Monday, August 29, 2016

The Right Way To Get Funding From Family And Friends

cash-in-handMost entrepreneurs I know are so passionate about their new idea that they are surprised when family and friends don’t line up to invest in their new venture. Yet they tend to ignore this problem, and move on quickly to professional investors. They don’t realize that most Angel investors and venture capitalists will also decline to be first, if you have no commitment from friends and family.

The reality is that investors, including myself, believe that the entrepreneur is more key to business success than the idea. Thus they look for evidence that people who know you well are willing to bet on you, even before your idea has a chance to show traction. Don’t let your lack of acumen with friends and family spiral your startup into the ground waiting for someone to go first.

On the positive side, friends and family probably won’t be as demanding on your financial projections as a professional investor, and they likely will be satisfied with an initial offer of a convertible note (loan with option to convert to equity later), so you don’t have to give away the store before you get started. But they do expect you to take them seriously, as follows:

  1. Proactively and sincerely engage each potential investor. Some entrepreneurs don’t want to put friends and family on the spot, so they keep all discussions very casual. I recommend making friends the first formal test of your elevator pitch, your investor slide deck, and your business plan, and earnestly ask for their advice (not money) early.

  2. Sell your idea in simple terms with both logic and passion. Vision alone rarely convinces people to invest. You need to convince family and friends, in terms they can relate to, that your idea makes logical business sense, and you have done your homework on real customers, competitors, and costs. Demos and prototypes are key.

  3. Demonstrate your own financial commitment and progress. Just like professional investors wait for friends and family to go first, friends will wait for you to show “skin in the game.” A startup founder that is not the “lead investor” in time and money should not expect anyone else to jump in front and lead the way. Talking loudly is not enough.

  4. Outline the financial options and ask for the close. Most new entrepreneurs are not surrounded by people who understand convertible notes, startup equity investing, and exit strategies. They don’t know what questions to ask, so they will likely wait for you to lay out the alternatives and respectfully ask for some financial help in that context.

  5. Carefully explain how you intend to use the funds requested. Asking for your dream budget, with no specifics on milestones, will likely remain a dream. Outline critical tasks, with a timetable, to cover the next few months. The idea is to gain credibility with initial investors by showing them results, before asking for new and larger investments.

  6. Document your commitments, as well as theirs. Loyal friends and family will want to know specifically what they are signing up for, even if negotiated informally, including the risks and contingencies. Non-specific and open-ended agreements are the quickest way to break up family and friend relationships when things get tough, and they will.

  7. Use friends and family as advocates to network to professional investors. Warm introductions from friends and family to existing investors is far more productive in fund-raising than email blasts, social media connections, or cold-calls to famous investors. You need all the help you can get to build your network before desperation mode sets in.

  8. Limit the role of family and friends in your actual business. Professional investors love to see contributed funds from all sources, but they are wary of startups operated by family and friends. The stress and skills required to build a startup break up too many prior relationships, so key roles should be limited to partners with skills and experience.

Overall, friends and family should never be treated as an entitlement, or as a last resort. They are a key source of investment for your startup, but if not handled professionally and sensitively, can be your worst nightmare. These situations can bring new meaning to the old adage about the first tier of startup investors as friends, family, and fools. Don’t let it happen to you.

Marty Zwilling

*** First published on Forbes on 08/22/2016 ***

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Friday, August 26, 2016

Winning Companies Lead With A New Culture Mindset

Google_Mountain_View_campus_gardenWith today’s interactive social media and the real-time Internet, both customers and employees see inside your company easily, so you can’t hide your real company culture. At the same time relationship perceptions have become the biggest drivers to customer loyalty and employee engagement. Thus in every business, big or small, culture can make or break your success.

Examples of companies well known for their winning cultures inside and out include Apple and Google. In both cases, their products are not generally cheaper or unique, but the mindset behind how they do what they do, and think what they think, makes them stand out. Others, by most accounts including Blockbuster and JCPenney, lost their focus on culture, and paid a heavy price.

In fact, most entrepreneurs and executives today recognize the importance of building and maintaining the right culture, but many are not so clear on how to do it, or assessing where they stand in the process. To that end, I was impressed with the specifics provided in a new book, “Nimble, Focused, Feisty,” by Sara Roberts, a “go-to” expert on organizational transformation.

What I have seen in startups correlates well with Roberts’ evidence that there are three basic elements of a winning culture mindset today – fast is better than big, possibility over profitability, and being passionately outward-directed to customers and employees. I support her outline of several guiding principles for any company on how to achieve and maintain this mindset:

  1. Remain nimble and ready to pivot. Winning organizations have a culture of no expectation of always doing what they are currently doing. They know how rapidly things change, and that today’s positive reality may not carry them to where they ultimately want to go. They are always on the lookout for new opportunities and innovations.

  2. Structure for speed in making changes. Speed in any organization is largely a function of hierarchy, trust, and the ability to make decisions quickly across the organization. The primary key is establishing a culture that relies on values, rather than rules, to guide every action. Teams and individuals at all levels must be motivated to make decisions.

  3. Solve problems by co-creating and collaborating. Effective collaboration requires bringing together a variety of contributors who trust each other to get to the best solution. These days, that includes the initiative to bring up issues and tap the wisdom of “crowds” through social media, employee forums, and listening to industry influencers.

  4. Lead with purpose as a balance to profit. Increasingly, the landscape is shifting from an emphasis on “how” to an appreciation of “why,” both inside and outside the company. If executives don’t see social good or higher purpose as important to success, customers and employees will remind them – overtly by feedback, or passively by deserting them.

  5. Maintain a customer-centric focus. Businesses oriented primarily toward near-term shareholder value make themselves vulnerable in the long term. If you focus on what’s best for the customer, both near-term and long-term, you will see where customers are headed, and can plan change versus crisis reaction. Talk with real customers constantly.

  6. Find leaders who are courageous connectors. Courageous leaders acknowledge doubt and gaps, but still make decisions with confidence. Connector leaders enable their teams to navigate other organizations effectively, connect them with required resources, and expand their sense of possibilities and purpose. Set the culture by example.

  7. Build teams with people who get things done. A nimble organization needs doers and makers. Makers are not scared of taking action; in fact they’re biased toward action. They ask forgiveness rather than ask for permission, are motivated by results, and naturally collaborative. Leaders help most by not putting barriers in the way of their people.

  8. Winning cultures need consistent people practices. The best team cultures are built and maintained by systematic and deliberate hiring. Don’t hire only under duress, or settle for less than the best fit. Involve the team in selecting the best fit, culture matching, and getting “buy-in” from all the right players. Motivate with meaning, not just money.

For companies to remain successful in this new era, they need a culture that is proactive rather than defensive. It’s purposely designed, leveraged, and honed to be nimble in addressing change, customers, and integration of purpose with business value. How long has it been since you have reviewed your culture at the employee and customer level? Surprises are expensive.

Marty Zwilling

*** First published on Forbes on 08/19/2016 ***

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Monday, August 22, 2016

It Pays To Maintain Trusted Relationships In Business

Kathy_Ireland,_Warren_Buffett_and_Bill_GatesBased on my years of experience in both startups and large companies, trusted relationships are more the key to success than a great business model, how smart you are, or how much money you have. Aspiring entrepreneurs who struggle in a corporate environment often can’t wait to start their own company, only to find that relationships are even more critical and volatile there.

Many pundits will point to great entrepreneurs, including Steve Jobs at Apple, and Larry Ellison at Oracle, as examples of opinionated and egotistical leaders who succeeded without consideration for relationships. Yet insiders will tell you that both studied and valued the people interactions of prior leaders, and built very loyal relationships with many people who were key to their success.

The message here is not to use the public personas of leaders and entrepreneurs as the model for building and maintaining your business relationships. I’m convinced that the following personal strategies are required and practiced by every successful business leader, regardless of Silicon Valley myths to the contrary:

  1. Lead with business and technical acumen for people who count. As an angel investor, I’ve seen aspiring entrepreneurs who seem to be convinced that bravado and passion are a good substitute for real information and a plan. You only get once chance for a great first impression, so don’t forget that content wins in relationships over style.

  2. Building the right relationships requires proactive efforts. Don’t wait for the right people in business to find you – developers, investors, partners, or key customers. Part of the challenge in every business is to first recognize who can help you, and secondly take the initiative to build a productive relationship with that person or team.

  3. Avoid naysayers and downers. Smart business people learn to quickly recognize negative personality types, and avoid them at all costs. Innovative businesses are tough and unpredictable, so relationships with procrastinators, people handy with excuses and all the reasons something can’t be done, are not helpful and will drag you down as well.

  4. Maintain competitor relationships and seek alternate views. Good entrepreneurs recognize that strong competitors are smart people as well, and it pays to learn from competitors. Some of the best business partnerships come from “coopetition,” or finding ways to build win-win relationships rather than win-lose transactions with competitors.

  5. Don’t be afraid to ask for help from people who are ahead of you. These include other business leaders, mentors, visionaries, and influencers. Bill Gates still relishes his relationship and advice from Warren Buffett. Maintaining these relationships will require you to push your limits, think outside the box, and carry your own weight with them.

  6. Incent others to contribute to your success. This can be as simple as giving back as much time and emotional effort as you absorb from others, or it can be offering real business payback or equity for contributions. Smart business people understand their own agenda, and they figure out the agenda of others, to build win-win relationships.

  7. Don’t back away from conflicts that can be constructive. Some conflict is inevitable. Strong leaders learn how to manage conflict to make it productive, bring out alternate views, and strengthen relationships. If you surround yourself with “yes” people, you may feel good for a while, but the unmentioned problems no one surfaces will hurt later.

  8. Actively and positively end relationships that are not productive. We all have limited bandwidth, and it’s not possible to maintain relationships with everyone. Sometimes it’s better to move on, without burning bridges for the future. Smart entrepreneurs recognize when relationships have been outgrown, or need to be limited do to conflict of interest.

Today’s business world more than ever is a networked economy, requiring collaboration, and is most productive with trusted relationships, rather than a reliance only on legal contracts. Building relationships is not rocket science, and can be learned by anyone. It is the common ground between corporate professionals and entrepreneurs. Start practicing it today wherever you are.

Marty Zwilling

*** First published on Forbes on 08/15/2016 ***

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Friday, August 19, 2016

7 Startup Pitfalls Can Kill Your Business Growth

Sean_Parker_2011In my role as an advisory board member for several startups, I’m always excited to see that initial surge of revenue from a great rollout campaign. Unfortunately, many passionate entrepreneurs read this initial surge as success, and charge ahead with more of the same passion, leading to a series of potential pitfalls that can quickly jeopardize the health of the entire business.

For example, early social media startup Friendster was so enamored with their early acceptance that they turned down a $30 million offer from Google, then quickly ran into money woes and tough competition. Napster created the free music sharing craze back in the nineties and found great acceptance, and ignored the legal pushback by content owners, only to lose it all in the end.

Early success is great, but it’s only the beginning of your hard work. In addition to the visible failures mentioned above, there are many less fatal, but critical pitfalls I see all too often that every entrepreneur can avoid with some careful planning of ongoing attention:

  1. Separating profitability from cash flow and managing both. An initial revenue surge, or a major cash advance from investors often leads to a mentality of building a large customer base at any cost. It’s easy to forget how quickly cash can be burned and how hard it is to find the next round. Keep your focus on business health through profitability.

  2. Assuming you can keep all relevant financial data in your head. At the startup entry level, most entrepreneurs find little need for Profit and Loss statements and Income statements – they know all the key transactions. As the business grows, it pays to learn how to use automated financial tools, and review the key financial metrics daily.

  3. Watch for margin erosion as real operating growth costs kick in. As the business grows, new overhead costs, including health and liability insurance, office administration, and payroll taxes. On the other end of the transaction, customer support, returns, and transportation can add up. Prices need to be reviewed to cover total costs and margin.

  4. Failure to follow-up on customer receivables delays. Most businesses expect payment in 15 to 30 days, but some customers will assume they can extend this period to 45 days or more, or until they receive a late payment prompt from you. Revenue does not flow into your business based on invoices sent, but only on checks received and cleared.

  5. Too busy to focus on hiring, training, and managing employees. Hiring the wrong people, or not training them, will destroy your business faster than running out of cash. Since first-time entrepreneurs rarely have experience in this area, I recommend extra training for all executives, and the use of an outside advisor to focus on this requirement.

  6. Delegating cash flow management to your accountants. With the crush of new business, many startup founders delegate cash transaction management to their assistant or accountant, while they focus on finding and satisfying customers. Well-meaning and diligent assistants can kill your business by over-ordering and early paying.

  7. Continue to operate without documented and repeatable processes. As any business grows, you need help to make it happen, and new employees don’t have the background knowledge, training, or the problem-solving ability you have developed. They need written processes and measurements to get the job done right.

A great vision, and the creativity to develop an innovative solution, are necessary but not sufficient to build a great business. When the first wave of customers finds you, and the revenue starts flowing, a whole new set of disciplines must kick in to keep the momentum going. With new disciples come the new pitfalls listed above, which can undo all the initial market acceptance.

My recommendation is to bring in some experienced business professionals at this point, who understand the challenges and realities of sales, marketing, personnel, finances, and operations. As an entrepreneur, you need their help in managing people, processes, and finances, and they need your vision and direction to change the world. That’s a win-win combination for everyone.

Marty Zwilling

*** First published on Forbes on 08/13/2016 ***

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Monday, August 15, 2016

8 Insights For Millennials To Excel As Entrepreneurs

millennials-entrepreneurshipAs an advisor to startups and an angel investor, I encounter many Millennials as entrepreneurs who are leaders and great role-models for the rest of us in business. Unfortunately there are still others who have great ideas and passion, but seem to have a very naïve understanding or acceptance of what it takes to get ahead of the crowd and succeed in business.

The reality is that Millennials (also known as Gen-Y) are here to stay, and will soon be taking over the majority of our businesses, new and old. There are over 75 million of them in the U.S., now surpassing the number of Baby Boomers, and nearly two-thirds of them are already in the work place. It’s definitely to everyone’s advantage to make them winners, or we will all be the losers.

In the spirit of making us all winners, I offer the following collection of lessons and insights from my own experience and other business executives and investors I know on how to get there as entrepreneurs faster and more effectively:

  1. Embrace possible failure as one of the best learning vehicles. Unfortunately, many Millennials were raised by well-intentioned parents who never let them fail, and gave them awards for merely showing up. Most great entrepreneurs, including Steve Jobs, Bill Gates, and Michael Dell, have talked about their failures as the key to later success.

  2. Actively solicit mentoring from people with more experience. Most successful executives are more than willing to share what they have learned, if sought out, asked respectfully, and sense active listening. There is no need to be intimidated by tenure or title. Real experience reveals insights never found in a classroom or abstract logic.

  3. Remain intensely curious and seek out different points of view. It’s a given that Millennials understand the interests of other Millennials. But don’t always assume that everyone else will like and buy the same things. The best work hard to broaden their knowledge, and are not hesitant to challenge their own understanding of the market.

  4. Prove you can do the job before asking for the title. No one is entitled to a better job position or entrepreneur funding, no matter how passionate, educated, or articulate. Real leaders are evident by their actions, not by any appointment. I’m a strong proponent of letting your results do all the talking. Don’t fool yourself with your own over-confidence.

  5. Broaden yourself by taking roles outside your comfort zone. Smart entrepreneurs know what they don’t know, and work hard to fill the gaps. They are not afraid to ask questions, learn new tools, and seek opportunities to gather experience in every business role possible. In a startup, you can’t afford to outsource too many functions.

  6. Don’t burn your bridges with peers and current employers. Good working relationships are hard to build, and easy to destroy. In a startup, you can’t predict when you will need help from a past connection, advisor, or investor, so it pays to maintain old relationships rather than ignore them or lose them through petty disagreements or ego.

  7. Integrate social causes into a healthy business model. Many young entrepreneurs are naïve in assuming that doing good for society obviates the need to make money, and will motivate customers to pay premium prices. Smart startups, including Whole Foods, Etsy, and Patagonia, have figured out how to do both for long-term impact and success.

  8. Learn to balance personal and business priorities. Some aspiring entrepreneurs work themselves to frustration and loss of health, while others prioritize their social life above all else. Neither extreme is conducive to long-term credibility or success. Investors and employees look for leaders who can balance priorities and display a positive outlook.

The good news in the latest survey from Deloitte is that Millennials are holding on to their strong values, and continue to be steered by these values at all stages of their careers. The new news is that they are expressing a more positive view of the business role in society and have softened their negative perceptions of business profit motivations and ethics compared to prior surveys.

I love working with Millennials as aspiring entrepreneurs, with their unbridled enthusiasm, innovative thinking, and fresh perspective on market opportunities. With a few additional insights as outlined here, I believe we can all work together more effectively and look forward to new markets and world changes that we never even dreamed of.

Marty Zwilling

*** First published on Forbes on 08/09/2016 ***

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Friday, August 12, 2016

How To Move From An Entrepreneur To Manager Or Fail

Namira_Salim_Richard_BransonAs a business advisor, I have too often seen technical entrepreneurs get a product or service off the ground with ease, but then struggle mightily when their business reaches a couple of million in annual sales, or the employee count grows beyond a handful. It’s at this stage that the job changes from creative and tactical to managerial and strategic. Many don’t survive the change.

In fact, I believe the majority of true entrepreneurs are not interested in this new role, and jump ship quickly by hiring an experienced CEO or merging with another company, to start their next entrepreneurial effort. For example, entrepreneur Sir Richard Branson has started over 400 companies, from record labels to space travel, so for him the joy is clearly in the startup.

Bill Gates, on the other hand, spent most of his career building Microsoft to a multi-billion dollar company, so he made the transition from startup to growth company. Both he and Branson are billionaires, so there is no one right way for entrepreneurs to succeed. Management of a growing company is a learnable skill, and in my view it starts with a focus on the following key principles:

  1. Management is getting results through people and processes. That means your primary responsibly changes from building a solution, to building processes and directing other people. Effective communication is the key, both written and verbal, since the plan can’t exist just in your head. Everyone needs to know what they are responsible for.

  2. Strategic planning takes priority over tactical planning. True entrepreneurs love the tactical and problem solving challenges. Good managers are more interested in anticipating and preventing problems. That means making sure the right people are hired, trained, and in the right place at the right time. Spend more time on the future than today.

  3. Focus on volume growth and repeatability. With a startup, everything is an experiment. Now the experiments are over, and high productivity is the objective. Creativity and innovation are applied to increasing output and lowering costs rather than solution design and building a viable business model.

  4. Implement metrics and set objectives for every organization. You can’t manage what you don’t measure. Processes and organizations that have no objectives will produce less and less over time as they attempt to remove risk and potential problems. Every process needs a feedback mechanism to ensure continuous improvement.

  5. Practice leadership by example beyond your business entity. This requires spending visible influencer time on external initiatives and building relationships in your industry and your community. This is also the time for business development focus, related social causes, and exploring common ground (coopetition initiatives) with competitors.

  6. Spend real time on people development and succession planning. Long-term success requires planning for leader development in every organization, rotation of high-potential employees through key roles, and support for outside executive education programs. Growing the company means growing people through mentoring and training.

  7. Balance your own life for the long haul. The startup process is a sprint, and entrepreneurs tend to focus on it like there is an end in sight, forgoing personal relationships, healthy time off, and planning for retirement. Good executives and managers maintain a more balanced perspective, and plan for vacations and family.

Moving from startup mode to a sustainable business requires an overt effort on the part of an entrepreneur – it doesn’t happen automatically. The alternative is to lose the business or get pushed out by investors or Board of Directors, after a painful crisis or business growth failure.

Great entrepreneurs actually have much in common with great managers, including a focus on results and a focus on execution. In addition the best of both groups maintain a focus on customers, love to learn new things, and are always thinking. Anyone who can put all these attributes to work can survive and prosper in any environment. Just decide where you want to fit, and go for it.

Marty Zwilling

*** First published on Forbes on 08/05/2016 ***

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Monday, August 8, 2016

When Did Profit Become A Bad Word For Entrepreneurs?

profit-bad-businessAs a startup advisor and investor, I find that more and more entrepreneurs avoid using the term “profit” in pitching their new venture. They seem to feel it conveys a message of personal enrichment at the expense of others. My view is that the purpose of every business is to make a profit, as fuel for growth, sustainability, and social impact. Without profit there is no business.

By profit, I simply mean offering a product or service to customers for a price that exceeds the total costs associated with the solution, thus providing some basis for recovering sunk costs and generating a return for stakeholders. Of course, I understand and don’t condone bad actors who get greedy, and exploit ways to unjustly squeeze customers and employees.

Thus I was pleased and a bit surprised to see a new book, “The Purpose Is Profit,” by Ed “Skip” McLaughlin, an entrepreneur who has both succeeded and failed in starting multiple businesses. He lays out very plainly his own experiences on both sides of this equation, and I particularly enjoyed his summary startup roadmap of twenty-one steps to success, which add real content to the eight that I recommend to every entrepreneur:

  1. Select an idea you can clearly communicate in thirty seconds. Every entrepreneur needs a good “elevator pitch” which succinctly describes the idea, the customer value proposition, and business profit. Customers and investors are looking for specific solutions, not abstract ideas or complex technology concepts not yet materialized.

  2. Solve a painful problem for customers who have money to spend. Solutions that are “nice to have” or “improve usability” are easy to give away but hard to sell. The same is true for solutions to some social problems, like feeding the hungry, who don’t have any money. Remember you can’t sustain a business or social cause with no revenue or profit.

  3. Be able to differentiate your offering from competitors. The best differentiation is a patent or other intellectual property that also provides a barrier to entry. A commitment to work harder than competitors, or survive on lower margins, is not convincing. Customers typically won’t switch to a new vendor for less than a twenty percent cost advantage.

  4. Validate your business model on real customers. Giving free beta copies of your solution to customers to elicit testimonials does not validate a business model. Investors look for sales at full price, to people you don’t know, to validate demand, price, and margin. The best business models benefit social needs as well as business needs.

  5. Show an aggressive marketing and sales plan. With today’s rapid pace of change and information overload, word-of-mouth and social media alone is not a viable marketing plan. Every business requires spending money to make money. The smart ones identify and budget innovative approaches, and use metrics to tools to monitor effectiveness.

  6. Generate a 5-year financial forecast from opportunity data. If you don’t set some financial targets for your business, investors won’t be interested, and you won’t know if you are making progress toward profitability and sustainability. Commitment to a set of financial objectives is the point where an entrepreneurial dream becomes a business.

  7. Show that your team has the distinctive competence to win. The right people make all the difference in a winning business. This is why investors invest in the team, rather than the idea. Investors look for key leaders who have domain expertise and prior startup experience. Experience in other business areas and large corporations is not enough.

  8. Build a long-term growth strategy and exit plan. Successful entrepreneurs look beyond profitability to change the world and leave a lasting legacy. Investors look for an exit strategy to allow them to capture a return on their investment. Customers and employees want a business with staying power and constant innovation for longevity.

Pundits may argue that recent business successes through user growth, including Twitter and WhatsApp achieving unicorn status (billion dollar valuations), show revenue and profit are no longer needed. I will assert that these represent the exception, rather than the norm, and most sources agree that this is a fading anomaly, rather than a model for future business startups.

Therefore I recommend that profitability be carried as a key objective by every new entrepreneur, rather than an embarrassment. Social entrepreneurs need profits to supplement those unpredictable donations if they are to achieve sustainability and a lasting social impact. Certainly, profitably alone is not business success, but business success without profit is hard to imagine.

Marty Zwilling

*** First published on Forbes on 08/02/2016 ***

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Friday, August 5, 2016

How To Embrace Disruptive Technologies And Succeed

070801-N-7676W-084All too often as a startup investor, I hear the term “disruptive technology” from an entrepreneur, played like a trump card that should override any other potential business qualms. In fact, most investors avoid disruptive technologies as extremely risky, with long waits for a payback. They can point to the many examples of innovative technologies that have failed in the marketplace.

Even the best investors, when they hear the words disruptive technology, always look harder and deeper at all the other elements of the business model. While struggling to net out what they are looking for, I found help in a new book, “Wicked Strategies,” by John C. Camillus, who has studied this challenge for years at Harvard and with several Fortune 500 companies.

He outlines a set of guidelines which resonate with me as having a high potential to transmute disruption and chaos into cash flow in an investor’s lifetime. With the key ones paraphrased here, a new startup has a great chance to complement a disruptive technology with an innovative business model, to gain a real competitive advantage and add new economic value:

  1. Define extraordinarily ambitious goals. Real breakthroughs in business, as well as in technology, usually start with BHAGs (Big Hairy Audacious Goals). Achieving stretch business goals requires more than a disruptive technology. These normally require an innovative new business model, non-linear thinking for marketing, sales, and distribution.

  2. Build an entrepreneurial, risk-taking culture. Disruptive technologies sound so good on paper that they often attract risk-limiting managers and professionals rather than a culture of visionary leadership and thinking outside the box on all business elements. In mature companies, no one wants to risk the existing market share or sunk costs.

  3. Relate emphatically to the customer. Advances in technology don’t always translate directly to customer problems. Yet business success requires solutions which satisfy customer needs. Engineers relate best to the technology, while the rest of the business has to find customer value propositions. Investors want to see quantified customer value.

  4. Integrate social responsibility into the business model. These days, prioritizing sustainability and social responsibility is an effective way to bridge from technology to customers and employees. It’s the best way to uncover new markets driven by culture changes, underserved geographies, and new economic realities around the world.

  5. Utilize design thinking and data analytics. Design thinking seeks to build empathy with the client or customer and stimulate creative responses to the customer’s needs. With big data and analysis, businesses now are able to derive powerful insights about the customer that can support innovative value propositions from disruptive technologies.

  6. Find disruptive opportunities along the entire value chain. Innovation across the entire value chain can be promoted by engaging other stakeholders in the creation of value to access untapped markets and strengthen competitive advantage. Key players in the value chain include suppliers, business partners, distributors, and sales channels.

  7. Add dynamically to the range of competencies in the venture. Eastman Kodak had a deep competency in film technology, but they were slow to expand their knowledge of digital imaging, displays, computing, and medicine. Their technologists never found a market. Market experts tend to find breakthrough technologies, not the other way around.

In his book, Camillus argues that with these principles, disruptive technologies can be integrated into new and innovative business models to conquer the “wicked” challenges of increased complexity and global competition present in every market today. I would challenge every entrepreneur, and every business executive, to build wicked strategies to win these challenges.

Marty Zwilling

*** First published on Forbes on 07/30/2016 ***

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Monday, August 1, 2016

Avoid New Venture Shortcuts That Scare Away Investors

Ron_ConwayAfter many years of working with angel investors seriously trying to find new ventures worthy of their hard-earned money, I find their frustration often exceeds that of entrepreneurs sincerely looking for financial help. That’s a lose-lose situation, so I’ve given a good bit of thought to how every entrepreneur can improve their odds, and keep investors less frustrated at the same time.

My first suggestion is that entrepreneurs need to forget the old myth that all they need to do is sketch an idea on a napkin, and investors will line up to invest. That approach may work for an entrepreneur who just sold a successful business for a huge profit, but it doesn’t work for the rest of us who are not proven successes yet, or don’t even have a business yet.

Getting investors to trust you with their money is always a challenge, and it’s even more difficult in the early stages, where you don’t have a significant revenue stream, a few customers, or maybe even a product yet. At these stages, it’s all about you, and your ability to communicate and execute effectively. Here is my list of shortcomings that cause many investors to look elsewhere:

  1. No well-defined need or viable customer set. The most investable ventures stem from painful needs by customers who have money to spend. “Nice-to have” and “easier-to-use” products, or social ventures needing government support, are not likely to provide a financial return to investors. Investors expect a good value proposition in every pitch.

  2. Non-credible funding request or unreasonable valuation. Investors are looking to buy a chunk of the business, not the product. They need to know how much money you need, and what portion of the current business you are willing to offer for the investment. Future unproven projections don’t set today’s valuation. Ask only for the money you can justify.

  3. Naïve expectations on funding terms and process. Experienced entrepreneurs understand investor expectations of Board representation, preferred stock, and payments based on interim milestones. Founder insistence on non-dilute clauses, arms-length relationships, and quick closure without due diligence will short-circuit active interest.

  4. Dysfunctional or non-functional team members. Investors invest in people, often more so than in the product. Therefore evidence of team members who don’t fit, family members who don’t have a role, or evidence of conflicting priorities will quickly derail investor interest. All internal teams need to have relevant skills and experience.

  5. Undefined business model or very low gross margins. Potential return on investment cannot be calculated without a clear understanding and evidence of actual costs, revenue flows, and margins. Marketing programs and distribution channels are required for even the best solutions, with an appropriate and viable rollout and growth strategy.

  6. Solution development undefined or incomplete. Investors are most interested in providing money for scaling of a proven solution. They are not interested in research and development, or funding at the idea stage. For seed stage funding, entrepreneurs should be looking to friends and family, crowd funding, and relevant institutions.

  7. Lack of intellectual property. Having a patent, trademarks, or other “barriers to entry” are always a critical advantage in attracting funding, since investors need to see real commitment to beating competitors. Being first to market is not a strong competitive argument for startups, since larger existing players can easily overrun this position.

  8. Surprises during due diligence. Smart entrepreneurs pre-disclose any possible due diligence issues, with full and open explanations and no excuses. Due diligence also normally involves onsite visits and employee discussions, so the entire team needs to be fully aware of expectations. Investors pass if they find conflicted team members.

Certainly there are many other shortcuts that will discourage investors, but every entrepreneur will find that it pays big dividends to be proactive on the key items outlined here. If your startup is dependent on investor funding, you should remember that your first competitors are peer startups who are also fighting for scarce resources. Your job is to stay a step ahead of them in professionalism, communication, and preparation. You make your own luck in this game.

Marty Zwilling

*** First published on Forbes on 07/25/2016 ***

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