Sunday, June 23, 2013

6 Reasons Why Focus is Job One for Every Startup

search-engineIt’s great to dream big, but your startup needs a laser focus in the beginning to get market and investor attention. Google did it with search engines, Apple did it with a personal computer, and even Wal-Mart did it through low prices. A business plan I saw a while back to combine all the good features of several popular social networks on one site does not do it.

Trying to do everything at once probably means that none of the items will be done well. Plus it’s almost impossible to craft a message that will make your offering stand out in the minds of customers. I can’t think of a company that launched to superstardom with a broad focus. Can you?

Here are the common sense reasons why a laser focus is more likely to lead to startup business success:

  1. Time to market is critical. It takes too much time to build processes and products to capitalize on a broad strategy. Meantime, small competitors will appear and seize your business opportunities and steal your targeted customers.

  2. Keep infrastructure costs low. Every business needs some basic equipment and infrastructure, and ongoing development costs. Attempting to roll out the big dream internationally all at once costs lots of money. Getting more money is hard, but not as hard as building the big infrastructure and getting it right the first time.

  3. Need to be nimble. Every successful startup I know has had to “dodge and weave” or pivot quickly as they learn what their customers really want, and what really works in product design and marketing. Bloated products and the grand unifying “theory of everything” won’t allow you to adapt quickly to market changes and mistakes made.

  4. Innovate to market leadership. Success requires market leadership in your product area, and it’s easy to see that pushing more products and services dilutes your focus and attention. Market leadership isn’t a one-time thing, it means continuous innovation, or you will be left behind.

  5. Maintaining quality is key. The more you try to do in parallel, the harder it is to maintain quality. Remember the old maxim that “you only get one chance to make a great first impression.” Customers are fickle, and good quality and good customer service is hard, even with a focused product.

  6. Personal bandwidth is limited. When things become too messy and complex, and even you are not sure of priorities, people get disillusioned, tired, lose motivation, and tend to give up easily. A laser focus is easier to communicate, easier to manage, and more likely to get done quickly and well.

As with everything, there are two sides to every coin. When applied appropriately, focus will result in rewards exceeding your expectations. Conversely, focusing on the wrong things will result in a downward business spiral. Focus on exploiting strengths and achieving success rather than resolving weaknesses and avoiding problems. Don’t get burned by focusing on the wrong thing.

Remember that most people can confidently and competently accomplish one thing at a time, and most customers are only looking for one thing at a time. After you saturate the market with your focused offering, then you will have the time and resources to broaden your offering.

Don’t give up your grand vision, since no investor wants to buy a “one trick pony.” But also don’t try to be the “one-stop shop” for all on day one.

Marty Zwilling

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Monday, June 17, 2013

Investors Seek Out Entrepreneurs With Resilience

Dean-Kamen-SegwayIf you haven’t had a failure, you aren’t pushing the limits. If you are really an entrepreneur, you are a risk taker and less cautious by nature, so failures should be expected. Wear you startup failure as a badge of courage. Don’t go after failure, but embrace it when it does happen and grow from it.

People who are afraid of failing should not become entrepreneurs. They can't overcome the psychological fears of making a mistake, and are afraid of losing money. They are better off keeping their day job. Successful entrepreneurs, on the other hand, tap into the positive power of failure. Here are three examples:

  • Steve Jobs was fired by Apple Computers in 1985, the company he helped to create. He went on to acquire Pixar, made it a success, and then came back to reinvent Apple as a very successful consumer products business.
  • Dean Kamen, the creator of the Segway Human Transporter, several successful biomedical device businesses, and holder of 440 patents, jokes that his biggest failure is “that I have too many to talk about.”
  • Thomas Edison invented the electric light bulb, central power generation, and the phonograph, but failed in his effort to extract low-grade iron ore from sand. He brushed this off, and went on to many successful media and transportation businesses later in life.

According to investors I know, young entrepreneurs who have failed at least once are more likely to get funding from them, compared to entrepreneurs with a perfect track record. Investors know that founders often learn more from a failure than they do from a success, so don’t be so quick to delete a failure from your bio. Serial failures, on the other hand, send a different message.

A failure can be a milestone on the road to success, if you celebrate that failure for what the mistakes taught you – and use the experience to move to the next idea. Here are three points of learning that many famous failures emphasize:

  1. Accept responsibility, don't spread the blame. It’s easy to blame partners, investors, customers, and the economy. If you blame someone else, you'll never learn from your mistakes. Remember, you volunteered to be the entrepreneur, so you are not the victim.

  2. Capitalize on the good relationships you found. In every bad deal, there are always some good people. Many entrepreneurs have taken on one of these as a new partner, and gone on to make millions of dollars. The good investors will fund you again, and the good customers will gladly take your next offering.

  3. Study and profit from your mistakes. Mistakes are priceless lessons, so you should learn from them, rather than run from them. Making mistakes and becoming smarter is the job of an entrepreneur, while not making mistakes is the job of an employee.

Failure is not usually a single event, but a collection of mistakes and circumstances that add up to test the patience of the founder. Failure combined with a strong sense of business ethics can motivate and produce innovation, while failure due to a lack of ethics can lead to desperation. Certain types of failures, like failures of integrity and ethics, are harder to recover from.

Failure, even multiple failures, can be the first stage of a very successful journey. Success usually comes to those willing to keep coming back. Resilience and agility are really the only sustainable edge in business. So when you experience your first failure, just give up your ego, let it go, and get back to work smarter on your next success.

Marty Zwilling

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Thursday, June 13, 2013

Beware the Long-Term Pitfalls of Entrepreneurship

Pitfalls-of-EntrepreneurshipMost entrepreneurs expect to face the “normal” challenges of starting a business, which include finding the right opportunity, building and executing a winning plan, and financing their venture. But many forget the pitfalls associated with traditional business jobs which can apply even to the smartest and most dedicated people running their own business.

Often these facets of entrepreneurship don’t rear their ugly head until well down the road. Yet before you start, you should think about what the impact might be on your psyche, and how to neutralize these challenges in your own plan. I’ll summarize key ones here, from the positives and negatives in “Build a Business, Not a Job” by David Finkel and Stephanie Harkness:

  • Long-term daily job grind. Sometimes entrepreneurs are so set on creating a successful business, they forget to create one that they love to work on every day. After a time, they find that they have merely created a job for themselves, with the same rote responsibilities and stress that they experienced in a prior corporate world. Daily attendance is mandatory in order for the business to succeed and be profitable, and the so-called freedom is hard to find. Vacations and time-off don’t happen for years.

  • No formal training courses. Larger enterprises are always sending their “high fliers” to leadership refreshers, new technology updates, and training on employee performance management. Entrepreneurs find themselves all alone in the trenches, without the time, money, or incentives to do these things. The result is a sinking feeling after some time that you are no longer vital and competitive in your own domain.
  • Personal wealth management. Entrepreneurs find that the business skills needed to grow their business are not the same as the personal wealth skills needed to manage a healthy personal wealth plan for their family and their retirement. Their business is their entire portfolio. They are at the mercy of innumerable catastrophes, making this a huge risk.

    For these individuals, a lack of financial fluency often leads to poor decisions after they no longer have their businesses. They wake up one day without their business, and with nothing to show for the years spent building it.

  • How society perceives you. As a young entrepreneur, everyone looks up to you for running your own business. But later you find that you may be perceived by many as a person without job security, unlike your classmates or ex-colleagues, who are sought after or being placed in well-known large company or multinational positions.

    Even worse, you find that your business domain has developed a negative stigma through no fault of your own, as has happened to investment banks, mortgage brokers, and many nightlife businesses. It’s no fun to hide your business role rather than proudly proclaim it.

  • Business must be more than the money. Years into a successful business, owners often wake up one day facing a painful question: Is this all there is? To truly be successful your business must be about more than the money.

Good entrepreneurs find a great personal adventure, like Richard Branson, or great philanthropy, like Bill Gates. Guy Kawasaki says the best reason to start an organization is to make meaning – to create a product or service that makes the world a better place.

Every business startup has to have a viable idea, but it also needs a strong sense of realism on the possible pitfalls. Starting a company as an entrepreneur should be viewed as the beginning of a lifetime career, not a work project that you expect to be over in a few months. As such you should consider the long-term challenges as well as the short-term ones.

Life is too short to end up with pain and regret after a “successful” career.

Marty Zwilling

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Tuesday, June 11, 2013

Your Health and Balance are Key to Startup Health

Improve-Employee-HealthA couple of years ago, I saw firsthand what can happen to a founder, and the business, when the founder practices unhealthy habits such as working 20 hours a day. A typical “Type A” personality, with boundless energy and enthusiasm, she aggravated some previous health limitations until she was bedridden, and the business floundered.

Many entrepreneurs are too focused on their dream to take notice of health warning signs, which leads them to ignore business health signs as well. If you can’t remember the last time you had a relaxing evening with the spouse, or read a book, you may be overworking and that could negatively affect your health in the long run.. If your business won’t run for a day without you, then the business isn’t healthy either.

There is no single formula for how to stay healthy while starting and running an exciting but demanding new business, but here are a few suggestions, depending on your lifestyle:

  • Stay fit and rested. You will have more energy and think more effectively if you are in shape and rested. In addition, you’re a role model for partners and employees. Real job performance is more a function of productivity than hours worked anyway.
  • Find a stress reliever. For some people, it’s quiet meditation, and for others it’s a vigorous workout at the gym. Find something you really enjoy that doesn’t have anything to do with your business. These will help you unleash the creative side.
  • Work and family balance. Family-work balance is an issue that involves financial values, gender roles, career paths, time management and many other factors. Entrepreneurs can be so focused that they ignore the family, resulting in an unhealthy situation for everyone.
  • Regular medical checkups. No one is immune to the random attacks of a disease, and something recognized sooner rather than later can often be treated with minimal lasting effect. Undiagnosed and untreated problems, resulting from ignored or unknown symptoms, are a health disaster well worth avoiding.

At the same time, don’t forget that there are things you must do to maintain the health of your business, and send the right message to your employees on priorities:

  • Reward employee health. Lead by example, of course, and encourage employees regularly to pursue a healthy lifestyle. You might even give special recognition for sticking to a wellness program, or sponsor a healthy team outing or other activities.
  • Quarterly business reviews. On a regular basis, at least once a quarter, you need to take a hard look at all your key metrics. Maybe it’s time to tackle a new geography, or figure out how to exit some clients who are “high maintenance.”
  • Quality improvements. Continuous improvement is the key to quality production. Make sure your processes are working. A constant increase in the quality of products and services, including more innovation and creativity, all lead to a healthier business.
  • Improve customer service. Make sure all employees are empowered to provide the same customer service they would want for themselves and their own business. Measure how well you are doing with surveys and personal contacts.

Healthy companies need healthy employees and healthy processes. Workplace health promotion is not, as some might think, a charitable gesture towards employees but an investment in the company. It can be a life or death issue with you personally, as well as your company. Don’t wait, like my friend, until you’re already overworked.

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.

The Page serves as a space where small business owners can access educational resources, read success stories from other business owners, engage with peers, and find tips to help businesses run more efficiently.

Every month, the Page will introduce a new theme that will focus on a topic important to a small business owner's success. For additional tips and advice, and information about Visa's small business solutions, follow @VisaSmallBiz and visit http://visa.com/business.

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Monday, June 10, 2013

How Many Key Leadership Principles Do You Practice?

mark-zuckerberg-sergey-brinCreating and building a business is not a one-man show. It requires a team effort, or at least the ability to build trust and confidence among key players, and effectively communicate with partners, team members, investors, vendors, and customers. These actions are the hallmark of an effective leader.

Behind the actions are a set of principles and characteristics that entrepreneurial leaders, like Mark Zuckerberg and Sergey Brin, seem to have in common. Look for these and nurture them in your own context to improve the odds of success for your own startup:

  1. Clarity of vision and expectations. You must be able and willing to communicate to everyone your vision, goals, and objectives. Just as importantly, you have to be absolutely clear about who you are, what you stand for, and what you expect from everyone around you. People won’t follow you if they are in the dark or confused.

  2. Willingness to make decisions. It is often said that making any decision is better than making no decision. Even better than “any decision” is a good decision made quickly. Business decisions always involve risk, at times a great deal of it. Smart entrepreneurs always balance the risk with facts, when they have them, rather than their gut.

  3. Experience and knowledge in your business area. Effective leaders set a personal standard of competence for every person and function in the startup. It must be clear that you have the knowledge, insight, and skill to make your new company better than your very best competitor.

  4. Commitment and conviction for the venture. This commitment must be passionate enough to motivate and inspire people to do their best work, and put their heart into the effort. Behind the passion must be a business model that makes sense in today’s world, and a determination to keep going despite setbacks.

  5. Open to new ideas and creativity. In business, this means spending time and resources on new ideas, as well as encouraging people to find faster, better, cheaper, and easier ways to produce results, beat competition, and improve customer service. Be a role model and guide others to excel.

  6. Courage to acknowledge and attack constraints. An effective leader is willing and able to allocate resources to remove obstacles to the success of the startup, as well as removing constraints on individuals on the team. It is believing that where there is the will, there will be a way.

  7. Reward continuous learning. You have to encourage everyone to learn and grow as a normal and natural part of business. That means no punishment for failures, and positive opportunities for training and advancement. Personally, it means upgrading your own skills, listening, and reading about new developments and approaches.

  8. Self-discipline for consistency and reliability. An effective leader is totally predictable, calm, positive, and confident, even under pressure. People like to follow someone when they don’t have to “walk on eggshells” to avoid angry outbursts, or assume daily changes in direction.

  9. Accept responsibility for all actions. Everyone and every company makes mistakes. Good entrepreneurs don’t want to be seen as perfect, and they have to be seen as willing to accept the fact that “the buck stops here.” No excuses, or putting the blame on the economy, competitors, or team members.

The good news is that all of these principles of leadership are learnable. The bad news is that it’s not easy. Don’t assume that success as an entrepreneur is only about great presentations, killing competitors, or having insanely great ideas. It’s really more about leadership, understanding the needs of your prospective clients, and communicating your solutions with clarity.

Marty Zwilling

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Sunday, June 2, 2013

5 Ways to Make Your Startup a Choice Investment

Bob-RicePeople with money to invest have choices. How do you as an entrepreneur with a new idea get to be one of those choices? Initially, you may be able to rely on friends and family to put you on the top of their list, but eventually you will probably need real professional investors (Angels and VCs). You won’t win with them without understanding their alternatives, as well as their mindset.

I like the work just published by Bob Rice in “The Alternative Answer,” which does a great job of summarizing the investment universe, starting with the “conventional” stocks, bonds, and real estate, but moving on through more esoteric alternatives, including hedge funds, private equity, real assets, managed futures, and finally venture funding.

Venture investing is often mentioned as the most sexy form of wealth creation, but it’s also recognized as one of riskiest. Sure, it has great up-side potential, per early investors who made millions or billions in Facebook, LinkedIn, and PayPal, but it also sports a total failure rate of nearly 50%. Most Angels I know get their payback from helping others, not from making money.

Within the venture community, the first rule to remember is that opportunities abound these days, due to the increasing pace of technology evolution, and the scope and creativity of the global community. That means there are far more entrepreneurs looking for money than there are investors, and entrepreneur entitlement is not a realistic expectation.

Since Angel investors put money into 60 times as many companies as venture capital funds, according to Wikipedia, early-stage startups need to focus first on the key thresholds that drive these investment decisions. The same hold true for venture capital investors. Here are the top five, as outlined by Rice in his book, which match my own experience:

  1. Management team. The single most important ingredient of success is not the idea, but having a team in place that has impeccable integrity, can iterate the product quickly, pivot the business model as necessary, and keep costs down in the process. Angel investors look for prior domain and startup experience. They bet on the jockey, not the horse.

  2. Funding risk. Will the startup be able to get to self-sustaining mode before it runs out of cash? This requires a visible focus on the company’s revenue model, the costs to get there, and cash on hand. Angels expect at least a working prototype and a hint of market acceptance (traction) before investing. Before that, rely on friends, family, and fools.

  3. Scalability. Is your concept worthy of a company, a product, or a feature? The target market better be a big one, like over a billion dollars, with a double-digit growth rate, large enough to absorb multiple entrants. That’s because it’s a sure bet that someone else is working on the same idea – if not, it’s probably a bad idea.

  4. Defensibility. Angels want to fund a startup whose implementation can’t be knocked of by just anyone. But patents and other intellectual property only go so far. Additional protection is always the speed of the initial implementation, and the ability to iterate quickly. That goes back to the strength of the management team as the #1 threshold.

  5. Exit strategy. What’s most realistic these days is an exit via sale to an existing major company for which you solve a meaningful problem. That means merger and acquisition (M&A), not initial public offering (IPO). Shooting for that sort of exit over a three to five year period is usually the best strategy. No exit strategy means no return to investors.

The hype is high right now for equity crowd funding as an alternative to Angels and VCs. Rice and I are not so sure. When legal, it may be an alternative if you only need a small amount (less than $100,000), and don’t ever plan to come back for more. No VC or Angel investors I know are interested in a bunch of angry, crammed-down small investors as co-shareholders.

Most investors like the idea of adding venture investments to “diversity their portfolio,” and create great up-side potential. They don’t like the fact that your track record and traction are unknown, there are no analysts to rate competitors, and getting money out may be a challenge. Maybe it’s time to shorten your product pitch and talk more to investors about the things they really want to know.

Marty Zwilling

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