The Right Startup Advisors Are As Valuable As Money

If you are a new entrepreneur, or entering a new business area, it’s always worth your time to assemble an Advisory Board of two or three executives who have travelled that road before. You need them before you need funding, and if you select the wrong people, or use them incorrectly, no amount of money will likely save your startup. Even top executives rely on their advisors.

For perspective, you need to remember that boards of advisors, unlike directors, have no formal power or fiduciary duties, but rather serve at the pleasure of you the business owner. But they are not likely to stroke your ego, or be cheerleaders. They need to tell you the truth about you and your business, good or bad.

Using them effectively requires real effort on your part. If you give and ask for nothing, you will get nothing. Used correctly, they will be your best advocates to investors, and can save you from making major mistakes. Here are some tips on finding and using your advisory board effectively:

• Select people who complement your experience. If your experience is primarily technical, get someone who has built a business. If your business is too small for a CFO, get an advisor with heavy financial experience. If the business area is new to you, find someone who has lived it. Balance is best.

• Be specific on help needed. If you've chosen your advisory board members carefully, you're asking busy, successful people to carve even more time out of their schedule to help you. Let each one know how you see his/her expertise – it may be insight on trends, organizational advice, or funding connections. Set a fixed term, like one year.

• Formalize the compensation. Most advisory board members sign up because the want to help you, not because of the compensation. Yet you should offer a reasonable monthly fee and/or some stock options to show you are serious about the position. If you want out-of-town members on your board, you reimburse the travel expenses.

• You need to drive to process. It’s smart to schedule a monthly Advisory Board meeting, with a formal agenda, as well as informal communication to keep everyone on the same page. Advisors can’t help you if they only hear from you once every six months. They expect you to initiate specific requests, rather than having to ask for updates.

• Respect their time commitment. For a business executive, nothing is more annoying than a poorly run meeting where the presenter is unprepared, rambles, and wastes time. Make sure every meeting is facilitated well so that concrete action steps, deadlines and assignments result. Have someone take notes so that decisions are recorded.

• Recruit the best for your real Board. Your Advisory Board is a pre-cursor to your Board of Directors, a bit further down the line. This is your chance to test commitment, chemistry, and contribution for that more formal position. It’s a great networking opportunity to expand your connections to include all their connections as well.

On the other hand, if you find your Advisory Board is a burden on you, or you find yourself hiding things from them, then you have the wrong people, or you are letting your ego get in the way. Members can provide a mirror so that you can see your company as experts see it, as long as you look in that mirror with eyes wide open.

If you are looking for someone to fill an operational gap, or to do product design, it’s usually more productive to look for a partner, employee, or consultant. These can help you when you don’t know what you don’t know, or to create what you don’t have.

If you use your advisory board to feed your ego, or correct your mistakes, you will likely be disappointed. Worse yet, your image as an entrepreneur will be damaged. That will inevitably spread through networking across the business community. You don’t need that kind of help.

Marty Zwilling

Surround Yourself With People Smarter Than You

Helpers do what you say, while good help does what you need, without you saying anything. People who can help you the most are actually smarter than you, at least in their domain. Top entrepreneurs spend more time putting the right team in place to accomplish their objectives than they spend on any other components of their job.

Some entrepreneurs are so in love with themselves (narcissistic) that they insist on answering every question, and making every decision. That’s not only impossible, but also counterproductive. Effective entrepreneurs team with or employ people who can provide the answers directly, pertinent to their particular area of expertise.

True leaders also know how to move out of the way to let others do what they do best. If you’re working too many hours and following up on every detail you may want to look closer at your team to ensure you’ve surrounded yourself with the right people.

In short, if you can find people with more passion, more knowledge, and more desire to succeed than you have, it will push you to be better and take the organization to new levels. Here are some key characteristics to look for:

1. Gets things done. Smart people know what’s required, or can figure it out, and are confident enough to make decisions without you. Getting things done is crucial to running a business. Often people with advanced degrees have academic smarts, but are not closers. You can’t afford to make every decision, or follow-up on every action item.

2. Recommend their own ideas. How often do the people around you recommend sound ideas that you never knew were possibilities? If you’re teaming with people who are smarter than you, you should be frequently surprised with their new ideas and solutions. You will be constantly learning from them.

3. Passionate and positive. The smart people you want are as positive and passionate about your business as you are. They take ownership and responsibility for their actions. They convince you with their actions and questions that they understand the big picture. They speak confidently and deliberately, rather than defensively.

4. More listening than talking. Look for team members who are active listeners, where you can see yourself seeking them out for answers, rather than always the other way around. It’s great to team with inexperienced people who are growing so fast, that you can envision working for them soon, or having them take the helm of your business.

5. Avoid the narcissists. Their energy, self-confidence, and charm make them look smart, but they resist accepting suggestions, thinking it will make them appear weak, and they don't believe that others have anything useful to tell them. Narcissists will take credit for all successes, and always find someone to blame for their failures and shortcomings.

One of the most important jobs of every entrepreneur, and definitely one of the toughest, is to find and nurture people who are smarter in their roles than you. Resumes don’t provide much of a picture in this regard. Supplement this with networking input, references, and your own personal interactions.

If you are looking for a potential business partner, count on building a relationship over several months, before you really know the person. The business relationship at that level is just as important as a personal relationship before marrying (no overnight affairs). If you are hiring, make sure you have multiple interviews, and input from multiple people on the team to balance your view.

In my view, one of the most important aspects of being a successful entrepreneur is surrounding yourself with people smarter than you. Don’t let your ego get in the way. It’s the best way for you to grow the business, as well as yourself.

Marty Zwilling

The Best Business Leaders Are Visible At The Front

True leaders realize that, by definition, the word "leader" places the leader at the front, and not the rear. Yet many, many executives try to lead through fear and intimidation. This isn’t really leading at all. It’s pushing. In all businesses, leading from the front means that you are not afraid to get your hands dirty, pitching in to get the job done.

True entrepreneur leaders see the big picture and recognize that their business is only a small piece of a much bigger community. They lead their own small community to pull together in a way that galvanizes the entire ecosystem of the market into a win for both sides.

For maximum leverage, every leader has to learn how to delegate. Delegation is a great skill to have, but you also have to lead effectively to earn the right to use it. Intimidating or berating other team members from a position of power isn’t delegation or leadership.

In every growing business, people are expected to wear multiple hats, each and every day. An effective leader that wears many hats easily creates loyalty. This is a quality that cannot be bought or bullied. Loyalty must be earned, and business executives who earn it generally do the following:

• Communicate and demonstrate a clear sense of purpose
• Provide great coaching, mentoring, and tutoring
• Encourage, recognize, and reward achievement
• Ensure credit is given where credit is due
• Be consistently dependable and knowledgeable
• Demonstrate accessibility to everyone
• Treat people fairly
• Listen well
• Show patience and humility
• Helpful and quick to expedite important matters
• Prove loyalty by standing up for the team, defending them to other constituents, and when necessary, to customers

Funny thing about loyal team members - they respond very well to being led from the front. Your team’s level of motivation and attention to detail is always going to have a fairly direct correlation to your ability to keep things moving forward, despite the cyclone spinning around you.

People will make mistakes, so accept it now - certain tasks, even critical ones, can get lost in the noise. The 100% solution is never attainable - so forget about. Strive for 90% and try to get that part right. The rest will come in time.

Communicate effectively and constantly with your team. No news is not good news in times of crisis. Tell the truth even when it hurts. Don’t be caught stuck to your chair while the storm is swirling around you. You must stay on top of everything and everyone. And guess what, you will miss things, too. Get over it.

Unfortunately, a crisis often drives leaders to retreat behind closed doors instead of advancing to the source of the problem. They withdraw to their desk, get inundated with data, overwhelmed by numbers and lose the connection with their people. If one of your executives fits this mold, you need to get rid of them. Otherwise they will kill you in the end, one way or another.

Leadership is about being visible and setting the right example out front on the firing line, in good times, as well as times of crisis. There is no place for the bully, who fails to take the feelings of others into account and insists on his or her way, and no place for the tyrant, who feels superior and needs to rule the roost.

Now is the opportunity for real leadership, with all the economic challenges around the world, and continuing human suffering. There is a saying in the military that generals who lead troops from the safety of the rear, should have to take it in the rear. That’s not a comfortable position for anyone.

Marty Zwilling

The Planned Iteration Startup Launch Minimizes Risk

The traditional mode of starting a company has been to plan a serial process, where you complete once all the steps, leading to the “big bang” launch of the company. I strongly recommend a dramatic departure from this model, called “planned iteration” or Lean Startup methodology, where you assume you won’t get it right the first time, so you launch with a minimum viable product (MVP).

This idea was first articulated by Paul Graham in an old essay, called “Startups in 13 Sentences” in which he talked about “making a few people really happy rather than making a lot of people semi-happy.” One of his key points is that “launching teaches you what you should have been building,” and I agree.

All you old software development types will recognize the analogy to the traditional two year “waterfall model” of software development, which has been totally replaced with the Agile iterative methodology. Agile assumes and plans for iterative development, where requirements and solutions evolve as more is known and markets change.

Don’t mistake this for a license to launch an incomplete or poor quality solution. Your strategy today should be to define and excellently prepare the absolute minimum product that will excite a selected small segment of your intended customers, and roll it out to them – as a Beta, early promotion, or even a give-away.

Then you assess feedback, adjust your offering, and iterate until you get it right (have some very satisfied customers). Plan on multiple small launches, with iterations, rather than a big launch. Here are the advantages I see with this approach:

• Faster time to market. If you launch fast, you can be working with real customers in 4-6 months from your start, rather than 1-2 years. In today’s fast moving marketplace, needs, competitors, and costs change rapidly, so even if you were right, two years later the wave has moved on. Equally likely, your first target was wrong, and you will need to adjust.

• Show some traction before funding. Let’s face reality, the angel or VC funding process now takes 4-6 months of almost dedicated effort and time, and usually fails because you don’t yet have a product or customer. By using a laser-focused approach for the first iteration, you may actually produce something and get a customer without funding. Now investors will pay attention, since scale-up funding is less risky and has a time frame.

• Fail fast and cheap. Since you can predict that your first iteration will somehow miss the mark, speed and cost of pivoting are critical. We all know how hard it is to turn a battleship. With a minimum viable product, your startup remains much more agile. The planned iterations can then be applied more productively to enhance the right offering.

• Find customers, partners and channels early. There is nothing like a real customer pipeline to convince you that you need partners and channels, and to convince partners, channels, and investors that you are real. Get out there personally and find that first customer. It will narrow your development focus, and adjust your strategy for you. Spend your time finding renewable sources of customers and iterate.

• Use social networking to start the wave. Costs are low these days to set up a credible website, do some search engine optimization, start blogging, and start mining the social networks for interest. It won’t cost you your whole funding pot to start some momentum, or to realize that your original strategy needs major tuning.

Think about it. Where did Google, eBay, and Facebook come from? They inched their way into public view before the first multi-million dollar funding rounds, and they have never had a big public launch. New product companies in the offline world start one store at a time, or in one geographic area.

Big bang product launches are the domain of big enterprises, and you can never match their clout and budget. The biggest advantages you have as a startup are speed and agility. Use them.

Marty Zwilling

Crowd-Funding Success Usually Brings New Challenges

Many entrepreneurs seems to be convinced that the “crowd” of regular people using the Internet will somehow solve their startup funding needs, when they sense a lack of interest from accredited investors. Professionals maintain that there is plenty of money and equity for qualified startups, and funding marginal startups via any source will only make more people unhappy.

Well-known crowd-funding platforms on the Internet, led by Kickstarter and Indiegogo, have worked for years to provide non-equity “funding” for many startups, as outlined in my previous article Don’t Be Fooled By All The Hype For Crowd Funding. But safely seeking equity investments from the crowd via the Jobs Act of 2012 is problematic and has still not been defined.

A lesser variation, called crowd-pitching, by organizations like Funding Universe, is an offline event, which give several candidates an opportunity to pitch to a crowd of interested people for a couple of minutes, after which the crowd “votes” with some play-money to pick the best candidate, who then wins introductions and guidance in getting loan approvals or equity funding.

Certainly both of these crowd-sourcing approaches provide the entrepreneur with an opportunity to hone their pitch, get some free consumer feedback on the idea, and maybe some introductions to funding sources. But from my perspective in really helping entrepreneurs, both fall short on several counts:

1. Focus too much on the product, not enough on the business model. When pitching to consumers, online or offline, the feedback will likely be on features and design. The key success factors of the business model (how a business survives and grows), management expertise, and financial projections will likely get overlooked.

2. Amount of funding provided is usually not enough. The amount of time and money required for publicity and promotion of any crowd-funding activities may be more than the return. In reality, a few thousand dollars to a few winners, is tantalizing but probably not a return on the investment. Many fail spectacularly after exceeding their funding objectives.

3. Multiple micro-investments are not manageable. Investors know how tough it is to get a set of terms accepted by even two investors, much less hundreds. The administration of legal conditions, signatures, disclosures, and distributions is a nightmare. In my opinion, that’s why micro-finance has rarely worked, even for loans.

4. Proposal content is too short to be meaningful. In all cases, to keep non-professionals attention, the content of the offer online, or pitch presented, is very limited. No one contemplates including a business plan, investor presentation, or even the equivalent of an executive summary.

5. Crowd sample size and makeup not representative of market. If the pitch is offline, the audience is likely to small and mostly budding entrepreneurs. Even online, the type of people who may respond to social media requests may bear very little relationship to the intended market.

6. Investors are not prepared for the high risk of startups. Crowd-funding investors are not constrained to be accredited professional investors. They may not understand that nine out of ten startup investments provide minimal to no return, and the risk of securities law violations is very high.

7. Intellectual property is jeopardized. Non-disclosure agreements can’t be done in these environments. In an environment populated by entrepreneurs rather than investors, when you are new to the game, you are exposing your plan to your biggest potential competitors.

Crowd-pitching groups are making an effort to mitigate these problems by pre-screening the candidates, and providing an experienced panel of investors to do the judging. This helps by making sure the feedback is realistic, and the presenters have a rational business opportunity to present. I’m already working with a couple of organizations along these lines.

Overall, there is no question that crowd-funding makes sense for non-profits soliciting donations, artists seeking support from fans, and many small entrepreneurial efforts. But in the competitive world of “the next big thing,” with millions of dollars at stake to be lost, counting on these mechanisms when professional investors decline is usually ignoring the real problem.

Marty Zwilling

Bootstrapping Organic Growth Makes Startup Sense

When someone asks me for the best way to fund a startup, I always say bootstrap it, meaning fund it yourself and grow organically. Bootstrapping avoids all the cost, pain, and distractions of finding angels or VCs, and allows you to keep control and all your hard-earned equity for yourself. Despite all the focus you hear on external investors, over 90% of startups today are self-funded.

I grew to appreciate this approach much more when I interviewed a popular serial entrepreneur, Rich Christiansen a while back, who has done almost 30 businesses wholly by bootstrapping. He published a book with Ron Porter, titled “Bootstrap Business”, that provides a wealth of practical examples and advice on this subject.

The essence of his approach is to dedicate yourself to becoming a frugal minimalist in everything you do. I like his approach, and have extracted some tips from his book and other sources on how to do it:

1. Use a virtual office. Rent is one of the biggest expenses for any business. If you can, start your business in your home office, basement or garage (Bill Gates, Steve Jobs, and many other legends used this approach).

2. Think minimum spending. Spend the absolute minimum for what you need (equipment, software, and services) to keep your business running. Don't justify over-spending initially with "long-run" thinking. If you do, there probably won't ever be a long run!

3. Reinvest gross profit. Most startup founders already do this, rather than take a salary, to improve their offering. Take little to no net profit. Simply take enough to live on, but not to the point of your detriment.

4. Act big, behave small. Create the illusion of ‘big’ without the large building and large staff. Use voicemail, a world-class website, and personal customer service, with small expenses, to beat your big competitors.

5. Do it yourself. Network big to get connections and ideas, but do the work yourself. Every outside hire increases your cost and risk. Hire experts, not help. Low paid help isn’t cheaper if it takes them twice as long to do the job, or they do the job wrong.

6. Don’t plan for failure. Planning for failure almost invariably leads to failure, or at least has a way of undermining your resolve. The tough times are what separate the survivors from the many strewn casualties lying alongside the startup highway.

7. Practice creative marketing. One of the keys to keeping start-up costs low is to find creative and affordable ways of doing what you need to get done, rather than just spending cash. All you need is a blog, Twitter, email, some business card stock, and a little creativity.

8. Don’t think about the exit. As soon as you bring in investors, they force you to plan for an exit (merger or sale) in three to five years. It’s critical to them, since that’s the only way they can realize a return on investment, but it limits your options for growth and change.

Sometimes the tiniest details will throw your startup company into disaster. Understanding your business totally will give you much better operational control. In most cases there is a direct correlation between the quality of your decisions and the size of your revenue stream. For minimum risk, you must understand fully this cause-and-effect correlation.

In summary, watch your costs, trust your gut, and drive forward with all the passion in your dream. The growth may be slower with bootstrapping, but it’s all yours.

Remember, the goal is to keep venture capitalists or any investors from sinking their teeth into your business. When you let them on board, you lose control of your destiny. Isn’t this contrary to why you signed up to be an entrepreneur in the first place?

Marty Zwilling