Sunday, August 25, 2013

6 Acts to Keep the Focus on Urgency vs Emergency

JKotter-strategyIn business and startups, a “sense of urgency” is a good thing. Yet many entrepreneurs confuse this with a “sense of emergency,” which insidiously saps the life from their business. Urgency comes from a greater purpose focused outward, to make good things happen, while handling emergencies is a reactionary inward approach to saving ourselves from the daily crisis.

We’ve all known managers and executives that seem to thrive on emergencies, and often seem to instigate them. As a result, they are always too busy to proactively get to the urgent and strategic tasks, or provide the leadership and mentoring needed to motivate the team for the long haul.

In this era of rapid change and a competitive worldwide economy, every entrepreneur needs to instill in their team a sense of urgency, and be the role model for that mode. John P. Kotter in his book from a while back, "A Sense of Urgency," asserts that urgency is not frantic activity like handling emergencies, but a series of more proactive activities, including the following:

  1. Behaving 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 communicating 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. Creating 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. Bringing 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. Finding the opportunity from a 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. Dealing with the urgency-killers. Remove or neutralize all the relentless urgency-killers, people who are skeptics or 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.

A sense of urgency definitely includes impatience. Every successful entrepreneur I know is impatient with his own progress, and that of his team. Every member of the team should be impatient with the level of success so far. Yet they are not frantic, even in recovering from the latest emergency. They never confuse urgency with the level of effort expended.

A sense of urgency in business assumes that rapid change is required and normal. A sense of emergency is usually an effort to stop change, both good and bad. Every business should be embracing change, challenging their assumptions, and fighting inertia. Emergencies are just positive opportunities to learn.

Another challenge is to avoid a false sense of urgency. The enemy of urgency is a full appointment calendar, when everything becomes urgent. Now is the time to assess these attributes in your own startup, and in your own leadership style. Are you operating with the proper sense of urgency, or do you spend most of your time handling emergencies?

Marty Zwilling

Monday, August 19, 2013

Why are Good Business Plans So Rare These Days?

business-plan-sketchToo many entrepreneurs still believe the urban myth that you can sketch your idea on a napkin, and investors will throw money at you. Every investor I know is frustrated with the poor quality of the business plans they get. This is sad, since “how to write a business plan” is a frequent topic found in every business journal, and a common title in the business section of every book store.

What is the definition of a good business plan? In simple terms, it is a document which describes all the what, when, where, and how of your business for you, your cohorts, and potential investors. Forcing yourself to write down a plan is actually the only way to make sure you actually understand it yourself. Would you try to build a new house without a plan?

Make sure your plan answers every relevant question that you could possibly imagine from your business partners, spouse, and potential investors. That means skip the jargon and include explanations and examples. A plan that generates more questions than it answers is not a good plan.

Finally, hone the result into a professional document. Remember that you only get one chance to make a great first impression. Make sure it has a cover page, table of contents, headings, page numbers, and is organized logically.

Notice that I didn’t say anywhere that a good business plan has to be at least 20 pages, or have ten sections, or must start with an executive summary. These are good things, but I’ve seen great business plans that are ten pages, or have totally non-standard formats.

But, if you ask, ten sections is a nice round number, and would include the following:

  • Executive summary
  • Problem and solution
  • Company description
  • Market opportunity
  • Business model
  • Competition analysis
  • Marketing and sales strategy
  • Management team
  • Financial projections
  • Exit strategy

You can get free downloads of sample business plans from the Internet, and there are thousands of customized samples for sale highlighting every business area. You can even download a free sample of my own business plan from my website as a starter. You really need a business plan for you own efforts, even if external funding is not a requirement.

So what if you know that you simply aren’t a good writer, or don’t have the time or patience to write? No problem. That’s why they invented ghost writers, and came up with the concept that you can pay someone else to do it for you. A few thousand dollars is a small price to pay for a successful business, or for that $1M investment you expect the plan to entice.

The tougher case is where you really don’t understand the business you are about to enter, so you don’t know what to write. This is a recipe for failure that most investors and professionals can quickly see, so no investment will be forthcoming, and your startup will likely wither and die.

My advice here is to swallow your pride, and find a partner or give it away to someone who has the “domain knowledge” and the business experience to get you going. Your idea may be right, but dead right is not very satisfying to anyone.

Keep in mind that thoroughness and clarity of the plan are factors that will play key roles in successfully financing, starting, and operating your business. A great business plan is one that your team can learn from, attracts investors, and will guarantee your species a future. With no plan, I hope you have unlimited personal funds or at least a rich uncle!

Marty Zwilling

Thursday, August 15, 2013

5 Problems to Incent Million Dollar Idea Startups

paul-graham-ideasPotential startup founders are always looking for ideas to implement, when they should be looking for problems to solve. Customers pay for solutions, but there is no market for ideas. I’m often approached by people with a “million dollar idea,” but I haven’t seen anyone pay that for one yet.

Equally often, I see startups who are on the road to implementing an idea, but haven’t figured out what problem it solves – the business plan waxes on eloquently for 20 pages about how great this product and technology is, but never gets around to defining the problem (investors call this the “solution looking for a problem” syndrome).

A related “red flag” in a business plan is a missing competitive analysis section, or a short paragraph that essentially says, “this product has no competition.” My reaction is, if there is no competition, then there is no market demand for your product, so why are you building it?

Luckily, many startups are smart enough to keep morphing their idea, until it finally fits a real-world problem, and they can move forward in the marketplace. Unfortunately they could have saved themselves much lost time, money, and heartache if they had just focused on identifying the problem before they built a solution.

Smart startups also don’t forget that startup ideas are solutions for someone, and companies have to make money. The way to make money is to make something people or companies need (not necessarily what they want). Here are five solutions from an old essay by Paul Graham on “Ideas for Startups” that I believe have even more potential in today’s fast changing environment:

  1. Automate a labor intensive process. This is the traditional realm of computers. Lotus 1-2-3 applied it to accounting spreadsheets, and Google applied it to information mining on the Internet, but Henry Ford even applied this principle to auto manufacturing. There are still millions of these opportunities for startups out there.

  2. Fix something that’s broken. In business, it seems to me that the traditional banking business models are broken or at least no longer fit the purpose. On the other end of the spectrum, Internet dating sites don’t seem to work. There are thousands of them, so they must be offering something people want. Yet they work horribly, according to most people who have tried one.

  3. Take a luxury and make it a commodity. People must want something if they pay a lot for it. Yet most products can be made dramatically cheaper as technologies improve. This opens the market opportunity, you sell more, and people start to use it in different ways. For example, once cell phones were so cheap that most people had one, people started using them as cameras and Internet devices.

  4. Make something cheaper and easier to use. Making things cheaper means more volume and more profit. For a long time making things cheaper made them easier, but now even cheap things are too complicated. Computer applications today are cheap, but often still impossible to use.

  5. Take a current solution to the next level. Solve the currently intractable problems that impact all of us. Tackle the global warming problem, predict where earthquakes will occur, find alternative energy sources, cure cancer, and unlock the keys to aging. There is no shortage of opportunity here.

Combine these with the value of a good understanding of promising new technologies, and the value of having associates with complementary skills to extend your thinking. Problem solutions are the ingredients that startups are made of. Start solving a problem today that you can use as the basis for the “idea” for your next startup.

Marty Zwilling

Wednesday, August 14, 2013

How Startup Founders Set the Right Company Culture

Visa Business_August Infographic_081413Many investors will assert that company culture trumps strategy every time in predicting the long-term success of a new startup. Obviously, both are important, so it behooves every entrepreneur to start early in setting the right tone for his own company, and every new team member should be gauging both of these relative to their own interests, prior to signing on.

What is a company culture, anyway? Probably the best definition is the oft-quoted view that culture is simply “the way we do things around here.” It’s always amazing to me how different that can be between two companies in essentially the same business. There is no ultimate right or wrong in a culture, but there are attributes that will be right or wrong for you, or your investors.

I saw some good insights on these in a book by Eric C. Sinoway, “Howard’s Gift: Uncommon Wisdom to Inspire Your Life's Work,” which highlights the wisdom of Professor Howard Stevenson and his years of training entrepreneurs at the Harvard Business School. Howard suggests that company culture can be accurately assessed through the following five questions:

  1. Is everyone singing the same hymn? Ask several people on the team for their purpose, values, and strategic goals. If you get disparate answers, or generic job descriptions, the culture is fragmented at best. The result is that everyone pulls in a slightly different direction. This indicates a lack of communication or leadership.

  2. How do the leaders lead? Check for indications that leader actions match their words. Otherwise there is likely a disconnect between what is said to be important and the ‘informal rules’ made clear through leaders’ actions and decisions. The result is dysfunctional or non-credible leadership, which creates a bad culture.

  3. Who gets to drink from the information reservoir? Information is a key resource and culture is shaped substantially by how and with whom that resource is shared. Good indicators include how bad news is shared and whether divergent opinions are cultivated. Successful organizations have a culture of total communication and honest feedback.

  4. Is this an organization of teams or of stars and satellites? Howard rebuts a widely held myth that successful organizations are built of stars with a supporting cast, like a sports team. This model constrains the company from fully leveraging the real contribution and potential of all team members, with less collaboration and more conflict.

  5. How does the organization evaluate employees’ performance? The best cultures are marked by transparency, predictability, progress, and trust between team members and managers. Performance is measured against objective performance, clear goals, and benchmarks. Subjective evaluations leave employees confused and tentative.

Most experts agree that finding the right team members really comes down to finding the perfect culture fit, more importantly than the perfect skill fit. Of course, qualifications and work experience are critical, but the potential for trust and collaboration must come first. The same is true if you are an investor or a professional looking for the right company to stake your future on.

Great cultures don’t just happen. If it’s your startup, you have to make it happen, and it’s worth the effort to start on that first. I assure you that it’s easier to set it right at the start than it is to change it later. Key elements of building the right culture include a written and communicated business plan, defining and practicing company values, and measuring your progress.

Zappos has long been recognized as a startup which exemplifies the focus on culture, and provides award winning customer service. A while back, Tony Hsieh, Founder of Zappos, confirmed in an interview that his top priority was in fact not customer service, but rather company culture.

To walk the talk, Zappos still has quarterly all-hands meetings in which employees can ask anything they like, whether it be about earnings or what brands Zappos will be selling next. Through careful culture matching during hiring and training, Tony built a company full of employees who actually enjoy working there and believe in the brand wholeheartedly.

It’s time to take a hard look at the culture in your own startup, whether you run the company, or are the newest member of the team. If it’s not quite perfect, figure out how you can be part of the solution, or you may be part of the problem.

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.

Monday, August 12, 2013

Learn From the 5 Core Principles of Angel Investors

power-of-angel-investingIf your startup is looking for an Angel investor, does it makes sense to present your plan to flocks of Angels, and assume that at least one will swoop down and scoop you up? In reality, hitting large numbers of Angels in multiple locations with a generic pitch is one of the least productive approaches.

Here are five key things you need to know to quickly find the right Angel for your startup:

  1. Angels invest in people, more often than they invest in ideas. That means they need to know you, or someone they trust who does know you (warm introduction). For maximum credibility, start networking for potential investors to build relationships a few months before you start asking for money.

    They also favor entrepreneurs who are experienced in starting a company, and experienced in the business domain of the startup. Your business model may be very attractive, but if you are new to this game, you may not be fundable. In this case you need a partner who has deep domain knowledge and a track record of building businesses.

  2. A complete business plan is always required. Maybe friends and family will give you money with no plan, but Angel investors expect a real plan. All professional investors know that entrepreneurs who start a business without a written plan almost always fail.

    Don’t forget to clearly outline the problem you are solving, before you give the details of your solution. Clearly spell out your business model and your exit strategy, so investors will know how you will make money, and how and when they will get their return.

  3. Angels like to get involved directly with the team. This means they are generally only interested in local opportunities. It won’t help your case or your workload to do an email blast and follow-up with all eight million accredited investors in the US. If there is no one in your area interested or experienced in your type of business, you may have to move to Silicon Valley or Boston, or wherever the right Angels for your domain congregate.

    A related issue is the size of the investment you need. Angel investors tend to limit the size of individual investments to $250K or less, and even in groups they rarely consider requests for more than one million dollars. If you need more, you need to focus on venture capital territory.

  4. Financial projections and opportunity in the right ballpark. Investors won’t fund people who don’t push the limits, or inversely won’t recognize business realities. Here are some rules of thumb. Your fifth-year revenue projections better be between $20M-$100M. Smaller numbers mean a low return, and larger ones aren’t usually credible

    Secondly, you need a large and growing market, to offset the huge risk of funding a startup. Rules of thumb include an opportunity projection that exceeds a billion dollars, with at least double-digit growth. Smaller numbers may easily make a viable business, but won’t attract investors.

  5. Business domain and your character must be squeaky clean. Certain business sectors have historical high failure rates and are routinely avoided by investors. These include food service, retail, consulting, work at home, and telemarketing. Also, don’t expect investor enthusiasm for your gambling site, porn site, gaming, or debt collection business.

    Angel investors are people too. They expect you to understand their motivation, respect their time, and show your integrity in all actions. They probably won’t respond well to high pressure sales tactics, information overload, or bribes.

If you do get rejected the first time, don’t give up, and don’t expect a simple answer on your rejection reason from most Angels. They will probably tell you to come back later, after you have finished the product, signed up a few customers, or reached some other future milestone. This is called “not burning any bridges,” in case you start to show traction and they want back in the deal.

Yet if follow the recommendations above, there is definitely hope, even when the economy is not booming. According to a recent article on The Wefunder Blog, the U.S. has at least 256,000 active Angels who collectively invest some $21 billion a year (more then all venture capital sources combined) in new businesses. All you need is one.

Marty Zwilling

Monday, August 5, 2013

6 Entrepreneur Recovery Steps When Profits Plateau

six-steps-to-creating-profitA good many startups I know have been “successful” over a couple of years in overcoming the challenges of starting the business, including incorporation, services development, funding, and setting up operations. Yet they still haven’t achieved a healthy growing profit, even though this was one of the main reasons they went into business for themselves in the first place.

It’s no fun on this plateau, just “making payroll,” and watching some employees make more then you as the Founder. At this stage you were expecting to be working on creating a good business valuation to attract future buyers, or at least funding college accounts for your kids.

If you are in this category, first know that you are not alone, but then you need to take a look at the advice given by Patricia Sigmon in her book “Six Steps to Creating Profit: A Guide for Small and Mid-Sized Service-Based Businesses.” I recommend her six tried-and-true tips to deal with the challenges that may be holding back your profits:
  1. Stay visible and connected. It’s important to stand up to competition and wear your reputation on your sleeve. Accreditations, licenses, and certification – for your business or for individual employees – can set you apart from your competition. Take your reputation online, utilizing social media, your website, and a blog to connect to clients and make strategic alliances.

  2. Maximize cash flow. One of the best ways to achieve a stable cash flow is to offer prepaid retainers or ongoing payment plans. Maintenance contracts are another great way to create a brand-new revenue stream. Consider once-a-year or once-a-month contract renewal fees, and manage credit payments to avoid fees or to take advantage of discounts and better terms.

  3. Streamline management costs. Create a user-friendly system for employees and be sure to build in back-office, administrative time into your project fees, hourly rates, or ongoing charges. Automation will allow your business to run more efficiently, and will streamline your management overhead. This includes finding new employees and making current employees happy, using professional services automation software can help this process.

  4. Raise the marketing bar. Today, marketing is all about immediacy. Give your business an instant presence through online networks, including Facebook and LinkedIn. Set up group meetings, sales presentations, and special promotions using webinars, webcasts, and podcasts, rather than travel and personal meetings. Don’t forget to measure all of your marketing efforts to see which ones are indeed cost effective.

  5. Make everyone a salesperson. Ask employees what they would do to grow your business, fix business issues, or cut costs. Mix things up. Break the mold of the “rigid job description,” and open the door for employees to be involved in sales, profit-generating actions, and idea development. Reward employees who make an extra effort to represent the company inside and outside of work.

  6. Change the rules of operations. The challenge here is to generate more sales, while reducing expenses and tweaking costly administrative processes. For services, switch to a “relationship-based” sales model by building in plenty of reasons (and financial incentives) for your clients to come back to you. Keep you office running lean and mean.
Is your service being replaced? Reinvent yourself to meet a modern market: If you are a paid technical instructor and your classes are shrinking, offer training over the internet. Instead of selling your services to everyone, expand your services “vertically” by targeting industries where you’ve already been successful.

An entrepreneur who has nurtured his startup like a beloved child may be reluctant to take a step backward and make the changes that need to be made. But don’t worry. If starting a business once brought out your creative juices, changing your business model to meet the demands of a new marketplace – resulting in a more profitable structure – can be equally exhilarating!

Marty Zwilling

Disclosure: This blog entry was recommended by Workday but the views expressed here are solely mine.

Sunday, August 4, 2013

Technical Product Elegance is Not a Business Model

business-model-boxMany entrepreneurs work hard on the proof of concept (technical), but skip any proof of the business model (revenue flow). In other words, once they are convinced that the product works, they assume their price, sales channel, and marketing will bring in the customers. These days, the technical side may be the easy part.

Proving the business model requires a different approach than proving the technical concept. For example, one CEO I know gave away his software product to the first ten customers. Customer technical personnel loved it, and it worked, so he was totally devastated when he couldn’t sell one for a “reasonable” price in the first two months of hard work.

So how do you go about proving the business model? It starts with a customer problem or need, and includes proving the technical concept, but starts earlier and goes much further, per the following key steps:

  1. Quantify problem cost-of-pain first. Before you design your new solution idea, gather evidence and estimates of how much money a customer is willing to spend (if any) to solve the problem. Factor in your margin, and you will have an upper bound on your solution cost. You won’t succeed with a product that is too expensive for the market.

  2. Prove the technical concept. If the product doesn’t satisfy the need, or it doesn’t work, no business model can work. Start by testing the requirements on real customers, and providing “alpha” versions to get real feedback. Iterate and improve the fit until your test customers are delighted, not just tolerant.

  3. Use focus groups. Gather some representative customer contacts, and give them your best sales pitch, including price, channel, and support. Then listen carefully to the feedback. Don’t be discouraged if you don’t get it right the first time. Changes at this stage cost almost nothing.

  4. Talk to domain experts. Here is where your Advisory Board can help you in finding real people with deep experience in your product domain, and gather some unbiased feedback. Listen to potential angel investors, who have domain expertise, and aren’t afraid to ask the hard questions on pricing and channels.

  5. Limited rollout. If you have a physical product, try it in a couple of stores first. If you are on the Internet, try one city. This is tricky, since you have to do realistic marketing to see realistic results, but don’t roll out the big viral campaign yet. Look at product costs, margins, commissions, and other expenses to make sure you still have a bottom line.

  6. Get a reference customer. You should descend on that big best customer candidate with everything you have. Don’t give the product away, but make sure he has every bit of service you can provide. He better be so pleased that he is willing to provide a testimonial for your real marketing campaign.

  7. Sample trade show or user group. If you use the big “Coming Soon!” sign correctly, people will stop by your booth for a look. Make sure they are real customers, and that they get the whole story (not just a technical demo), including price and channel. Otherwise their feedback has no value in proving your business model.

All this assumes you have done the right job first in assessing competition, establishing the sales and marketing channels, and optimizing costs. I see business plans with a great analysis of competitor’s product features, but competitor’s business models rarely get mentioned.

Over the last few years, the right business model has become the key to converting a good idea into a winning startup. Your business model can be your competitive edge, or it can be your soft underbelly. Prove it out, before you dive in with the sharks.

Marty Zwilling