Friday, January 24, 2020

7 Lessons For Mobile App Developers To Beat The Odds

wall-breaker-clash-of-clansOne of the quickest ways to become an entrepreneur these days is to develop and publish a smartphone app. The price of entry can be less than $10,000, so the competition is huge and growing rapidly. According to Tim Cook at Apple, there were over 20 million registered developers in 2018. Yet according to other statistics, vanishing few of these ever generate a significant profit.

We all hear about the big winners, such as the game Clash of Clans, which still pulls in over a million dollars a day, and the smartphone version of Skype, which is making money through credits as an extension of the website version. We don’t hear about the remaining several million apps that are mostly free, and garnering only trivial revenue through advertising.

Yet I still recommend apps as a good starting target for aspiring technical entrepreneurs, since they don’t require a large initial investment, and you can learn an incredible amount about the realities of business, without risking a lifetime of effort and several investor fortunes.

I also recommend the app development strategies outlined in the classic book, “Vaporized: Solid Strategies for Success in a Dematerialized World,” by Robert Tercek, who has lived on the digital edge for many years. Here are some ways we both recommend to beat the odds and thrive in today’s app ecosystem:

  1. Sell a digital service through your app. The ideal business model is to establish a direct-to-consumer service that enables you to bill the customer directly. You provide the free app in the App Store that gives subscribers mobile access to your service. After this connection, you need not share the 30% of all revenue collected by the store platform.

  1. Make your app support all platforms. Port every app to all the popular platforms – IOS and Android. Compensate for low profit by aiming for maximum reach. Cultivate a preferred relationship with Apple, Amazon, Facebook, Microsoft, and Google to ensure the best possible placement of your offering.
  1. Offer premium services after user is hooked. Through a free base product, you give the first taste of the service or game away for free, get users hooked, and then convert as many as possible to paying customers. This freemium model has been used for years by web apps. Even a conversion rate of one percent can build a healthy business.
  1. Build your own marketplace platform. This is a tough one to accomplish, but it has paid off handsomely for the first to win in other categories, such as Amazon Kindle and Netflix. To accomplish this move, you must remain studiously neutral on all contributors, and be prepared to fight to preserve your direct relationship with the customer.
  1. Commoditize complementary products. Complements are products that must be bought together in order to be useful, like apps with mobile phones, and fitness products to go with your fitness app. If you want to drive up the demand for your core product, one smart tactic is to drive down the price of all complementary products.
  1. Look for value points to control. No company has more value control points than Google, which spans advertising, e-commerce, social media, video and mobile, as well as a full suite of hardware products. But there are a wealth of other categories, new ones are constantly appearing, and the ecosystem is always shifting. Be aggressive and alert.
  1. Position yourself to capitalize on the next frontier. Information is certain to grow faster than anything else generated by humans, and the Internet of Things (IoT) is a huge contributor. Apps are adept at collecting information and condensing it, whether it be for healthcare, home control, or gaming. Be there intentionally rather than randomly.

Above all, don’t forget to develop a comprehensive marketing and promotion strategy. Just getting an app accepted into the Store won’t get it found and downloaded by your targeted customers. ‘Free’ doesn’t make it stand out when there are a million alternatives at the same price. Promote your app vigorously, facilitate customer engagement, and listen to the feedback.

Marty Zwilling

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Wednesday, January 22, 2020

9 Keys To Finding The Perfect Angel Investor For You

Perfect-angel-investorAs a long-time advisor to entrepreneurs, and a former angel myself, I still find startups confused about the definition of an angel investor, and how and when to attract one. Angels are actually serious investors who invest their own money, versus venture capitalists who invest institutional money, or regular people who invest in crowdfunding. Thus they don’t live or fly above the clouds.

Despite the recent growth of crowdfunding, angels continue to be one of the major sources of financing for new ventures, so it behooves every aspiring entrepreneur to understand who these people are. You need to know why and how they invest, and then focus on the ones who are the best match for your startup. Here are some key points to consider in finding one for you:

  1. Look for accredited angels and groups rather than individuals. There are organizations of angel investors in most major cities, as well as national groups, starting with the Angel Capital Association. Make sure your angel investors in the USA are accredited as having an income of at least $200K in annual income and $1M in assets.

  2. Angels spread their risk by making multiple smaller investments. Typically, individual investments will be less than $100K, but a group of angels may syndicate multiples. Venture capitalists, on the other hand, rarely consider requests below $2M. For amounts needed of less than $10K, consider crowdfunding or friends and family.

  3. These investors are not looking for startups in the idea stage. Their interest is in a business which has proved the viability of a new and innovative product, and even sold a few already, and are ready to scale the business. Speculative ideas, research, and early development won’t appeal to them. For these you should look to friends or crowdfunding.

  4. They are attracted to “squeaky-clean” business images. Don’t expect angels to invest in business ideas that may have legality implications, or appeal to people’s weaker instincts, such as gambling or drugs. They prefer to fund innovation in known and existing business domains, rather than innovations requiring infrastructure or education changes.

  5. Most focus primarily on their own areas of experience. Angels are typically business professionals who have accumulated some cash from their own success and expertise, and they look to leverage that by helping you do the same. Thus they prefer local opportunities, similar to their own, where they meet regularly and contribute face-to-face.

  6. They expect a high return on a long-term investment. That means they are looking to buy a share of a company that can generate real profits over time – not a charity, social cause, or a get-rich-quick scheme. Since they know that most startups fail, their target return is ten times investment, so be prepared to talk cost vs revenue and product life.

  7. Decisions are based on the startup team vs the product. This bias is based on the belief that the right people make all the difference, rather than the right idea. Thus, with angels, early networking with potential investors and successful peers is highly recommended. Lead with your credentials, rather than with your technology.

  8. Document your plan and your financial projections. Angels look for entrepreneurs with the discipline to create a plan, including financial projections, rather than just talk and arm waving. Perhaps your friends and family believe in you, and will provide funding based only on your excitement. For later rounds with VCs, you need the detail anyway.

  9. Set a realistic valuation for your startup to attract angels. Remember than angels are buying a share of your company based on its value today, not some time in the future. A typical valuation for an angel investment is $2.5M, meaning a $500K investment will cost you 20 percent of your company. Successful valuations above $5M are rare for startups.

Above all, remember that angels are experienced business professionals, who have driven some success. They expect you to act with integrity, and always show respect for their position, just as they respect yours, since they were likely once in your position. They probably won’t respond well to hard selling, intimidation, large displays of emotion, or failure to do your homework.

Persistence and learning are seen as virtues by angels, so prior failures and rejection should be viewed as only a temporary setback. The most common rejection response of “come back when you have more traction” means exactly that, so don’t be too discouraged. Most entrepreneurs have found that attracting an angel who can help you is far more valuable than just the money.

Marty Zwilling

*** First published on Inc.com on 01/08/2020 ***

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Monday, January 20, 2020

5 Crowdfunding Approaches To Tempt Every Entrepreneur

Pebble_watch_trio_groupEven if you ignore all the hype around crowdfunding, there can be no doubt that it is a real alternative for entrepreneurs to achieve visibility and funding today. According to a recent article on Thrinacia, there are now aver 600 crowdfunding platforms in existence, currently estimated to add more than $89 billion to the economy at a compound growth rate of 17% from 2019 to 2022.

Yet as I mentor entrepreneurs around the country, it still seems to be one of the least understood approaches to startup funding, with more myths than accredited angels and professional venture capital investors combined. The primary challenge seems to be that the crowdfunding term is used to encompass so many different concepts that everyone is confused.

In fact, perhaps the most important model, equity crowdfunding for non-accredited investors was only legalized via the SEC in 2016, so its impact is still in the early stages. Even with this, crowdfunding today means any one of the following five quite different models:

  1. Rewards model. Many platforms, such as IndieGoGo, allow startups to solicit funding commitments from non-professional investors in exchange for a pre-defined reward or perk, such as a T-shirt or other recognition, but no ownership in the company. The crowd gets the satisfaction of helping, with minimal risk, and no expectation of any high return.

  2. Product pre-order model. With this model, a startup pre-sells their product early, at a cheaper price, in exchange for a pledge. A much-touted early success was the Pebble Watch on Kickstarter, now owned by FitBit, with advance orders exceeding $10 million. Of course, there are thousands of other companies that don’t achieve their minimum goal, requiring all contributions to be returned.

  3. Donation good-cause model. This model facilitates donations to charities and creative projects, and has been around for a long time via sites such as GoFundMe. No startup ownership or financial return should be expected, but contributors can enjoy the satisfaction of furthering non-profits or causes with a passion to change the world.

  4. Interest on debt model. In this model, often called micro-financing or peer-to-peer lending (P2P), people contribute with the intent to create a pool for all to borrow against. This model been popular in many countries for years, where banks loans are not available, via sites such as LendingClub and Kiva. The allure is the ability to get small loans easily, or excellent returns from the interest, but the risks are high.

  5. Startup equity model. In the U.S., only accredited investors can use crowdfunding sites such as EquityNet to buy ownership in their favorite startup. In Europe, other investors can buy equity, with platforms such as Seedrs. Equity investing is very risky, but huge returns are possible if you pick the next Facebook, but failure means your entire investment is lost.

Beyond these models, the crowdfunding term is often used interchangeably or confused with crowdsourcing idea and open source development sites, such as BrightIdea, to get your ideas off the shelf and give you the wisdom of the crowds, or IdeaScale to facilitate the outsourcing of application development in an open source call to others on the Internet.

Other popular sites for startups, including StartupNation and Startups.co are not for crowdfunding, but actually are matchmaking sites between entrepreneurs and professional investors or banks, or incubators. These sites often sponsor pitch contests with small cash prizes for funding, as well as other valuable services to support entrepreneurs.

In fact, entrepreneurs can and do gain from any and all of these approaches, either by achieving some funding, or at least testing their approach and the level of public interest in their startup idea. Smart entrepreneurs often learn the most from their failures, using the feedback to pivot their solutions before squandering a large investment from friends, angels or VCs.

Concurrently, I am seeing an upswing in the number of entrepreneurs and startups, with the cost of entry at an all-time low, and the new focus on entrepreneurship in every university and every community development organization. Since there is never enough money to feed the startup beast, I don’t see crowdfunding replacing or crowding out angels or VCs in the near future.

Marty Zwilling

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Sunday, January 19, 2020

6 Insights To Current Funding Trends For Your Startup

business-super-angelVenture capitalists (VCs) have long been seen as the top of the pyramid for startup funding sources, but in fact angel investors now fund over twice as many companies, according the Crunchbase. A major chunk of this activity is provided by the newer class of “super angels,” who often look more like micro-VCs, except that they are investing their own money.

Examples of some leaders in this space include Ron Conway in Silicon Valley and Jeff Bezos, CEO of Amazon, who each may have over 500 startups in their portfolio. What characterizes them is the number of companies they invest in, as well as the size of their investments (often less than $250,000), and the seed or startup stage where they specialize.

Based on the best evidence I can find, the genesis of this trend and the advantages come from several evolutionary changes in the startup investment industry, and some innovations driven by the recession several years ago:

  1. Venture capital funds are still regaining momentum. Institutional venture capital dispensed in 2019 was down a bit from record highs the previous year, but up significantly over the last few years. Individual angel investors and crowdfunding have been adding to the momentum, some say exceeding VCs in total amount invested.

  1. The cost of entry for tech startups continues to go down. Twenty years ago, it cost several million dollars to launch an e-commerce startup, which can be done today for a few thousand dollars. Mobile and web software apps may cost even less. The large investment amounts preferred by VCs are no longer needed to launch winners.

  1. Some VC firms are bogged down by their own weight. Many have disappeared, and others have forgotten how to be agile and innovative. They have too many highly paid partners, fat fees, an aging corporate infrastructure and difficulty raising money from institutions. Super angels are individuals or small teams using their own money.

  1. VCs are committed to servicing existing portfolios. As lifecycle investment partners, they have become weighted down with portfolios still recovering from the economic downturn. Like big corporations with a heavy investment in existing product lines, it’s hard to stop linear investing to look for innovative new opportunities.

  1. The investment model is changing from hard selection to “spray and pray.” The conventional VC approach of giving a big boost to a few good startups that were born to be great, doesn’t seem to work anymore. Now the model is to seed many good teams with a smaller amount, and find out which ones can execute.

  1. Super angels have greater scope to match talent with a startup. Because of their high visibility and huge portfolios, this new class of investors can match the right talent to the right startup quickly and efficiently with introductions and mergers. This helps the startups with the most opportunity move forward quickly to greater success.

Of course, every new direction has some challenges, so the super angel model isn’t perfect. Here are a couple of concerns and possible negatives to avoid:

  • More startups left in the funding gap. Angels of any size are usually not as capable or interested in multiple rounds of investment, leaving good startups that are not superstars stranded without funding after an initial round or two. VCs tend to carry their partners much longer, in hopes of a big public offering (IPO) that could produce a windfall.

  • Super angels sometimes drive up valuations. Perhaps because of their focus on building a large portfolio, or their competitiveness, these angels sometimes accept valuations that cause later friction while moving to VCs, or even other angel groups. This can cause early investor dilution, lower ultimate returns or leave the startup stranded.

Yet, in my view, every early-stage entrepreneur should be exploring this new funding alternative before approaching VCs. It’s the right way to get money without giving up too much equity or control of your business. Yet, it is important to remember that the most optimistic super angel is looking for a proven business model, rather than research and development, or just an idea.

Marty Zwilling

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Saturday, January 18, 2020

Startups Are Not Just The Realm Of Young Generations

Baby-boomer-generationOne of the biggest myths in the business world is that startups are no place for Baby Boomers, that aging generation born between 1945 and 1964. They couldn’t possibly understand the new social media culture, new technologies, or have the determination to beat their younger counterparts in the market. Yet credible reports on current trends tell us just the opposite.

According to the most recent report from the Kauffman Foundation, the highest rate of entrepreneurship in America shifted a few years ago to the Boomer age group, compared to Gen-X (1965 to1980) and Gen-Y (1981 to 1995). Today people over 55 are almost twice as likely to create successful startups as Gen-Y, age 20 to 34.

Another report from the Pew Research Center confirms that Boomers are still a third of the workforce, equal in size to the Gen-X segment and the Gen-Y segment. Don’t expect them to go away any time soon. Pew says the Boomer demographic is the largest mainstream pool of experienced talent in the market today, and will be for the foreseeable future.

Their trend toward entrepreneurship in that group is sometimes called seniorpreneurship, where people over 50 take the helm of a new leading-edge high-opportunity venture. They include people like Sir Richard Branson, born in 1950, who has founded over 400 companies, and claims to be just getting started.

In fact, they are well-qualified overall, having worked with high technology and computers for at least 20 years, are highly educated, and highly motivated. In addition to being the startup entrepreneur, there are other key roles where Boomers can be a force in driving successful startups, in concert with leaders from Gen-X and Gen-Y:

  1. Early-stage angel investors. Boomer investors are much more likely to get in the game with a high focus on mentoring and give-back, as well as the financial return potential. They want to share your satisfaction in success, maybe as a reward for their own mistakes and learning earlier in life in their own businesses.
  1. Supportive co-founder and executive positions. Every young entrepreneur needs an experienced partner for credibility with investors, and as a trusted cohort for strategy and growth discussions. Often the Boomer is more willing to work for equity, and easily convinced to step aside when revenues reach that next threshold.
  1. Member of the Advisory Board. Every startup needs two or three key advisors who have the domain experience, connections, and complementary skills to guide the founders through those early crises. Boomers are more likely to give you the time and guidance that you need, and give your executive team additional visibility.
  1. Manage customer service. They probably have arbitrated differences many times before in their lives, and know how important it is to remain calm and soft-spoken in the face of emotional customers and processes that are not working. Often a little gray hair gives added credibility to their efforts, and provides a role model for other support roles.
  1. Personnel Manager. This is one of the key roles in a growing new company which can benefit from someone who clearly has experience dealing with people – whether it be hiring and firing, assisting in performance reviews, or dealing with the day-to-day crises of any growing business. All the learning from parenting pays big dividends here.

On the other hand, there are some roles in a startup where Boomers are probably not the best candidates:

  • Constantly-on-the-road sales territory management roles.
  • Software and hardware development architects and designers.
  • Marketing and sales to Gen-Y customers.
  • Labor-intensive roles, including warehousing and construction.

For aspiring new entrepreneurs of any age, this is an opportunity for a win-win situation, with the proper mix of Boomers with Gen-X and Gen-Y employees and executives. It’s time to think again that the domain of entrepreneurs is only for the under-35 crowd.

The large crop of Boomers is only going to get larger as we live healthier and work longer. You too will be one someday, if you are not already. Be inclusive, and let’s continue to make entrepreneurship one of the most fun things around.

Marty Zwilling

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Friday, January 17, 2020

5 Steps To A Winning Personal Brand For Entrepreneurs

entrepreneur-business-rocketAlthough most people believe that being a successful entrepreneur is all about having the right idea, I’m convinced from my years of experience as a startup advisor and investor that’s it’s more about you as a person. If you can brand yourself as someone to remember, and someone who can deliver, I assure you that you will have no trouble finding investors, as well as customers.

So how do you develop that reputation such that everyone believes in you, and customers jump to try your solution first? The key points are comparable to those involved in branding a business, as outlined in the new book, “Be Different!: The Key To Business And Career Success,” by noted business leader Stan Silverman. You have to stand out from your peers and competitors:

  1. Build a reputation for getting any job done, and doing it well. The best entrepreneurs are not just dreamers of the next big thing – they have to be great facilitators and problem solvers. By definition, every successful startup has to be different from the competition, with many unknowns, new challenges to overcome, and new customers to be attracted.

    If you don’t have a successful prior startup to demonstrate your ability, it’s time to be creative. Pull some examples from your private life, prior jobs, or academia, where you demonstrated personal initiative, determination, and results in overcoming challenges.

    It it’s too early to show a track record, it may be time to find a partner who believes in you, and can complement your strength as a thinker. Most successful startups I know were built by a team, rather than a lone entrepreneur, so don’t be afraid to ask for help.

  2. Highlight your expertise and results as a thought leader. These days, with the pervasive presence of social media, blogs, and online access to information, it’s easy to get your message out there, and engage a following. People need to see you as an “influencer,” who is able to sell your new ideas, as well as communicate the future.

    For example, Elon Musk has long been a bold and provocative thought leader on space travel. He used his expertise on rocket ships to sell the future potential in interviews, blogs, and public speaking opportunities, long before he started SpaceX as a company.

  3. Demonstrate honesty and integrity in everything you do. Investors and customers do not want to deal with entrepreneurs or startups whose reputations are tarnished or questionable. For brand image, it simply means truthfully communicating the challenges faced, and then putting in the honest legwork to address those challenges.

    Without excuses or disavowing responsibility, you must deliver on all promises, past and present, pay attention to the common good, and surround yourself with people offering solid character and a positive attitude. Show total respect for all customers and investors.

  4. Show that you are a leader that others want to work for. A little known fact is that potential investors, including myself, often visit a startup to gauge the level of respect and commitment of employees to their leaders. Leadership dissent in the team is the quickest way to kill an investment, and customers will tell you it is the quickest way to kill a brand.

    We have all experienced or heard stories of entrepreneurs that refuse to listen to their team, such as Theranos founder Elizabeth Holmes, when their pin-prick blood test could not be validated, causing a billion-dollar startup to fail and promising careers ended.

  5. Always project a positive attitude of a world of possibilities. Entrepreneurs with positive, but rational, attitudes are supported and move forward with their plans. Those with a negative attitude, including competitor bashing, do not. When starting a business, as we all know, there will be difficult periods, and we want to know you will keep going.

    Investors, for example, listen for the words you use when you are faced with a specific difficulty. Instead of saying, “I have a problem,” you might say, “I am faced with an unexpected opportunity.” Customers want to hear about creative solutions, not problems.

In addition, unlike a business brand, a personal brand is broader than just one business segment. An entrepreneur with a great personal brand, such as Elon Musk, can work in any number of segments influencing people and the market. Your name is your brand to make your business.

The next time you approach someone with a great new idea, make sure you include your brand story as well. At the very least, both together will make a great first impression, and that first impression image will last longer and have more impact than any solution image you can offer.

Marty Zwilling

*** First published on Inc.com on 01/03/2020 ***

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Wednesday, January 15, 2020

10 Goodwill Elements To Raise Your Business Valuation

business-valuationValuing a business based on assets and financial performance is a well-understood process, but every investor knows the real value goes well beyond these parameters, either higher or lower. The key elements of leadership in a company, both individual and organizational, are less tangible, but very critical in setting a market value for investment, acquisition, or going public.

In the investment community, these leadership elements are often called “goodwill.” For early-stage startups, the goodwill component can easily exceed the size of all the financial elements together, or can just as easily mark a company with good financials as not investable.

In his classic book, “The Leadership Capital Index,” Dave Ulrich, a best-selling author, business consultant, and business school professor, provides some real insights and metrics on what makes up the elements of goodwill in the minds of top valuation experts. I have paraphrased his key points here as follows:

  1. Leader personal impact. For startups, the entrepreneur and founder is almost always the face of the company. Investors, partners, team members, and customers implicitly value or devalue a startup based on the leader’s physical presence, emotional identity, social skills, intellectual agility, moral values, and past performance in the domain.

  1. Strategic proficiency. These same constituents are looking for leaders who can create the future – focus forward rather than backward, seem to see around corners, can turn their vision into committed actions, and are able to engage all the right people into bringing the future into the present.
  1. Execution leadership. Everyone wants leaders who get things done and meet commitments. Leaders are judged on key elements of execution, including a focus on priorities, ensuring clear accountability, managing decision making, mobilizing others, adapting quickly, and communicating execution urgency.
  1. People relationship focus. No leader can do the job alone, so investors assign great value to leaders who take care of their people. Positive people management elements include good communication skills, building strong teams, finding time for coaching, strong people relationships, and facilitating growth and succession.
  1. Leadership brand development. Every business and brand has unique requirements to fit into their market environment. Leaders are assessed for their ability to fit into the brand community, embody the values required, maintain the right strategic priorities, and deal with the current organization stage.

In addition to goodwill justified by a great leader and an outstanding team, investors will use their due diligence process to assess the organizational structure and effectiveness as well. The key parameters of this evaluation will always include:

  1. Strength of the business culture. Research has confirmed that culture is a primary driver for financial performance, customer experience, and team productivity. Companies are valued based on their ability to create and align their people with the desired culture, and their ability to communicate that culture to customers, suppliers, and partners.

  1. Focus on talent and people growth. Investors want organizations that manage people talent and growth, through good hiring, performance feedback, development on the job, and building commitment. They look for the use of talent analytics, such as productivity per employee, as well as the practices and attitude toward employee satisfaction.
  1. Performance accountability processes. Good performance management is more about rewarding desirable behavior than penalizing bad performance. Processes must be in place to clearly define standards, differentiate performance, link to consequences, provide rewards for accountability, and provide regular follow-up.
  1. Modern information management tools. Power, and the ability to influence others, comes from knowledge. Having information is more than access to data; it requires knowing how to synthesize, interpret, and act it. Organizations are assigned value by how well they take advantage of the best technology, and turn information into action.
  1. Stable and friendly work environment. The most valuable organizations are able to govern their work environment through innovation, to cope with the increasing pace of change in culture and the marketplace. This means adapting to social trends, new technologies, economic conditions, regulatory requirements, and worker demographics.

Investing in strong leaders, including entrepreneurs such as Steve Jobs, or corporate icons such as Jack Welch, has long been recognized as a key to reduced risk, and the key to high valuation on the side of the seller. That’s one of the best reasons I know for every business owner to up his game on leadership and organizational excellence. How much goodwill can you and your company command today?

Marty Zwilling

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