Monday, May 30, 2016

Test Startup Urges As An Intrapreneur, With Caution

intrapreneur-light-bulbBelieve it or not, even large and mature companies often initiate entrepreneurial efforts inside their own companies, and they look for employees who have the right attributes to make this happen. If you want to explore the world of an entrepreneur, without jumping ship, this would be the way to do it. Entrepreneurs working inside big companies are called “intrapreneurs.”

Many companies do this to explore opportunities for growth outside their normal domain, and compete with conventional startups, to penetrate new markets and profit from the next big thing. A reason on the other end of the spectrum would be to de-consolidate non-core functions to live or die on their own merits. A third reason would be to mingle and learn from the startup culture.

Most often, corporate entrepreneurial efforts are destined to be spun-off, or disconnected from the base company, very early in their cycle, to give them all the advantages (and challenges) of a real startup. Since initial funding and staffing is usually provided by the parent company, one would assume they have a real survival advantage over other startups.

Yet, through some first-hand company experience that I won’t detail here, to protect the guilty, I am convinced that spin-offs often fail to launch or compete in the real world, for one or more of the following reasons:

  1. Employees selected to run the spin-off don’t think like entrepreneurs. All too often, corporate top performers, or ones who have scaled the ladder of time, are put in charge, regardless of whether they have a passion to run a startup, the broad range of skills, required or the required relationships with industry players and outside partners.

  2. The parent company never really relinquishes control. Like startup investors who demand board control positions, parent company executives too often exert their power, without understanding that starting a business is far different from running an established one. The result is an under-funded and under-staffed clone of the parent organization.

  3. Incentives based on internal objectives, rather than market-driven. In enterprise environments, performance objectives and bonuses are often tied to internal processes and targets, rather than product revenue, customer acquisition and market penetration. This technique, when applied to a startup, can actually inhibit progress and scalability.

  4. Salaries and support services carry corporate overhead. Legally and culturally, benefits and facilities provided to an intrapreneur under the auspices of the parent company have to be driven by the corporate burden rate. Thus the spin-off carries a heavy overhead, or faces a disconnect from the parent with no visible return path.

  5. Mission is set in stone, so required pivots are not allowed. The corporate mandate of a spin-off usually lacks the flexibility and creativity of an outside startup. Every startup I know has found the need to pivot multiple times, before finding their best fit in the market, no matter how strong their initial vision. Intrapreneurial missions are more hard-coded.

Your challenge as a corporate entrepreneur, or intrapreneur, is thus actually tougher than starting your own business on the outside. It looks more attractive, considering the guaranteed funding up front, access to pre-trained internal team members and professional analysis of the financial considerations, but the challenges listed above can override all of these.

The answer for spin-offs, I believe, is for the parent to apply tough love -- limited financial support, with no do-overs and no golden parachutes. With this approach, Sony’s intrapreneurial venture into the PlayStation game market succeeded wildly, and has since grown into an ownership of over 70 percent of the home-video-game-console market share.

On the other hand, Hewlett-Packard applied resources to all these issues a few years ago in an attempt to spin off the personal computer business, but quickly backed out as they saw losses mounting toward $1 billion a year. The low margins of the PC business just could not be overcome by resources and value unlocked by splitting the business into two more focused entities.

For aspiring entrepreneurs, there are a couple of lessons here. First, entrepreneurship (or intrapreneurship) is a mindset that team members can apply for value in corporations, as well as startups. Huge resources, even with this mindset, won’t make a startup or a spin-off successful. The magic is figuring out how to do more with less. So why are you waiting for that big investor?

Marty Zwilling

*** First published on on 05/20/2016 ***



Friday, May 27, 2016

7 Team Attributes That Can Make Any Idea Come Alive

Playing_mafia_gameThere is an old saying in the startup investor community, “Smart investors invest in the team, not the idea.” As an angel investor, I’ve learned to believe in this approach, since I have seen great ideas go astray, due to poor execution and I have seen apparently marginal ideas make millions, managed by a savvy entrepreneur. Giving the wrong people money doesn’t help at the idea level.

Who would have forecast that entrepreneur Gary Ross Dahl would make millions by starting a “pet rock” business way back in 1975? Some business successes can be attributed to luck, timing, or available funding, but in this case most agree that Gary was simply a marketing genius and he created his own market through creative advertising, emotional appeal and exclusivity.

That may be an extreme case, but I’ve found that even with the proposals that include compelling paradigm shifts in technology, a hard look at the entrepreneur is often the most significant due-diligence that an investor can undertake. Beyond basic business and technical credentials, here are some of the key startup team attributes that every investor is looking for:

  1. Team shows an appreciation and plan for marketing. The days are gone when an inventor can get credibility by saying “if we build it, they will come.” Similarly, mentioning viral marketing without specifics won’t assure fundability. Everyone on the founding team needs marketing awareness, and a marketing plan with content.

  2. Leader pitches the plan, not the product. Investors look for entrepreneurs who talk about building a sustainable business, rather than highlighting the breakthrough elegance of the technology or the need for social change. Even social entrepreneurs need milestones, quantifiable results, and revenue to sustain their value.

  3. Focus on customer needs. Some founders are so passionate about their solution that they forget to lead with an explanation of the customer value equation. Investors assume that entrepreneurs are experts on their solution, but they want to see the same depth on customer and market dynamics.

  4. Startup presents a plan to expand and lead the market. Every investor I know has seen multiple plans to add more features to Facebook, or add yet another dating site. I’m looking for teams who are exploiting a new market niche, or adding real innovation to an existing domain. Investors like to see new intellectual property as a barrier to entry.

  5. Plan includes a business model with good margins. Counting on sustaining the business through more free users and growth in eyeballs for advertisers is a naïve and risky approach and it implies investors with very deep pockets. Investors expect to hear annual revenues, average margins, customer acquisition costs and sales pipelines.

  6. Founding team has business and domain experience. An entrepreneur needs a depth of business experience on the team, as well as technical expertise. This should include financial, marketing, sales, and operations, all with a record of working together in setting milestones, managing results, and focusing on the market opportunity.

  7. Business objective is clear and laser focused. If the entrepreneur is pitching a plan that sounds like this is a solution for everyone, it’s likely that resource constraints will not allow any customer segment to be served well. The best startups are highly focused in the initial rollout, but can present an evolving strategy for broadening the market later.

It’s always likely that one or more of the team members are young or inexperienced, but every entrepreneur can attract a strong and balanced team, with the proper networking and the willingness to share equity early. Building the team later, with money from investors, is a losing strategy, since team members paid cash are less committed and investors want the team first.

Thus I would assert that build a great solution is only half the task faced by every entrepreneur. The other half is building a great team and plan for making a great business out of the solution. With both of these, you can make any idea come alive. Otherwise you will likely feel like you are working hard with one arm tied behind your back. You need both for maximum impact.

Marty Zwilling

*** First published on on 05/18/2016 ***



Monday, May 23, 2016

6 Principles For Overcoming Entrepreneurial Adversity

entrepreneurial-adversityEvery entrepreneur knows what it’s like to face adversity. It comes with the territory, and includes cash-flow challenges, fickle customers, belligerent investors and unpredictable economic downturns. The best entrepreneurs tackle these one at a time without losing their stride or their passion and many secretly get their highest satisfaction from overcoming an impossible problem.

For example, you probably didn’t know that the world’s richest entrepreneur, Bill Gates, found that his first venture, Traf-O-Data, failed to make money because he couldn’t solve the technical problems quickly enough and selling to municipalities was a nightmare. Instead of making excuses, he credited his later success with Microsoft to the lessons he learned with Traf-O-Data.

Also, most people don’t realize that Richard Branson has dyslexia, which made him a poor student, so he faced adversity well before his first startup effort. Yet he was able to use his dynamic and powerful personality to drive him to success. Today, Branson is known for over 400 companies, many very technologically advanced and he is the fourth richest person in the United Kingdom.

I’ve always been intrigued by the fact that adversity energizes some people, almost to the super-human level, while others are driven to despair. I suspect it starts with a strong survivor instinct, rather than reverting to a victim mentality. Beyond this, I have extracted from my own work with entrepreneurs a set of principles that I recommend for every founder in the face of adversity:

  1. Maintain a positive attitude, learning from failure. Thomas Edison called every failure an experiment (now it would be a pivot). He made no excuses for 10,000 light filament failures. Challenged by his contemporaries, Edison soberly responded: “I have just found 10,000 ways that won’t work.” He then succeeded.

  2. Build relationships with others, communicate. An isolated position is hard to defend in the face of adversity. Successful entrepreneurs are not afraid to reach out and ask for help from peers and advisors. They communicate their goals, fears, and challenges, without excuses and actively listen to feedback and guidance.

  3. Surround yourself with smarter people. The best entrepreneurs get past the need to control every aspect of their business, and make every decision. They actively solicit people who are strong, have more expertise in a specific area and trust them to make decisions there. Adversity will melt away.

  4. Prioritize your health and activities balance. In the natural world of survival, unhealthy and unbalanced people most easily succumb to adversity. Smart entrepreneurs always find time for rest, outside physical activities or even meditation. Working 20 hours a day, seven days a week does not solve all problems.

  5. Accept adversity as a norm rather than an exception. Some adversity in inevitable in every business, so it must be treated as any other unknown, rather than a crisis or the end of the world. Many entrepreneurs thrive in adversity and get satisfaction from the solving challenges, compared to the relative boredom of business-as-usual.

  6. Practice resilience by refocusing on your strengths. Researchers have concluded that human beings are born with an innate self-righting ability or resilience, which can be helped or hindered. Obsessing about problems and weaknesses hinders resilience, while identifying and building on individual strengths increases resilience and leads to success.

One of the biggest myths that aspiring entrepreneurs tend to believe is that they can be successful doing only fun things. In reality, experienced leaders and entrepreneurs will tell you that it’s how you anticipate and handle the inevitable tough challenges that determines long-term happiness. If you try to avoid any risk and competition, you won’t be happy with the outcome.

I don’t recommend the entrepreneur lifestyle to those who can’t deal with risk and adversity. If you are ready to give it a shot, or are already committed, I do recommend the principles outlined here for solidifying your natural strengths. We can all benefit from the experiences of others. The best entrepreneurs don’t succeed by dodging challenges, but because of how they handle them.

Marty Zwilling

*** First published on on 05/13/2016 ***



Saturday, May 21, 2016

7 Entrepreneur Attributes You Need To Lead The Market

ETalk2008-Sir_Richard_BransonThere are a few entrepreneurs who seem to always be ahead of the rest, and are able to sense where the market is going tomorrow. Investors reverently call this the ability to “see around the next technology corner,” and fight for a place in line to put their money down. Everyone wants to support the entrepreneur with the courage to make bold decisions, and can make it happen.

Elon Musk seems to be highest on this list these days, with his record-setting order rate on the new Tesla Model 3 all-electric car, and well as groundbreaking progress on SpaceX and SolarCity. Steve Jobs of Apple and Richard Branson of Virgin Group are other popular examples. Most investors probably have one or two more favorites, but their list is always short.

So what does one have to do to get on the list? No one expects an entrepreneur to be “always right,” and definitely no one is looking for aspiring entrepreneurs who are willing to make random jumps into the unknown, based primarily on passionate dreams or a revelation from a life-changing event. They do expect to see all the key attributes of an entrepreneur, and a few more:

  1. Dominating presence without the arrogance. These entrepreneurs are outspoken and opinionated, but not afraid to put their money where their mouth is. Steve Jobs never denied his failures, but didn’t hesitate to risk it all on a next turn of technology from computers to consumer products. His new product presentations were legendary.

  2. Exhibit almost superhuman energy and focus. According to many, Elon Musk has worked for 100 hours a week for more than 15 years, with incredible productivity. Richard Branson’s adventurer escapades are legendary, while at the same time founding over 400 companies. Steve Job’s focus on incredible design has set new standards for all.

  3. Good at business, but driven by making the world a better place. Too many founders that are driven by good social causes forget that they have to make money to deliver on their vision for the long-term. Maintaining that balance between doing good and doing business is a key to success that investors and customers watch carefully.

  4. Build relationships with the best of the best in their domain. Lone scientists may uncover some great technology, but a team is required to build a solution and a market. That team has to cover the range from top designers, savvy financial managers, to good marketing and sales leaders. Leaders make a team greater than the sum of the parts.

  5. Pushes beyond the limits of known function and design. Only a few entrepreneurs have the intelligence and perseverance to not only envision, but actually build, solutions that defy conventional design and performance limitations. They have to ability and patience, as well, to communicate and awaken customers to a need never felt before.

  6. Enjoy continuous learning from “stretch” experiments. These entrepreneurs are self-learners, having long ago foregone the conventional learning vehicles of schools, consultants, and incremental improvements. They challenge themselves and their hand-picked team to “impossible” tasks, like reusable rockets, or a computer in a wristwatch.

  7. Always on the offense in strategy rather than the defense. For most entrepreneurs, playing defense is the default, since it doesn’t require being proactive and it’s hard to consider killing a cash cow. Steve Jobs couldn’t wait to push out the Macintosh personal computer, even though the Apple IIe was still doing well in the market.

The entrepreneurs who work at “seeing around the corner” are the ones who work 80 hours a week or more, just to avoid the predictable 40 hour per week regimen. They don’t worry about getting it right the first time, or every time, because they relish the heightened learning they get from failure. They get their satisfaction from the journey, as well as the destination.

As a mentor and advisor to aspiring entrepreneurs, my advice is to hone your development of these extended attributes by first working in a challenging startup environment under the tutelage of a more experienced entrepreneur that you respect and trust. It helps to know the difference between a corner and a brick wall before you charge ahead.

Marty Zwilling

*** First published on on 05/11/2016 ***



Monday, May 16, 2016

9 Leadership Initiatives To Ramp Up Team Engagement

zappos-office-tourMost new entrepreneurs have great ideas, and many are highly skilled in building their solutions. Unfortunately, far fewer have the focus and experience of building and maintaining a highly engaged team. They don’t realize that strong team engagement leads to even stronger customer engagement, which can more than double your startup revenue and growth, according to experts.

Team engagement has to extend well beyond your internal team of employees and executives, to the extended team of partners, vendors, and investors. The principles of engagement are the same across all these domains, even though the required actions may be different. I’ll focus here on key recommended actions for the internal team:

  1. Be the role model for engagement from the top. Startup founders and leaders need to get out of their office, and demonstrate engagement with the team every day. Engagement doesn’t come from written policies or one-way speeches. It comes from two-way interaction with individual employees, and clear indications of active listening.

  2. Link your business to a higher purpose than profits. Team members with a compelling sense of social or environmental purpose feel an extraordinary engagement. For example, TOMS Shoes matches every pair of shoes purchased with a new pair of shoes for a child in need, driving engagement for employees and customers.

  3. Empower employees with authority and tools to succeed. Full autonomy to go above and beyond in sales and customer-service roles will increase team engagement as well as customer satisfaction. Highly satisfied customers become your best advocates, bringing in new customers, repeat business, and ramping up revenue and profits.

  4. Link rewards and performance to engagement levels. High engagement is more related to high performance than high satisfaction. Satisfied employees too often include under-performers. Measure engagement levels and results, rather than satisfaction levels, within team members and customers, to assess and pay for performance.

  5. Focus on a culture of motivation rather than punishment. Eliminate the fear of failure by offering incentives to learn, and rewards for thinking outside the box. For example, Zappos brings in thought leaders from personal development, education, community, philanthropy and other realms to share their ideas for motivation and engagement.

  6. Respect individual team member needs and attributes. Let team members be themselves, with a relaxed dress code and individual consideration for start times, time off, and office décor. They will respond with greater empathy for unique customer requirements and team member expectations. The result will be higher engagement.

  7. Hire and train for engagement levels, as well as skills. Resumes tend to reflect skills, rather than engagement capabilities, so good interview techniques by leaders and peers are absolutely required. Training for engagement and promoting those who excel, are additional ways to foster the right behaviors. The ability to engage is a winning skill.

  8. Facilitate and use customer, peer engagement feedback. Feedback on engagement should come from multiple sources, including social media reviews, peer reviews, and executive interviews. Make it evident from your words and actions that you are listening and positive feedback will be rewarded. Make sure they know your values.

  9. Authentic relationships lead to authentic engagement. Entrepreneurs and team members who genuinely care for each other relish their engagement with others. Be transparent and authentic in your communications. Model high standards of integrity, respect and walk the talk if you expect to engage employees through trust.

The goal of these initiatives is to ramp up engagement in yourself and your team to be a multiplier of the quality of your solution and your marketing, to achieve new levels of market penetration and profitability. It’s a big lever in your ongoing battle for success, and it’s one that you need to pull earlier rather than later. Are you there yet?

Marty Zwilling

*** First published on on 05/06/2016 ***



Saturday, May 14, 2016

8 Reasons to Find Joy in Your Job

joy-at-workI’ve never understood why so many business employees still think it’s fashionable to display a negative attitude about their work and never seem to find a job they enjoy. They don’t realize that they are their own worst career enemies, since promotions and new opportunities always are offered first to people who proclaim to be productive winners, rather than sound like losers.

Top companies today, including Google and Zappos, have found that a work culture that includes some fun, populated by happy and positive people, leads to more productivity and success for the business as well as the people. In my years of business experience as an employee, a startup investor, and an executive, I have seen a host of reasons for these results, including:

  1. People work more productively on things they love to do. When you are having fun and are fully engaged on your favorite project, the time just flies by, and more gets done. Happier workers have been shown in studies to increase their pace (productivity) without sacrificing quality. That in turn increases their self-confidence and motivation to do more.

  2. Happy people maintain a positive “can-do” attitude. Negative attitudes are often a self-fulfilling prophecy, meaning that if you don’t think you can do something, you will usually fail. With a positive attitude, every new challenge, and there are many in business, becomes an invigorating opportunity, rather than an annoying distraction.

  3. Relaxation tends to improve creativity. Constant stress, tension, and unhappiness causes people to withdraw and reject new customer ideas or solutions. They find it hard to think outside the box, be creative, or be open-minded to peers and executives. That’s why companies like Twitter offer free yoga classes and free meals to employees.

  4. Supportive group collaborations produce better results. In teams, people that enjoy and respect each other feed off other’s energy and brainstorm more innovative answers. An unhappy member becomes a “downer,” and brings everyone down, or at least slows them all down. Productive group decision-making requires confident team members.

  5. Positive team members are not afraid to make mistakes. They know the joy of learning from failed fun experiments far outweighs the risk of being seen as failures. In the unknowns of a new business, there are no right ways or wrong ways, just new ways that need to be tested to satisfy customer needs and stay ahead of competitors.

  6. Leaders like to be surrounded by fun, productive people. If what you enjoy in business is new challenges and more opportunity, you need to be seen by leaders as one of them. If you display a negative attitude and unhappiness, you are less likely to get the trust and attention of people in a position to make a difference for you.

  7. Happy people are not afraid to ask for and give support. Smart people surround themselves with people they respect and trust, and don’t try to solve every problem alone. They swallow their pride, ask for help when things get tough, and actively listen and respond to recommendations. They also get satisfaction from mentoring others.

  8. Demonstrate your leadership, or be happy as a follower. Accept and capitalize on your own strengths and weaknesses. Not everyone needs to be a leader. Everyone appreciates a productive worker who does the hard work, makes no excuses, and gets satisfaction from positive customer and executive feedback. Enjoy your strengths.

In this new age of the entrepreneur, if you can’t find a job you enjoy in an existing business, it may be time to start your own business. According to a classic study by the Wharton School of Business a while back, those running their own businesses ranked themselves happier than all other professions, regardless of how much money they made, or how many times they failed.

If you are one of those people who still insist on seeing business and fun as incompatible, I urge you to take another look. Fun is all about satisfaction, doing new things, stretching your mind, and productive relationships with others. If you can’t find that in your own business, or one of the many exciting businesses out there today, then I say you haven’t looked hard enough. Enjoy.

Marty Zwilling

*** First published on on 05/04/2016 ***



Monday, May 9, 2016

7 Good Entrepreneurial Habits That Turn Bad

friendster-philippinesGood entrepreneurs are all about managing change, but too many forget that they have to change themselves as their dream evolves from a startup to a scalable business. Most begin by doing the product development, marketing and sales alone, but struggle making the transition to hiring and coaching others, defining repeatable processes and focusing on future strategy.

For example, there once was a social network called Friendster, often credited with starting the social networking boom way back in 2002. Many pundits feel entrepreneur Jonathan Abrams failed to get the professional management and resources he needed to scale, including turning down an offer from Google for $30 million and was run over by Facebook, a later competitor.

The challenge is to move from doing the work to managing the work and leading others. It doesn’t matter how dedicated and capable you are, there are only so many hours in a day, and as your business scales, you need to count on others for help. Certain habits, including key ones below, served you well in the early days, but can easily lead to your demise as the business grows:

  1. Continuing to act as a control freak. When the plan is all in your head, and elements are undefined, it’s important to monitor every step of the progress, in order to make quick corrections. When the business starts to scale, you need documented processes and people with the right skills and training who can do the right work without you.

  2. Trust your gut, and ignore naysayers. Now you have real customers who can quickly turn off hundreds of potential customers if you ignore their feedback. Now it’s time to make decisions from analytics, customer reviews, and financial results, rather than letting your passion and perseverance convince you that customers will soon see it your way.

  3. Nurture loyalty and trust only with a core group. As your business grows, so must your circle of relationships. Your trusted circle must now be expanded to include new partners, customer advocates, and peer business executives. You can’t demand total loyalty from all, so you have to learn to accept criticism without being defensive.

  4. Happy to work and live on your own terms. Many entrepreneurs gave grown to prefer the relative quiet and isolation of their garage, and their ability to set their own schedule. As an executive, the business will demand your attention on a 24-hour basis and you must interact with employees and customers every day to keep the momentum going.

  5. Love to solve tactical problems and let strategy evolve. Investors and alliances are looking for partners who have a strategic focus, and can find the right consultants to solve their tactical issues. Strategic thinking reduces tactical problems as the business grows, so great entrepreneurs learn to change early from tactical to strategic thinking.

  6. Take pride in your ability to get things done yourself. That ability to tackle any challenge personally, and get it done, serves early entrepreneurs well. As the business grows, you must learn to hire and train employees, and utilize outsourcing in non-core areas to keep up with the volume and detailed expertise required. It’s a big change.

  7. Limit your scaling efforts to organic growth. When you build a great solution or product, all you can think about is shipping more volume of your product to a larger audience. That’s necessary but not sufficient to scale most businesses. You need to nurture non-organic growth partnerships and acquisitions to maximize your valuation.

Some founders don’t want to change, or simply don’t enjoy the executive role. The smart ones in this category know when it’s time to bring in an outside more experienced CEO, or step aside voluntarily when investors start demanding new management disciplines and metrics. Others won’t adapt and won’t step aside and cause major or terminal damage to their business.

Thus my recommendation to every entrepreneur is to first take a hard look at their own strengths and weaknesses, as well as what they enjoy doing. Try to capitalize on your strengths, rather than trying to fix all your weaknesses. Maybe that means swallowing your pride and stepping aside as your business grows, or bringing in a new partner with the commensurate skills. This life is too short to go to work every day unhappy and struggling. Not every entrepreneur needs to scale.

Marty Zwilling

*** First published on on 04/29/2016 ***



Friday, May 6, 2016

How Winning Startups Tackle Tough Growth Constraints

Meeting_in_Air_Force_One_conference_roomThere is nothing wrong with growing your business by selling more of your solution to more people in more cities, states, and countries. That’s called organic growth, and everybody does it. But in my experience as a startup advisor, too many entrepreneurs get stuck there, and always find excuses for not really exploring mergers, acquisitions, partnerships, and alliance alternatives.

Excuses for not thinking outside the box usually include limited personal bandwidth, not enough cash, and fear of the unknown. All of these are real, but the best entrepreneurs find these no more daunting than the challenges they face every day, and find time to work on the business, as well as working in the business. Here are the key steps I recommend to keep you growing:

  1. Identify the single biggest current constraint on growth. For example, at any given moment in your business, you may be limited by development, marketing, or sales. The organic solution is to hire more people, spend more money, and ramp up your focus. But finding money and hiring more people always takes longer than expected -- slow growth.

  2. Evaluate outsourcing as a quick solution to break the constraint. These days, there are many companies around the world, with the skills and equipment you need, ready to assist with development resources, marketing programs, or call centers immediately. Of course, they all prefer cash, but some may work for future revenue or startup equity.

  3. Investigate strategic alliance alternatives. An example of a good strategic alliance was Barnes & Noble bringing Starbucks into their book stores. It was a win-win deal, with new customers and better service for both. Startups can use alliances just as well to get to new customer segments, block competitors, or gain credibility from the logo of others.

  4. Acquire or merge with another company. Acquiring another startup with a strong development team may be far faster and cheaper than building your own, and can be an equity exchange rather than cash. Mergers and acquisitions can also be win-win, if you have customers they need for a product complimentary to yours. Think outside the box.

  5. Negotiate a “co-opetition” deal with a competitor. Win-win deals with competitors are always possible, for example, to reduce costs of a common component, to penetrate new markets, set industry standards, or share a sales channel. Just keep your customer’s best interest as your first priority, and resist the urge to kill every competitor.

Smart entrepreneurs make these five steps an iterative process and a way of life, attacking one growth constraint after another. Of course, it’s important to maintain a balance of organic growth versus the more creative approaches. Total reliance on partners and acquisitions may de-motivate internal teams, or increase your vulnerability to conflicts of interest or partner control.

The smart approach is to nurture a pipeline of growth alternatives and relationships, similar to your customer acquisition pipeline. This requires that you maintain at least a minimum business development focus and skill set inside your own organization to keep these options on the table. Business development must maintain that balance between internal and external growth options.

I always recommend organic growth options first for things that represent your core competency, since it does allow you to better protect intellectual property, and retain and motivate key team members. Organic growth also has the advantage of driving your product and process innovation, which is important for differentiation and long-term competitive advantage.

The advantages of non-organic growth, in addition to speed and potential cost savings, include the development of new management skills and access to market segments which will ultimately be required for survival as a mature multi-billion dollar company, or an attractive public company looking to satisfy stockholders with an extended record of high growth.

If you want your business to be seen as a premium startup by professional investors, able to command unicorn valuation multipliers, you need to double your revenue or more every year. That’s not likely to happen from organic growth alone, so it’s time to get familiar with the growth steps outlined here. How many of these alternatives are already part of your growth plan?

Marty Zwilling

*** First published on on 04/27/2016 ***



Monday, May 2, 2016

7 Shortcuts That Can Kill A Startup Business

Mark-Zuckerberg-unhappyStarting a new business is not an informal process, and should never be treated like a hobby between friends. Unfortunately, as a startup advisor and angel investor, I’ve seen too many ventures with great potential get destroyed or set back by legal and other shortcuts that should never have been allowed to happen. The path to true success does not allow for shortcuts.

I’m not suggesting that any startup needs to demand perfection, but I do recommend that all learn and follow common business practices from the beginning. Mark Zuckerberg can tell you a horror story about how his early informal breakup with a co-founder ultimately cost him a settlement later worth four billion dollars. For many others, shortcuts have cost them everything.

I’m not talking about fraud, or even intentional efforts to mislead anyone. Here are a few examples of situations and results I’ve seen that occurred due to ignorance, poor communication, lack of a paper trail, or procrastination:

  1. Count a discussion between friends as a firm agreement. I’m not suggesting that formal legal documents are always required, but agreements without some paper or email trail are easily forgotten or misconstrued. A co-founder who loses interest and backs out early will likely be back to claim his half after you reach unicorn status.

  2. Delay incorporating until required by investors. This approach has tax implications you won’t like, since the IRS will tax your founder’s shares immediately at the valuation you give investors. If you incorporate much earlier, and file the proper forms with the IRS at that time, there will be no taxes until much later when shares are sold.

  3. Reveal “secret sauce” before filing intellectual property. Filing a provisional patent costs very little if you do it yourself, and it holds your place in line for a year. Trade secrets need to be documented and dated, and business plans labeled as confidential. The alternative is to watch someone else claim first rights of ownership, with no recourse.

  4. Do not disclose your new venture to a current employer. I always suggest an early and open discussion with a current employer about a new venture you are contemplating. Clarify up front the potential for a conflict of interest or violation of a non-compete clause, and confirm the answer in writing. Late surprises lead to lawsuits.

  5. Give away more equity than required to drive the business. A common myth these days is that every startup needs an investor, and large investments are better than small ones. In reality, the most common startup success results from bootstrapping, and too much money leads to poor control and sloppy decisions. Don’t give away your business.

  6. Skip any due diligence verification on interested investors. You may be getting desperate for a cash infusion, assume that money is always green, and forget that every investor is as different as every employee. While fraud is always a potential concern, a more real issue is finding partners who support you rather than seek to control you.

  7. Rely on commitment to a higher cause to get you through. Remember that all businesses, even non-profits, require revenue to survive and prosper. The fact that your business is “green,” or cures world hunger, does not guarantee you investors, or even customers. Reality check first your sizing of the opportunity, competition, and margins.

Running a successful business is all about effective written as well as verbal communication, documented agreements, and conformance to legal and business norms. Too many entrepreneurs assume they can save money or time by shortcutting these early, and catching up later after the business has more traction. They forget that good business practices lead to success, not the other way around.

Actually, the biggest shortcut I see in new entrepreneurs is a lack of planning ahead. I recognize that every startup will encounter challenges that could not be anticipated, but it pays big dividends to avoid the ones that can be anticipated. You won’t survive if you don’t learn first from the mistakes of others, and insist on repeating their expensive shortcuts, as well as inventing your own.

Marty Zwilling

*** First published on on 04/22/2016 ***