Wednesday, May 23, 2018

8 CEO Traits That People See As Strength Of Character

Warren_Buffett_KUAs an angel investor in early-stage startups, I’ve long noticed my peers apparent bias toward the strength and character of the founding entrepreneurs, often overriding a strong solution to a painful problem with a big opportunity. In other words, the entrepreneur quality is more important than the idea -- in investor jargon, people invest in the jockey, and not the horse.

I’ve often wondered if anyone has quantified the implied assumption that leadership character is indeed a critical element of the success equation for startups, so I was pleased to see the classic book “Return On Character,” by Fred Kiel, a renowned leadership consultant. He has completed a study of more than 100 CEOs, with feedback from over 8,000 of their employees on this topic.

His research concluded that CEOs who received high scores for character also achieved much higher business results – nearly five times the average return on assets (ROA) during the two-year period covered. On the other hand, those CEOs with the lowest character scores (self-focused) were distrusted and suspected of telling the truth only slightly more than half the time.

Through interviews, Kiel identified eight common traits and habits exhibited by all the CEOs with a top character ranking (deemed virtuoso CEOs – masters of the skills and art of leadership):

  1. Displayed and demanded high moral principles. These are summarized as the four keystone character habits of integrity, responsibility, forgiveness and compassion. The authors found these to be achievable through self-training and practice, rather than requiring a genetic endowment. That means all of us have a chance.

  2. Embraced a worldview of positive beliefs. The scope of the positive leadership views included human nature, organization life, and personal purpose. The lower character leaders were consistently more negative and pessimistic in their worldview. In both cases, the beliefs tended to become realities.

  3. Developed a higher level of mental complexity. A leader judged high on cognitive complexity tends to perceive nuances and subtle differences that a person with a lower measure does not. High leaders continually challenged their own ideas and were quicker to adapt them to encompass new information, experiences, and meaning.

  4. Sought out and listened to critical feedback from others. High scoring leaders seek and positively respond to feedback from three critical groups: peers, customers, and direct reporting team members. Self-focused leaders, on the other hand, are more likely to resort to denial when faced with unpleasant feedback.

  5. Find and enjoy the company of one or more mentors. The leadership benefits of mentoring start in childhood, but are just as important at the mature CEO level. Virtuoso leaders recognize and seek three types of mentoring – career mentoring for the longer term, peer mentoring for tactical guidance, and life mentoring for quality of life balancing.

  6. Demonstrate the ideas and behaviors of self-determination. Leaders with a high level of self-determination continually seek more competence in their chosen domain, relatedness and connectivity to other stakeholders, and the autonomy to act in harmony with an integrated view of themselves.

  7. Virtuoso leaders know their life story. By crafting a coherent narrative of their life, they are better able to understand the major events and influences that have shaped their personal development and use that understanding to assess and improve their response to new situations as they arise.

  8. Sought and accepted help from many supportive people since childhood. Leaders who have sought help from natural helpers since childhood, including parents, teachers, and business influencers, usually feel more accepted, respected, and affirmed, and pass that feeling on to followers.

While Kiel’s focus was not specifically on startups, I believe the insights and conclusions apply equally well, if not more so, to startup environments. Every entrepreneur needs to understand the importance of character and leadership is to their growth and success, as well as their ability to attract investors. The return on character in business is well worth the investment.

Marty Zwilling

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Monday, May 21, 2018

7 Accelerants For Team Learning And Business Growth

growth-team-learningWe all want opportunities to learn, experiment, and grow in our jobs, but most bosses and businesses tend to seek out and reward team members who already know how to do the job, and can repeat the task without fail as the business scales. I believe this is the conundrum that leads sadly to less than 30 percent of people being fully engaged at work, and low morale all around.

As a former manager in big businesses, as well as the founder of my own small startup, I found that leading team members on their own learning curve, and designing their job to maximize learning and engagement, is a win-win situation for the business as well as the employee. The best part is that everyone is poised for today’s rapid market changes, rather than fighting them.

I was pleased to see this approach highlighted in a new book, “Build an A-Team,” by Whitney Johnson, an award-winning Wall Street analyst, writer, and keynote speaker on business and career innovation and growth. I fully support her outline of seven accelerants of learning and growth in business, which I believe every manager and entrepreneur should practice:

  1. Become a talent developer, by taking some risks with people. This starts by finding new hires that have to stretch to fit the role, and mentoring them as they learn. Every team member should be rewarded for taking market risks to grow themselves and the business. Actively create and share a plan to move them to new roles as they mature.

  2. Pinpoint individual distinctive strengths and utilize them. To perform at the highest level, and get the greatest satisfaction, each member of the team must operate from a position of personal strength in job assignments. Because we all have a tough time spotting our own strengths, your job is to help people find and deliver in their best roles.

  3. Impose thoughtful constraints on time and budget for focus. We all want unbounded freedom to do a job, but we also realize that tasks tend to expand to fit the time and budget allotted. Reasonable constraints force team members to be resourceful, creative, and learn from taking risks. The result is personal and business growth and innovation.

  4. Battle against entitlement, yet celebrate even small successes. Fearing an increased sense of entitlement, manager sometimes dial back on praise. Smart managers learn to reward progress without entitling team members. Disruptive innovation thrives in an environment of gratitude and continuous learning, rather than one of entitlement.

  5. Position stepping backward as a way to move forward. Many of the best companies support taking a leave of absence for additional education or training. This step back from current responsibilities can be a slingshot to greater long-term growth. The same can be said for side assignments of other countries, or broadening roles in other organizations.

  6. Give failure its due, and push employees to new challenges. Learning from failure is not always instinctive, but you can help it be constructive rather than destructive. In the same way, a good manager is a bit like a parent, pushing charges into uncomfortable situations and helping them grow and learn. Good employees love stretch assignments.

  7. Encourage individualized discovery-driven growth. This is called planning to learn, rather than learning to plan. You need to have a destination in mind, but let your team members tell you the best way to get there. Pit them against the real challenges, and innovation will follow. Be quick to shift team members as their skills and talents evolve.

If you follow these initiatives, I assure you that you will drive higher performance and higher morale in the organization, as well as become the boss people love. People need continuous learning and fresh challenges to stay engaged, and your business needs it to thrive, no matter what the economy and your industry throws at you.

In my advisory role, I often see the alternatives, and they are not so positive. You will lose your high potentials, and even if they do stay, they won’t innovate and your business will become less competitive. You will be beaten by faster-adapting competitors because you won’t be prepared for the future. Remember that the single biggest impediment to innovation could be you.

Marty Zwilling

*** First published on Inc.com on 05/07/2018 ***

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Sunday, May 20, 2018

Entrepreneurs Can Capitalize On The New Gig Economy

gig-economy-entrepreneurThe era of stable lifetime jobs for business professionals within a single company are gone. Companies are rightsized quickly now as markets change rapidly, and business professionals are quick to jump to new opportunities for growth and survival, with no ties to special benefits or pension plans. Thus smart business professionals are rapidly becoming the new entrepreneurs.

As a mentor to startups, I see more startups that are really an individual professional, marketing themselves as a consultant or freelancer in this new gig economy. This is a positive in uncoupling them from a dependency on a single company or boss, but the downside is that they have to suddenly manage all facets of a business, including finances, strategy, and savings for the future.

Of course, entrepreneurs delivering services have existed for some time, including business consultant, independent contractor, and freelancer titles. But these titles are not descriptive of specific roles or skills, and have always had marginal credibility in the business community. I suggest that new entrepreneurs lead with their “professional” title, which suggests their focus and specialized skill, and can be applied to almost any role. Here are some examples:

  • Marketing Professional. Every company and startups needs marketing experts, who are skilled and knowledgeable in the development of marketing programs, content creation, lead generation, and the utilization of social media. This world changes rapidly, and needs a professional with experience in digital and conventional media to keep up.
  • Software Development Professional. Even big companies I know find it hard to keep their in-house programmers up to speed on the latest technologies, including mobile devices, the latest Web technologies, and multi-tenant applications in the Cloud. More and more are scouring LinkedIn for specialists willing to do short-term relationships.
  • Staffing Professional. Staffing requirements come and go in every company, big or small. One of the harsh realities for most product entrepreneurs is that they have deal with hiring and firing as their company grows, and they have no experience or idea where to start. For existing trained professionals, it’s an opportunity to become an entrepreneur.
  • Administrative Professional. Long ago, these were called secretaries, often starting in the typing pool, with the best aligning themselves with an advancing executive, leading to a long career. Now the new breed of these is a self-managed entrepreneur, working remotely, with real expertise on the administrative tools and ways of business today.
  • Sales Professional. The best sales people in any company are highly focused, and self-motivated by the commissions they can earn by closing a few big deals. They know how to capitalize on social media, viral marketing, events, and the new tools of the trade. They are always ready to move on to the next big opportunity as markets change.

I’m sure you can think of a dozen more examples today. Tomorrow you may be looking for a Personal Finance Professional, Health-Care Professional, or even a Startup Professional. We are becoming a society of entrepreneurs. Even the education system is starting to recognize this, with entrepreneurial courses and majors springing up in every university across the world.

Thus you don’t need to invent an innovative product or technology to be a real entrepreneur. The cost of entry as a services professional is at an all-time low, with powerful free tools to create your own website, cheap incorporation of yourself as a Limited Liability Corporation (LLC) via the Internet, and community colleges offering courses for anyone in the new technologies.

The challenge is that not everyone is ready and willing to take on the responsibility for their own skills, lifestyle management, and financial stability. Many of these new entrepreneurs come to me looking for an angel investor or crowdfunding, which will never happen. Investors don’t fund entrepreneurs offering services, since these don’t scale, don’t have large margins, and need just a customer contract to start.

So if you have some resources, some skills, and some confidence in yourself, maybe it’s time for you to jump on the entrepreneurial bandwagon. There is no longer any excuse for a professional businessperson to be stuck in a position they don’t enjoy and can’t control. The entrepreneur lifestyle is much more satisfying, and has unlimited potential.

Marty Zwilling

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Saturday, May 19, 2018

7 Benefits of Promoting Your Dream Before Building It

TopSecretIt’s still popular these days for startup founders to operate in stealth mode, meaning no details about the idea or progress are shared with anyone until the big reveal and rollout. The common reason given is that this prevents any competitor from stealing their idea and beating them to market. In my view, this paranoid approach costs them much more than the risk of being open.

I’m not suggesting that a startup should ever disclose patent details to others before filing, but I can’t imagine why a startup would not seek visibility and feedback for their idea and solution while they could still make changes with minimal cost. Pivots and corrections are inevitable for startups in this age of rapid change, and the earlier you make them, the quicker you get to success.

Being open is the new business culture around the world. Entrepreneurs talk to customers and competitors talk to each other about the new trends and technologies they see. Coopetition is the new mantra for growing your business faster. Here are seven key reasons that being open is better for your startup than trying to fly under the radar:

  1. Visibility generates interest. You can’t get any word-of-mouth or media activity by hiding. Before you finalize the product is the best time to talk about it and see if you can get some buzz started. This will do more for your first mover advantage than more time in the lab. Most people agree that even negative media attention is better than none.

  2. Evaluate customer response prior to development. It’s never too early to get real feedback from the people who count. No matter how passionate and certain you are that your idea is perfect, the reality is that you will likely need to pivot at least once. Why not make the change before you have wasted significant time and money?

  3. Get competitors to surface early. You may be convinced that no competitors exist, which is very unlikely. If there really are no competitors, then there is likely no market opportunity, or you haven’t looked yet. If your position is so tentative that knowledge of your idea puts you in jeopardy, you need to know it sooner, rather than later.

  4. Demonstrate a minimum viable product (MVP). Surface your prototype, get customer feedback, make corrections, and iterate until you get it right. Startups in stealth mode often have a false sense of security that they can take extra time to do the job right the first time. Customer feedback is required to get it right, and hidden time is wasted time.

  5. Meet investors before asking for money. The time to build investor relationships is before you need the investment. It gives you credibility to mention your idea in general terms, without immediately asking for money. This can help you get in the door when you are ready, and asking questions early will give you insights on investor priorities.

  6. Pivots can be done gracefully at this point. Customer credibility actually improves when they see you making changes based on their input, and the cost of correcting mistakes early is lower. Operating in stealth mode for an extended period tends to convince entrepreneurs to believe their own biases, and visibly fight the need to change.

  7. Optimize your web history and presence. Stealth mode normally means no time for search engine optimization prior to product launch, not to mention relevant blogging activity, and link building. This means your whole startup effort will appear as very early stage for investors, and will likely not be adequately tuned for customers.

On the other hand, stealth mode does make sense for large companies, like Apple and IBM, who will likely be sued for pre-announcing a future product, since other companies have used this ploy in the past to freeze the market and lock out new competitors. Of course, even startups can get into serious trouble by talking about products and direction with no intent or ability to deliver.

I also realize that there are a limited set of startups, facing particularly entrenched and unscrupulous competitors, where early stealth mode is necessary. With most other classes of startups today, including smartphone apps, web services, and social media applications, early customer feedback is critical, and time to market is of the essence, so secrecy is more of an excuse than an advantage. Who are you fooling by not allowing your startup to be found?

Marty Zwilling

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Friday, May 18, 2018

8 Early Indications Of Trouble Ahead For Your Venture

graph-business-in-troubleAs a company executive, or a business advisor, we have to always be on the alert for indications that your business, while looking calm on the surface, has strong undercurrents starting that can lead to disaster. You don’t want to be in one of those high-flying companies, like Webvan, Pets.com, and eToys, that almost made it to the big time, before fading or crashing into oblivion.

You can’t always believe what you hear after the fact from company executives, or even industry analysts. Popular rationales include attempting to grow too fast, product quality problems, and missing the market, but the realities often go much deeper. Here are some early signals I see too often, which are recoverable if recognized and acted on sooner rather than later:

  1. Competing or toxic cultures start to build momentum. Everyone on the team must share the same purpose, values, and goals. Unhappy employees usually indicates that multiple agendas exist, such as some people driven by customers, and others by technology. The founder or top executives must set one culture by words and actions.

  2. Company leaders don’t maintain trust and transparency. When I do due diligence for investors, and I find team members hesitant or openly negative when talking about the leadership team, there is likely a trust issue, or at least a failure to communicate. Leaders need to “say what they mean and mean what they say” all the time and every time.

  3. More passion is being applied to a product that is not ready. If your solution doesn’t work, or can’t be delivered in the marketplace, no amount of determination or passion will save you. For high technology solutions, almost working is failing. Business leaders need to be realists, to understand when to pivot and when to fall back in recovery mode.

  4. Poor cash flow management is leading to bad decisions. Vendors and most people on your team need to be getting paid on a predictable basis, or their loyalty quickly turns to retribution. Soliciting timely and adequate funding is more critical than development. Too much money can have the same negative effect on focus and decision making.

  5. Uncontrolled team conflict is killing productivity and motivation. The best business teams don’t shy away from some healthy friction and heated debates between team members and leaders, to recognize innovative insights and make change happen. Yet we all know that there is a fine line here, beyond which heated debates generate so much emotion and drama that the entire team becomes dysfunctional, stalling progress.

  6. Great technology is touted as the long-term business savior. No matter how amazing your technology, a successful business requires marketing, solution delivery, and customers with a problem and the right amount of money to spend. Even if early-adopters are quick to jump, make sure the mass market appreciates your solution.

  7. Plans and priorities are changing at an accelerating rate. In these times of rapid market evolution, it’s good to see plan change agility. Yet, this change ability must be managed, and not allowed to degenerate into chaos, with less and less communication from the top. If you don’t know where you are going, you probably won’t get there.

  8. Putting more focus on blame than resolution and prevention. Every business makes mistakes when taking risks for growth and innovation. Companies in trouble tend to assume a victim mentality and blame factors outside their control, rather than learn from experience. Team members need to be rewarded for taking risks, rather than punished.

These signals are usually accompanied by a variety of others, including key leaders jumping ship, overall reduction in morale, rapid organizational changes, and micromanagement. If you see these symptoms in your own company, there still may be time for recovery, or it may be time to join the exit before disaster strikes.

The best antidote I know for heading off all these problems is building an advisory team early, consisting of no more than five external advisors, who have individual expertise and experience in similar business domains, and then actively listening to their perspective and recommendations. Don’t let the waves of change become a tsunami that you don’t see coming until it is too late.

Marty Zwilling

*** First published on Inc.com on 05/02/2018 ***

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Wednesday, May 16, 2018

8 Ways To Test The Depth Of A Startup Before Joining

Pierre_Omidyar_Richard_BransonEvery startup founder loves to prompt for questions from investors and potential key team members about their vision, and the huge opportunity that can be had with their disruptive technology. Yet if you are on the other side of the table, there are some other key questions that you need to ask, which will tell you more about the real success prospects for this business.

Enthusiastic startup founders may try to deflect or minimize these questions in true media-training style, so you need to be patient, calm, and persistent to get the whole story. From my perspective as an investor, I recommend that every founder needs to know the answers to these questions, be open and honest in answering them thoughtfully, and without making excuses:

  1. What is the current runway and burn rate? These terms quantify how fast money is being spent, and how long the business can survive before another round of investments is required. Early stage burn rates over $50K per month, or a runway of less than six months may indicate an inefficient or desperate startup. Think twice before you jump in.

  2. How complex is the capitalization table? The allocation of shares among the founders, and the number and size of outside investments, will tells volumes about the health, stability, and management of the business. Most founders like to talk about their many months or years of sweat-equity, but cash invested is a stronger commitment.

  3. When did this effort really start, including pivots? If the company has been around for more than a couple of years, and still has no product or revenue flow, there better be a good explanation. One more key employee or one more investor will probably not turn the situation around. History gaps and founder turnover may indicate a long road ahead.

  4. Does everyone on the team have a clear role and mutual respect? You won’t get this answer directly from the founder, so ask to talk to other key team members to make sure everyone is carrying their weight, and communicates effectively. Some conflict and differing perspective is healthy, but too many titles or close relatives should be suspect.

  5. Any outside advisors or board members available for discussion? Every startup should have at least a couple of outside advisors who are not major investors or family members, anxious to talk to new investors and key new hires. These should be people with complementary skills to the founders as well as industry expertise or connections.

  6. Is there a real customer willing to give a testimonial? Don’t be sidetracked by potential customers in the middle of a free trial, or friends of the founder. If it’s too early for customers, make sure you understand exactly when the product ships, how detailed is the rollout and promotion plan, and how many times these plans have changed.

  7. Are any lawsuits and challenges to intellectual property pending? Before you invest your life savings, or bet your career on this startup, you need to know how much of a barrier to entry the brand and patents are projected to be. If you have questions or concerns, now is the time to seek legal advice, not after the fact.

  8. How much and when can I reasonably expect a payback? Since nine out of ten startups fail completely, serious investors look for a 10X return on their investment within five years. Look for examples of similar companies and revenue multiples achieved from acquirers. Calculate employee stock option values and vesting times, as well as salary.

These questions are the key ones in every due diligence effort, always done by accredited investors, but almost never done by key employees and new partners. Ironically, startup investors are normally in less personal jeopardy than early startup employees. Smart investors know that many startup investments will fail, while employees always plan on million dollar payouts.

In any case, in addition to the grand vision and the chance to change the world, I recommend that it’s worth your while to calmly and assertively get some good answers to some hard questions from a passionate startup founder before you sign your life away.

Marty Zwilling

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Monday, May 14, 2018

8 Keys To Successfully Bootstrapping Your New Venture

money-bootstrap-startIf you really want to start a business your way without a boss or professional investor hovering over you, then just fund it yourself or through friends and family, and grow it organically. It’s more possible to bootstrap today than a few years ago, as the cost of entry continues to go down. According to Investopedia, over 90 percent of successful businesses currently start this way.

With one of the new free tools and a dose of sweat equity, you can create a website for almost nothing -- and you are on your way to success with ecommerce, your latest invention or personal services. It’s equally easy to go online and incorporate your new entity, register some intellectual property and have some fun with social media for marketing and interacting with customers.

The key to successful bootstrapping is to master the do-it-yourself approach, defer compensation or barter services whenever possible and become a frugal minimalist in all things requiring a cash outlay. Here are the key principles I recommend as an advisor to many entrepreneurs:

  1. Start your business in your own home. With the advent of the Internet, the size and address of your office is irrelevant. Most new teams are geographically dispersed these days anyway, so paying rent for an office should be differed to later stages when revenue is plentiful. You will be in good company with the many legends who used this approach.

  2. Barter services for access to required resources. Don’t rationalize a big investment in basic equipment with long-term requirements thinking. Look for a part-time job in a local or family business to provide access to things you will need only occasionally, such as a high-speed printer, video equipment or product assembly tools and storage.

  3. Learn to be a generalist rather than a specialist. With the unlimited access to “how-to” videos and detailed instructions on the Internet, you shouldn’t need to hire experts for most things. Likewise, too many volunteers and interns will only increase your workload and rework costs. Use your networking to get advice, but all jobs can be do-it-yourself.

  4. Operate small, but show a big-company image. You don’t need a large building and staff to be visible and heard worldwide. Use multiple social-media channels, blogging, email and voicemail to build the same image and responsiveness as larger competitors. Keep expenses down, but keep customer visibility and sensitivity as a top priority.

  5. Practice living on a shoestring budget. Most successful entrepreneurs take only a very minimum salary during the formative business years and reinvest all profits back into the business for organic growth. Defer your desire for expensive perks and vacations until later when you have time for them. You can have fun without spending big money.

  6. Favor profitability over revenue and user growth. Adding free users or customers to increase valuation makes sense for a venture-backed startup looking to go public, but will kill bootstrapping. Self-sustainability, independence, and real fun requires paying customers, profitability and an early cash-flow-positive business plan.

  7. Use your equity for key executives and business partners. Bootstrapping doesn’t mean that you don’t share equity. You can use it best to entice new team members and partners, giving you more horsepower and commitment for the long run. Investors seeking equity for cash typically want more control and cash-return quickly.

  8. Don’t assume you must plan for exponential growth. Investors have spread the word that you can’t get “hockey-stick” growth without a large cash infusion. In fact, you don’t need exponential growth to give you a good return and be declared successful. You may not be acquired for 10-times revenue, but quick exits and public offerings are no fun.

In summary, bootstrapping means living within your means, watching costs carefully, finding alternatives to cash for building the team and expanding the business infrastructure. Bootstrapping does require a full confidence in your own passion to make decisions and change the world with no investors to lean on or blame. But isn’t that why you signed up to be an entrepreneur in the first place?

Marty Zwilling

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