one myself a few years ago, and felt the pain.

My first thought is that spin-offs are like struggling adolescents with over-protective parents. When companies spin off a division (sometimes called a demerger or deconsolidation), they naturally want it to grow and succeed on its own merits, just as they have. But like protective parents everywhere, they tend to shelter it in ways that stunt its growth in the long run.

Before we look at my specifics, I should mention some of the reasons companies make the spin-off or divestiture decision in the first place. Contrary to popular belief, according to a report by A. T. Kearney, these go well beyond an organization getting rid of its "problem children:”

  • Deconsolidate—shed non-core functions to focus on core competencies. An example would be Time Warner spinning off AOL—to end a disastrous, dot.com-era marriage.
  • Mingle and learn from the startup culture and new technology – without losing control. Foreign companies in the US like to use spin-offs to find expansion opportunities.
  • Unlock shareholder value, which the spin-off can do as an independent entity. They may not be so constrained by monopoly fears and Sarbanes-Oxley controls.
  • Grow faster, which a spin-off can do outside the parent company. Airlines, for example, have difficulty scaling up through mergers and acquisitions (M&As), but they can spin off their maintenance businesses and let the spin-off do the M&A in its own field.
  • Grow in new dimensions from the parent company. Service operations such as call centers can grow far beyond their parent companies, especially if their services are more generic.

In retrospect, in the case I was part of, I believe there were several areas in which the parent company consistently fails in their discipline of intrapreneurial efforts:

  • Rewarding without earning. The parent company guaranteed the spin-off a revenue stream and provided incentive bonuses based on artificial objectives, rather than competitive or market driven targets. The guaranteed revenue and incentives were only loosely tied—at best—to the spin-off’s performance.
  • Fostering dictatorial leadership. Effective management skills in a startup are actually quite different from those in a large enterprise. The dictatorial leaders who survived and prospered in the enterprise parent, were ill-suited for the collaborative and highly adaptive spin-off and startup requirements. Yet they had “earned” the right to run an autonomous unit, and were not easily dislocated.
  • Supporting them for an undefined period. Parent companies provide services or infrastructure to the spin-off at below-market prices or for an excessively long period of time. In the reverse direction, this “support” carried the high overhead that is standard in the enterprise, but not financially sustainable in the spin-off.

In my view, fostering successful spin-offs, like raising adolescents, often requires tough love, embodied in the tough financial objectives and a firm timeline that startup investors impose on their charges. No free passes, and no bailouts. HP tried to come to grips with all these issues a few years ago, in spinning off its PC business, but ultimately backed down.

In most ways, the success of a spin-off depends on the same factors that are critical to a startup, but sometimes get forgotten or taken for granted as a corporation matures. These include a clearly articulated vision and business strategy, communicated from leaders in a way that heightens motivation and lessens team anxiety of the unknown.

For entrepreneurs, this analysis should be a positive message, but it should also be a wake-up call to the overriding value of leadership and effective communication. For all of you who all too quickly tie your business success or failure to funding, or the lack of it, think again. Sometimes it helps to be “hungry” in that respect.

Marty Zwilling

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Sunday, March 7, 2021

6 Fear Of Success Qualms Can Lead To Startup Failure

fear-of-successIn working with entrepreneurs and other business people over the years, I often hear stories of entrepreneurs who were so close to success, but somehow let it slip through their fingers. They could always give a rational excuse, like the market changed, but somehow it seemed that they were actually afraid of success, so they subtly undermined their own efforts.

I couldn’t really believe that anyone would be afraid of success, until I read the classic self-help book by Patrick Daniel, “Finding Your Road to Success.” This is billed as a must-read for any entrepreneur who needs a shot of optimism. Relative to my suspected entrepreneur fear of success, Patrick outlines six rationales that my positive-thinking mind would never even consider:

  1. Success will lead to loneliness. Some entrepreneurs believe that success will mean working long hours, neglecting their spouse and children, which in turn could result in divorce. Women, in particular, sometimes believe that success will make them unlovable and intimidating to men.
  1. Success will lead to envy. Many people want what others have, and the more success a person achieves, the more envious are that person’s friends, neighbors, and colleagues. This is a reality that some entrepreneurs don’t want to deal with, and some apparently undermine their own success to avoid it.
  1. I’m not good enough for success. This belief can result from many things, such as having negative parents and not having a college degree. With this belief often comes “I don’t deserve success,” so they sabotage their own efforts in that direction. If this resonates with you, I don’t recommend the entrepreneur lifestyle.
  1. Success will change my lifestyle. Some entrepreneurs fear that the changes that come with success will actually make life less enjoyable. They believe that will have less time to, for example, enjoy sports, surf the Internet, spend time with their family, or relish the excitement of building the business. My logical mind would assume just the opposite.
  1. Success is too expensive. There is a cost to everything, and success is not an exception. Sometimes, to make money you have to spend money, and some entrepreneurs just can’t face the risk of making that initial investment. Certainly I know many people who would never put other’s people’s money at risk to start their business.
  1. I won’t be able to control everything that happens. If you fear all the things you can’t control, you should never step into the entrepreneur lifestyle. Startups have to deal with many factors outside their control, so this fear can cause an unhealthy stress and worry. Successful entrepreneurs usually relish their ability to control at least one thing that no one else has managed to figure out.

Ironically, these “fear of success” rationales are often restated by entrepreneurs as a somewhat less embarrassing, equally deadly, “fear of failure.” Fear of failure in generally recognized as one of the strongest forces holding entrepreneurs back. Yet failing in a startup is practically a rite of passage, according to investors, as well as successful entrepreneurs.

Overall, I would suggest that if you let your fears control your actions, you probably have a hard and unhappy road ahead as an entrepreneur. Most successful entrepreneurs are not fearless, but they know how to transform these fears into positive actions rather than negative ones, and they take every failure as a positive learning experience.

I assure you that no entrepreneurs are born successful. Every smart entrepreneur has a fear of the unknowns in their new business initiative. Only those with the passion and conviction to start anyway will have any chance of success (you can’t succeed if you don’t start). Likewise, you can’t succeed if you give up too early, or sabotage your own efforts due to a fear of success.

Make sure you don’t let fear paralyze you at any stage of your startup.

Marty Zwilling

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Saturday, March 6, 2021

7 Startup Laws Of Finance That You Dare Not Shortcut

analysis-business-crashMany startups fail before reaching that magic “cash-flow positive” position they have been striving for, despite seemingly reasonable financial projections. A closer analysis often indicates the cause to be a lack of diligence in handling common business finances. These mistakes are usually masked by excuses, like the economy turned on me, or my competitors played dirty.

I found a good summary of the most common mistakes in a classic book by Kelly Clifford, “Profit Rocket,” written primarily to help you on the other side of the equation – skyrocket your profits. I’m sure all you accountants will agree that fixing the mistakes listed here does not require rocket science, but I’ve seen them so often that to be forewarned is to be forearmed:

  1. Failing to factor in fixed costs when pricing. Don’t forget to add all pesky “overhead” costs, with fixed elements, like rent, insurance, and administration, and variable elements, like delivery, customer support, and commissions. Always use a break-even analysis to measure what volume and price are required to offset total costs.
  1. Thinking you are profitable once money begins to flow in. Money flowing in has to exceed all costs, including inventory, credit, and your salary, before there is a real profit. Many startups see initial revenue from customers, and love the fast growth, but fail to anticipate the cost of early vendor payments, monthly overhead costs, and later taxes.
  1. Considering the job done once a client has been invoiced. A startup must ensure that the payments are collected per agreed terms. A required metric is average days to payment compared to expectations. If you expect payment in 30 days, many customers will stretch this period to 45 days or even 90. This difference will kill your profit margin.
  1. Not paying close enough attention to cash flow. In startups, cash is king. If you fail to pay a cash obligation when it is due, the business is technically insolvent. Insolvency is the primary reason firms go bankrupt, even while making a profit. Entrepreneurs should sign every check and manage cash personally, rather than delegate this task to anyone.
  1. Not producing and reviewing financial reports regularly. Too many entrepreneurs hate the numbers side of the business, so they assume their accountants will warn them of danger signs. But administrative people rarely see the big picture, which you need for profitability and survival. It’s well worthwhile to learn the basics and use financial reports.
  1. Not having a budget. A budget is the financial plan and road map to get you from your business plan to profitability. Without a road map, you can be lost and not know it. Make sure you have a budget which is specific, measurable, achievable, realistic, and timed (SMART). Prepare it, update it regularly, and use it.
  1. Wasting money unnecessarily. Every business ends up buying things they don’t need, or paying more than they should, due to lack of attention and lack of negotiation. Review supplier terms regularly, and don’t be afraid to shop around. Take advantage of early payment and volume discounts, where possible

Above all, avoid self-sabotaging behavior that you may not even be aware of, like blaming others rather than taking responsibility for all decisions, or not charging what your product or service is worth, due to lack of current market information or a personal bias.

For example, I find many entrepreneurs are certain they can make a profit on a 20% margin, even though most of their competitors target 60% margins, or even higher. Unless you are a Walmart, with very high volumes and an existing infrastructure, you won’t survive for long on a 20% margin.

It’s fair to use your vision, creativity, and innovation to change the world with new and better products and services. But don’t forget that the underlying laws of finance are harder to change, much like the laws of physics, so try not to ignore these basics. In business, when you lose money on every sale, it’s hard to make it up in volume and still be profitable.

Marty Zwilling

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Friday, March 5, 2021

7 Current Market Forces Bring Startup Opportunities

TRATAMIENTO ANTIENVEJECIMIENTOStartups are the corporations of the future, so I have long believed that entrepreneurs who study existing corporate models, rather than ignoring them with disdain, will likely profit from the exercise. In today’s fast-paced world, that means recognizing early and capitalizing on the changes that are bringing many big companies to their knees, before that company is yours.

We see evidence in the news every day of these irresistible forces of change, like the pervasive global penetration of the Internet, the impact of terrorist activities even to peaceful countries, the power of social media in building business relationships, and the depletion and pollution of natural resources. These are all huge challenges, as well as huge opportunities, for entrepreneurs.

A classic book by global business consultant Diana Rivenburgh, “The New Corporate Facts of Life,” highlights these challenges and opportunities to the corporate world, but I believe they need to be understood as well by every startup. Here is my interpretation of Rivenburgh’s forces for the entrepreneurs out there:

  1. Disruptive innovation. This occurs when a new product, service, or business model renders the old way of doing business obsolete. It used to happen only a few times per century, but now I see disruptive innovation highlighted in almost every business plan I read. That means if your new startup doesn’t plan for continuous innovation, the company may never reach corporate status.

  2. Economic instability. Financial uncertainty today threatens all countries, industries, and people. Our hyper-connected world links economies around the globe, so manufacturing moves to emerging nations, and tiny country woes ripple quickly to impact the most innovative companies, like Apple and Nike. But instability is also an opportunity to prosper.

  3. Societal upheaval. Poverty, pollution, unemployment, limited education, and inadequate health care are sparking some of the biggest opportunities for social entrepreneurs today. The best startups also see these as opportunities for brand recognition and viral marketing, to simultaneously benefit people and boost the bottom line.

  4. Stakeholder power. Customers and employees are the new stakeholders for every business. Public companies have been too focused on Board members and shareholders as the only stakeholders with power, leading to unintended consequences. Explore new models like Conscious Capitalism™ and Benefit Corporation to win with all stakeholders.

  5. Environmental degradation. The old model that humans can plunder the earth at will and suffer no consequences is obsolete. Negative perceptions of a company’s impact on the environment decrease brand value; positive perceptions increase it. Going green doesn’t always hurt the bottom line, and investors now look for startups with sustainability.

  6. Globalization. Markets are now hyper-connected, where communications technology and rapid transportation link all citizens of the world together. We now talk about “reverse innovation,” where customers in developing countries adopt new technologies first, and global reach allows scaling of young companies to happen almost overnight. Be there.

  7. Demographic shifts. With more people on the planet, and faster shifts from one demographic to another, more products and services are consumed, from basics to high technology. Luxury goods flood into emerging nations, and urbanization brings needs for sustainable development. Startups can win carrying less baggage onto this playing field.

The new facts of business life will not go away any time soon. These facts will increasingly determine whether you will succeed or fail as an entrepreneur. So every time you make a business decision, whether large or small, local or global, strategic or cultural, you must consider the implications with respect to the new business facts of life.

For every startup, a key step is to design a resilient organization from the start. Organizational resilience means building in the flexibility to manage anticipated as well as unanticipated challenges, putting in place a future-oriented structure to distribute accountability, linking functions with networks to get thing done, and a heavy focus on the best people practices.

Great entrepreneurs and great leaders are the ones who are energized by these opportunities, rather than overwhelmed by the challenges. They love to engage all the stakeholders, both internal and external, and engage to excel. Is your energy and your new business idea big enough and bold enough to set the model for the new corporate world?

Marty Zwilling

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Wednesday, March 3, 2021

7 Ways To Balance Your Heart And Logic With Investors

balance-heart-logicBased on my own years of experience in startups and big business, and more recently as an angel investor, I often cringe when I see one of you entrepreneurs missing a cue that I have seen work for many before you. I’m a big fan of leading with your heart and your passion, but I’m also convinced that logic has a big role in business, so don’t forget to highlight your balance as well.

For example, it’s great to pursue a higher purpose, like feeding the hungry, but don’t forget that running any business is a hungry mouth you have to feed. A passionate entrepreneur I met a while back had found that a certain algae could be grown cheaply, and could end world hunger. Yet he forgot that hungry people rarely have money, so his business case was not fundable.

To keep you on a positive track with potential investors, I recommend the following logic principles, to balance your passion in presenting your vision of a new business:

  1. Make sure your plan includes some business metrics. Making people happy or improving usability are laudable goals, but projected product margins, volumes, and business growth are necessary realities for a successful business. You need to have quantifiable objectives, with measurements, to keep you on the path to success.

    For example, if you have ever watched the Shark Tank show on TV, they always ask about the cost of customer acquisition. It still amazes me that some entrepreneurs seem totally at a loss on this question, or customer retention rate, or even margin expectations.

  2. Show that you have to ability to move the ball forward. I often hear about efforts that have been stalled for several years, pending more funding, economic change, or other priorities. I find that good entrepreneurs always find ways to keep their project moving forward, in good times and in bad. I’m looking for all your initiatives, not your excuses.

  3. Demonstrate a balance between instincts versus advice. Investors want to see a willingness to follow outside guidance, tempered by your own convictions. Blindly following someone else’s strategy, or even your own, will not facilitate learning and an ability to pivot along the way. Every startup demands logical changes along the way.

  4. Don’t forget to focus on the value of you and your team. For early stage investors, you probably don’t enough results to prove the power of your solution. Thus investors are investing in you and your team, so you need to highlight the skills you have mastered, past accomplishments, and the connections you have established in your industry.

    If this is personally your first startup, it’s very important to highlight prior leadership experience in school, business, or public life, and your ability to attract skilled people for your team, as well as advocates from your industry, social media, or prior relationships.

  5. Pitch a rational plan for expansion and growth. Most entrepreneurs underestimate the resource and time requirements for scaling, and overestimate their own range of capabilities. Building a sustainable business is more like a marathon than an event. You need to talk about partnerships, employee roles, distributors, and strategic alliances.

  6. Postulate competitive reactions and your responses. Competitors, like the market, never stand still as you disrupt their space. Show that you anticipate this, how they will react, and how you have ongoing strategies to stay ahead. This may include plans to merge or buy competitors, as well as a continuing plan to introduce new innovations.

  7. Present a viable exit strategy for investors to cash out. Equity investors realize that they won’t see any real return until an exit occurs, such as a sale, merger, or IPO. Try to give some clear direction or when and how you see this happening, based on similar companies in your marketplace, or connections you already have in the pipeline.

  8. Some people argue that presenting an exit strategy implies a lack of a long-term commitment by the entrepreneur. In my experience, I have just the opposite reaction, where no exit strategy indicates no strategic plan for how this startup will build a legacy.

Certainly every new business needs a purpose, as well as a heart. But don’t forget to address the basic elements of business logic – as these allow you to consistently deliver on your promises to customers. Every investor looks for that balance which assures a satisfying return for everyone involved. Use the principles outlined here to make your dreams a reality and change the world.

Marty Zwilling

*** First published on Inc.com on 02/16/2021 ***

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Monday, March 1, 2021

How To Know It’s Time To Exit Your Company Gracefully

warren BuffettFor most entrepreneurs, their current business is not where they intend to stay until they die. At the right time, they all intend to make a graceful exit, and leave while still perceived to be on top of their game. The challenge is how to know and exit gracefully when the right time has come, without trauma to either the company or themselves.

I don’t have any solid insight on this subject, so I was intrigued by the classic book “Leaving on Top: Graceful Exits for Leaders,” by David Heenan, a business executive and Georgetown professor. He did some good research on 20 top leaders, and why some leaders ‘get out while they’re on top’ while others ‘overstay their welcome.’

First of all, both Heenan and I agree that most exiting business leaders can be categorized into one of four major groups:

  • Timeless wonders. With their skills very much intact, these white-haired prodigies have no need to call it quits. Warren Buffett and Rupert Murdoch clearly fall into this category.
  • Aging despots. Reluctant to leave the spotlight, they are past their prime and should turn the reins over to a new generation. We won’t mention any names here, but we al-l know a couple of these.
  • Comeback kids. Whether to return their enterprises to their former glory, or simply save themselves from boredom, these leaders left their company, but then returned with a vengeance. Steve Jobs and Howard Schultz are a couple that come to mind.
  • Graceful exiters. Quitting while ahead, these leave a sterling reputation as they move on. Bill Gates and Oprah Winfrey are business examples in this category.

After many stories of leaders in all these categories, he offers some good tips on how to get counted in the category you prefer:

  1. Know thyself. What matters most to you? Fame? Fortune? Family? Friends? Helping others? Listen to your heart. Look at yourself as objectively as possible and analyze what’s truly important. Be open and responsive to the inputs of others.
  1. Know thy situation. When everything is clicking, it’s easy to overstay your welcome. Staying power is elusive at best. Know where you stand, and don’t wait for the annual review. Move on before someone else decides to move you on.
  1. Take risks. Don’t shackle yourself to the past. Accept change as a natural part of your transition, just as you always have for your company. Strike out anew while you are still hardy enough to face new challenges. Push your comfort zone.
  1. Keep good company. Stay connected. Cast a wide net, including people inside and outside your fields of interest. Ignore the naysayers. Keep the company of sunny characters, those with an upbeat disposition. Avoid humorless people.
  1. Check your ego at the door. While we still treat some personalities like royalty, a new view of leadership is beginning to see them more as stewards than kings. In addition to muffling hubris, graceful exiters functions as talent spotters, so everyone wins.
  1. Keep learning. Graceful exiters remain curious. They are intellectually interested, alert, and adaptable. They read, explore new places, and engage their senses. The more diverse your experiences, the better the prospects for forging a new chapter in your life.
  1. Stage your exit. The transition to what’s next may take a while. Back into it. Live life incrementally. Break your departure into manageable steps. Take things bit by bit. By carefully staging your departure, you’ll build confidence for your new life.
  1. Know when to walk away. Many give up everything to stay in the saddle. As their legacy erodes, they fail to prepare for the next season of their lives. However brilliant they may once have been, their unbridled egos cost them soul and substance.
  1. Know when to stay put. If you are happy and productive, stick with your day job – the one you love. Give it your all. Remain passionate about it. Not everyone has to pack it in. A long, healthy, and productive life awaits those people who prepare for it.
  1. Start now! Life’s prolonged course offers everyone the opportunity to chart new horizons. But you need to set your priorities early and put the building blocks in place to achieve them. Don’t dillydally or let procrastination steal your dreams.

Leaving on top, and exiting gracefully, begins with recognizing that a job, like a life stage or a relationship, has peaked. After that, I’m reminded of the old quote by John Richardson "When it comes to the future, there are three kinds of people: those who let it happen, those who make it happen, and those who wonder what happened." Which category will you fall into?

Marty Zwilling

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Sunday, February 28, 2021

10 Strategies For Finding Stronger People Connections

positive-business-relaionshipsJust because you are an entrepreneur, or work in a startup, you can’t ignore the rules of building and maintaining relationships. Many despise these experiences in corporate environments, and leave for a startup, only to find that they have to be able to navigate a similar minefield there of workplace and business relationships to be successful.

Jan Yager, Ph.D., an author and speaker on this and related subjects, outlines in her classic book “Productive Relationships: 57 Strategies for Building Stronger Business Connections.” From my experience and hers, here are ten top relationship strategies, as practiced by Richard Branson and other well-known startup leaders:

  1. Create a favorable first impression. You only get one chance for a first impression. Don’t miss an opportunity for face-to-face communication, where you can use body language that welcomes relating, estimated at over 50% of all communication. Limit the use of e-mail and texting for early interactions.
  1. Avoid negative personality types. By recognizing negative personality types, like the control freak, the blameless type, the idea thief, and the entitled, you will have a better chance of not taking his or her behavior personally. Avoid associating with them.
  1. Proactively form relationships with positive types. These are the people who will help you to thrive and prosper. They include real mentors, facilitators, visionaries, motivators, and negotiators. Of course, it still pays to keep your eyes open and carry your own weight.
  1. Find a way to motivate others to want to get along with you. Understand your own agenda, and figure out the agenda of others, hidden or obvious, to make it a win-win relationship. How can you appeal to others on an emotional level to work together?
  1. Reexamine your attitude toward conflict. Some conflict is inevitable. The key is how to deal effectively with it. Recognize points of view, respond to what happened, resolve what needs to be resolved, and reflect on the lessons learned. Then move on.

  1. Deal with the “back-off” before it turns antagonistic. Rather than have a confrontation, someone backs off. You can’t make someone want to deal with you, but you can try to increase their motivation to deal with you – like getting together for lunch, or trying to communicate in another way.
  1. Benefit from harsh feedback about your work. Receiving criticism is never easy. Try some recovery techniques, like taking a deep breath, give yourself time, and look at the issue from their perspective. Keep your initial response short and sweet and in control.

  1. Cope with the “lonely at the top” syndrome. One of the prices that you pay for being a CEO is giving up a lot of the social relationships within the company. There is a line beyond which you cannot go. You cannot compromise what is right for the company just to be liked. Join associations, or rely on your family for support and feedback.
  1. Say goodbye, if leaving is the best option. Sometimes it’s better to just move on, rather than endure extended pain. Even if you cannot quit this instant, you can at least start looking for a new job. Be proactive in planning for your next position.
  1. Use social networking to improve your work relationships. Savvy workers at all levels are using these sites to develop and strengthen their business relationships as well as to reconnect with previous business connections. Make your own luck by giving and seeking referrals.

Compounding these strategies in today’s startup environment are two divergent concepts: a heightened degree of competitiveness, and a greater emphasis on teamwork. This means you need even more emphasis on effectively engaging others, and learning to deal effectively with potentially negative work relationships.

The startup world of the past, run by a couple of autocrats, no longer works. To succeed in today’s collaborative, customer-driven, networked economy, requires real business relationship efforts by everyone involved. No matter where you are in the spectrum, there is no time like the present to kick it up a notch.

Marty Zwilling

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