Monday, June 29, 2015

7 Ways To Turn Team Conflict Into Positive Results

business-team-friction The best startup teams don’t shy away from some healthy friction and heated debates between team members or founders. That’s the way smart people with innovative insights make real change happen. Yet we all know that there is a fine line here, beyond which heated debates generate so much emotion and drama that the entire team becomes dysfunctional.

The obvious challenge is to channel these interactions in a way that maximizes their value to the startup as positive results, without letting them slip into a non-productive or even toxic mode. An equally important challenge is to maintain a culture that rewards engagement, since many people are uncomfortable challenging the views of others.

For feedback of any type to be effective, there can be no quick judgment of right or wrong. Yet it certainly is possible for team members to not deliver feedback well, or for the receiver to accept it poorly or even ignore it. Either of these problems turns conflict into unhealthy friction, which can be avoided with the following initiatives:

  1. Be the one to ask the right questions. By asking open-ended and relevant questions, you allow team members to feel that you respect them and are debating their ideas rather than judging them because of their views. By default, this role falls on the entrepreneur or a senior team member to establish a culture of openness to innovation and change.

  2. Make team debates a managed rather than ad hoc process. Pick an appropriate forum for questions and debates, such as weekly quality-review meetings, rather than water-cooler gatherings. Make sure the discussions are facilitated and limited in scope and time, to prevent wandering off subject and redundant discussions.

  3. Don’t allow titles and roles to limit the communication. A large perceived power difference will change the dynamics of any feedback discussion or debate. Less experienced team members will only really communicate with peers, and maybe their direct manager, while executives may interact more with mentors and outside experts.

  4. Constrain debates to neutral and non-confrontational language. Make all feedback constructive and non-emotional, and avoid personal judgments and labels, such as lazy or inept. People tend to listen and accept feedback more readily if it is couched around recent relevant activities and clarifications.

  5. All members must provide a balance of positives and negatives. Always include positive recommendations when pointing out problems. Team members who consistently provide only negative arguments will be discounted and will poison the problem-resolution process. Everyone must be perceived as participating for maximum impact.

  6. Eliminate indirect and second-hand feedback and arguments. Team members who highlight comments from people who are not present create unhealthy friction. Always stick to the facts that you know, your own observations and available published sources, rather than quoting anonymous industry experts. People are wary of second-hand data.

  7. Keep the discussion focused on business rather than personal. Disparagement of a team member’s character is always inappropriate and toxic. Don’t mix observations about work issues with revelations about private relationships, or activities outside the work environment.

By definition, startups are dealing with uncharted territory and change. As an investor, when I meet a team that exhibits no conflict, I conclude that either the founder is a tyrant, or the team is weak. Neither of these alternatives bodes well for long-term success. On the other hand, excessive and unmanaged conflict is debilitating and unproductive.

As an entrepreneur, you can’t survive alone, and you can’t make every decision alone. The best entrepreneurs surround themselves with people smarter than themselves, ask the right questions, coalesce and learn from the input, and motivate the team forward to success.

Have you worked lately on your ability to rise above the conflict?

Marty Zwilling

*** First published on on 6/19/2015 ***



Friday, June 26, 2015

7 Keys To A Compelling Investor Executive Summary

business-plan-executive-summary Few investors these days have the time or patience to read a full business plan, so a better way to catch their eye is with a tightly written and well formatted two-page executive summary. As a model, think high-quality marketing collateral, with text and graphics in columns and sidebars, but focused on the value of your business, rather than selling your product.

Once you have their attention, content is key. I see too many executive summaries that are simply heavy-duty customer pitches, or lightweight visions of the future. As an angel investor, what I’m looking for is key data from your business plan, including financial projections, how much money you are looking for and a quantification of my potential return.

Skip the fuzzy marketing terms, such as "easier to use," "lower cost" and "disruptive technology." Investors want to buy into an entrepreneur with a startup that can provide evidence of an ability to double customer productivity, at half the cost, with patented technology. The summary must cover all the key topics in a full business plan, including the following, in this order:

  1. Lead with a painful customer problem and how you solve it. This is your elevator pitch and customer value proposition, and is your key to getting an investor to read even the remainder of the summary. Skip any history lesson and your vision to change the world. Nice-to-have solutions and customers with no money are not compelling.

  2. Show you have a large and growing market opportunity. Investors expect to see credible third-party evidence that you are targeting a billion-dollar opportunity, with double-digit growth. Your passion is necessary but not sufficient to prove a market. Focus on a specific market segment to match your solution.

  3. Include your sustainable competitive advantage. Patents or other intellectual property are a real competitive advantage for a startup, but first to market and working harder are not sustainable. Don’t kill your credibility by asserting that you have no direct competition, since to investors that means you have not looked or there is no market.

  4. Clearly define your business model. If you sell for half the price of a competitor, but you lose money on each item, it’s hard to make it up in volume. Remember you are talking to investors, so they don’t associate free with providing any financial returns. Quantify all the key elements of the equation, including price, margin and volume.

  5. Highlight why your team is the best for this challenge. Make sure you name your key players and advisors, and include any prior startup experience and prior experience in the relevant business domain. Current and past titles don’t convey this information. Professional investors look for the right people more than the right product.

  6. Project revenues, costs and investment expectations. If you are not willing to set targets for yourself, don’t expect investors to commit their funds. Major milestones along the way should also be outlined. When sizing your funding request, be aware of the value of your startup today, since most investors expect an equity share for their contributions.

  7. Outline the potential investor return, and payback process. The best way to do this is to highlight a recent similar company payback to investors, via going public or acquisition exit. Angel investors look for high-growth potential companies who can double revenues yearly, and sell for a high multiplier, providing a 10-time return.

You may think it’s impossible to get all this information into two pages and still have room for graphics, but the best entrepreneurs do it every day, and they get the funding that more wordy marketing pitches don’t win. This outline is not a magic formula, but when key points are skipped, investors see these as red flags, which can push your request to the bottom of the pile.

Most important of all, don’t forget to ask for the order or ask for an opportunity to meet and review your investor presentation and answer questions. Attracting an investor requires building a relationship, not a one-night stand. A great executive summary shows the true depth of your character and your plan.

Marty Zwilling

*** First published on on 6/17/2015 ***



Monday, June 22, 2015

The Peter Principle Can Paralyze Your Startup Team

businessmen-shaking-hands The good news is that recent big company financial woes and layoffs have generated a flood of candidates with real experience seeking positions at startups. The bad news is that many of these frustrated employees may have already reached their level of incompetence (The Peter Principle). They are not the ones you need in the few key team positions to drive your startup.

Back in 1968, Dr. Laurence J. Peter first published evidence that most organizational promotion strategies are based on current task fit, and result over time in every role being occupied by an employee who is in over his head. Thus all innovative critical work is accomplished by team members who have not yet reached their level of incompetence.

Too many entrepreneurs naively believe that candidates with lofty titles from a larger company can easily do the same job for their startups. Nothing could be further from the truth. Titles don’t reflect competence, even in a big company, and the unstructured domain of a new startup is a whole new creative and innovative challenge.

Starting from the top, it’s a broadly accepted axiom that big company CEOs are rarely good candidates for a startup CEO position. The worlds are simply too different. In the same fashion, we all know excellent technologists are not usually good business people. The challenge of bringing in strong team members, rather than helpers, is job one in every startup.

My recommendation is to fill every team position based only on demonstrated fit, motivation, commitment and results, not based on any past title or their ability to convince you that they can do the job. Here are some key things an entrepreneur must do in selecting team members to minimize exposure to the devastating effects of the Peter Principle:

  1. Select people who can both communicate and perform well. Startups can’t afford two or more people for every task -- one to do work, and others to communicate results to all constituents. As the founder, you won’t have a finance chief, a marketing staff or a requirements manager. Everyone must know how to listen, talk and write.

  2. Look for existing skills and a demonstrated ability to learn. People who haven’t changed in a while find it harder and harder to do so. If you don’t hear an enthusiasm for new challenges, you won’t find the flexibility you need to anticipate and create the pivots required for success. People trapped by the Peter Principle won’t be happy fixing chaos.

  3. Keep the focus on results. Don’t hire or reward for effort. A common refrain I hear from team members in over their heads is how many hours they work and how busy they are. If you hear that in the interview process, change the subject to results, and then move on quickly to the next candidate. Set your own metrics and rewards to map to results.

  4. Practice an “up or out” growth policy to prevent role stagnation. Look for team members that see every job as a step to a new opportunity as the company grows. Make it clear through your words and actions that you expect upward growth, and no growth is a failure for both of you. The alternative is to lose your best people to new startups.

  5. Look for ability to manage a task, as well as do the task. Some people are workers, and others just want to be managers. The best have done both, and approach every task from both perspectives. Most big company executives have forgotten how to do the work -- they make decisions and expect staff members to implement them. This doesn’t work in a startup.

  6. Provide mentoring and self-learning opportunities. Most startups don’t have the time or resources to send team members to formal training classes, either in-house or off-site. Yet every new team member can be assigned an in-house mentor, provided with online seminar opportunities and given special assignments to facilitate new learning.

The hard part for most entrepreneurs is being able to deal immediately with the Peter Principle in team members, once they see it or recognize that they made a hiring mistake. It’s as hard as every other pivot you will have to make as a startup, with the same penalty that the longer you wait, the higher the cost of recovery.

If you as the leader don’t deal quickly with incompetent people in key team positions, they will paralyze your startup. The best people will drift away, and only the ineffective ones will remain. That makes you the final proof of the Peter Principle.

Marty Zwilling

*** First published on on 6/12/2015 ***



Friday, June 19, 2015

Check Your Entrepreneurial DNA Before You Start Up

entrepreneur-DNA As an angel investor, I get requests almost every day to review a new product or website, and provide feedback on its potential success. Yet I can’t remember the last time any entrepreneur asked me to assess personal potential, despite the fact that most investors will admit they invest in the person more than the product. It is people who drive successful businesses.

So it behooves every aspiring entrepreneur to understand their own DNA before picking a project to bet their life on, and to facilitate effective communication with all constituents, including partners, investors, team members and customers. We all have strengths and special interests, and it always pays to capitalize on these, rather than assume all opportunities are the same.

To confirm the value of checking yourself, I find more and more investment organizations and startup incubators, including StartupAmerica and CoFoundersLab, already use a formal process, such as StrengthsFinder, as part of their screening process. If they find your strengths are not consistent with the project you are bringing forward, their interest may come to an abrupt end.

A newer methodology that seems to be gaining traction measures an entrepreneur’s fit or DNA in each of four quadrants: Builder, Opportunist, Specialist and Innovator (BOSI). It was developed by Joe Abraham, who manages a portfolio of successful high-growth international companies. You can even check your own DNA with his self-assessment against the four key types:

  1. Builder. The Builder excels at constructing a business from the ground up. These people are the ultimate chess players in the game of startups, always looking to be two or three moves ahead of the competition. They are usually described as driven, focused, cold, ruthless and calculating. Many might say Donald Trump epitomizes this category. They usually win, but don’t often get the appreciation and happiness they crave.

  2. Opportunist. The Opportunist is the dreamer in all of us. It’s that part of us that maneuvers to be in the right place at the right time to make big money. If you ever felt enticed to jump into a quick money pitch on the Internet, that was your Opportunist side showing. These entrepreneurs dream big, go big and too often crash big.

  3. Specialist. The Specialist entrepreneur will enter one industry and stick with it for a lifetime. They build strong expertise, but often struggle to stand out in a crowded marketplace of competitors. Picture the graphic designer, the IT expert or the independent accountant or attorney. These types of people start good family businesses, but can’t scale.

  4. Innovator. You will usually find the Innovator entrepreneur in the lab working on their invention, recipe, concept, system or product that can be built into one or many businesses. The challenge with an Innovator is to focus as hard on the business realities as the product possibilities. If one of these entrepreneurs teams with a Builder, the sky is the limit, and every investor wants to get a piece of the action.

Of course, understanding your type and tailoring your plan is still no guarantee of success. The second principle that all investors live by is that successful businesses are also about execution, rather than the idea. That’s why I also put major emphasis on startup traction, milestones achieved and metrics rather than listening again to how great it’s going to be.

Nevertheless, I see tremendous value in understanding your entrepreneurial DNA, as part of your personal preparation, or in conjunction with incubators, accelerators or advisory boards. I am not convinced that any organization has the ultimate system to map your DNA to business success, with all the unknowns of a new business and personal idiosyncrasies, but it’s a good start.

There is still no substitute for personal relationships and effective teams. That’s why most angel investors only invest locally, where they can do that assessment of the founder and his team personally over time. Venture capital investors have the resources to travel to entrepreneurs with high potential.

So before you initiate your next startup, I recommend that you spend some time looking inward, or working with a mentor who will tell you where your strengths lie. At the very least, you can then find a co-founder who has complementary strengths, and prove the theory that one plus one equals three. All too often the alternative is that one plus zero ends up as zero.

Marty Zwilling

*** First published on on 6/10/2015 ***



Friday, June 12, 2015

Grants May Be Free, But They Do Come at a Price

government-grants Every investor in your startup, even friends and family, normally expects a share of your company (equity), which means your return for all your effort goes down quickly. Thus founders seeking funding for a good cause or a new technology often seize on grants from universities, government agencies and philanthropic organizations as free money to solve their problems.

In the U.S. they can visit the directory of government grant alternatives, which is searchable and features more than a thousand federal programs, or more locally the Small Business Innovation Research (SBIR), with opportunities for high technology startups. They can find additional grants from large philanthropic directories, and your favorite alma mater site.

Of course, nothing is really free in the business world. The indirect costs of time and effort to find the right grant, complete the application and manage the process, even if you win, can be substantial. Here is my summary of some major considerations that every entrepreneur needs to evaluate against the cost and effort to attract equity investors:

  1. Completing a grant application is real work. Every organization willing to give you money is looking for specifics on what you will do with it and how it will help the grantor and expects answers to every detailed bureaucratic question. This requires heavy research and lots of time. Your visionary one-page idea description won’t work here.

  2. Turnaround cycles are excruciatingly slow. After months of preparation, you should expect another six to nine months for reviews and funding cycles. This is at least double the time required for most equity investments, and may be a delay you can’t afford in keeping up with the market and your competitors.

  3. Experts are available but expensive. Just like you can hire investment brokers to find equity investors, you can hire grant writers and expeditors to help you through the process and improve your odds of success. These people will get you on the fast path and lobby your case to executives, but expect a chunk of your money up front.

  4. Grant spending and accounting rules may be painful. Grant providers may not require a seat on your board to help you make decisions, but your spending processes will be carefully monitored and audited. Venturing outside the limits will lead to legal consequences. Don’t assume you are free to be your own boss with grant money.

Here are some best practices that I recommend for inexperienced entrepreneurs to maximize their odds of survival and success in dealing with grants and making the tradeoffs:

  • Look for assistance, not experts. Don’t try the grant process alone the first time. If you still have any connections at the local university, look for some guidance from related subject-matter professors. Professors get grants for research, but they need you for the current focus on commercialization. Otherwise find an inexpensive class on grant writing.

  • Seek funding from multiple sources concurrently. Grants should never be seen as the only alternative to equity investors, or vice versa. Funding is a seemingly never-ending task for startups, so make sure all your research, business plan work and execution plans will work in either environment. Pursue at least two sources in parallel.

  • Search for special stimulus areas and tax breaks. Capitalize on current initiatives, such as the recent Obama Administration Green Energy Stimulus, which pumped more than $50 billion into startups. Every organization and agency has special focus areas and related tax incentives. Enhance your business plan and marketing with these in mind.

  • Highlight an element of social entrepreneurship in every plan. Every technology advance has the potential to help people in the medical, environmental or cultural sense. Think outside the technology for social applications and value and highlight these in your grant application, and in networking with authorities. Technology is not enough.

In all cases, grants should be seen as primarily an early-stage development assist, and not the last step to commercialization. Some entrepreneurs become stuck in development, fixated on winning just one more grant, rather than moving on to marketing and real customers.

The only real funding that counts in startup success comes from customers. They don’t ask for equity either.

Marty Zwilling

*** First published on on 6/3/2015 ***



Monday, June 8, 2015

7 Entrepreneur Mistakes To Avoid In Early Meetings

adult-first-impression Relationships are the key to survival and success for entrepreneurs, and first impressions usually turn into lasting impressions. As an advisor to many early-stage entrepreneurs, I caution them to always be prepared for that chance meeting with a famous investor, a potential partner or an industry guru. It’s not smart to believe that your passion and gift of gab will impress anyone.

Advance homework and preparation is key to every good first impression. With smart people, you can’t bluff your way past tough questions, and talking more and louder about your dreams won’t fill the gap of relevant content. Despite the fact that you can’t predict the circumstances of every first meeting, there are many faux pas that you can avoid, including the following:

  1. Failure to recognize an important person before introduction. Every entrepreneur should build a “cheat sheet” of 10 key individuals they hope to encounter at any given meeting or networking opportunity. The impact of responding first with facial recognition from LinkedIn or Facebook is huge compared to possible alternatives.

  2. Start talking immediately about your project and background. Asking questions and listening will leave a greater first impression more often than talking. Even more impressive are targeted questions that indicate you already have done your homework on their current role, expertise and company affiliations.

  3. Quick to name-drop common friends and business links. A mention or introduction from a shared friend will always give you an advantage. But be cautious about dropping names of people who may not really know you, or whose recollection of you may not be so positive. The investors I know are quick to do some real due diligence.

  4. Ask a thousand questions, with no apparent objective. To make a memorable first impression, you need to make your objective clear in simple and non-emotional terms, before the other party has to ask or guess. Think of it as not wasting the other person’s time, and always positioning the next step, like asking for a meeting or a partnership.

  5. Flaunt how much you know about every subject. It’s important to do your homework and appear knowledgeable on relevant subjects, but a good impression will turn bad if you interrupt every answer with a correction, or can’t stop talking about any given subject. Good initial conversations should never be turned into debates or political platforms.

  6. Easily distracted by a friend or someone more important. We all hate being dumped quickly in a business or personal situation for someone more attractive or important. Smart entrepreneurs learn how to smile and maintain eye contact, make transitions positively and proactively follow-up to solidify their impact, rather than lose it.

  7. Dress to make a statement or stand out in the crowd. Appropriate dress is all in the eye of the beholder, so that should be your criteria. If you are presenting to a group of angel investors, assume business attire or match the norm of members. Washed-out jeans may be your norm at work, but won’t impress most long-time business executives.

With a little forethought and business sense, all these mistakes can be turned into opportunities for you to be remembered. All it takes is the same diligence that every entrepreneur puts into solution development, their business plan and investor presentation. You shouldn’t be surprised to learn that first impressions usually last longer than any documents you prepare.

Psychologists say it only takes three to five seconds for someone to form a lasting first impression. Either consciously or unconsciously, people important to your future will make quick judgments about your professionalism, character and trustworthiness quickly.

Don’t jeopardize the future of your startup, and your chosen lifestyle, by assuming you can wing it. Only preparation will keep you and your image from flying astray.

Marty Zwilling

*** First published on on 5/29/2015 ***



Monday, June 1, 2015

How Entrepreneurs Attract Friends, Family And Fools

Image via Flickr by Jupiter Labs
Many first-time entrepreneurs find themselves unable to bootstrap their startups, and also unable to find early funding at the venture capital level or even with angel investors. Their only recourse is that first tier of investors, fondly called Friends, Family and Fools. These are the only people likely to believe in newbies, with only minimal product evidence or business experience. 

Yet surprisingly, according to statistics on the Fundable crowdfunding site, friends and family are the major funding source for all entrepreneurs, investing over $60 billion in new ventures last year, almost triple the amount coming from venture capital sources. The average amount per startup was $23,000, usually in the form of a convertible loan, rather than an equity investment.

Of course, most startups ultimately need much more than this amount to scale the business, but some prior contribution from friends and family (as well as your own sweat equity) is normally expected as a qualification before professional investors will consider entering the game. Their logic is that if your family won’t invest in you, then why should they?

This is confirmation that the right people are always more important than the right product. Here are some key ways that you can be viewed as the right people, whether seeking an investment from friends and family, fools or even later from professional investors:
  1. Ask for a specific amount to meet a specific milestone. Shy introverts may be great technologists, but they won’t be entrepreneurs until they learn to nurture relationships with friends and family, practice their elevator pitch and respectfully ask for funding. Waiting for someone to give you a gift with no specific objective is likely to be a long wait. 

  2. Offer a formal agreement as well as a handshake. The vehicle of choice is most often a convertible note, which is really a loan with a specified duration and interest, with an option to convert it to equity when professional investors come in later. Hire an attorney to make sure the terms are fair. This shows respect and professionalism. 

  3. Let people see your own investment and commitment. Friends and family are quick to differentiate between a passionate hobby and a sincere effort to change the world. Show them that you have done your homework with industry experts and potential customers, and convince them you are not asking for charity or a donation. 

  4. Build a prototype first on your own time and money. We all know people who are good at talking, but never seem to risk anything or find time to get started on the implementation. Every good entrepreneur needs to invest skin in the game, to show credibility and leadership to others. Investors want to be followers, not the leaders. 

  5. Don’t ask for more than your friends or family can afford to lose. In other words, don’t be greedy, and remember that you have to live with these people even if your startup fails. Ask for the minimum amount you need to reach a significant milestone, with some buffer for the unknown, rather than the maximum amount you can possibly foresee. 

  6. Communicate the plan and the risks up front. Remember that no investment is a gift, and everyone who buys in deserves to hear what you plan to do with their investment, and expects regular updates from you along the way. Be honest with na├»ve friends and trusting family members, since more than 70 percent of startups fail in the first five years. 

  7. Focus on well-connected friends with relevant business experience. A wealthy uncle may seem like an easy mark, but a less wealthy friend who has connections and experience with startups in your domain can likely help you more than any amount of money. Remember that you are looking for success, not just money to spend. 

  8. Tie re-payments to revenue growth in the startup. Rather than set a fixed repayment schedule, tie investment payoffs to a percentage of new product revenue, or a plan to convert the debt to equity. Use the minimum viable product concept to get revenue early, and allow market and product pivots at minimal cost.
In any case, avoid the urge to think of friends and family as a last funding resort, when they should always be your first focus, and maybe the only one you will ever need. If you succeed, there is no joy like sharing the feeling and the money with people close to you. 

But make sure you do it right, per the above recommendations, or you may be the biggest fool.

Marty Zwilling 

*** First published on on 5/22/2015 ***