4 Startup Tenets for Extreme Focus on Customers

New product startups rightfully begin with a heads-down focus on creating the ultimate product – whether it’s a new technology, a new look and ease of use, or a new low-cost delivery approach. Most then add customer service at the rollout, but very few really understand what it means to be truly customer centric, and even fewer really achieve it.

Customer centricity is far more than providing excellent customer service, although that’s a step in the right direction. Customer centricity is a strategy to fundamentally align a company’s products and services with the wants and needs of its most valuable customers, with the aim of more profits for the long term.

As I was reminded recently by Peter Fader’s book, “Customer Centricity” from the Wharton School, Wal-Mart and Costco aren’t really customer centric. They do provide the right products at the right price to save all customers money (with good customer service), but they don’t try to find their most valuable customers, and nurture them to buy more or bring in friends.

Customer centric means building loyal customers, like Apple appears to have done extremely well. It means recognizing that all customers are not the same, and that all customers are not always right. It means pursuing Fader’s four tenets that can lead to even greater long-term success and profits than a great product at a low price:

1. Accept that all customers are not the same. By recognizing the fundamental and inevitable differences among your customers, you can give your organization a strategic advantage over your product-centric competitors – who may know little to nothing about the customers who account for their success and survival.

2. Focus on individual customer value. By understanding that there is real and quantifiable value to be found in individual customers, you can better focus your long-term marketing efforts on precisely those customers who will generate the greatest long-term value.

3. Quantify the value and cost of acquiring every new customer. By working to quantify the value of each and every one of your customers, you can gain enormously valuable insight about how much you should be willing to spend to keep an existing customer and how much you should be willing to spend to acquire a new customer.

4. Personalize your offering to each customer or group. By moving forward with a highly focused customer relationship management initiative, you can gather and leverage more information about your customers. This will allow your company to serve those customers in a more personalized (yet genuine) manner than any competitor can.

In reality, you don’t need to get to know each individual customer. But you do need to segment your customers into homogeneous groups. Then you can decide on a marketing program, loyalty program, or a level of attention that is appropriate to each group, for acquisition, retention, and profitability.

Remember, this is not a one-time effort. The needs and interests of your customers are ever-changing, so you have to constantly re-align your resources to build mutually beneficial relationships. Don’t focus only on your products and operational efficiencies, unless you already have the brand image and leverage to prosper with price as the key differentiating factor.

Success hinges on progressing past lip-service, to the real work of building a customer centric organization to execute the focus. That means setting up operational and financial metrics, educating team members, and rewarding the right actions. Can you name three elements today in your startup that go beyond good customer service? If not, competitors are approaching.

Marty Zwilling

Entrepreneurs Learn New Rules for Real Influence

Successful entrepreneurs, like Tony Hsieh of Zappos and Casey Sheahan of Patagonia, have long since realized that influence is no longer something that you do to someone to get what you want, but requires listening and relationship building to do what they want, with a win-win outcome. We now live in a world where even subtle persuasion efforts are suspect.

If your business and your style is still focused on the “old-school” hard-selling push-marketing approach, it’s time to take a close look at how well it’s serving you these days. The new culture driven by social media is all about forging real connections and building relationships.

How this relates to influencing other members of your team, business partners, and customers is clearly illustrated in a new book “Real Influence: Persuade Without Pushing and Gain Without Giving In,” by business psychiatrist Mark Goulston and executive coach John Ullmen. They start by describing a four-step model for connecting and influencing people in this new culture:

1. Inspire people to great outcomes that they desire. Focus on the three ‘R’s of a great outcome: Results, Reputation, and Relationships. Real influencers go for something grand, build a reputation worthy of long-term commitment, and invest in relationships to get buy-in to desired outcomes.

2. Master listening to learn where other people live. To discover where they are coming from, you need to get to the fourth level of listening - not listening while ignoring, not defensive listening, not even problem-solving listening, but connective listening into other people’s world. It’s listening from “their there,” instead of “your here.”

3. Engage and connect with people in their space. True engagement and connection requires that you get “it” (the other person’s issue reality), you get “them” (at a personal level), and you get their path to progress (show a positive path to progress). They then sense that you are working with them, instead of manipulating around them.

4. Go beyond expectations to make yourself unforgettable. This means adding value before, during, and after an interaction. Find ways to add value in expanding their thinking, making them feel better, and helping them take effective action. You must do more (but not everything), and ask other people to do more.

After you have mastered these steps, there is still room to take real influence to the next level, and become a “power influencer.”

• Let adversity lead you to great outcomes. Don’t get stuck in the “I can’t” world, and don’t forget the positive lessons from every negative experience. Do acknowledge your feelings, because when you do, you can address them effectively. Do have the courage to let new great outcomes find you.

• Influence by getting out of the way. Every great outcome becomes a part of you, and it’s hard to let go (like handing over your CEO role). If you are strong enough to get out of the way, so others can take over, your great outcome can last forever, or become someone else’s even greater outcome. It also opens your door to more great outcomes.

• Influence positively after you’ve made big mistakes. To repair the damage from the mistakes we all make, we need to learn how to make them right after we’ve made them wrong. Be brave enough and humble enough to make amends to the people hurt. Let others help you dissect the mistake, and they will respect you and learn from your efforts.

• Let gratitude magnify your influence. When you perform an act of gratitude, whether you are thanking a person directly or talking about someone else who has helped you, the person who is listening to you feels a strong sense of gratitude as well. That immediately creates a stronger bond between the two of you.

Being an entrepreneur has always been all about influencing others, but the rules of persuasion have changed. What worked in the days of Dale Carnegie doesn’t always work in today’s more sophisticated and less trusting world. If you want to influence me to the contrary, I’m ready to listen. Are you?

Marty Zwilling

10 Action Items to Keep Angel Investors Hovering

Every new startup I know dreams of being funded early by one of the 318,000 active Angel investors in the USA alone. But many entrepreneurs don’t realize that Angels are also extremely discerning in the projects that they will invest in, rejecting approximately 97% of the proposals submitted to them, according to the California Investment Network.

Most of these investors are members of Angel groups that have a rigorous filtering and screening process, to select the top 3% and most fundable proposals. What is this daunting process, and what can you do to optimize your chances of surviving it? Over the past 10 years, I have had the opportunity to see how the process works, several times from the startup side, and more recently from the Angel perspective (as a member of an Angel group screening committee).

Don’t expect the pomp and celebrity of the Angels on Shark Tank, but they do ask a lot of the right questions. So what should you do to prepare for this stage in your venture, and optimize your chances of making it through the process? Here is my list of top ten action items to best prepare you for success in achieving a funding event with Angels:

1. Incorporate the business now. If you expect to require external funding, you should first incorporate as an S-Corp, C-Corp, or LLC, rather than the more expeditious sole proprietorship or partnership. The corporate entity lends itself best to the concept of “sharing” equity required by investors, and unincorporated entities don’t get funding.

2. Line up an experienced team. Remember the old adage that “investors fund people, not ideas.” That’s why this item is so important, and is probably the biggest stumbling block I see in getting through the initial Angel screening. If the founders are not experienced, find a couple of advisors from the business sector to fill the gap.

3. Get your Internet domain name and website. In today’s world, if you don’t have a web site up and running, you will not be perceived as a real company. Investors routinely go to candidate web sites to get a feel for the tone and scope of the company, as well as its maturity and offerings. Reserve the company name on social networks to protect it.

4. Define some intellectual property. File a patent and trademarks to show real intellectual property. Having a defensible competitive advantage or “barrier to entry” is another critical step to funding, and another common stumbling block during all phases of the funding process. Start early on this one, or you will lose the opportunity.

5. Build a prototype product. A conundrum for many frustrated entrepreneurs is that they need money from investors to design and build a prototype product, yet most Angel investors expect to see at least a prototype before they invest. Use your own money or friends and family to demonstrate progress early.

6. Build an investor presentation and summary. Investors expect a one or two-page executive summary sheet for the initial screening, backed up by a ten-slide Powerpoint investor presentation. Remember to aim the content of both of these at investors, not customers. They must amplify your “elevator pitch” to investors, as well as key points from the business plan and the financial model.

7. Prepare an investment-grade business plan. Every entrepreneur needs a professional business plan for their own use, whether they intend to seek investor funding or not. As a founder, you may think that everyone understands your vision and plan from your passion and words, but it doesn’t work that way. It should answer every question an investor or associate might ask, including current valuation, funding needed, and exit strategy.

8. Finalize your financial model. Like the business plan, a financial model is required as much for your own use as to impress Angel investors. In most cases, a Microsoft Excel spreadsheet is adequate, with projection formulas for revenue, costs, and cash flow over the next five years. Variables for “what if” questions add credibility.

9. Close at least one initial customer. This must be someone who is willing to pay real money for your product or service. Free trials don’t count. All the conviction and market research in the world are no substitute for real customers paying real money. This is called “validating the business model.”

10. Network to the maximum with investor connections. The last and possibly most important action item is to build relationships with investors and friends of investors BEFORE you need their help in building your company. A good start is taking an active role in relevant technology groups, trade associations, university activities, and local business groups.

In summary, being touched by an Angel can lead you to your dreams of a new and successful business, but it doesn’t happen without planning, hard work, and careful preparation. Most Angel investors are seeking psychic as well as financial benefit from their investment. Do your homework listed here first to get their attention, but don’t expect anyone to swoop down and wave a magic wand.

Marty Zwilling

Building a Startup is Navigating an Obstacle Course

It would be no fun if starting a business was simply plotting a straight line between your idea and success, with no challenges along the way. Zigging and zagging amongst the obstacles is the fun part of being an entrepreneur, and it’s what sets you apart from the average worker who knows exactly what he or she has to do every day to get paid. Relish it, or if it scares you, don’t try it.

That doesn’t mean that starting a business should be a random walk into the unknown. There are certain foundational elements that every entrepreneur must build on to succeed, as well as some critical tools we all need. I found these tried-and-true principles summarized very well in a recent book “The Zigzag Principle” by serial entrepreneur Rich Christiansen:

1. Assess your resources. At some point financial capital if usually needed to meet business goals. But it’s not a substitute for the other critical resources, mental capital (domain knowledge, skills, and passions), plus relationship capital (friends and advisors). Money results from mental and relationship capital, not the other way around.

2. Identify your beacon in the fog. Start with a big audacious goal to guide you, so that every once in a while you can hit a smaller goal, to provide a break in the fog and catch sight of the beacon before those next steps into the darkness. Goals need to be written down, measurable, and realistic. Expect your fair share of zigzagging to get there.

3. Create a catalyzing statement. This is a key element of every elevator pitch, with enough specificity and fuel to keep you and everyone around you moving toward the beacon in the fog. This quantified big dream should be a long-term goal that your short-term zigzags are all leading to. Use your values as the foundation.

4. Drive your startup to profitability. A first zig of getting to profitability is important to every business, because being broke and always fighting for funding can cause a lot of pain. More importantly, profitability can drive you to find hidden assets, zag to interim revenue sources, and force you to pace yourself in getting to that final destination.

5. Define processes and add resources. After the initial zigs and zags to get profitable, it is time to formalize and document the processes that worked. Only then can you expand those things that led to your initial success. It also means that it’s time to stop micro-managing, hire some of the right people, and start giving up some control.

6. Scale the business. This is implementing a model that you can replicate, to get your product or service out across the country, and around the world. Scaling models charge by the transaction, or subscriptions, or have digital assets with no cost to reproduce. Switch to a mindset of working “on” your business, rather than “in” your business.

7. Stay within your guardrails. Set up some rules to constrain your zigs and zags to prevent “out of control” situations. Common controls include some spending limits, time commitment limits, financial milestones. These guardrails should be closely aligned with your values. Practice the art of saying “no,” and the discipline of delegating.

8. Develop reward systems. To keep you and your team from burning out, you need to define a simple system of motivators and rewards. Too much reward leads to an entitlement mentality. As you hit each zig, you need to take a break from the intensity, celebrate, and enjoy the fruits of your labor.

The alternatives to planned zigzags are a planned straight line, or a planned random walk. Neither of these are realistic for an entrepreneur seeking success, but I still see them every day, and I see the pain that results. Smart entrepreneurs are nimble and flexile, bootstrap to the maximum degree possible, and pivot for emerging opportunities. Be one.

Marty Zwilling

10 Perspective Checks on Your Startup Aspirations

Every entrepreneur needs to be honest about their strengths and weaknesses, and realistic about their reasons for choosing the startup route. For any entrepreneur, even the best business opportunities, if entered for the wrong reasons, will likely fail. Some of these reasons seem obvious, so forgive me for restating, but I still hear them too often.

Statistics show that at least 50% of new startups fail within five years, and many of the survivors eventually fail. If you don’t want to be part of these statistics, consider all the alternatives to starting your own business, especially if you have one of the following perspectives:

1. “I’m tired of working hard and being so stressed all the time.” Starting and growing a business is more work and more stress than any employee role should be. Perhaps you need to look carefully at the reasons for your weariness and stress at work. Health and personal problems don’t go away when you start a business.

2. “It’s my hobby anyway, so why not make it my business?” The problem here is that most hobbies cost money rather than make money. Just because you love doing it doesn’t mean anyone will love paying for it.

3. “I’m desperate, since I can’t find a job that suits me.” With the current recession, jobs are indeed hard to find. But don’t forget that businesses are failing at a higher rate as well. Desperate people don’t make good entrepreneurs, and probably don’t have the resources or fortitude to start a business.

4. “My family has always been in business, so it’s in my genes.” Good entrepreneurs do seem to have certain innate qualities, but it’s not clear that these qualities are automatically passed to offspring. If your passions are elsewhere, don’t try running the family business.

5. “I’ve inherited some money and starting a business should be a good investment.” You can’t start a business without capital, but having capital doesn’t mean you can start one. Learning is expensive and risky. It’s less risky to invest your windfall in someone with a proven business record, or put the money in the bank.

6. “I have some extra time, and I need a second income.” Being an entrepreneur is not a part-time job. A business startup is actually a second expense more than a second income. For supplementary income, you would be better served to take a part-time job with an existing company.

7. “I hate having a boss, and just being an employee.” Don’t start a business for a power trip. When you become a business owner, your customers, suppliers, creditors, partners and a lot of other people will become your new “bosses”. These people may be harder to please than your boss at the office today.

8. “All my friends own hot businesses and seem to be doing well.” You shouldn’t believe all the hype, or all the things said in social circles. Definitely don’t jump into trendy businesses you don’t know just to be popular. Even good friends tend to forget talking about the years of hard work and sacrifice, in favor of recent success.

9. “I’d like to be rich, so I’ll start a business.” Starting a business with a dream of riches is certain disappointment. There is no evidence that entrepreneurs make more money, on the average, than other professionals. There is much evidence that the risks of failure are higher on the business owner side.

10. “My primary goal is to contribute something to society.” This is laudable, but more effectively addressed after you have built a successful company, not before. If changing the world is your main motivation and money is not a concern, then do it, without allowing the building of a company to slow you down.

For anyone with entrepreneurial aspirations, I recommend you start by networking with peer business people and organizations before you commit to a startup of your own. Ask questions and do everything you can to make sure you are tackling the right business for the right reasons. Your entrepreneurial life depends on it.

Marty Zwilling

10 Key Entrepreneur Success Drivers May Surprise You

We can all dream about what it takes to make our startup a success. From recent survey feedback, it seems evident that the urban legends leading to success are wrong. The average entrepreneur is not the one who dumped a promising career, sketched his idea on the back of a napkin, and accepted millions from an investor to make billions of his own.

I was just perusing an older but still very relevant report from the Ewing Marion Kauffman Foundation for Entrepreneurship, titled “Making of a Successful Entrepreneur.” They surveyed 549 successful company founders across a variety of industries, and gathered their views on success and failure drivers. Many are predictable, all were interesting, and a few even surprised me:

1. Stick with the business area you know. We all have a tendency to think that the grass is greener on the other side of the fence, but 96% of these founders ranked prior work experience in their business area as an extremely important or important success factor.

2. It’s the learning; not success or failure, that makes the difference. Successful founders try and try again. 88% attributed their success to prior successes; 78% attributed success to prior failures.

3. The management team is critical. In looking back on their success, 82% of the founders attributed their success to strength of the management team (not the idea, business plan, or money). No surprise here.

4. A little luck never hurts. Surprisingly, a full 73% said that good fortune was an important factor in their success. 22% even ranked this as extremely important. Perhaps we can discount this a bit for humility, but there is nothing like being in the right place at the right time.

5. Don’t discount the value of your network. Professional networks were deemed important in the success of 73% of the founders. 62% of the respondents felt the same way about their personal networks.

6. Dropping out of school is not recommended. 95% of these founders had earned Bachelor’s degrees and 47% had more advanced degrees. 70% said their university education was important, so only a few said skip it. Born to be an entrepreneur may not be enough today.

7. First-timers usually fund their own venture. Venture capital and private/angel investments play a relatively small role in the startups of first-time entrepreneurs. 70% said they had to use personal savings as a main source for their first business.

8. Advice from investors is not worth much. Of the entrepreneurs who received advice from their company’s investors, only 36% ranked it as important, and 38% said it was not important at all. Surprisingly, even in venture-backed businesses, 32% said it was only slightly important. It sounds like founders want to make their own mistakes.

9. Willingness to take a big risk. When asked what may prevent others from starting their own business, the highest ranked factor by 98% was lack of willingness or ability to take risks. Founders clearly found entrepreneurship to be a risky endeavor.

10. Huge time and effort commitment. Along the same lines as the previous item, 93% felt from their own experience that the work and time challenges were a major barrier (no support for the part-time, work from home, get rich quick crowd).

Hopefully, by understanding what entrepreneurs think and believe, we can foster more successes, fewer failures, and better guidance, to those of you who haven’t taken the big step yet. If you are already committed, take heed of the advice of those who have been there and done that. People who don’t learn from other’s experience pay a high price just to get to the starting point.

Marty Zwilling

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10 Course Corrections Every Startup Should Memorize

The popular view of a real entrepreneur is someone with a big vision, and a stubborn determination to charge straight ahead through any obstacle and make it happen. The vision part is fine, but successful entrepreneurs have found that the extreme uncertainty of a new product or service usually requires many course corrections, or “pivots” to find a successful formula.

This reality has fostered a popular startup approach which dramatically improves the efficiency and speed of these corrections, pioneered by Silicon Valley entrepreneur and author Eric Ries. His popular book on this subject, “The Lean Startup,” lays out how today's entrepreneurs use continuous innovation to create radically successful businesses.

Eric espouses designing products with the smallest set of features to please a customer base, and moving products into the marketplace quickly to test reaction, then iterating. He does a great job in the book of making the case for management systems, rather than gut-level reactions, to make required course corrections (pivots), to dramatically improve the odds for success.

Pivots come in many different flavors, each designed to test the viability of a different hypothesis about the product, business model, and engine of growth. I agree with Eric’s summary of the top ten types of pivots to consider:

1. Zoom-in pivot. In this case, what previously was considered a single feature in a product becomes the whole product. This highlights the value of “focus” and “minimum viable product” (MVP), delivered quickly and efficiently.

2. Zoom-out pivot. In the reverse situation, sometimes a single feature is insufficient to support a customer set. In this type of pivot, what was considered the whole product becomes a single feature of a much larger product.

3. Customer segment pivot. Your product may attract real customers, but not the ones in the original vision. In other words, it solves a real problem, but needs to be positioned for a more appreciative segment, and optimized for that segment.

4. Customer need pivot. Early customer feedback indicates that the problem solved is not very important, or money isn’t available to buy. This requires repositioning, or a completely new product, to find a problem worth solving.

5. Platform pivot. This refers to a change from an application to a platform, or vice versa. Many founders envision their solution as a platform for future products, but don’t have a single killer application just yet. Most customers buy solutions, not platforms.

6. Business architecture pivot. Geoffrey Moore, many years ago, observed that there are two major business architectures: high margin, low volume (complex systems model), or low margin, high volume (volume operations model). You can’t do both at the same time.

7. Value capture pivot. This refers to the monetization or revenue model. Changes to the way a startup captures value can have far-reaching consequences for business, product, and marketing strategies. The “free” model doesn’t capture much value.

8. Engine of growth pivot. Most startups these days use one of three primary growth engines: the viral, sticky, and paid growth models. Picking the right model can dramatically affect the speed and profitability of growth.

9. Channel pivot. In sales terminology, the mechanism by which a company delivers it product to customers is called the sales channel or distribution channel. Channel pivots usually require unique pricing, feature, and competitive positioning adjustments.

10. Technology pivot. Sometimes a startup discovers a way to achieve the same solution by using a completely different technology. This is most relevant if the new technology can provide superior price and/or performance to improve competitive posture.

Every entrepreneur faces the challenge in developing a product of deciding when to pivot and when to persevere. Ask most entrepreneurs who have decided to pivot and they will tell you that they wish they had made the decision sooner. In fact, a startup’s runway is really not money, but the number of pivots they can still make. What are you doing to get to the required pivots faster?

Marty Zwilling