Sunday, August 19, 2018

How To Find Money Based On Your New Venture Progress

business-angelTime is too precious to waste trying to close a deal with the wrong investors at the wrong time. Luckily, not all investors are looking for the same thing, so it pays to know what type of investors are most interested in what your startup brings to the table.

The key is understanding how potential investors see you, and especially how they view the maturity stage of your startup. For example, if you have a proven product, real revenue, a big potential market, and are ready to scale up the business, every investor will be interested. On the other hand, if you are a new entrepreneur, still in the idea stage, professional investors will only tell you to come back later when you have traction (customers and revenue).

Thus your startup maturity and growth stage is the primary key to success with potential funding sources. Different types of investors tend to specialize in capitalizing on businesses at different stages. Venture capital firms look for the most mature companies they can find, Angel investors typically deal a tier lower, while friends and family are most likely to help you get started.

It never hurts to start networking personally with all levels of investors early, but sending out teasers and business plans to every name you can find on the Internet is a waste of your time and theirs. It will be much more productive to categorize your startup in one of the following five stages, and limit your investor focus accordingly:

  • “I have a great idea and I need money to turn it into a business.” For investors, this is the idea stage, where you may have a great idea, but no plan, product, or customers, and probably no success record in this business domain. No professional investor will be interested at this point, so count only on yourself, friends, family, and fools for money.
  • “My invention and prototype works, but I need funding to continue.” Investors call this the seed stage, where money is required to build a market and a real product. Government grants and industry partners are you best bet here, but Angel investors might give you $250,000 to $1 million, if you have the right business case and credentials.
  • “The final product works great, and all the early users love it.” You are now entering the rollout stage, with money required for marketing, hiring a full-time team, and a production process. At this point, most Angel investors and a few early-stage VCs will be happy to talk, assuming you have the business model validated, and a large opportunity.
  • “It’s time to scale up and I need money to keep up with demand.” Congratulations! Every investor wants to be part of your growth stage, after your first $1 million in revenue. They call first investments at this stage the “A-round,” and often follow with a B-round through G-round. Growth stage investments from VCs are usually $5 million and up.
  • “The ride has been fun, but I need my money out to start the next big thing.” This is the exit stage for the entrepreneur, and for all earlier investors. The new investors you need at this stage are investment bankers, private equity, or competitors, to buy you out via merger or acquisition (M&A), or to go public with an Initial Public Offering (IPO).

Obviously, maturity and growth are a continuum, so the rules are never absolute. My message is that your startup will attract a different class of investors, as it passes through each stage, just as it has to supplement and tune the team, process, and product to keep up with the needs of a growing company and customer base. Tune your investor pitch and funding expectations accordingly.

Another good indicator of your real stage is the valuation you can set for your company at any given moment, to determine what portion of your equity an investor will expect of his money. Prior to the growth stage, your company valuation is limited to goodwill based on intellectual property and team experience, since you have no revenue. Future opportunity size doesn’t count in the early stages.

Contrary to popular opinion, all investor money is not the same. Friends and family believe in you, and only want to see you achieve success. Angel investors probably will know your business, and want to be mentors along the way. VCs normally come with the highest expectations of board seats, controlling votes, and milestones to meet.

Don’t sign up for one, expecting the other. If you want to avoid all these stage and investment considerations, you can always bootstrap the business (fund it yourself, and grow organically). Otherwise, be sensitive to first impression you leave on every investor, and the efficiency of your time spent on funding. You will enjoy the lifestyle a lot more when you find the right investor.

Marty Zwilling

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Saturday, August 18, 2018

10 Keys To Delivering Innovation As An Entrepreneur

medical_health_medicineAs a startup investor in this age of the entrepreneur, I see many more startups, but innovation is still hard to find. The most common proposals I hear are for yet another social networking site (over 200 exist), or another dating site (over 2500 in the US alone). Startups which display real innovation, such as alternative energy sources and new medical treatments, are still rare.

In my experience, finding real innovation in existing company environments is even tougher. Overall I like the principles in the classic book “Robert’s Rules of Innovation: A 10-Step Program for Corporate Survival,” by Robert F. Brands. He outlines the key steps which together spell INNOVATION, that I believe apply equally well to startups as well as corporate environments:

  1. Inspire. Whether we are talking about startups or corporations, innovation requires a leader who can inspire others to step into the unknown. Followers and linear thinkers need not apply. Inspiration requires a vision, and an ability to communicate it to others.

  2. No risk, no innovation. An entrepreneur looking for a sure thing will never innovate. Savvy investors tell me that startup founders who claim to have never failed are either lying or have never tried anything innovative. Failure is the best teacher.

  3. New product process. Innovation is not a random walk into the unknown. It starts with a vision, but benefits quickly from a structured process of idea generation, evaluation, prototyping, customer feedback, and success metrics. Set milestones and meet them.

  4. Ownership. A technical champion may drive a specific innovation, but the business leader has to own the result, in order to drive an appropriate business model, customer acquisition, support, and a growth strategy. Business risks are not just development risks.

  5. Value creation. Innovative technologies have no value until they are turned into solutions to real customer problems. Creating intellectual property, including patents, is the kay to long-term value and a sustainable competitive advantage.

  6. Accountability. Many innovations are jeopardized by team members and leaders who are hesitant to accept full accountability. This includes personal and team commitments to delivery schedules, quality assurance, manufacturing, and distribution requirements.

  7. Training and coaching. Proper hiring of people with a natural curiosity, open-mindedness, and ability to see the big picture is the way to create and enhance the right mind-set. Ongoing coaching from the top is essential to maintain the attitude and spirit.

  8. Idea management. Build and manage a pipeline of ideas. From time to time, include customers and sales members in ideation sessions. Make sure all team members have some connection with the product – has either used it, or sold it, or assembled it.

  9. Observe and measure. Tracking results are essential to optimal ROI. Product life cycles keep getting shorter and shorter, which mandates accelerated innovation cycles. Once a new product is launched, a key metric is the ratio of new product sales to overall sales.

  10. Net result and reward. Based on ROI, incentives should be developed for all participants. Reward your people. Frequently, the key motivator is less financial than it is recognition for a job well done. People are your best innovation resource.

Sustainable innovation is really the only sustainable competitive advantage. But innovation is hard, because people by nature resist change, and company cultures are most comfortable with status quo.

Yet survival in today’s world of rapid business change requires that you keep one step ahead of your competition. Innovation is what gives life to your business initially, and keeps it alive in the long term. Make sure your business can spell it.

Marty Zwilling

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Friday, August 17, 2018

7 Lead-Generation Tactics Thrive On Limited Budgets

lead-generation-strategiesContrary to popular opinion, viral marketing has not eliminated the need for old-fashioned lead generation to bring customers to a startup. Indeed, while the rules and technologies for lead generation have changed, Forrester and other experts still see it as the most effective way for businesses with limited budgets to maximize their return on marketing investment (ROMI).

One of these experts, David T. Scott, published a classic book that I recommend, ”The New Rules of Lead Generation,” highlighting the changes wrought by the internet and social media. His professional background includes having held marketing-executive roles at big companies as well as startups.

Here is my summary of the seven most successful lead-generation vehicles he and I still recommend today, despite the popularity of viral marketing: 

  1. Search-engine marketing.  For new product startups, search engine marketing (SEM) is still one of the most cost-effective and scalable lead-generation approaches. It’s also one of the most accountable, with in-depth data provided by search engines about performance. You can start an SEM campaign with as little as $50 today and get results very quickly.

  2. Social-media advertising. Social-media advertising relies on popular social media sites (such as Facebook, LinkedIn and Twitter) to generate leads through pay-per-click ads and tweets on sites that target customers in specific demographics. You bid on the amount you are willing to pay for a click or promoted tweet (such as $2), and a daily budget (like $1,000).

  3. Display advertising. To use online display ads to generate leads, you post ads on websites frequented by your target audience or ones with content related to the ad. Display ads on mobile devices, including video and audio, also offer a new opportunity to reach target customers.

  4. Email marketing. This one has been around a long time but still works well if your target demographic is well defined and you do your homework to buy or rent a top-quality mailing list. New technology allows for psychographic targeting (such as finding people who like to travel) and geotargeting (specifying a certain neighborhood) for improved response and spam avoidance.

  5. Direct mail marketing. Some consider direct mail very expensive or dead as a lead-generation tool. Yet it is more alive than ever before. Nearly $50 billion is being spent annually on direct mail, according to statistics, and the amount has been increasing each year. Compared with other methods, it does require the largest up-front investment, mostly for printing and shipping.

  6. Cold calling. This is still one of the best vehicles if your business has a small, well-defined purchasing audience as do government agencies or medical establishments. You need to first purchase or build a targeted list of clients from a trustworthy source, then refine it with some new tools, like LinkedIn and Gist, before contacting them with a good script.

  7. Trade shows. Such forums are still the best opportunity for you to meet face-to-face with people who should be interested in your products or services and to display your goods in person. Pick the right shows, start small and work hard ahead of time on your marketing materials, giveaway tchotchkes and booth staffing.

In all cases, it is crucial to set specific goals for each lead-generation campaign, keep track of the overall costs and measure the return on your marketing investment in terms of cost-per-action and cost-per-sale. Don’t hesitate to use small test projects to compare the results of multiple approaches.

Technology and consumer feedback have indeed changed the landscape. Telemarketing and robocalls, once a popular approach to lead generation, have been the subject of continuing legislation, which many believe will soon eliminate these options. The last thing a new business needs is to antagonize potential customers or become embroiled in controversy.

Plus lead-generation strategies can be updated by the flood of new technologies and software, including use of near-field and Bluetooth communications, QR codes, social check-in promotions, mobile search, mobile web, text, SMS, MMS and geolocation.

Whether you are an entrepreneur with a new startup, or even a more mature business charged with improving your growth and competitive posture, don’t fall into the trap of assuming that the new social media initiatives and focus on viral will mitigate your need to do proactive lead generation. How many of these lead generation techniques are funded in your business plan?

Marty Zwilling

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Wednesday, August 15, 2018

7 Excuses For Giving Up Instead Of Persevering To Win

never-stop-tryingWhen I heard a friend and business mentor say, “Your startup won’t fail if you don’t quit,” I realized that every entrepreneur should adopt “never give up” as their mantra. Rather than quitting, there are always alternatives, like pivoting the business model or merging with new partners for support. Either could improve the statistic that half of startups fail within the first five years.

Nothing is more discouraging to aspiring entrepreneurs than the high failure rate. So why do most startups fail? Many experts say that running out of money is not the primary reason. The number one reason seems to be that the founders just walk away. Of course, they may be out of money as well, but that is often more of an “excuse” than a reason.

Here are some common face-saving excuses that I hear from entrepreneurs abandoning their startup, along with some suggested alternatives to the hard stop and exit:

  1. “I’ve lost my passion. I’m not enjoying this anymore.” This suggests that you've become discouraged with your current business model, possibly because of an unanticipated problem or pivots you made to avoid a competitor or make more money. My suggestion is to morph the current business idea back into one than you can love and enjoy rather than your quitting and accepting an employee role that's not your preference.

  2. “My idea is just too far ahead of its time.” You probably realize that the leading edge is very near the bleeding edge, where only early adopter customers dare to tread. On the other hand, if you wait for competitors to get there first, you may be left in the dust with no customers. Yet if you already have some early adopters, that's a good indication that real marketing and education will likely bring your product or service mass acceptance. So hang in there and get busy. 

  3. “I can’t find any trustworthy investors these days.” If you can’t bootstrap the venture yourself, find a partner, friend or family member, rather than a professional investor to carry some financial weight. Otherwise, look for advances from distributors, vendors or even future customers. Try bartering services you have for something you need. I’ve seen countless creative solutions to the cash-flow problem by entrepreneurs who don’t quit.

  4. “The people on my team are not really committed.” We all make people mistakes or set employees' expectations too high. So you made some bad hiring or partner decisions. Now is the time to face up to these issues and reset your expectations or move out the people who don’t fit. The sooner it's done, the happier you all will be.

  5. “I just don’t have the business skills I need to compete.” Acquiring business skills is not rocket science; they can be learned on the job, as well as supplemented by coaching from an experienced team and advisors. If you knew all the answers, you would be bored and lose interest (see number 1).  Half the fun lies in the learning challenge, so don’t quit now.

  6. “It’s now obvious that there is no market for what I created.” It has never been enough to build a solution and then wait for people with the right problem to find you. There are a wealth of tools available today, relying on social media and marketing, to create or foster the market your company needs. Big markets never spring up fully grown out of the ether.

  7. “My company grew too fast, and the pressure and costs are killing me.” Perhaps it's time to reset your course to focus on business basics, so you can lighten your load. Or maybe it’s time to scale back and focus more on organic growth. But quitting right as your company is encountering success is foolish. Professional investors would love to help you scale your business

Most people agree that entrepreneurs learn more from their mistakes and pivots than they do from easy successes. Investors tell me that they are wary of funding an entrepreneur who refuses to admit any prior failure. So it’s smart to admit your struggles, rather than let them defeat you or drive you to excuses.

It's worth remembering that nothing really important is all that easy. Starting a business is just like building a new relationship; it takes work. At times you might feel like running your business is not worth all the effort, but just walking away is not very satisfying. Learning, solving some hard problems and achieving success are a lot more fun than failing. Why not make “never giving up” your mantra?

Marty Zwilling

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Monday, August 13, 2018

7 Keys To The Investor Challenge For Your New Venture

box-of-hundred-dollar-billsAccording to the entrepreneurs I advise, the biggest challenge they typically face in starting a new business is funding. It consistently takes a huge amount of time and effort to find an investor you can trust, and that constrains your efforts in developing the solution you envision. People always expect that it should be easy to find investors, given their passion and excitement for the solution.

Yet according to recent data compiled by Fundable, 57 percent of successful entrepreneurs end up funding their startup, and that’s a good thing. If you want to run your own show, and not hand off a large chunk of future financial gains before you start, the only approach is to dip into your own resources, or even work for someone else a while and save until you are ready to break out on your own.

According to the same sources, another 38 percent get support from family and friends, so that leaves only five percent who rely on crowdfunding, banks, angels, or VCs. The hard work begins then, in finding a match for your domain and solution readiness stage, as well as an investor that matches your vision, values, and needs. Here are the steps I recommend to optimize your efforts:

  1. Prepare a killer pitch and backup materials prior to investors. Many entrepreneurs I know approach investors before they have a pitch. You only get one chance to make a great first impression, so you need ready answers to key financial and business issues. Do your homework on opportunity, competitors, financial projections, funding required, and hook investors the first time you can with an executive summary and ten-slide pitch.

  2. Request warm investor meetings from peers and advisors. The old cold call or broadcast email to anyone who has “investor” in their bio just doesn’t work. In my experience, an introduction from a mutual friend or business associate will double or triple your odds of closing a deal. In fact, advisors and peers are the ideal investor.

  3. Ask for help from people who really believe in your solution. Your advocates feel a real stake in your success, and will often do much of the legwork for you, if not becoming an investor themselves. In any case, they can expand your community of believers, which is a key to success in crowdfunding, or passing the due diligence of a professional.

  4. Participate in relevant industry events and thought-leader forums. You need all the visibility and credibility you can muster to attract investors, and working at this level will also give you valuable feedback on your strategy and solution. It’s also the place to meet future partners positively, and even competitors before they realize they should hate you.

  5. Schedule early high-profile customer calls for partnerships. As much as you need an investor, you need a few key customers to be your advocate and beta test site. These customers may also decide to fund you via royalty advances, or even a partnership. You benefit from their visibility, and they get personalized service and the features they need.

  6. Offer a realistic equity percentage to generate interest. Professional investors know that real help requires serious effort on their part. They will be turned off by single-digit equity offers and loan requests with low return potential. First-round funding requests should offer equity in the twenty to thirty percent range to justify serious ROI potential.

  7. Establish a positive and active relationship with investors. Investing in your venture isn’t a “fund it and forget it” scenario for any serious investor. In fact, investors will grow wary when there’s too much silence, or any effort to treat them as adversaries. Your reputation is dependent on sincere communications, inclusion, and common goals.

The ideal professional investor also changes as your startup matures. Angel investors typically are best for initial early-stage rollout funding, while venture capital firms typically are most valuable in later rounds, when you have real traction, higher valuation, and need larger investments for scaling the business across the country or across the globe.

Even if you decide to bootstrap or fund your own startup, the steps I recommend for preparation and execution are still valuable, since you are thus the key investor, and will benefit from the proper disciple on plan preparation, industry interaction, and customer involvement. Casual and random efforts can quickly turn your startup into an expensive hobby, rather than a business.

Marty Zwilling

*** First published on Inc.com on 07/27/2018 ***

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Sunday, August 12, 2018

5 Indications That You Can Survive Startup Failures

Steve-Jobs-resilienceYou can’t survive as an entrepreneur without resilience, because you are going to fail at least once, maybe multiple times. That’s the nature of trying something that’s never been done before. Resilience means not giving up, and being energized by what you have learned. As Thomas Edison said, "I have not failed. I have just found ten thousand ways that won't work."

If you need more evidence that great entrepreneurs survived through resilience, just look into the backgrounds of more recent entrepreneurs like Steve Jobs, Bill Gates, and Elon Musk. They all experienced multiple setbacks along the way, but they persevered to become some of the most well known and respected entrepreneurs of our time.

In a classic book on the subject, “Stronger: Develop the Resilience You Need to Succeed,” by George Everly, Douglas Strouse, and Dennis McCormack, these experts on the subject of human behavior and resilience outline five key factors of personal resilience, which I believe every aspiring entrepreneur should understand and develop before initiating a startup:

  1. Maintain active optimism. Optimism is the mindset to expect the best outcome from every situation. This gives entrepreneurs the capacity to pivot from a failing tactic, and implement actions to increase success. The key to building active optimism is observing how others were successful in similar situations, and believing you can do the same.

  2. Courage to take decisive action. Decisiveness mitigates adversity, helps you rebound, take responsibility, and promotes growth. Building decisiveness requires eliminating fear, procrastination, and the urge to please everyone. Practice making decisions as a positive learning experience. Understand that any decision is usually better than no decision.

  3. Let a good moral compass guide you. We all need a guiding light when adversity strikes. The four points of honesty, integrity, fidelity, and ethical behavior work best in business and personal life. Solidify your moral compass by setting virtuous goals, keying off the norm of inspiring peers, practicing self-control, and celebrating every successes.

  4. Show relentless tenacity and determination. Decide that giving up is simply not an option. Learn that tenacity is self-sustaining when persevering actions are rewarded. Find tenacious role models, and garner the support of peers and friends. Great entrepreneurs become tenaciously defiant when told they cannot succeed. Then they get it done.

  5. Gain strength from the support of others. Interpersonal support is believed to be the single best driver of human resilience. In business, this means that the people you surround yourself with are crucial – team members, advisors, investors, partners, and peers. Avoid toxic people like the plague. Practice active listening and show appreciation.

Very few entrepreneurs are born with the resilience needed. Yet, it is something any startup founder can acquire as an advantage in the ever-more-competitive business world. A good part of it is fighting the urge to revert back to our comfort zones, and fall back into old habits. From the pain of failure comes wisdom, from fear comes courage, and from struggling comes strength.

Resilience also comes from paying attention to your own needs and feelings. Entrepreneurs need to engage in outside activities that they enjoy and find relaxing, to keep their body and mind fit to deal with the unending challenges of every business. In addition, it’s important to have a higher level purpose in life, such as insanely great design, to guide your resolve and your decisions.

The Steve Jobs story of resilience is a classic example of a higher purpose, woven into the five factors above, ultimately leading to success. His elegant design decisions may have failed him initially at Apple, but he went on to hone them at NeXT and Pixar, and finally won his legacy by coming back to Apple with winning innovative designs for the iMac, iPod, iPhone, and iPad.

Steve never gave up, and that’s the essence of resilience. That’s what I look for as an angel investor in entrepreneurs, and that’s what everyone looks for in a leader. What have you done lately to build and demonstrate your resilience?

Marty Zwilling

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Saturday, August 11, 2018

10 Success Strategies Without Requiring Alpha Leaders

Alpha-business-leadersThe reigning theory in business has long been that “alpha” leaders make the best entrepreneurs. These are aggressive, results-driven achievers who assert control, and insist on a hierarchical organizational model. Yet I am seeing more and more success from “beta” startup cultures, like Zappos and Amazon, where the emphasis is on collaboration, curation, and communication.

Some argue that this new horizontal culture is being driven by Gen-Y, whose focus has always been more communitarian. Other business culture experts, like Dr. Dana Ardi, in her classic book “The Fall of the Alphas,” argues that the rise of the betas is really part of a broader culture change driven by the Internet, towards communities, instant communication, and collaboration.

Can you imagine the overwhelming growth of Facebook, Wikipedia, and Twitter in a culture dominated by alphas? These would never happen. I agree with Dr. Ardi’s writing, that most successful workplaces of the future need to adopt the following beta characteristics, and align themselves more with the beta leadership model:

  1. Do away with archaic command-and-control models. Winning startups today are horizontal, not hierarchical. Everyone who works there feels they’re part of something, and moreover, that it’s the next big thing. They want to be on the cutting-edge of all the people, places and things that technology is going to propel next.

  2. Leaders of tomorrow need to practice ego management. They should be aware of their own biases, and focus on the present as on the future. They need to manage the egos of team members, by rewarding collaborative behavior. There will always be the need for decisive leadership, particularly in times of crisis, so I’m not suggesting total democracy.

  3. Winning contemporary startups stress innovation. Betas believe that team members need to be given an opportunity to make a difference – to give input into key decisions and to communicate their findings and learnings to one another. Encourage team-members to play to their own strengths so that the entire team and organization leads the competition.

  4. Put a premium on collaboration and teamwork. Instead of knives-out competition, these companies thrive by building a successful community with shared values. Team members are empowered and encouraged to express themselves. The best teams are hired with collaboration in mind. The whole is thus more than the sum of the parts.

  5. In the most winning companies, everyone shares the culture. Leadership is fluid and bend-able. Integrity and character matter a lot. Everyone knows about the culture. Everyone subscribes to the culture. Everyone recognizes both its passion and its nuance. The result looks more like a symphony orchestra and less like an advancing army.

  6. Roles, identities and responsibilities mutate weekly, daily, and even hourly. One of the big mistakes entrepreneurs make is they don’t act quickly enough. Markets and needs change quickly. Now there is a focus on social, global and environmental responsibility. Hierarchies make it hard to adjust positions or redefine roles. The beta culture gets it done.

  7. Temper self-esteem and confidence with empathy and compassion. Mindfulness, of self and others, by boards, executives and employees, may very well be the single most important trait of a successful company. If someone is not a good cultural fit, or is not getting it done, make the change quickly, but with sensitivity. Pain increases over time.

  8. Every individual in the organization is a contributor. The closer everyone in the organization comes to achieving his or her singular potential, the more successful the business will be. Successful cultures encourage their employees to keep refreshing their toolkits, keep flexible, keep their stakes in the stream.

  9. Diversity of thought, style, approach and background is key. Entrepreneurs build teams, not fill positions. Cherry-picking candidates from name-brand universities will do nothing to further an organization and may even work against it. Put aside perfectionism, don’t wait for the perfect person – he or she may not exist. Hire track record and potential.

  10. Everyone need not be a superstar. It’s about company teams, not just the individual. In case you hadn’t noticed, superstars don’t pass the ball, they just shoot it. Not everyone wants to move up; it’s ok to move across. Become their sponsor – onboarding with training and tools is essential. Spend time listening. Give them what they need to succeed.

Savvy entrepreneurs and managers around the world are finding it more effective to lead through influence and collaboration, rather than relying on fear, authority, and competition. I believe beta is rapidly becoming the new paradigm for success in today’s challenging market. Where does your startup fit in with this new model?

Marty Zwilling

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