Wednesday, April 14, 2021

6 Keys to Attracting Customers Based On Social Needs

fashion-beauty-modelAs a logical and data-driven business advisor, I have long focused on facts, technology, and quantifiable pain in guiding entrepreneurs. Yet, these days, I am seeing overwhelming evidence that customer buying decisions, especially with consumers, are often based on emotional and psychological factors, including passions from others, your experience, and social relationships.

For example, my dictate that entrepreneurs need to find a “painful” problem to solve (such as high cost, low productivity) to attract customers, doesn’t really account for many successful startup businesses today, including top social media platforms, dating sites, and new fashions. I now offer the following additional guidelines for how to attract customers and position your product:

  1. Find the latest social trend, or even create it. Consumers seem desperate these days to not be left behind as the crowd moves on. They depend on their favorite social channels and peers on social media to make emotional decisions for them, rather than rely on any kind of “cost-benefit” analysis. I see this even extending into business-to-business.

    For example, the sharing economy is a trend that has resulted in many successful businesses, including Airbnb and Uber. I more often hear of Airbnb rental decisions based on “local flavor” and “hospitable hosts” than any cost advantage or special features.

  2. Nurture relationships with popular social influencers. Most consumers now use their online access from smartphones and tablets to interact with social networks, product reviews, and monitor the videos of culture influencers around the world. These perceived authoritative sources create a community who follow their lead, based on psychology.

    Most experts agree that these people now create and grow more trends than classic push advertisements. By focusing your marketing activities on key individuals known to wield influence in your target customer market, you can deliver a more "authentic" message.

  3. Play to exclusivity, uniqueness, and personalization. Everyone wants to be different, somehow, to stand out in the crowd that they choose to join. Your challenge is to positively influence decisions on your offering by defining its availability as limited, selectively offered, and guaranteed to improve status. All of these tend to override cost and usability.

    Facebook, as an example, credits its early success to initially limiting membership exclusively to Harvard students, and gradually expanded access to other colleges and the world. Other startups use technology to provide personalized products to all customers.

  4. Build positive relationships with potential customers. Customers more than ever want to do business with people they know, respect, and trust, and implicitly allow these factors to override cost and other features. For you, this means get out there and meet your customers, build a relationship via social media and commit to a purpose beyond profit.

    Blake Mycoskie, founder of TOMS shoes, set a higher purpose of donating a pair of shoes to the needy for every pair sold, and found that the return was far greater than the cost of donated shoes. Other studies have shown a return of up to 400 percent for this approach.

  5. Highlight benevolence to customers and society. Every business leader tries to deal fairly with everyone, such as refunding a return from a dissatisfied customer. But these days, it can pay big dividends to go above and beyond to make people happy or benefit society. Your customers will feel obligated to pay it forward, and repay you with loyalty.

    At every Ritz-Carlton, employees are authorized to spend up to $2,000 per guest to solve a guest issue or improve a guest's stay, no matter what the cause. If I experienced that kind of benevolence at any business, I would be an advocate and loyal to the utmost.

  6. Declare your values and unfailingly practice them. Consumers have a long memory, and will test your consistency, based on prior experiences and feedback from peers. A single bad or inconsistent experience will jeopardize their brand loyalty, and a history of positives will generate real “value” that rises above cost and other decision criteria.

Yet don’t assume that any of these will override the basic need of every business to be self-sustaining via revenue to meet expenses over time. I still find entrepreneurs who are passionate about doing good and satisfying customers, but forget to focus on a business model that generates a financial return. The objective of every business must be to do both for all to win.

Marty Zwilling

*** First published on Inc.com on 04/01/2021 ***

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Monday, April 12, 2021

10 Tactics To Shorten Your Race To Cash-Flow Positive

cash-flow-positiveAs I’m sure you are aware, surviving that first couple of years as a new business is a huge challenge, waiting for cash flow to turn positive. In my experience as a business advisor and occasional investor, many of you won’t make it that far, succumbing to the high costs of getting those first customers, funding an initial inventory, and building an operational support process.

Of course, it helps to pick a business model that minimizes these costs, such as e-commerce to minimize initial staff and facilities, or professional services, where you are the initial product. After you have sold your first company for several hundred million, you can then afford to challenge Elon Musk on the next line of electric vehicles, or Apple with a new and better smartphone.

For the rest of us, I’ve accumulated the following additional practical strategies for surviving the scale-up challenges, and making your business profitable and sustainable:

  1. Enlist an experienced advisor to project real costs. Don’t let your passion and “can-do” attitude convince you that you can overcome all financial realities. I’m a big fan of first creating a real business plan, with five-year financial projections, to convince yourself and investors that you have done your homework. The advisor will give you real credibility.

  2. Assess your resource potential before you start. Surprisingly, I still find many aspiring entrepreneurs who assume that if their idea is good enough, funding will appear. There is a reason that ninety percent of startups are still self-funded, and most of the rest have major contributions from friends and family. Build your plan around resources you know.

  3. Start networking for funding before the crisis. Even if you intend to bootstrap the business, or have an anticipated funding source, it pays to start early in lining up an alternative. When the cash crunch hits, or other alternatives change, it’s too late to start looking, and you won’t have any leverage or credibility to negotiate the terms you want.

  4. Join a startup accelerator or structured peer group. The real value of these groups is the relationships you can build with key people who can help you later, as well as the early learning from the incubator organization. These can be a key source of funding connections, vendor contacts, and potential partners during your rollout and scaling.

  5. Negotiate bartering deals versus cash contracts. Don’t underestimate the advantages of providing your products and services in exchange for access to facilities and equipment you need to grow. Especially today, when more companies are willing to work through outsourcing, freelancing, and contracting. Everyone wins with this approach.

  6. Nurture current income sources as long as possible. Contrary to the advice of Mark Cuban, don’t quit your current job until the new business is cash-flow positive. Startups always take longer to get started than anticipated, so jumping in with both feet too early will dramatically increase your risk of running out of money with no buffer available.

  7. Actively seek out government and local incentives. Especially in these times of pandemics and economic initiatives, SCORE and other government agencies are likely to help you if you plan ahead. These programs don’t usually ask for equity, and they are particularly targeted to the early stages of your business to facilitate growth and survival.

  8. Negotiate a line-of-credit with a financial institution. Even if you don’t intend to use it, a line of credit is a great backup for unanticipated scaling costs, such as inventory. It’s another backup that can be arranged much more readily before a crisis, is more often available than a loan, and doesn’t usually cost money until and unless it is really used.

  9. Consider partnerships or joint ventures with competitors. This approach, often called “coopetition,” works best when you find someone who has complementary products, rather than direct competitors. In these cases, you both win by expanding the market. Use this strategy to fill gaps in your product line without great new cash outflow.

  10. Use “white label” or custom contract for extra income. White labeling is custom branding your product for a particular customer, to keep committed resources busy. You see these labels at grocery stores all the time. Similarly, a custom contract for a big customer can get you over a growth gap, without diluting your brand in the market.

In the minds of most business consultants, the challenge of surviving as a business until you make a profit is so great that this stage is often labelled the “valley of death.” It’s the time when your invention or innovation gets transformed into a viable business, or you have nothing. I’m counting on your diligence, as well as your passion, to make it happen for you.

Marty Zwilling

*** First published on Inc.com on 03/29/2021 ***

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Sunday, April 11, 2021

5 New Venture Mistakes That Can Cost You The Business

what-were-you-thinkingAlthough every startup is unique, there are certain common avoidable mistakes that can lead to legal complications which jeopardize the long-term success of the business. I’m not suggesting that every startup needs a lawyer, but you should definitely pay attention, and not be afraid to consult legal counsel if any of these raise qualms for you.

Like other environments, most legal issues don’t result from fraud, but from ignorance on specific requirements, or simply never getting around to doing the things that common sense would tell you to do. Here are five of the most common examples:

  1. Failure to document a Founder agreement at the beginning. This oversight can lead to the so-called “forgotten Founder” problem. Early partners or co-founders often drop out of the picture early due to disagreements, and you forget about them, but they don’t forget about the verbal or email promises you made.

    Later, when your venture is trying to close on financing, or even going public, that forgotten partner surfaces, demanding their original share. This problem can be avoided by incorporating immediately after early discussions, and issuing shares to the Founders, with normal vesting and other participation rules.

  2. Trouble with the IRS over Founders stock value. Many startups delay incorporation until the first formal round of financing, which is too late. At this point your entity may already have several million in valuation, so the IRS will tax your shares at that value immediately as income, just when your cash flow is at its lowest.
  3. The solution again is to incorporate early, when Founders shares clearly have trivial value, and filing an “83(b) election” with the IRS within 30 days of the agreement. Then you will only have pay tax on the increasing value of your shares when they are sold.

  4. Disclosing inventions before the patent application is filed. Entrepreneurs often put off the hassle and the cost of filing a patent until first funding. Then they realize that they have talked to many people without signing non-disclosure statements, precluding a patent, or someone else has now beat them to the filing docket.

    There is no excuse for not filing at least a provisional patent early. This will hold your place in the patent line for a year, and the costs and time for this filing are much less. Even trade secrets need to be documented, and reasonable steps taken to keep them secret. Business plans and other documents should always be labeled as confidential.

  5. Founders ignore non-compete clauses from former employers. If your new business is even remotely similar to that of your current or former employer, think hard about any written or implied non-compete agreements you might have. Do the same for every business partner or employee you may hire.
  6. The best way to short-circuit this problem is to have a frank and open discussion with former employers, perhaps under the guise of asking them to invest in your venture. This is a smooth way to end the relationship, and get some money, or get their lack of interest documented in a note back to them. If a lawsuit is inevitable, better sooner than later.

  7. Taking money from unknown or non-professional investors. Investment fraud continues to be a common subject, even though Bernie Madoff has long been safely behind bars. It’s not a good idea to take money from anyone, even friends and family, without an experienced investment attorney drafting or reviewing the agreement to make sure it complies with federal and state securities laws.
  8. This works to protect you from unscrupulous investors, as well as non-professional investors who may later say that your business plan was misleading. The best advice is to only take investment funds from people who can financially afford to lose, and who qualify as accredited investors.

Overall, the biggest legal mistake that a startup can make is to assume that any legal problems can be resolved later. Finding a lawyer early is easy these days, through local networking or even online services like LegalZoom. In reality, it will cost you much less to get it right the first time, when the stakes are still low, compared to the heartache and cost of correcting it later.

Marty Zwilling

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Saturday, April 10, 2021

10 Ways Leaders Must Change As The Business Matures

business-leaders-matureEntrepreneurs often have formidable technical expertise, key to developing a new product or service, but a great naïveté in management skills. They run into difficulty when their business reaches the $1-2 million annual sales range, or their employee count exceeds 5-10. It’s here that entrepreneurs must shift their thinking from tactical and operational, to strategic and managerial.

I’m convinced that management is a learnable skill. It can come from experience, or from training in a prior company, and it can even be self-taught from the Internet by smart entrepreneurs, just like they learned the skill of establishing a company, negotiating a contract, or filing a patent.

There are also many books on this subject, including this classic from the master on management, Brian Tracy, “Full Engagement!: Inspire, Motivate, and Bring Out the Best in Your People.” In it, he outlines a long list of key management principles for success. I’ve extracted here some key ones relevant to startups entering the growth stage:

  1. Communication clarity is essential. Management is “getting results through others,” not doing it yourself with the assistance of others. That means your chief responsibility is to communicate clearly about what you need done, and who has the responsibility to do it. Your growing team doesn’t automatically know what you are thinking.
  1. Planning has priority over doing. Planning is one of key learning areas, in moving from an entrepreneur to a manager. Your ability to plan, to think through what needs to be done, in advance, on paper, is a critical skill that largely determines your entire future. Your job moves to determining what is to be done, instead of how it is to be done.
  1. Organize your work before you begin. Most startups begin first, and think about organization later. Organizing means bringing together the necessary resources, and assembling the right people, then assigning work to specific people to be accomplished at specific times to specific standards of performance.
  1. Delegate effectively and often. Delegation doesn’t work when you are creating your startup. ‘Not delegating’ doesn’t work when you are growing it later. Remember that delegation is not abdication. It’s still your company, so you have to follow-up, step in for disaster recovery, and keep the interplay between tasks and organizations working.
  1. Staff properly at every level. This is not the same as finding a partner with complementary skills to start your business. It means not only hiring, but training and measuring performance. It means mentoring less experienced team members, and quickly replacing incompetent staff members. These are all skills you can learn.
  1. Focus on high productivity. For growth and success, you need to continually look for ways to increase output, while lowering costs. That’s a big step from one product for one customer. The three R’s for attaining higher productivity are reorganization, reengineering, and restructuring. No entrepreneur is born with these skills.
  1. Set the standard with visible actions. You can only lead by example, and set equally high standards for the people around you. You learn and gain credibility by committing to excellence, and asking customers and team members for feedback and ideas.
  1. Concentrate on the important tasks. All successful managers never forget to concentrate on their most important task and stay with it until it is done. As a startup grows, it’s easy to try to do too many things at once, while doing nothing particularly well.
  1. Identify constraints and their source. Between you and any goal is a constraint setting the speed at which you achieve that goal. The best managers are the most creative in overcoming constraints. Constraints follow the 80/20 rule – eighty percent are from inside, and 20 percent are from the outside. You need to tell the difference.
  1. Concentrate on continuous improvement. No company that is static can grow or survive. Continuous improvement requires strategic planning to set new objectives and work toward them. Every growth company needs to innovate continually, maybe spending 20 percent of your revenues on research and development.

Some entrepreneurs, on seeing all this, will decide they have no interest in being a manager. They should voluntarily bow out early, to start another business. Others will get pushed out, with some pain, by investors who see the need for a new team to lead the growth stage. Even more painfully, too many others won’t bother to change their style, resulting in everyone being unhappy, and a business that stagnates, or even fails.

Things that great entrepreneurs have in common with great managers are that both are results-oriented and action-oriented. They have a sense of urgency, and move quickly. Thus it should be easy to apply those attributes to the learning required for the next stage of your company. Just start now, and do it!

Marty Zwilling

*** Bulgarian translation provided by Zlatan Dimitrov ***

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Friday, April 9, 2021

6 Keys To Finding The Right People For A Winning Team

Winning Team CartoonIf you are a new business owner or entrepreneur, you are likely to be creative and willing to take a risk, and you probably assume that most potential team members have the same mindset. Unfortunately, the reality is that not everyone has that mindset, and one of your toughest jobs is to find the right hires to make your business a success.

In these days of rapid change, the pandemic, and worldwide competition, you need to make sure your entire team is customer-focused, innovative, and always looking around the corner for the next big thing. From my own experience hiring and managing people in large companies as well as small, here are the key characteristics to seek and nurture in new team members:

  1. Look for people who exude energy and passion. It's really not that hard to recognize when potential team members come alive when describing their skills, accomplishments, and aspirations. After joining, these are the ones who are always looking to expand their domain, are willing to tackle new challenges, and are not afraid to suggest improvements.

  2. Beware of perennial critics and lone wolves. Every successful business is a collaboration of people with complementary skills, who are willing and excited to work together. You don't need team members with a highly specialized focus, who tend to be critical of the needs of others, or would prefer to be isolated from most business issues.

    On the other hand, that doesn't mean that you should not provide critical feedback to team members. People who are anxious to improve, or reluctant to take an initiative, really need your direct guidance and coaching to learn what they need to do.

  3. The right people will recognize the big picture. These are the ones who are not afraid to ask the "why" question, as well as "how," even when there may not be any easy answers. One of the most successful strategies for new startups today is to lead with their "higher purpose," such as a focus on the environment or helping the disadvantaged.

    Recent articles report that companies where everyone is focused on the big picture can increase their returns by up to 400 percent. That level of impact is enough reason for you to spend the time up front, and along the way, to select the right people.

  4. Find folks who are customer-centric and sensitive to competition. This means always looking outside the company first, rather than inside, and being willing to challenge the assumption that things have "always been done this way." Listening to customers requires your help in rewarding rather than penalizing that activity, and being the role model to follow.

    As an example, customer-centric may mean interacting on social media, or actively taking the customer's position in a dispute, rather than the company position. It always means people not being defensive when addressing competitor activity or initiatives.

  5. Find people who enjoy being problem solvers. Anyone can do a job when everything runs perfectly, but that rarely happens in any business. Real problem solvers just make it look like everything is working, and you as the owner are not forced to close all problems yourself. Your best people will solve their problems better and quicker than you can.

    They have the specialized skills you hired them for, and are usually much closer to all the details and ramifications. Thus, it is important that you don't become part of the problem by micromanaging these people or jumping in with your own biased solution.

  6. Pay special attention to people who show leadership. You desperately need people on your team who can be the next leaders, may eventually replace you, and are willing to push for the innovations that can keep your business ahead of competitors. Look for accomplishments in prior roles, and a willingness to accept coaching and mentoring.

Remember that agility, innovation, and customer-focus are at the heart of every successful business today. Hopefully, you already embody these attributes, so your primary mission must be to extend your impact by surrounding yourself with passionate and creative team members.

Together, your team will win in the marketplace, and make this world a better place for all of us.

Marty Zwilling

*** First published on Inc.com on 03/26/2021 ***

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Wednesday, April 7, 2021

7 Ways To Keep All Players Centered On What Matters

business-partners-centeredEvery entrepreneur’s first priority should be the alignment of interests across the range of constituents required for success – partners, investors, customers, vendors, and employees. The best are ones quickest and most willing to do the realignment on a continuous basis these days, as the market changes, customer interests change, and you learn from experience.

Alignment means everyone has complementary objectives, and everyone is executing on their objectives. These things change so fast these days that the primary role of the entrepreneur as CEO is to be the Master of Realignment. My perspective on this role is outlined in the classic book “Rapid Realignment,” by the experts in this space, George Labovitz and Victor Rosansky.

The basic alignment framework of strategy, customers, people, and processes hasn’t changed, but the pace of technological, competitive, and social change has increased at an amazing rate. Most entrepreneurs recognize the need to pivot on a regular basis, but many forget that pivoting usually requires a realignment effort to get all the players back in sync.

At the highest level, startups must remember what Jim Barksdale of Netscape and FedEx famously said, “The main thing is to keep the Main Thing the main thing.” That means keeping all the players and all the organizations centered on what matters amid the crosscurrents of change. There are several key principles to follow along these lines:

  1. Move slow, fast, faster. The experts advise taking your time initially to listen, learn, and gather data. Then it’s time to speed up with a set of ambitious initiatives, and finally going all out to engage all the constituents in enduring change. False starts or obvious mis-steps will derail even the best pivots.
  1. Revisit your startup vision and values. Make sure the inspiration that launched your vision isn’t lost in the course of a pivot or market change. Of course, you may need to realign that vision to your team, your investors, and all the other players. Without that realignment, many may be left with confusion.
  1. Realign all elements of the plan. All too often I talk to startups which still don’t have a social media plan even though most of their customers now use social media as a key part of their buying decision. If you have had to pivot from the consumer market to enterprise customers, that requires new pricing models and new sales channels.
  1. Communicate, communicate, communicate. If you want effective team collaboration, you have to communicate effectively. When I was an executive, a common complaint was “Why didn’t someone tell me about the change?” A rule of thumb is that you need to put out an important message four times, in different ways, before everyone hears it.

  1. Change out team members as required. Entrepreneurs need to understand that realigning a team often means replacing members who are unable to change. It certainly is likely that you will have to get new strategic partners, and market to a new segment of customers. These changes may cost more than product changes.
  1. Update delivery systems and processes. Re-evaluate processes as they are today and set metrics to better represent the new sales, operational, and service needs. Then you have to face the reality that it’s time for new systems, software, or vendor contracts. Building a culture of continuous improvement is great for facilitating realignment.
  1. Pay particular attention to investor alignment. For inexperienced entrepreneurs, pivots and realignments often lead to some of the biggest disagreements and tension with investors, whether they be family, Angels, or VCs. These can easily result in CEO/Founder replacement or funding freezes if not handled openly and above-board.

Quite simply, rapid realignment is required for long-term survival in today’s startup world. Entrepreneurs need to realize that they can’t accomplish the alignment alone – they need to get engagement from all the members of the team, and the extended team. Make sure it hasn’t been pushed too far down on your priority list.

Marty Zwilling

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Monday, April 5, 2021

6 Ways To Improve Your Chances Of New Venture Success

passion-trap-successEvery entrepreneur wants to know how they can improve their odds on the road to success, and why some entrepreneurs seem to be able to squeeze success out of even a marginal business case. Most experts agree that is has lot to do with your level of passion, determination, and innovation, modulated by a strong focus on reality, common sense, and street smarts.

John Bradberry, in his classic book “6 Secrets To Startup Success” explores many of these attributes, especially passion, and defines some useful principles to help enthusiastic entrepreneurs squeeze the most out of their passion, while not being trapped by it. Every existing and budding entrepreneur should internalize these reality principles:

  1. Ready yourself as a founder. Too often, passionate entrepreneurs leap head first into a venture before thinking it through. To improve your readiness to succeed as a startup founder, take an honest look at yourself as a founder before leaping. Reality-check your goals, then focus on ways to leverage your skills, assets, resources, and relationships.
  1. Attach to the market, not your idea. Passion is an inner phenomenon, but all healthy businesses are rooted outside the founder, in the marketplace. To turn your passion into profits, emphasize the market, and always think about your business relative to the customers you serve. Know your markets and execute on your market opportunity by placing a priority on your customer’s experience and perception of value.
  1. Ensure that your passion adds up. Passionate entrepreneurs tend to develop rose-colored plans, over-estimating early sales and underestimating costs. To convert your passion into tangible business value, write a business plan that makes financial sense for the needs and future goals of your startup, and have it checked by an expert.
  1. Execute with focused flexibility. No amount of startup planning can accurately predict the unexpected twists and turns imposed by reality. To succeed, a new venture needs both iteration and agility. Establish an ongoing process for translating ideas into actions and results, followed by evaluation.
  1. Cultivate integrity of communication. Passionate commitment to an idea can breed reality distortion. That is, aspiring entrepreneurs often see only what they want to see and rely on “feeling good” about their venture as their only measure of success. Commit to building the skills essential for high-integrity communication: curiosity, humility, candor, and scrutiny.
  1. Build stamina and staying power. Contributing factors aside, most startups fail because they run out of money or time. To lengthen and strengthen your venture’s runway, aim to launch close to the customer and raise more money than you’ll think you need. Focus on building personal staying power, maximize learning, and improvements.

These principles will help keep you from falling into the passion trap. Bradberry defines this trap as a self-reinforcing spiral of beliefs, choices, and actions that lead to critical miscalculations and missteps which result in rigidly adhering to a failing strategy until it’s too late to recover. Entrepreneurs who fall into this trap usually don’t even see it coming.

According to Small Business Association figures, about six million Americans a year make the bold leap onto the startup path, with many more worldwide, and many have no corporate safety net to fall back on. Unfortunately, less than half of these new ventures survive beyond a few years. Too many of these have fallen into the passion trap.

Of course, passion is what real entrepreneurs live for, and they sometimes assume it can take them anywhere they want to go. But those who continually temper their passion with reality principles, and adjust their course, are much more likely to see success in getting there. Like the line from a country song, “if you don’t where you’re going, you might end up somewhere else.”

Marty Zwilling

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