Monday, June 18, 2018

8 Secrets On New Venture Funding From The Shark Tank

secrets-from-shark-tankAs 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 less than one-third of the deals as you see them 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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Sunday, June 17, 2018

7 Questions To Focus Your Search For Venture Funding

Marcela Sapone, CEO & Co-Founder at Hello Alfred talks to DOL employees and outside attendees as they gathered in the Great Hall in the DOL Building fora panel on “Positive Choices in the Digital Sector: Building Good Jobs Principles into Emerging Platforms” "Future of Work."Too 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 16, 2018

6 Key Components For Success In Your New Business

failure-growth-businessThe 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 guidance on how to build and maintain the traction needed to survive and prosper. Of course, experiences and failures are the best 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:

  • 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.
  • 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.
  • 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.
  • 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.
  • 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:

  1. Vision – Communicate a compelling image to everyone describing where the business is going, and how it’s going to get there.

  2. 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.

  3. Data – Define a handful of key metrics to free you from managing personalities, egos, subjective issues, emotions, and intangibles.

  4. Issues – Constantly provide updates and direction on the challenges and obstacles that must be overcome to execute on your vision.

  5. Process – These describe your way of completing each key element of your business. Each must be documented clearly and refined regularly.

  6. 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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Friday, June 15, 2018

8 Keys to New Venture Funding Success from the Crowd

crowdfunding-todayCrowdfunding has come a long way in the last decade with the Internet and many popular platforms, including IndieGoGo and Kickstarter. In fact, crowdfunding now rivals both venture capital and angel funding as the money source of choice for new entrepreneurs. As a small business advisor, I often recommend it as the best alternative for aspiring entrepreneurs.

But don’t be misled – it is no panacea or shortcut to funding success. According to statistics, more than two-thirds of crowdfunding campaigns do not meet their monetary goal and have to return anything they do collect. That’s not as high as the failure rate with professional investors, but it should convince entrepreneurs that even the crowd requires you to do your homework first.

Based on my experience, and input from the experts I know, here is a quick summary of the key strategies and practices that can be instrumental to your success in your crowdfunding efforts:

  1. Build a support community before launching a campaign. Successful crowdfunding requires anticipation and early momentum, which can best be built by social media, viral videos, and traditional marketing. If you see little traction from these efforts, it may be time to rework your idea before making a bad first impression with the crowd.

  2. Prepare with the same intensity as finding angels and VCs. There is no easy money for funding a business, so prepare with the same planning, prototyping, and dedication you would expect from someone taking your own money. You can’t build and run a crowdfunding campaign in your free time. Seek advice from peers who have succeeded.

  3. Avoid equity crowdfunding if you need multiple rounds. Crowd investors with little or no investing experience can be very high maintenance. Such a messy investor pool will make the company less attractive to subsequent professional investors. Experienced bankable entrepreneurs will find conventional raises have a lower "cost" of capital.

  4. Time your campaign around a prototype, not just an idea. People want to see that you have something before they commit real money. Anyone can come up with an idea, but few can execute. I recommend a polished minimum viable product (MVP), which you can demonstrate in a video, rather than asking people to visualize your solution.

  5. Calculate carefully how much funding you really need to ask for. Asking for too large an amount is the surest way turn people off, and asking for too little will only cause you to fail in delivery. Making something awesome always costs more than you expect, and starting a business is hard. You need just enough of a start to qualify for VC funding later.

  6. Move fast after crowdfunding to stay ahead of competitors. Be aware that potential competitors are monitoring crowdfunding campaigns for market interest and solutions. Your pricing, design and feature list, in addition to your exact launch timing is there for anyone to react to. Successful startups are always working one generation ahead.

  7. Crowdfunding success does not assure business success. Many successful campaigns, including iBackPack, Kreyos Smartwatch, and Ubuntu phone, have failed as a business due to inability to deliver, poor launches, or one of the many normal business challenges. Plan for and keep your focus on business success, not just funding success.

  8. Don’t expect crowdfunding traction for enterprise products. If your solution is aimed primarily at businesses (B2B) versus consumers (B2C), then I recommend more conventional fundraising. Regular people in the crowd are less likely to understand or care about more complex business systems, such as manufacturing or billing.

Thus, even though crowdfunding is here in a big way, and projected by Statistica to grow almost 30 percent annually to reach US$26 billion in 2022, I don’t see crowdfunding replacing or crowding out angels and VCs in the near future. There is just never enough money to feed the startup beast, and it’s always nice to have another a great alternative.

If you want your share, be sure to heed these reality checks, and don’t hesitate to get some advice and counsel from peers and advisors who have been there before you. Very few crowdfunding campaigns lead to the success of the Pebble Watch, or the Oculus Rift acquisition by Facebook for US$3 billion. But if you do the job right, you could still be the next one.

Marty Zwilling

*** First published on Inc.com on 06/01/2018 ***

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Wednesday, June 13, 2018

6 Ways To Start Marketing Before You Have A Product

concept-marketingSavvy entrepreneurs start testing their ideas on potential customers even before the concept is fully cooked. They have enough confidence in their ability to deliver that they don’t worry about someone stealing the idea to get there first, and they don’t forget to listen carefully to critical feedback. They become walking public relations machines for themselves, as well as their idea.

The alternative is to spend big money later on pivots, lost credibility with investors, and delays at rollout trying to build visibility and credibility. I’m not proposing that anyone promise things that they don’t intend to deliver, but it’s time that founders switch to start selling their product before they build it, rather than believing the old adage of “if we build it, they will come.”

I still hear too many excuses for not working early on the elevator pitch, like wanting to fly under the radar, don’t have the team together yet, or can’t afford an agency. In fact, you don’t need a third-party public relations agency at this stage. There is real value in doing the key things yourself, before your startup is even started:

  1. Demonstrate thought leadership before selling a product. Highlight the problem and your concerns in industry blogs, speaking in public forums, and making yourself visible on social media and networking opportunities. You want people to see you as an evangelist for hydrogen fuel, for example, so your later auto engine will have credibility by default.

  2. Craft and hone your elevator pitch early. Before the product is set in stone, you can test your message and continue to refine it until it connects well with investors, as well as customers. Later you may have the problem of being told by public relations firms to stay on message, even after you suspect it is not working.

  3. Visibly be a bit controversial to test the limits. This early in the game, any coverage and peer review is better than just being another unknown entrepreneur. It’s human nature that challenging the status quo gets more attention than quiet concurrence. People tend to forgive controversial views if you aren’t perceived as pushing a product.

  4. Proactively seek out thought leaders and journalists. Entrepreneurs who wait to be found are destined to spend a lot of time alone. Social media sites today, including Facebook, LinkedIn, and Twitter, provide ideal forums for presenting your cause and your concept. Start actively blogging on your own site, as well as on industry forums.

  5. Make your business cards stand out in the crowd. Everyone exchanges business cards, and most are forgotten immediately or never really seen. These days, images are especially important, as well as a tag line, and your social media links. Unique and professional business cards are still well worth the investment.

  6. Follow up personally on every new connection. Key introductions in a networking meeting will be quickly lost, unless you take the next step of calling or emailing later to request a personal meeting. Use these meetings to build the relationship, more by asking questions than by pitching your concept. Requests for investment come later.

Every entrepreneur has a story, perhaps the inspiration for your idea, or the path taken to get to this point, or a key lesson learned from past mistakes. Stories are the grist reporters look for, and they make you unique and memorable. Find your personal hook – it can be more key to your entrepreneurial success than any given product or service that you are about to offer.

If you are a social entrepreneur, a natural hook is the environmental or humanity cause that you espouse. Perhaps you can amplify your position by sponsoring an event, travelling to a visible location, or donating your time and other resources.

These days, winning in the crowded startup world is all about marketing. The sooner and more effectively you utilize all the available marketing channels, the more visibility and impact you will have later when your product or service arrives. As an entrepreneur, you are the most important part of your brand, not the other way around. Capitalize on yourself early.

Marty Zwilling

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Monday, June 11, 2018

8 Disciplines That Indicate A Business Versus A Hobby

hobbies-versus-businessAs a startup investor, I often see business proposals looking for funding that really look like expensive hobbies looking for donations. I recognize that entrepreneurs tend to substitute vision and passion for formal processes, but using no discipline or process in building something new is a sure way to spend money, rather than see any return and build a self-sustaining business.

I’m not suggesting that you model your startup after the complex corporate organizations you hated in your last job, but there are at least eight key functions and activities that every investor expects to find in a startup proposal with any real potential to change the world. Each of these requires some ongoing effort, so I expect at least a rudimentary process associated with each:

  1. Record of spending and business assets. I still see entrepreneurs who spend money and time for months on a new business idea without any separation of personal and business funds, and any formal accounting system for their new business. This is the first business process that every startup needs, that I wouldn’t expect to find for a hobby.

  2. Managing to specific goals, priorities, and a plan. Technologists building cool new platforms, just because they can, won’t find investor interest. Entrepreneurs need to document a process of responding to a market need, sizing opportunity, assigning a specific business model, and planning for marketing, sales, and customer satisfaction.

  3. Solution development and delivery. Products and services for a business need to be attuned to customer requirements, cost and quality tradeoffs, with milestones for pricing and completion. Typically some production and delivery is outsourced, requiring formal contracts and documentation. Hobbies are developed ad-hoc, driven by personal needs.

  4. Preparation and management of funding. Even if you are not requesting outside funding, I would expect a clear process for sourcing and managing the investment you plan to apply. External investors expect a documented business plan, with clear targets on funding needed, use of funds, revenue projections, return potential, and exit strategy.

  5. Team building status and plan. Solo entrepreneurs, with a team of helpers, will be assumed to be a hobby rather than a business. I recommend every startup plan for at least two or three decision level team members, and at least a couple of highly-qualified external advisors. Show that you have a process to hire, fire, and train others as required.

  6. Formalize the use of tools and information technology. Productivity and repeatability is the hallmark of a good business, whereas a hobby usually assumes everything is custom built and personal. I look for business startups to already have their website up and running, administrative tools purchased, and basic procedures automated.

  7. Customer receivables collection and vendor payments. These are critical processes for any business, so they need to be implemented even before investor requests are sized or solicited. For progress and success assessment, each of these needs some metrics defined, a training plan, and responsibility assignments within your team.

  8. Marketing, sales, support, and service operations. I’m assuming that most of you will see these as intuitively obvious elements of a business, but not needed for a hobby. Yet I continue to get funding requests that never mention any specific plans or costs to be associated with these elements. No mention usually means no plan and not competitive.

For all of these, your objective should always be a minimum viable process to start, with the expectation that each will be enhanced and pivoted as you learn from customers and competition that works and what doesn’t. The key is to be proactive, rather than assuming that you can react to each crisis as it happens. Customers today are easy to lose, and expensive to replace.

It’s a myth in the startup world that not having processes makes you more competitive. In my experience, no defined process means unable to respond in a timely fashion, unpredictable quality, and high operating costs. None of these are attractive to investors, and jeopardize the success of even the best initial idea. A hobby may take your idea to a product, but a startup has to take the idea to a business.

Marty Zwilling

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Sunday, June 10, 2018

8 Key Learning Insights To Thrive In A Changing World

dubai-marina-arabAspiring entrepreneurs who rely only on traditional learning vehicles (teachers, classrooms, and risk-free practice) are doomed to failure in anticipating change today. Either they are never really ready to commit, study an opportunity until it has passed, or fail with tools and techniques from a bygone business era. The Internet and the current information wave have changed everything.

Being a successful entrepreneur these days requires a current insight to a myriad of changes, including many that haven’t yet been integrated into the traditional academic learning vehicles of textbooks and professors. The Internet is the problem, by facilitating constant change, and it’s the solution, by providing an absolutely current view of customers, trends, and best practices.

The challenge is to find the time and initiative to keep up with the information wave, and be able to curate the data into knowledge that must be learned, unlearned, or relearned. It requires an attitude of self-education, versus an assumption that someone else will provide the education. For entrepreneurs, change is the norm, so you have to relish it before you can make it happen.

This required ability is aided by some supportive personal attributes, such as confidence, initiative, problem solving, and determination, but the basic learning principles must include the following:

  1. Satisfaction will come from learning something new every day. This goes hand-in-hand with every entrepreneur’s desire to do things better, and make a real impact on the world. This is a key part of enjoying the journey, as well as the destination. It doesn’t imply any sense of superiority or weakness, but often provides motivation beyond money.

  2. Success requires challenging assumptions and status quo. With this principle, real entrepreneurs start with a conviction that new learning will reveal flaws in existing models, leading to new opportunities. The Internet is the source of data for alternative views, and social media allows direct customer interactions to test these views.

  3. Learning means understanding, far beyond memorization. Great entrepreneurs strive to understand the depth of a customer need, rather than just the ability to recite a longer list of features. Technologies are not solutions, but understanding a technology, in the context of a customer need, will result in more competitive and long-lasting solutions.

  4. The act of communicating and writing enhances learning. The process of documenting what you think you know in a business plan, for the team and for investors, solidifies your own understanding of your new business. With that learning, you are able to more effectively share and market your solution to customers and business partners.

  5. Building a new business is not rocket science. Growing a business is understanding the needs and thoughts of regular people and simple financial transactions, not some complex technology that you might assume you can never learn. With the Internet, you can see all you need explained in a dozen ways in text, videos, pictures, and podcasts.

  6. Learning is nothing more than looking outside the box. Extending your knowledge is like dealing with competitors – if you aren’t extending your comfort zone, you are losing ground. With the Internet, you can quickly test your new business concepts, with crowd funding and social media, and get quick feedback from around the world at low cost.

  7. Relationships are a test of your learning readiness. Building a new business today is all about building relationships with your customers and your team. As an entrepreneur with a new startup, you are the brand, and customers today expect a relationship. In addition, you always need relationships with advisors, investors, influencers, and peers.

  8. Proactively ask for help and anticipate the need to pivot. With the Internet, you can ask for help from normally inaccessible experts, with minimum personal exposure and cost. It’s easy to see how often others have made changes, so your own learning and associated pivots should never be an embarrassment. Avoid the arrogance trap.

No one is too old to learn new things as an entrepreneur, whether you are just out of school at twenty, or just finished your first career at sixty. If you follow the principles outlined here, and take advantage of the pervasiveness of the Internet, you too can be a part of the solution rather than a part of the problem. A failed startup is the harshest learning lesson of all, and we need to change that approach.

Marty Zwilling

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