Do We Really Need an Alternative Form of Capitalism?

In my view, entrepreneurship has always been the ultimate embodiment of capitalism, and quite synonymous with free enterprise. Yet I find that more and more young entrepreneurs are uncomfortable with the term “capitalism”, somehow thinking that it prioritizes “making money” above all else. They are looking for a business model that makes the world a better place for humanity.

One step in that direction is the trend to “conscious capitalism,” as exemplified in the recent book by John Mackey and Raj Sisodia, “Conscious Capitalism: Liberating the Heroic Spirit of Business.” These authors argue that capitalism is simply misunderstood, and businesses run by ethical people create value and prosperity based on voluntary exchange, while reducing poverty.

In a recent blog, “Capitalism: Alternative Realities?” Scott McIntosh, an avid Angel investor friend and champion of conscious capitalism, makes the case that that true capitalism is about entrepreneurs driven, in part by profit motive, but more from motivation that stems from a simple desire to make a difference in the world. We shouldn’t let greedy or misguided people derail this.

Here are some of the alternatives outlined to enhance the negative image of “for-profit businesses” in the minds of many entrepreneurs. These also address the negative impacts of some well-publicized business practices on the environment, standard of living requirements, and missed opportunities to do good:

1. Promote “Conscious Capitalism^TM” as capitalism re-branded. Socially conscious capitalism, per Mackey’s book referenced above, adds four requirements to every business enterprise – focus on a higher purpose, stakeholder orientation, conscious leadership, and a conscious culture and management.

   Model business examples today include Whole Foods, Southwest Airlines, Costco, Google, Patagonia, The Container Store, UPS, and dozens of others. These set the model for aspiring entrepreneurs to achieve their dream of a good business that is also good for society as a whole.

2. Adopt the B-Corp as a new conscious business model. To more strongly support startups who want to give top priority to socially conscious solutions, eleven states, including New York and California, have passed legislation allowing incorporation as a Benefit Corporation (B-Corp). Other states are close behind in this effort.

   A benefit corporation is a new corporate form designed for for-profit entities that want to consider society and the environment in addition to profit in their decision making process. The B-Corp status is meant to reduce investor suits, and gives consumers an easy way to spot genuine social commitment, without assuming it is a non-profit.

3. Increase government regulation to level the playing field. Some advocate “fixing” capitalism as it is practiced today, by stricter regulations to prevent bad practices, and eliminate the cancer of “crony capitalism.” Crony capitalism, per Wikipedia, describes an economy driven by greed and business requirements from government relationships.

   These relationships result in success based on favoritism in the distribution of legal permits, government grants, and special tax breaks. In this environment true free enterprise entrepreneurs can no longer compete based on innovation, and everyone loses.

4. Reduce government regulation to level the playing field. Others, including McIntosh in his article referenced above, argue that the answer is to reduce (not eliminate) regulation, limit the power of government, letting private enterprise market forces work their proven magic of the past 200 years in free economies around the world.

   What about the truly greedy business folks? We need to let market forces work and force them out of business. Those who truly abuse the system need to be held accountable rather than allowing a system of cronyism to provide undue protections.

I have to put myself in this last camp, since I’m not a believer that any government can regulate morality, respect for the environment, or concern for the common good. These have to come from the heart, and I’m happy to report that the entrepreneurs I meet are leading the charge. If making money is your primary motivation for starting a business, be prepared for a long and lonely road. Following your passion to change the world is a lot more fun. It’s time to have fun!

Marty Zwilling

*** First published on Young Entrepreneur on 05/23/2013 ***

8 Reasons All Angel Investor Money May Not Be Equal

A few angel investors have slipped or fallen from their lofty perch, so entrepreneurs must take great care to validate the character and reputation of every prospective investor. The entrepreneur’s tendency to be in a huge hurry to obtain the funding can end up being disastrous, and play into the hands of these less scrupulous investors.

Many entrepreneurs believe all money is created equal. As long as somebody recognizes their million dollar idea and writes them a check, the source really doesn't matter. In fact, most angels are pure, but there are some exceptions that may cost you more than an investment:

1. Shark angels. These are the ultimate bad guys whose sole interest in early-stage investing is to take advantage of what they believe is the entrepreneur’s lack of financial and deal-making experience. If the term sheet process turns to pure torture, it may be time to respectfully bow out. Not all shark angels are on the Shark Tank TV show.

2. Litigious angels. The litigious investor will look for almost any excuse to take you to court. This type of investor never really focuses on the returns your company can deliver, but instead tries to make money by intimidation, threats and lawsuits. They know you won't have the resources to fight them, so they count on you "caving.” Keep your attorney close by your side.

3. Superior angels. A number of successful business people, some of whom become angels, develop the belief that they are destined for greatness because of their clear superiority over everyone else. These are usually overbearing, negative people who are hypercritical of every decision you make. Don’t be intimidated into bad decisions.

4. Control freak angels. This angel starts out looking like your new best friend. Once you are funded, he waits until you hit your first pothole and then points out “gotcha” clauses in your agreement that give him more control. This escalates into a requirement that he must step in to run your company himself. Only your Board can save you here.

5. Tutorial angels. The tutorial investor is not after control, but wants to hold your hand on every issue. The mentoring offer always sounds good up front. But after they write the check, it soon becomes apparent that their desire to be helpful 24 hours a day is a nuisance at best. Initially, your gratitude for their investment may prompt tolerance, but eventually the burden wears you down. Keeping your distance is the best solution.

6. Has-been angels. These tend to appear with every perturbation in the economy. They are usually high-flyers with a liquidity problem. They are still at the country club every day, but are now running up a tab. They will meet with you, and ask a thousand questions, but never get around to closing the deal. Learn to ask the closing questions.

7. Dumb angels. Wealth is not synonymous with business savvy. You can spot dumb angels by the questions they ask (or don’t ask). If they ask superficial questions or don’t understand business, a successful long-term relationship is not likely. But don’t forget that people with wealth usually may have some savvy friends to meet.

8. Brokers posing as angels. These people are all over the place, often posing as lawyers and accountants. They have little intent to invest in your company, and will eventually solicit you to sign a fee agreement to pay them to introduce you to actual investors. Brokers are often worth the fee, but don’t be misled about who is the angel.

How do you avoid most of these? Whenever possible, only accept investments from individuals in credible, professional angel investing organizations - not people who solicit you. Even then, do your own due diligence in the business community. Ask what other companies they've invested in, and talk to the CEOs of those companies to find out what kind of investor they've been.

Also, make sure your lawyer writes the initial investment document or term sheet - not the investor. This document should be standard for all your investors and not negotiated on a one-on-one basis. Watch out for any attempts to add clauses that can come back to bite you. Not all angels these days are even trying to earn their wings.

Marty Zwilling

Recent Gen-Y Startup Successes are an Emerging Era

The business world has been watching this emerging generation with trepidation, and a lot of people haven’t been sure who would be the winners, and who would be the losers. Can Gen-Y, much less the new Generation Z (1995-2010), survive as entrepreneurs, and do they have the passion and commitment it takes to run a startup and attract investors?

My own perspective is that the recession was good for Gen-Y (Millennials), because it forced them to face reality, often for the first time in their life. In the last few years, even college grads with advanced degrees don’t have job opportunities waiting for them. But I’m happy to report that I see more and more of them impressively stepping up to the entrepreneurial plate.

It now reminds me of previous generations, per the qualms raised about Gen-X back about 20 years ago, and about the Baby Boomers some 20 years before that. Yet now Gen-X’ers are seen as the major facilitators of change, and Boomers are the angels and business advisors for hot new startups.

We should look ahead to capitalize on evidence of the positive attributes of Gen-Y from a business perspective, including the following:

• Confidence. Raised by parents believing in the importance of self-esteem, they characteristically consider themselves ready to overcome challenges and leap tall buildings.

• Goal and achievement oriented. Many Gen-Y’ers approach the business world with solid personal goals. They expect to create something that is technically challenging, creative, fun, and financially rewarding.

• Multi-cultural. They expect to succeed in a workplace that is fair to all, where diversity is the norm—and they’ll use their collective power if they feel someone is treated unfairly. Diversity is a key to innovation, and big new business opportunities.

• Socially conscious. They were taught to think in terms of the greater good. They have a high rate of volunteerism. They expect companies to contribute to their communities—and to operate in ways that create a sustainable environment.

These attributes have already driven several well-known Gen-Y startups, like Facebook, Zappos, and Groupon. Yet it’s too early to totally forget the potential shortcomings and idiosyncrasies of Gen-Y. According to Winograd and Hais, there are still some of worrisome attributes relative to the role of entrepreneur:

• Need to be scheduled. Gen-Y’ers were tightly scheduled as children and used to a full schedule of structured activity. Many still struggle with handling free time and time management in general. A startup is the most unstructured entity I know.

• Minimal “street smarts.” They grew up in a time of increasing safety and protection (car baby seats, no failing grades, no walking to school). They were rarely left unsupervised. They may have good academic credentials, but less business sense.

• Consensus driven. Gen-Y members have been reared in a way that makes it difficult for them to conduct business negotiations in an entrepreneurial manner. Rather than seeking to come out on top in zero-sum games, Gen-Y strives for consensus.

My challenge to Gen-Y, and to the rest of us, is to capitalize on the positive attributes and continue to work on overcoming any remaining negatives. I’m still convinced that “real change only happens when the pain level gets high enough.” The past pain level has been high, but the business climate has improved, so let’s not slip backward.

Gen-Y is now experiencing their wake-up call, just like previous generations did with Vietnam and the 1980 recession. From the quality of interactions I’ve had recently mentoring a number of Gen-Y members, I’m happy to report that many are emerging as the new entrepreneurs of the digital age. I’m sure you agree that we need them to fuel the wave.

Marty Zwilling

6 Strategies for Transforming Ideas Into Results

Successful startups are all about turning ideas into action quickly and efficiently. These actions must be the hard part, since entrepreneurs always seem to come to me with ideas, and ask me for help on the actions. That has always seemed strange to me, since the magic is supposed to be in the ideas, and the actions are the same for every business.

In fact, the actions required to start and run a business are well documented, the subject of many books, and taught in college courses across the land. As confirmed to me by John Spence in his book on this subject, Awesomely Simple, turning business ideas into action consists of six essential strategies:

1. Build a vivid vision. Having a clear, vivid, and compelling vision in your head is without question an essential component in building a successful company. But that’s not good enough. The vision has to be documented and communicated in a way that makes it vivid to every member of your team, your customers, and your investors.

2. Team with the best people. The best people are highly talented and motivated individuals who are also masters of collaboration. The future of your startup is directly tied to the quality of talent you can attract and keep. You must create a winning culture that people love.

3. Practice robust communication. Open, honest, frank, and courageous communication, both inside and outside the organization, is critical. The key skills can be learned, and include deep listening, logic versus emotion, and reading body language. According to Spence, this is the biggest problem he has to deal with in client organizations worldwide.

4. Cultivate a sense of urgency. Get things done. A fast, agile, adaptable organization makes the important things happen now. Urgency is allergic to bureaucracy. Reward fast action. You set the model for your startup. You become what you focus on and become like the people you spend time with.

5. Enforce disciplined execution. Build a performance-oriented culture that demands quality in every operation, encourages continuous innovation, and refuses to tolerate mediocrity. Most organizations execute only 10 to 15 percent of their major goals. Do a periodic effectiveness audit to check your operation. Then fix it.

6. Show extreme customer focus. Put feedback mechanisms in place to know that you are consistently delivering what customers truly value. Attitude and listening are the keys. Superior customer focus can drive as much as an 85 to 104 percent increase in your profitability.

It should be pretty easy to see the interdependence and synergy among the six principles, each building on the next, all the various elements working together to create a highly successful business. But you don’t have to go out and address all six principles right now. Pick one that will create leverage immediately, and begin with it.

Spence defines three simple watchwords that will lead to business excellence – focus, discipline, and action. If you are missing any of these, the outcome will most certainly be mediocre. Once you start accepting mediocrity, you become a magnet for mediocrity.

Your great ideas deserve more than mediocre actions. Simple actions done in an outstanding fashion are far more effective than complex and time consuming actions done poorly (thrashing). Also, don’t be fooled into thinking that “simple” means “easy to implement”. Start now to turn your innovative ideas into action. Every entrepreneur loves a challenge.

Marty Zwilling

7 Rules for Savvy Customer Service Required Today

Customer service has always been reactionary, meaning someone has to wake up and answer website email requests. That’s just not savvy enough to hold today’s fickle, less loyal, and ready to jump customer. Great startups are getting ahead of the game with “anticipatory customer service,” like providing smart phone access to product and account data to head off complaints. This exemplary customer service is just savvy marketing.

Self-service technologies, social media, and smart phones have created a new set of expectations for high-tech consumers today. You should assume that they will want discounts to match competitors, and answers to technical questions in real time, rather than waiting in some phone or mail queue.

Thus you need a new generation of self-service that goes way beyond the now old-fashioned and frustrating automated phone audio response messages. I found a good summary of these new expectations in a book recently published by Micah Solomon, “High-tech, High-touch Customer Service.” Here are seven rules derived from his insights to start your thinking:

1. Customers expect a choice of channels. Customers should never be told by a clerk to call customer service, or told on the phone to see the website. You need to anticipate the channel they might choose, and be ready to handle it, or they will look elsewhere, and trash you on Twitter and Yelp.

2. Self-service needs to have escape hatches. It’s time to end the automated email responses with the “do-not-reply” address. Always end self-help postings with “Did this answer your question?” and provide a next step for those who answer “No.” That means guiding your customer to the top, rather than hiding the top decision maker.

3. Respect your customer’s view of usability. Usability is recognizing what users have learned from past experience, rather than an abstract science. So don’t move the search bar from the top of a web page, or select a digit other than “0” for getting a human on the phone. Scientific updates to your interface to reduce keystrokes may be self-defeating.

4. Customers need to be able to shift channels without regression. How many times have you shifted from automated response to a human, and been asked for all the information anew? Anticipate this, and use today’s technology to make the experience seamless. You probably won’t get a second chance.

5. Self-service has to be monitored and updated regularly. Customer expectations go up as rapidly as the delivery technologies change. Social media apps like Twitter and Pinterest are the latest sources for what’s catching people’s attention today, both positively and negatively. You should be watching.

6. You and your staff need to regularly use your self-service channels. For the staff, they need to understand customer issues, and you need to test the tone and culture of the people behind the scenes. It’s getting tougher and tougher to outsource this tone and technology to other cultures halfway around the globe.

7. Ugly upsells through self-service are a brand killer. Amazon handles upselling in a gently suggestive way, with a “frequently bought with” message. Harder sells can backfire, since people like to be pulled in with personalized messages, rather than pushed along with the crowd.

Technology is great for adding speed and flexible delivery to anticipatory customer service, but people are still required to add the heart and the personal touch. More than ever, a startup needs to build an emotional connection with every customer. Reactionary customer service won’t generate the loyalty you need to survive. When was the last time you took a hard look at your service?

Marty Zwilling

Disclosure: This blog entry sponsored by Visa Business and I received compensation for my time from Visa for sharing my views in this post, but the views expressed here are solely mine, not Visa's. Visit http://facebook.com/visasmallbiz to take a look at the reinvented Facebook Page: Well Sourced by Visa Business.

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Is Your Startup Moving Fast Enough to Stay Ahead?

In today’s business startup environment, if you don’t move fast, you get run over. Without a sense of urgency, people and businesses just can’t move fast enough. Speed is the driver because customers have a zero tolerance for waiting, and there are always competitors gaining on you.

John P. Kotter, in "A Sense of Urgency," delves into the how-to required of entrepreneurs on that first step, avoiding pitfalls along the way. He is convinced that increasing the sense of urgency is the toughest of the steps necessary for effective change.

Urgency is not frantic activity born of excess energy, anger, or frustration. These do result in high activity levels, but results will be slow in coming and often misdirected. Here are six more positive steps to increasing a true sense of urgency, according to Kotter:

1. Behave with urgency every day. Always demonstrate your own sense of urgency in meetings, interactions, memos and e-mail, and do so as visibly as possible to as many people as possible. You are the role model for everyone in your organization. If your tone or actions lack urgency, it percolates quickly to everyone, and you reap what you sow.

2. Consistently communicate urgency. Urgency is a set of thoughts and feelings, as well as a compulsive determination to move and win now. Aim for the heart, not just the mind. Look for the element of every story that will compel employees into action. Make employees feel empowered, not stressed, to buy into the need for urgency.

3. Create action that is relentlessly aimed at winning. Make sure your actions are exceptionally alert, and focused on success. Show some progress each and every day, and constantly purge low value-added activities. Be quick to reward the winning actions of everyone on the team.

4. Bring the outside in. Be on the lookout for compelling data, people, video, websites and other important messages from outside the company. Strive to connect internal activity with external happenings and challenges. Highlight competitor wins in the marketplace, and continually challenge your own team to do better than competitors.

5. Find opportunity in crisis. Always be alert to see if crises can be a friend, not just an enemy, in order to destroy complacency. Think of crises as potential opportunities, and not only dreadful problems that automatically must be delegated to the damage control specialists. But don’t assume that crises inevitably will create the sense of urgency needed to perform better.

6. Deal with the urgency-killers. Remove or neutralize all the relentless urgency-killers, people who are not skeptics but by their actions keep a group complacent or create destructive urgency. Examples are people who are always “too busy” or stretch every task delivery beyond reasonable limits.

One of the main obstacles to a sense of urgency is complacency, which often sets in after a success. When the CEOs and employees are riding high on a wave of profits, complacency can creep in unnoticed. It's easy to hand out rewards and praises without looking down the road and outside the box. Eventually a competitor comes along to trample you into the dust.

Another frequent obstacle is the false sense of urgency. The enemy of urgency is a full appointment calendar, when everything becomes urgent. Here you need flexibility, smarts, and guts to reprioritize less important tasks, or purge them altogether.

Finally, eliminate fear, both fear of failure and fear of success. Fear thrives in an environment where people get punished for mistakes and discouraged from experimenting. Fear of success means people worry that success will bring uncomfortable or distasteful changes.

So my challenge to each of you is that you wake up each day with a sense of urgency both at work and in your personal life, and practice the recommendations above. Constantly critique your business and look for opportunities to improve. Lead by your actions, and the team will follow.

Marty Zwilling

10 Tips For Entrepreneurs on How to Hang Tough

In sports, mental toughness is defined as the ability to focus on and execute solutions, especially in the face of adversity. If anyone in business ever needed mental toughness, it’s an entrepreneur. Investors tell me that startup success is all about execution, all while facing determined competitors and overcoming customers’ resistance to change.

Dr. Jason Selk, in his book “Executive Toughness,” talks about mental toughness with analogies between sports and business, but he never takes it all the way to entrepreneurs, where I believe it can have the most impact. So here is my interpretation of the fundamentals he outlines, adapted to the language of a startup:

1. Define the win for your business. A startup is not a parlor game. With a for-profit startup, it’s all about solving a problem that embodies real pain, for real customers who are willing and able to pay for a solution. For social entrepreneurs, it’s all about making the world a better place. Figure out early what it takes to win, or you will lose by default.

2. Adopt a business vision that fits your self-image. In every case, you need a long-term vision that drives self-fulfillment and self-image as well as business success. Assess your strengths and weaknesses, and visualize how these will lead to business success. If the vision doesn’t fuel your passion and match your skills, you won’t like the lifestyle.

3. Establish real business goals and processes. It’s hard to achieve things that have not been defined, and the steps to get there are not clear. I recommend a business focus on a one-year timeframe, with a limit of three product goals and three process goals.

4. Prioritize the priorities. Prioritize or perish should be every entrepreneur’s mantra. Accountability requires splitting your big product goals into daily process goals and scheduling them to completion. Don’t get distracted with the unimportant.

5. Practice accountability through self-evaluation. Learn to look in the mirror every day. No evaluation means no awareness of how you are doing, which gives you no basis for improvement. Good performance does not require perfection, which is unachievable.

6. Control your emotions to control your performance. Learn to control the degree to which your nerves and emotions are engaged and on alert. By maintaining basic mental stability and physical fitness, and preparing yourself intellectually you will function more effectively and successes will grow.

7. Prepare to say the right thing. Practice your response to the three most common situations you face. Creating and documenting scripts, like your elevator pitch, for key interactions help you and your team maintain focus. They build confidence and reduce the anxiety that often gets in the way of leadership performance.

8. Prepare mentally every day. Your mind can be strengthened every day, just like a muscle. Complete a mental workout every day to dramatically improve your focus and ability to execute consistently. It’s one of the most effective methods known for training your body and mind to stay under control and perform to your potential.

9. Develop a relentless and optimistic solution focus. Replacing all negative thinking is one of the most critical pieces of your mental toughness puzzle. Approach all solutions one step at a time, where a step is any improvement to the current situation. Remember that a focus only on problems will likely cause more problems.

10. When you set your mind to do something, find a way to get it done, no matter what. While a relentless solution focus is the mental step, discipline is the action step that makes solutions materialize. In this way, discipline delivers success. Make discipline a habit by limiting temptation and conscious practice.

We all need these fundamentals of mental toughness to succeed and lead in today's business environment. It takes more than market knowledge and technical skill alone. That’s the fun part of the challenge to most serious entrepreneurs. If it was easy, anyone could do it. Are you ready to step up to the plate?

Marty Zwilling