Sunday, December 31, 2017

Why The Best Entrepreneurs Enjoy The Hunter Lifestyle

Snarling_lionMost entrepreneurs believe they are “different,” but they can’t quite understand how. They usually explain it by insisting that they are driven to follow their passion, need to be their own boss, want to get rich quick, or want to change the world. I now believe that the roots of the difference may go back more than 10,000 years, when hunting and farming became two different lifestyles.

The classic book, “Hunting in a Farmer's World: Celebrating the Mind of an Entrepreneur,” by serial entrepreneur and business coach John F. Dini, tied together several threads I have often seen in my own experience of mentoring and helping aspiring entrepreneurs. Dini makes the case that entrepreneurs are hunters, while the rest of us (large majority) are farmers.

This is not a statement of good or bad, right or wrong, but just an explanation of why some people see and do things one way, and others do it another way. In business, entrepreneurs hunt for new innovative solutions to problems, new ways of beating competitors, new markets, and new customers. Farmers are the management that comes after the hunt, to build repeatable processes, do seasonal planning, and make sure all employees are well-fed and trained.

All this made more sense to me as Dini defined the types of entrepreneurs into four categories. Within each of these types, I can easily highlight strengths and weaknesses that we both see every day in startups:

  1. Technicians. The good news is that technicians are entrepreneurs who have previously learned a skill or job so well that they can do it without a manager. The bad news is they may not be good at managing people, or even managing basic business. Technicians can become true hunters when they learn to provide for both employees and family.

  2. Inheritors. These are former employees who find themselves thrust into owning a business, due to family ties or evolution. Unfortunately, most inheritors have been farmers for too long, or never had hunting instincts. The best ones learn to be hunters, or revert to that mode, allowing their business to grow and change with the requirements.

  3. Acquirers. Entrepreneurs who are willing to acquire an existing business, and believe they can make it a better business than previous owners, are clearly hunters. Farmer acquirers, who want to manage a proven opportunity, with no change, buy a franchise. Hunter franchisees move on quickly, or end up owning the entire franchise system.

  4. Creators. These are the ultimate hunters. They build businesses as their lifestyle, not as a job. They love the continuous hunt, for investment capital, resources, talent, and new markets. Only a few of these slide into farming, as the company grows in employees and products. The remainder usually exit within five years, to start the process over again.

In addition to the right type, there are clearly traits that every aspiring entrepreneur should recognize as critical for business success and happiness:

  • Creativity. Hunters thrive on the challenge of the unknown. They look at every situation as a puzzle that has an answer. Success at any level always brings a new set of problems. Hunters live for solutions and change. Farmers live for repeatable processes, minimal risk, and predictable results to feed the family.
  • Tenacity. Hunters never quit. There are no defeats, only setbacks. Success is always just a little further down the road. “Never” is not an option. If a solution doesn’t work, there is always another, then another, and another. Farmers are easily frustrated by setbacks, and count on “leadership from the top” to give them new fields for growth.
  • Business sense. Hunters need “street smarts.” If you are looking to create a business, you better have a strong “gut feeling” or “third eye” for business that goes beyond the usual five senses. Farmers have a narrower view of what is required, to optimize quality production, customer satisfaction, or close a sale.

There once was a time in mankind’s history when almost everyone was a hunter, for survival. Our civilization has evolved now almost to the other extreme, where the vast majority of the people in business are farmers (managers and employees). For those of you who have the hunter gene, or the yearning to learn, the time has never been riper to be an entrepreneur. How long has it been since you have taken a hard look in the mirror?

Marty Zwilling

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Saturday, December 30, 2017

10 Steps To Develop Your Ability To Think Differently

people-who-think-differentlyEvery culture and community puts pressure on its members to follow the norms. Even young people who start out wanting to be different are called “freaks,” and most are slowly bent back into the norm by the time they “grow up.” Maybe that’s why so many entrepreneurs struggle with building a disruptive new business, where breaks from the norm are the key to success.

I suspect that there are really a lot of “grown-up closet freaks” out there who could be great entrepreneurs. We should really be enticing them to overcome their fears of thinking differently. Chris Brogan, in his classic book, “The Freaks Shall Inherit the Earth,” offers some great steps of encouragement for them on how come out of the closet, some of which I will paraphrase here:

  1. Declare your freakiness (even if only to yourself). Get comfortable with your difference in thinking, and commit to run your business your way. You will be the best entrepreneur when you make your new startup personal, and keep your heart in mind along the way.

  2. Define the parameters of your own success. Whatever will make your success yours, list it out on paper on in your favorite note-taking software. Try to list a success criteria for each role that’s important in your life and for your success. Know your strengths, and learn some new skills. Start working on your weaknesses.

  3. Establish a daily framework for action. You will build discipline and get much more accomplished if you build a self-imposed schedule, and commit yourself to following that framework. This will lead to you defining your path, knowing what matters most to where you are at this moment, and facilitate planning where you are going next.

  4. Get comfortable with not knowing. Learn to be okay with the unknown, and learn how to really appreciate what comes next in the universe. Don’t be afraid of being dumb; always be willing to ask questions. You should be afraid of being stupid; being stupid means that you think you know everything and don’t ever ask questions.

  5. Appreciate obstacles and challenges. One way to overcome obstacles is to set a new challenge for yourself every day. The more challenges you face daily, the stronger you will feel about doing more with your business and your life. Obstacles and challenges help you to grow your intestinal fortitude and your skill sets.

  6. Create work processes that get things done. Similar to the framework step, you have to build systems that get the right work done. For example, you might block your working day into half-hour segments, and never allow any activity or meeting to take too much of your time. Reserve time for tasks important to you, rather than just urgent to someone.

  7. Expand your communication media world. Start wherever you can to grow beyond the phone, texts, and email, to a blog, photos on Instagram /Pinterest, or YouTube. Build your world up a little at a time. This is a big benefit others won’t likely copy and it’s where you can get ahead.

  8. Connect with all the freaks like you. The more you communicate to find the people you seek to serve, the better your opportunities. Also connect with people you can help. Connect two people who might benefit from knowing each other. Do everything you can to extend your network, and keep it alive and well.

  9. Expect to encounter some bad times. Remember that you can hit bumps in the road at any time. Be ready. Know how and when to apologize. Be ready to assess what needs to get done when there are issues. Know whether or not you have to pull the plug. Keep your mind open to how your ideas might have to shift.

  10. Take action, any action. The biggest difference between you and other closet freaks, who will just accept what life and work brings them, is that you’ve chosen to take action. The big opportunity for you is to do something based on ideas you have had lingering in your mind for a long time. Where do you start? Anywhere.

My conclusion is that you don’t have to be a freak to be a good entrepreneur, but you do have to be willing to think differently, to get beyond the norms of business today, define a platform for real change, and make it happen. If you are a freak in your own mind, relish that thought, and take action to turn your passion into a successful new business. We need more of you!

Marty Zwilling

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Friday, December 29, 2017

6 Guidelines On How And When To Use Non-Disclosures

confidential-disclosure-agreementAs an advisor to entrepreneurs, I often have to deal with people who are convinced that they must get me to sign a non-disclosure agreement (NDA) before they begin talks about their new venture. They seem shocked to learn that most professional investors and advisors, myself included, routinely decline such requests, due to costly litigation and administrative nightmares.

My view is that non-disclosures won’t protect you from unscrupulous business contacts, so you simply shouldn’t deal with the flood of unknown people who will contact you via the phone or Internet. Stick with people you meet through warm introductions, or count on the integrity of professionals who have a visible reputation and references, instead of a legal document.

Yet I recommend to every entrepreneur that there are still situations where an NDA (sometimes called Confidential Disclosure Agreement) makes sense compared to normal situations, where your risk of losing an investor or advisor is greater than the risk of your idea being compromised. Here are my guidelines for when a signed agreement is required, versus other alternatives:

  1. Insist on a two-way NDA for partner negotiations. Most often, your best partners are in some way a competitor, or already in a business complementary to yours. They could easily copy your business, so a mutual non-disclosure is required for protection in both directions. It pays to talk to competitors about the business, but not your business.

  2. Get an NDA before detailed patent disclosures. Entrepreneurs should never disclose the details of a planned or current patent application to any outsiders, until after a non-disclosure or other contract has been signed. Potential investors don’t need this data, except perhaps as part of a final due diligence after an initial signed agreement.

  3. Never disclose trade secrets without a contract. Some entrepreneurs avoid the patent process, since patent details become public once a patent is issued. Trade secrets, which may be recipes, formulas or processes, should only be disclosed on a need-to-know basis, even to employees, and then always accompanied by a contract.

  4. Don’t ask for an NDA from trusted investors and advisors. If you are approaching a recognized venture capital group, or even an accredited angel investor, a non-disclosure agreement is counter-productive. These professionals value their integrity, like your therapist or financial advisor, and will not share your business details nor steal your idea.

  5. Don’t even respond to unsolicited requests for details. If you receive an email or phone call requesting details on your plan from someone you don’t know, don’t assume that asking them to sign an NDA will protect you. The same is true for strangers who may approach you at networking events or industry conferences. Prepare a high-level pitch.

  6. Read NDAs carefully for scope and duration. In today’s world of rapid innovation and new technologies, any individual or company should be hesitant to sign an agreement that limits their activities for more than two years, or is too broad in scope. If a longer term or scope change proves necessary later, any agreement can be amended as required.

In my experience, trying to tantalize a person of interest to you by dangling an NDA for signature, almost always backfires, to define you as too risk averse or paranoid to be a successful business person. In fact, if you have a good idea, you need smart investors and professionals to spread the word to other good people, so you really want them to talk and get feedback for you.

I also recommend that you practice explaining your concept in marketing terms through social media, networking opportunities, and crowdfunding. If that doesn’t get any attention, the details probably don’t need protection. Demanding an NDA too early is a sure way to kill your dream before the people who can help you even know what you have to offer.

Marty Zwilling

*** First published on Inc.com on 12/15/2017 ***

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Wednesday, December 27, 2017

10 Questions To Ask Before Selecting A Search Firm

executive-recruitmentI started out in business as a techy geek, so I understand why technologists starting a new venture spend so much effort getting the product just right. Yet I’ve learned over time that building the business is all about having the right team members. Thus I’m frustrated when I see founders pushing off recruiting, or jumping to quick and cheap solutions, like Craigslist and free job sites.

I’m fully convinced that you get what you pay for with people. That doesn’t mean you need to hire an expensive recruiter for every position, but it does mean that you must put the same time and effort into finding rockstar people, as you do in building a rockstar solution. I believe the quality of your employees becomes more and more critical to survival and growth as the business matures.

In fact, according to a new book, ”Recruit Rockstars,” by Jeff Hyman, ninety percent of business problems are actually recruiting problems in disguise. Hyman started his career at the preeminent search firm Heidrick & Struggles, and has built four companies, so he knows the ropes. He and I both believe the right people are the most competitive advantage you can have in business.

He provides some great guidance from his experience, which I learned the hard way, on how to select the right recruiter, when you do decide to get some professional help finding the right people. Here are ten key questions you should ask in selecting any recruiter or firm:

  1. What are your search successful completion metrics? Competent recruiters should be willing to share the percentage of searches that they actually complete. Numbers in the 80 to 90 percent range indicate market-leading efforts. Other measures to gauge process efficiency include the interview-to-offer ratio, and the offer-to-close percentage.

  2. What percentage of your hires have stayed two years? This is often referred to as the “stick” rate for new hires. Eighty percent or higher is a good starting point, since twenty-four months is the current national average for job tenure with a company. Low numbers here may indicate poor vetting of candidates, or an inadequate search.

  3. On average, how long does it take to complete a search? The national average is 90 to 120 days. An efficient recruiter who isn’t overloaded with searches can often do it in half that time. The longer the search takes, the more money you are losing by not having the position filled and productive. This cost can far exceed any search firm retainer.

  4. How many searches are they working on concurrently? You want to know if your search will be one of fifteen they’re working on, or one of three. Good recruiters limit the number of concurrent searches, so they can give each one the proper personal attention. You want efforts to contact ideal candidates, rather than a total reliance on tools and lists.

  5. How involved is the recruiter in the search process? Some search firms hand off all the real work to interns or call centers. Good recruiters develop their own candidate list, are creative and smart about how to message your opportunity, and are persistent in their follow-up. This can make all the difference in attracting the right candidate.

  6. What is their vetting process for candidates? Make sure the recruiter fully understands your expectation of competency and culture, and is able to integrate that into their selection process. Find out who will be doing the interviews, how many rounds are expected, and whether the process will be done in person, by phone, or Skype video.

  7. What are the rules and size of off-limits list? Usually a recruiter doing a search for a company will agree not to recruit anyone out of that company for another client for a certain period of time, usually a year or two. Thus larger search firms with large clients in your niche may not have access to the candidates you need to fill a specific role.

  8. How will they position your company and opportunity? To attract the best candidates, they need to differentiate your company and your opportunity. Ask the potential recruiter to prepare a draft of the message they will be using, and make sure you agree that it will be compelling. Create job invitations, rather than job descriptions.

  9. Will they provide complete visibility to the pipeline? Just because you intend to use a recruiter doesn’t mean you can totally delegate the hiring process. You should ask for a report on progress weekly, and take the time to review who has been contacted, vetting progress, and interview results. Only then can you provide timely input and adjustments.

  10. What are the terms of any replacement guarantee? Most firms will recruit a new candidate for no additional fee, if the first one leaves or fails to perform. A guarantee of one month is not worth much, since this barely covers the honeymoon period. The best will offer a year, since poor fits and failures will certainly be evident by that time.

With these questions, and the commensurate work on your part, you too can attract rockstars who can really make your winning technology a leading business in the marketplace. Life is too short to get halfway there, and be held back by team members who don’t share your drive and commitment.

Marty Zwilling

*** First published on Inc.com on 12/13/2017 ***

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Monday, December 25, 2017

7 Techniques For Avoiding Entrepreneurial Blind Spots

self-knowledge-blind-spotEvery entrepreneur has blind spots which limit their effectiveness and success, but due to ego, over-confidence, or deferential subordinates, many live totally in the dark. Some are smart and humble enough to assume that they don’t know what they don’t know, but lack an effective process for shining a light on their blind spots. Both are equally surprised by their every setback.

I recently found some real insight on this subject in a classic book by Robert Bruce Shaw, aptly named “Leadership Blindspots.” Shaw specializes in organizational performance and has helped a wealth of business leaders identify and overcome their weaknesses. He provides a detailed analysis of the blind spots of many well-known business powerhouses.

Shaw argues that every successful leader balances two conflicting needs. The first is to act with a confidence in their abilities and faith in their vision for their organization: The second is to be aware of their own limitations and avoid the hazards that come with overconfidence and excessive optimism. That means that they have to see themselves and situations accurately.

I agree with him that the best way to do this is to continually ask the right questions, in the right way, to avoid and identify blind spots. Here are some key guidelines that we both offer to entrepreneurs to drive this process:

  1. Avoid yes-or-no questions. Closed-end questions (yes-no) are efficient, but don’t surface data that may be critical to a leader’s understanding. Questions are called open-ended when they allow for a variety of responses and provoke a richer discussion. These allow a leader to know what he doesn’t know, and ultimately make a better decision.

  2. Don’t lead the witness. Hard-charging leaders often push to confirm their own assumptions about what is occurring in a given situation and what is needed moving forward. This can result in questions that are really disguised statements, like “doesn’t this mean that we really don’t have a quality problem?” These usually prevent contrary points of view and further data from surfacing.

  3. Beware of evasive answers. All too often, people will avoid giving direct answers to direct questions. They may not know the answers or not want to provide the answers, to appear smart, or not want to offer incriminating data. Leaders need to keep coming back with directed questions until they get a straightforward answer or “We don’t know.”

  4. Ask for supporting data or examples. Leaders need to ask questions that surface points of view and, at the appropriate time, also clarify which answers are based on fact and which are based on speculation. They should encourage people to say what they know from data and what they think they know, and make sure they clarify the difference.

  5. Paraphrase to surface next-level details. One technique to push people to provide more information is to paraphrase what you are hearing. While this may result in a yes or no response, proceeding to next-level questions opens up the dialogue. Smart leaders sometimes mis-paraphrase what they are hearing in order to provoke a richer dialogue.

  6. Ask for alternatives. Another approach to surfacing non-confirming data is to overtly ask for an opposing point of view. A related line of questioning is to ask the respondent to alter his or her fundamental position, like “You are asking for $10 million to grow this brand. What more could you do if we gave you $25 million?”

  7. Give an opening for additional input. Leaders also need to provide an opportunity for others to offer additional input and, in particular, dissenting views. Often, the final moments of discussions are the richest, as people will wait until that time to surface what is really important to them. Ask if there is anything left unsaid that should be heard.

In today’s global business world, you should assume that all your peers are smart and experienced, but have blind spots just like you. These are automatic behaviors that are not flaws, but they do need to be identified and mitigated by continually asking the right questions as outlined here.

Otherwise they will undermine your organizational performance and may well destroy your legacy when you least expect it. Early learning is a lot easier than a later recovery.

Marty Zwilling

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Sunday, December 24, 2017

7 Ways To Test Your Potential For Starting A Business

new-business-lemonade-standAs a mentor to aspiring entrepreneurs, the most common question I get is, “I want to be an entrepreneur -- how do I start?” The obvious answer is that you need an idea first, but I’ve come to realize that the process is really much more complex than that. Many people with great ideas never make it as entrepreneurs, and true entrepreneurs can make a business out of anything.

The first myth you have to get past is that having the right idea will make you an entrepreneur. In fact, even implementing the idea into a solution doesn’t make you an entrepreneur. According to my definition and Wikipedia, an entrepreneur is someone who builds a new business. Based on my experience, creating the solution is usually the easy part of starting a successful business.

So before you quit your day job, tax all your friends and investors for money, or max out your credit cards to design and build a product, I recommend that you seriously contemplate the following more basic questions:

  1. Are you prepared to adopt the entrepreneur lifestyle? Starting a new business is not a job, but an adventure into the unknown, similar to Columbus setting out to find the New World. It’s a big step into a new lifestyle, like getting married after being single for many years. Yet startup founders are often lonely, since no one else can make their decisions.

  2. How strong is your passion for people and business? You have to enjoy working with people -- partners, customers, investors and more -- as well as products to start a business. You have to embrace making decisions and the responsibility of setting milestones, measuring progress and celebrating the victories and defeats.

  3. Are you confident and disciplined in facing tough challenges? Starting a business at home or on the Internet is hard work -- not a get-rich-quick scheme. You will be operating outside of any proven realm, no mentor can give you the answer, and it won’t help to blame anyone else for missteps and environmental changes you can’t predict.

  4. How familiar are you with the contemplated business domain? Remember that the grass always look greener on the other side of the fence. It may make more sense to work for a similar startup before charging ahead on your own. The ultimate best teacher is failure, but a less painful one is getting related work experience and training.

  5. Which business model best suits your mentality? Some people love to deliver services, where personal acumen is tested every day. Others love technology and products, to be replicated and sold while you sleep. If something totally new is not your forte, you can always buy a franchise, acquire an existing business or be a consultant.

  6. Have you mapped out a realistic plan? Few entrepreneurs can assimilate and hone a complete plan in their head. That’s why I believe the process of writing down your plan is more valuable than the result. Also, a written plan multiplies your ability to communicate to constituents, and facilitates parallel feedback. Money is not a substitute.

  7. What is your funding situation and alternatives? Fundraising is stressful and difficult, which is why 90 percent of successful entrepreneurs choose bootstrapping (self-funding). Too much money too early kills many startups, according to investors. There are always non-cash alternatives, such as recruiting partners with equity and bartering services.

After asking yourself these questions, and finding yourself still determined to be an entrepreneur, you will have already started. From there, it’s a simple matter of forging a trail to success, and conquering all the problems and challenges that are sure to surface. Starting a business is a marathon, so you have to make an overt decision to enjoy the journey as well as the destination.

Marty Zwilling

*** First published on Huffington Post on 12/23/2017 ***

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Saturday, December 23, 2017

5 Steps To Effective Marketing With Converged Media

converged-media-marketingEntrepreneurs and startups often ask if they should select only social media for marketing, or stick with digital media, or just count on traditional media. The answer is yes to all, and the challenge is how to choose how much of each, and how to integrate them for maximum impact and the least cost. None should be considered competitive mutually exclusive to any other.

Social media as a marketing tool is here to stay, and is now widely accepted. According to a recent social media industry report, 92 percent said that social media is important to their businesses, and more than half report it helped them improve sales. The challenge is now to integrate social media with traditional media, and thus move your marketing ahead of the crowd.

This integration, or convergence with traditional marketing, is discussed in detail, with examples, in “The Fusion Marketing Bible,” by Lon Safko, author of the classic bestseller “The Social Media Bible.” I like his outline of five steps to the proper utilization of integrated media as follows:

  1. Analyze your existing media. Every business should look at its cost of customer acquisition (COCA) and return on investment (ROI) twice a year and after each campaign. This is independent of whether your existing marketing media include traditional or social media, or both. The tools and measurements are the same for both.

  2. Focus first on the social media trinity. Don’t try to tackle all 20 major categories of digital social media at once. The big three, which have 90 percent of everything you need, include blogging (Wordpress or Blogger), microblogging (Twitter), and social networks (Facebook or LinkedIn). These give good customer connection and SEO.

  3. Integrate your social media content with some traditional media. Traditional marketing is sales-focused, one-way push. Social media is relationship-building, interactive, two-way pull. To get first-time buyers today, you need push for coupons and business cards, and you need relationship pull through social media for customer service.

  4. Assimilate available resources to determine the level of rollout. Available resources are a function of management buy-in, staff, and budget. Of course, more resources are “better” for marketing, but re-allocating existing resources can be equally effective. Pay attention to in-house skills, skilled contract workers, and even students for social media.

  5. Iteratively implement and measure value received. You can’t manage what you don’t measure. Digital and social media all go through a computer at one point or another, so it’s much easier to measure than billboard “impressions.”

The goal of these steps is to create a seamless interface between getting your message out there and heard, and listening and responding to customer feedback. This will insert your brand into the online and offline conversations, drive traffic, and drive sales, at the lowest possible marketing cost.

With integrated marketing campaigns, Lon asserts that companies like SAP and IBM are reporting that targeted prospects are responding at a 3 to 5 percent rate on the average, which is an increase of 73 percent compared to standard e-mail campaigns. Others, like TransUnion, learned long ago that they could get an improved ROI after integrating social media, with $2.5 million in savings in less than five months while spending about $50,000.

But don’t jump into social media or any marketing program without a plan. Lon references one Fortune 500 company he worked with which accumulated more than 19 million friends, all chatting about its products. But he could not find any evidence of monetization, or even a strategy. I talked to a company a couple of years ago who identified 37 employees with social media in their title across the country. I wouldn’t want to do the ROI on that one.

The importance of effective marketing has never been higher, for every startup, in this age of information overload and customer relationships. How integrated is your marketing, and how carefully are you measuring your marketing investment? The success of your business depends on both.

Marty Zwilling

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Friday, December 22, 2017

5 Steps To Reduce Due Diligence Investment Failures

investment-due-diligenceIn my activities as an angel investor, and my work with new ventures seeking investment, I find the “due diligence” stage to be fraught with the most risk. Usually this stage only really starts after an investor has expressed serious interest, or already informally agreed to invest. Most founders consider the story already told and the deal pending, so they aren’t sure what more then can do.

Others schedule long and exhaustive practice and coaching sessions for everyone on the team, including showcase customers, to make sure that everyone tells the most positive and consistent story. Trying to stack the deck probably won’t work, but some effort makes sense, since I have personally seen more than one deal fall apart due to key team members being totally out of sync.

My best advice is to put some structure and discipline into your due diligence preparation, including the following steps:

  1. Schedule a team meeting to bring everyone up to date. This meeting should include the CEO giving the investor pitch to the whole organization, and distributing the current business plan document to everyone. Since due diligence will include one or more visits from investors, everyone needs to be on the same page, with no surprises.

  2. Identify and resolve any pending personnel situations. You need to brief the investor early if there are organizational or people changes that are in process, or conflicts that may become apparent during the due diligence visits. Make sure everyone accurately posts their role with your startup on social media profiles, resumes, and references.

  3. Set up an interview room, stocked with current docs. The right preparation, including the latest business plan, org charts, process documentation, and an assigned executive other than yourself who can explain all of them, will go a long way in speeding up the process and creating a professional impression. Be prepared to follow-up as required.

  4. Ask each of your leads to prepare for an interview. Investors or their consultants will expect to talk to several key personnel, looking for an update on how the business really works, depth of skills, culture, traction, and action plans. It’s fair for you to ask for a few slides from each in advance, and make sure the overall story is complete and consistent.

  5. Update reference customers, partners, and vendors. Use this opportunity to validate their satisfaction and support for your company and your solution. If you find open issues that can’t be immediately resolved, be sure to proactively communicate these to investors, with an action plan, rather than try to hide or gloss over them.

The key theme for a successful due diligence is full disclosure and no surprises before or after the commitment. If more potential marriages were subjected to the same rigor, the divorce rate would likely not be in the current 50 percent range. In business as in other relationships, people on the team have to be above reproach, committed, and working on the same goals and values.

Startup equity investments imply a long-term business relationship, lasting five years or longer. During that period, it is very difficult for either party to get out of the deal, since there is no public market for the stock, and business divorces normally mean bankruptcy. It’s worth your time to do a little extra work here, and make the honeymoon phase a win-win one for both sides.

The founder needs to remember that investor meetings up to this point have been primarily off-site, with staged demos, and managed personally by the CEO or one or two executives. Due diligence reverses this process to include on-site visits and informal discussions with any or all members of the team, vendors, and good customers as well as bad.

Based on the size of the investment, and the runway available, the due diligence process can take several weeks, or even a couple of months to complete. Of course, it’s always appropriate to concurrently and openly reverse the process on your potential investor. A relationship as important as this one should never be a one-way street. Make it work for your new venture.

Marty Zwilling

*** First published on Inc.com on 12/05/2017 ***

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Tuesday, December 19, 2017

Businesses With A Higher Purpose Also Increase Profit

Wikimedia_Sustainability_InitiativeMany entrepreneurs still don’t understand that building a business culture today of doing good, like helping people (society) and planet (sustainability), is also a key to maximizing profit. Employees and customers alike are looking for meaning, not simply employment and commodity prices. Every company needs this focus to attract the best minds and loyalty in both categories.

In the classic book by Christoph Lueneburger, “A Culture Of Purpose,” he details how to build this new culture, and why it is becoming more instrumental in bringing about success, as well as sustainability, in organizations as diverse as Unilever and Walmart. He outlines a three-phase process to develop the necessary business culture of energy, resilience, and openness:

  • Nurture your current leadership strengths. Learn how to recognize, cultivate, and leverage the competencies of your current talent to develop your leadership team. Highlight leaders with business acumen as well as purpose as role models. Change leadership is a critical competency in the early stages of a transformation.
  • Hire the right team. Ask the right questions to identify the innate personality traits in potential new hires, regardless of level and function, to bring on board those most likely to succeed in and shape your organization. Employees with a purpose actually are easier to recruit and retain. They also tend to stay longer with the organization, reducing costs.
  • Craft your culture into an actionable plan. Create an environment that unleashes these competencies and trains and pushes them to the fore. Shape how people relate to one another and collectively go for what would be out of reach to them individually. Success is people moving from a reactive to a proactive focus on doing good.

In all cases, the transformation starts with placing leaders with a purpose at the core, hiring talent with a purpose at the frontier, and then building and extending the culture of purpose both inside and outside the organization. I can think of at least five ways that this benefits the business, as well as customers:

  1. Products in a purpose culture more readily sell at a premium price. Evidence is growing that consumers are willing to pay at least a small premium for sustainability, and have started to demand a discount for “un-sustainability.” Companies can use this strategy to improve their profitability and competitive advantage.

  2. Doing good opens the door to a broader customer base. By adding to perceived value, a company attracts more sophisticated and demanding customers less expensively and more quickly. More and more customers choose a company based on their perceptions about the good that they do, as well as their price and service.

  3. Customer loyalty and trust go up for companies with a purpose culture. According to marketing surveys, 76 percent of global consumers believe it is acceptable for brands to support good causes and make money at the same time. We all know the cost of retaining customers is far less than the cost of new customers.

  4. Companies with a purpose culture have more productive teams. Doing business is a human process. Team members interact on a daily basis with the stakeholders of the company and the way they feel about the organization has a major and direct impact on how they perform their tasks and do their job at the end of the day.

  5. Investors like startups that foster planet and social responsibility. Investors believe these startups demonstrate more integrity and less risk, as well as being better positioned to deliver long-term, sustainable value to their stakeholders. Of course, investors still require a profitable business model, and the potential for high returns.

Thus doing good leads to doing very well, not less well. Lueneburger contends, and I agree, that the most effective and remembered leaders of our time, and the most successful companies, will be builders of cultures of purpose, which inspire the hearts and minds of people both inside and outside the organization. Is your personal leadership shining well or less well in this direction?

Marty Zwilling

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Monday, December 18, 2017

An Ideal Startup Team Excels At Whole-Brain Thinking

Right_brain-left_brainTraditionally, the majority of entrepreneurs have been logical thinkers, problem solvers, with full attention to details. These are the stereotypical left-brain engineers. Yet I see a big shift from the knowledge age, with its left-brain foundation, to a critical focus today on visualization, creativity, relationships, and collaboration, which are more in the domain of right-brainers.

Of course, the best solution would be a new wave of so-called whole-brain thinkers, but this term is usually reserved for Einstein and Picasso, and no entrepreneurs that I can name. Even right- brain dominant adults are hard to find, according to many expert views. They say most children start out this way, but after their years in school, less than ten percent retain their high creativity.

That means we need all the help we can get to bring out the right-brain attributes we need to be the best entrepreneurs in this challenging new age. Fortunately, there are resources available to help, like the classic book by right-brain entrepreneur Jennifer Lee, “Building Your Business The Right-Brain Way,” which teaches you to capitalize on these strengths, and still build a business.

Obviously, there are places for right-brain thinking as well as left-brain thinking, as it relates to starting and building a business. Lee offers the following guiding principles to right-brain thinkers who need to balance their focus, but I’m convinced that the same principles apply to every entrepreneur-minded person:

  1. Be uniquely you and embrace your creativity. Creativity is the key word here. Engineering creativity, like innovate low-cost solutions, needs to be combined with marketing creativity, like viral social media campaigns, to build a sustainable competitive advantage today. Be visual and imaginative, but don’t forget the business details.

  2. Dream big but start small. Don’t be seduced by the bigness of your right-brain vision and expect everyone to follow, based on the strength of your passion alone. Challenge your left-brain side to break things down into manageable pieces and structure a practical plan to unfold things over time. It doesn’t all have to happen at the same time.

  3. Keep it simple and focused. Opt for easy, broad strokes instead of detailed, complicated solutions. The advantage goes to right-brain thinking on this one. Too many entrepreneurs (engineers) I know define the ultimate system and processes that even a large company can’t afford, and no startup has the money or time to execute.

  4. Take action, make it real, and tweak as you go. Be willing to take action and put yourself out there, even when you don’t feel ready and even if your idea is not yet perfect. You’ll actually learn more and gain more clarity the more you interact with your idea and get feedback. Neither right-brain nor left-brain entrepreneurs will success without action.

  5. Look for the learning and repeat what works. Always have your eyes peeled for valuable new insights to help you continuously improve. Then, when you find something that works, keep doing it until it doesn’t work anymore. Don’t be afraid of using your intuition and feelings to guide you with customers, but don’t ignore real data.

  6. Consider where you are headed and don’t get ahead of yourself. Stay ahead of the curve but don’t advance so fast that you overwhelm yourself. Make sure you have a solid foundation first to support your future vision. Left-brain logical and sequential thinking usually has the edge on this one. Some creative people are always working in the future.

  7. Recognize where you’ve come from. Even as you move forward, also acknowledge how far you’ve come, and celebrate each step of the way. Recognizing past achievements and reflecting on your success helps keep your circuitous progress in perspective. Thomas Edison found his best learning was from his failures.

  8. Know thyself. Building a business is a journey accompanied by personal growth. Understand what makes you tick, and be willing to courageously move past your comfort zone. When you transform yourself, you transform your business. Success in business is often about knowing when and who to ask for help.

As you can see, it’s hard for most of us to be adequately right-brained and left-brained at the same time. Thus I always recommend that two heads are better than one, meaning seek a co-founder who supplements your natural skills and tendencies. It’s hard to beat entrepreneur teams like Bill Gates (engineer) and Steve Ballmer (marketing) in the early days at Microsoft.

So my conclusion is that while the opportunities are growing for right-brain thinkers, the ideal entrepreneur is still a team that can work together to accomplish whole-brain thinking, and whole-team execution. Have you assessed the thinking-balance and the effectiveness of your team and yourself in your own business lately?

Marty Zwilling

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Sunday, December 17, 2017

The Entrepreneur’s Guide For Dealing With Adversity

Life_Vest_Inside_LogoAs a business owner in this age of rapid technological change, with the surge of worldwide competitors, setbacks and adversity are virtually guaranteed. Based on my years of experience mentoring and advising entrepreneurs, you need to attack problems and challenges with a mindset of success, or it is unlikely that you or your business will survive.

I found that view confirmed for a wide range of leadership situations in a new book, “The Mindset of Success,” by Jo Owen. He is a serial entrepreneur and founder of several successful startups, as well as a consultant to some of the world’s largest organizations. I like his outline of eight steps every leader should take in dealing with setbacks, which I have expanded here for entrepreneurs:

  1. Take control of the situation, rather than play victim. When you can’t control everything, control what you can, and move forward in offense rather than backward in defense. In business, when growth eludes you, it may seem like you have no choice but to cut prices and people, when you could be finding better customer fits and more value.

  2. Suppress you own emotions and feelings. If you get angry or upset, and adopt a victim’s mindset, your little cloud of gloom will spread like a major depression across the rest of the office. Separate the event from your reaction, and be accountable for your own feelings. At minimum, you must learn to wear the mask of leadership – cool, calm control.

  3. Stay positive and believe in yourself. The best business leaders convince themselves that they can find a way through any adversity. They see challenges as an opportunity to learn and grow, rather than an opportunity to fail. They see others ahead of them as role models, not as competitors. They focus on their strengths, not their weaknesses.

  4. Step back and broaden your perspective. When you are faced with the daily dose of problems and challenges, it pays to step back and contemplate your successes along the way, reflect on the fact that others are in more dire straits, and imagine the best possible outcome. Then you can focus on what is needed to make this happen and get on with it.

  5. Draw on your experience and input from others. Drawing on experience helps to build perspective, but it also should give you some hints about what will work and what will not work in your current situation. Don’t try to be the lone hero – it pays to listen to other members of your team, who may be closer to the customer, and have better insights.

  6. Find a way to laugh in the face of misfortune. Humor is a good way to keep perspective as well. Laughter helps you stay mentally healthy, and makes you feel good, even after the laughter subsides. Humor helps you keep a positive, optimistic outlook through remembering fantastic recoveries, marketplace surprises, and failed competitors.

  7. Remember the end goal, but be adaptable on how to get there. The best leaders know that you can’t sail straight into the wind; you have to tack and jibe to make any progress. In the business sense, adaptability means being open to new product innovations and marketing concepts, and agile when conditions abruptly change.

  8. Don’t be afraid or too egotistical to seek help. Don’t wait for help to come to you, or be convinced that only you can solve the problem. Business is not rocket science – others have been there before you and learned from it, and every business leader I know is more than willing to share their experience on what works, and what doesn’t work.

I’m convinced that building a successful business from a new idea is a marathon, not a sprint. Success requires deep reserves of stamina and patience to overcome setbacks. In my days as an angel investor, if I heard an entrepreneur claim to have never failed, I would conclude that he was not innovative, or he was lying. Every good entrepreneur I know has pivoted at least once.

The more directly you face adversity in business, the better you become at dealing with it. Thus adversity is not be avoided; it is to be embraced. It is your chance to change the world as an entrepreneur, and leave a lasting legacy like Steve Jobs and Bill Gates. How often have you stepped up out of your comfort zone in business when someone else stepped back?

Marty Zwilling

*** First published on Huffington Post on 12/16/2017 ***

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Saturday, December 16, 2017

6 Reasons Startups Need All Angels Plus Crowd Funding

crowd-fundingEntrepreneurs who require funding for their startup have long counted on self-accredited high net worth individuals (“angels”) to fill their needs, after friends and family, and before they qualify for institutional investments (“VCs”). The many crowd funding platforms on the Internet, led still by Kickstarter and IndieGoGo, and the latest stages of the Jobs Act, were expected by many to put regular people in charge of funding new opportunities, and kill the need for angel groups.

I still don’t see it happening any time soon. Neither does David S. Rose, according to his latest book, “Angel Investing.” David is one of the most active angel investors in New York, and also the CEO of Gust, which is an online platform for startup financing used by 500,000 entrepreneurs over the years, and funding over 1800 startups in just the last 12 months.

In fact, angel investing seems to be leveling off at around $25 billion annually, while crowd funding is setting new records, expected to top $34 billion in 2017. Of course, both are impressive and both already exceed VC investments annually. Nevertheless, according to Rose, both are poised for further growth due to online technology, and there is indeed plenty of opportunity.

He does caution both entrepreneurs and investors to skip the hype and recognize the fundamental truths of the startup industry, before joining the crowd, or joining angels:

  1. Most startups fail. Small business statistics have long shown that the failure rate for startups within the first 5 years is higher than 50 percent. Running out of money, or not getting funded is often given as the cause, but it’s often more an excuse than a reason. Thus investing in startups should always be approached as a low odds game.

  2. No one knows which startups are not going to fail. Even David Rose, who has invested in over 90 startups, and proclaims real success, reminds everyone that there are too many exogenous factors affecting business outcomes for anyone to be able to pick only winners. Professional venture capitalists will tell you the same thing.

  3. Investing in startups is a numbers game. Most startup investors today will tell you to put the same amount of money consistently in at least 20 to 25 companies, if you hope to approach a target 20 to 25 percent overall return. This is called the “portfolio approach,” which counts on hitting only a couple of big winners, while the others return very little.

  4. What ends up, usually went down first. Because unsuccessful startups tend to fail early, and big successful exits tend to take a long time to develop, graphing growth follows the classic J-curve. This means that winning investors need to spread their investments across a long period of time, as well as across a large number of companies.

  5. All startups always need more money. It doesn’t seem to matter what the founders’ projections are, or how fast they believe they will turn profitable. They will need more money. Thus every serious investor reserves a certain amount of his investment capital for follow-on rounds, which allows them to stay to course to success, even with dilution.

  6. If you subscribe to truths one to five, startup investing can be lucrative. There is a rarified brand of successful investors who can show average IRRs of 25 percent or greater over the years. Investing can be satisfying, if not lucrative, for the rest of us, for keeping up with technology, as a give-back to entrepreneurs, and building a legacy.

Angel investors have long been required to "certify through signature" that their net worth or income qualifies them to become accredited, so their burden and risk haven't changed yet. Some investors fear that the recent general solicitation rule will lead to bank statement or tax return disclosures, increase their burden, and may cause qualified angels to back out of the process.

Angel groups fear the loss of members for the same reason. Here again, the entrepreneur will be the one hurt most, by having fewer funding sources to access. I predict that angel investors, who are generally early adopters, will actually be quick to adapt to the new requirements and online systems, and will operate side by side with the new influx of non-accredited investors.

After all, investors of all types who fund entrepreneurs, starting with friends and family, have always been all about creating win-win situations. The investor wins only when the startup wins, and today’s angels can only cover about 3 percent of funding requests. We have a long way to go, in this new era of the entrepreneur, before angel investors aren’t needed.

Marty Zwilling

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Friday, December 15, 2017

7 Groups Of Difficult Customers Test Every Business

woman-customer-frustratedHave you ever noticed that some of your business owner friends get all the bad customers, and yours all seem fairly reasonable? Or is it the other way around? I’m always amazed that, in my role as a business advisor, bad customers somehow seem to gang up on certain businesses. I long ago learned that the customer is not always right, but you can turn most around to be great.

In my experience, turning difficult customers around is more art than science, but it does help to understand all the ways they can be frustrating. I saw some good insights in a new book, “Dealing with Difficult Customers,” by Noah Fleming and Shawn Veltman. These authors are experts on customer service and customer experience, having helped hundreds of companies of all sizes.

I always try to remember that no matter how many businesses I have helped, I am still a customer more often, usually many times a day almost every day of my life. Thus the first step in understanding difficult customers is to put yourself in your customer’s position, and think how often you find yourself in one of the following difficult customer categories:

  1. Expecting what was promised but not delivered. This is called the expectation gap. As a business owner, you have to take a hard look, with your customer hat on, at what you promise and imply to your customers in your advertising, marketing materials, and your customer service. A winning strategy is to always under-promise and over-deliver.

  2. Unwilling or too cheap to spend for good service. The reality is that a good customer experience today is more important than a premium product. No customers, including yourself, are willing to tolerate multiple bad experiences, just to get the lowest price. For your business to prosper, don’t associate good service only with high-price products.

  3. Being unreasonably demanding of others. If you don’t feel like you are getting the proper attention or attitude, do you sometimes become difficult and demanding with business support personnel? On the business side, this translates into hiring customer-facing people with the proper training, motivation, and solutions to defuse difficulties.

  4. Learning that your expectations were wrong. The reality is that we all make mistakes, so no customer is always right. Even when customers are wrong, they don’t have to be difficult if you treat them with respect, empathy, and personal consideration. Every business needs processes, but must empower employees to define exceptions.

  5. Intentionally ignoring loyalty, despite good service. I think we all believe that loyalty is not an entitlement. Customer loyalty has to be earned through day-in-and-day-out good service, and returned in kind. Make sure your total customer experiences, not just service, are worthy of loyalty, and you won’t find customers walking away.

  6. Spending more money there, so expect better service. In reality, every customer’s version of “more money” is different, so as a business, you must demonstrate “better service” than expectations and competitors to everyone opening their wallet. You want every interaction to be positively memorable, so no one has to keep score.

  7. Complaining about everything, even the small stuff. If you have already built loyal customers for your business, they are willing to brush off an odd mistake as an anomaly. People usually become difficult due to a real problem, which they amplify by throwing in all the small stuff. Being consistently good is better than being great once in a while.

Of course, we all know people in our life and business who act irrationally difficult, despite our every effort to provide exceptional support. These deserve to be fired as customers or friends, since life and customers are all about building and maintaining win-win relationships. In fact, if you treat your customers as do your best win-win friends, you probably won’t have any bad ones.

Marty Zwilling

*** First published on Inc.com on 12/01/2017 ***

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Wednesday, December 13, 2017

10 Steps To A More Responsible And Accountable Team

sir-richard-branson-accountableGetting things done effectively in a startup requires total individual and team accountability. You can’t afford excuses and multiple people doing the same job. In my view, “taking responsibility” is the core element behind accountability. Many people hear responsibility as an obligation, but I hear it as “the ability to respond.”

Unfortunately many people don’t have the ability to respond, because they lack confidence in themselves, or simply don’t have the skills required. Therefore an entrepreneur’s first requirement is to hire or team only with people who are accountable (already have the confidence and skills you need) – training them on the job is prohibitively expensive when you have minimal income.

Even with the best people, accountability must be nurtured, since it can be killed more quickly than it can be grown. Here are some characteristics of current business leaders, including Richard Branson, who foster responsibility and accountability, and keep it growing:

  1. You need to walk the talk. Above all else, you as the founder or executive have to be a role model of accountability. You need to exemplify the “buck stops here,” and never play the blame game. Reward accountability consistently and often.

  2. Communicate continuously. You need to make sure that your team members understand your expectations, and you need to proactively listen and understand the expectations of all stakeholders. Frequent and consistent communications, both verbal and in written processes, are required. Take away the “I didn’t understand” excuse.

  3. Measure objectively. Goals and objectives must be unchanging and measurable, based on results, with benchmarks for comparisons. Accountability assessments must be based on facts, not distorted by opinions, politics, and desire for power. Frequently changing expectations does not lead to accountability.

  4. Give control before expecting accountability. A sense of responsibility and accountability requires a sense of control. If several levels of approvals are needed for a specific decision, no one will feel accountable, and no one can be held accountable. Real delegation is required.

  5. Align functional groups with business goals. If key inputs are not under the control of the proper group, then they will cede accountability as well. If your sales group is measured on profitability, but is required to process leads from outside sources paid by volume, you have a conflict where everyone loses.

  6. Manage up the line and support your team. You need to be the sponsor and the advocate for every member of your team. Team members who take risks through accountability need to see your overt support up the line, with no blame and no scapegoats.

  7. Provide timely feedback on performance. High performance teams need immediate and useful information on how to improve, as well as regular full performance reviews, individually and as a group. Help people, including yourself, look in the mirror and see reality.

  8. Conduct humiliation-free problem analyses. Getting to the source and fixing problems should never be a “name and shame” game. Leaders need to provide safe havens where difficult issues can be discussed without assigning blame. The goal should always be to solve problems, not hurl accusations.

  9. Provide tools to support accountability. No tools and no data lead to total subjectivity and biased interpretations. Absolute dependence on tools leads to abdication of personal responsibility. Provide adequate tools, but trust the people.

  10. Differentiate accountability from entitlement. Accountability is hard, so no one is entitled to be right every time. Don’t punish people for making a mistake, but make it clear the mistakes have consequences, sometimes painful ones, that we all have to live with. Higher responsibility means more work and more skills needed.

Many executives subscribe to the misguided notion that you can hold people accountable. This is usually a ploy to control others and hand off responsibility, without being accountable yourself. People need to make themselves accountable, and accept the consequences of their actions. Remember that you are the model, and what goes around, comes around.

Marty Zwilling

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Monday, December 11, 2017

5 Keys To New Venture Financial Projections That Work

New-venture-financial-projectionsAs an angel investor and business advisor on new ventures, I expect to see five-year financial projections from every entrepreneur. Yet I get more pushback on this request than almost any other issue. Founders point to the great number of financial unknowns in any new business, and are reluctant to “commit” to any numbers which may come back to haunt them later.

From my perspective, projecting financial returns is part of the homework every business person needs to do in sizing customer opportunity, product costs, pricing, competition and customer value, before expending their own resources in a highly risky venture. You need these projections to assess viability, set internal goals and milestones, and measure your team’s progress.

For investors, it’s more of a credibility and intelligence test. Does this entrepreneur understand the basics of business costs in the selected business domain, growth dynamics, and the competitive environment? Reasonableness and business sense are the issues, rather than accuracy, since everyone knows that key parameters will change often before success.

There is no black magic involved in predicting numbers, and I always recommend sticking with the some basic guidelines, outlined here. With these, if you can paint a positive picture for your new venture, I assure you that investors will sit up and take notice, and you will also know how to drive yourself and your team:

  1. Determine your gross margin on sales. Per-unit cost less your cost per unit sold is your gross profit margin. If you lose money on every unit, you won’t make it up in volume. As a rule of thumb, most new businesses need a margin above 50 percent, even on wholesale prices, to cover operational expenses and survive long-term as a business.

  2. Project unit-volume and price levels. Based on your market size and penetration expectations, size how many units you will sell, at what price, in every channel. This should ideally be a “bottoms-up” commitment from your sales team, not your own optimistic guess. Be sure to include expected volume cost and price reductions over time.

  3. Quantify overhead and growth costs. It’s amazing how fast costs escalate as you grow. You need 5 percent or more of revenue for marketing, more for new development, and people costs will double as you add benefits, insurance, training, IT and processes. Check competitor numbers and industry average statistics to get you in the right range.

  4. Set a target growth and market penetration rate. If you want to be assessed as a “premium” acquisition candidate down the road, an aggressive but reasonable target might be doubling revenue each year. For credibility, market penetration within five years should be at least 5 percent. Numbers far afield from these need special explanations.

  5. Calculate cash-burn rate and investment timing. Initial sales success means more cash will be needed for inventory, receivables, facilities and people. Project your cash burn rate to keep at least 18 months between venture capital or angel investments. You need to know how many units to sell, and how much time you need to break-even.

From a planning and strategy standpoint, I offer these additional recommendations to maintain your credibility with outside investors, and to balance your risk due to market uncertainty:

  • Add a buffer to your investment calculations. Investment requirements should always be based on financial projections and cash-flow calculations, not on what you think you can negotiate. If your cash flow shows a shortfall of $750,000, add a 33 percent buffer, and ask for a million. Be willing to give up 20 to 33 percent of your equity to support this.
  • Update financial projections at least every quarter. Financial forecasts for startups are assumed to be estimates that will be updated as more information is known. Adjust revenues quarterly or even monthly, and replace forecasts with actuals as soon as a period ends. A business plan with old projections, ignoring actuals, will kill your credibility.
  • Avoid high-medium-low projections, as well as irrational ones. Investors want entrepreneurs to be aggressive, but don’t make projections that make you look like the next Google. Entrepreneurs tend to be driven by their own targets, so pick an aggressive one, and you will likely do better than starting with a conservative one.

I always recommend that entrepreneurs do their own financial projections, rather than rely on an outside expert, because it’s the process that adds the value, more than the numbers. For additional value, I suggest the use of a spreadsheet financial model, with a few variables, like price and volume. This allows a quick analysis of alternate assumptions, with revenue impacts.

You don’t need complicated ratios for a startup business plan, since you don’t have a history. On the other hand, without financial projections, you don’t have a viable venture proposal. You don’t need an MBA to be credible with investors, just some common sense business expectations, and passion based on some data. Most of us need full investor support to turn our dream into reality.

Marty Zwilling

*** First published on Inc.com on 11/28/2017 ***

See Portuguese translation, thanks to Artur Weber

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Sunday, December 10, 2017

7 Risks To Avoid In Your Business People Management

Job-Business-InterviewEven after many years mentoring entrepreneurs and advising businesses, I continue to be surprised by the primary focus on products and processes, and the often incidental attention to hiring and nurturing the right people. Employees are still too often thought of as a commodity, to be acquired “just in time” for the lowest cost, and managed as a disposable asset.

All this despite continuing evidence that the right people make a business succeed, rather than the other way around. Further, according to more recent surveys, businesses that use data and tools in their people management, rather than traditional manual processes, see a 79% higher return than other organizations, suggesting the time is ripe for relying on data and analytics.

With the latest advances in software technology, it’s no longer cost-prohibitive for business entrepreneurs, who can’t yet afford a human resources department, to take advantage of analytics tools. Almost any startup can start with Excel, and move to open-source data analysis tools, including Python or RStudio. Bigger organizations should invest in the new “big data” tools.

For a hands-on guide in developing data-driven people strategies, I found some practical techniques in a new book, “The Data Driven Leader,” by Jenny Dearborn and David Swanson. Based on many years of HR leadership at SAP and elsewhere, these authors start by highlighting the risks of not leveraging data analytics. I have added my own observations to theirs as follows:

  1. People decision making by gut, more than data. Common sense and emotionally driven decisions are sub- optimal in assessing team members. Data, however, removes guesswork, biases, and anecdotal reasoning that can throw decision efforts off course. It’s the same for customers and products, where analytics have long proven their value.

  2. Working on the wrong problem or assumption. Data helps avoid predetermined (and often erroneous) approaches to solving your people problems. Don’t let one incident, observation, rumor, or misunderstanding cause a rush to judgement, or hiring mistake. Make sure subjective feedback is buttressed by objective data before making decisions.

  3. Measuring efficiency rather than effectiveness. Efficiency in the workplace is the time it takes to do something, but it can ignore work quality and customer impact. Employees are often ineffective because they don’t care about their work or because they don’t possess the skills to contribute. Use data analysis and metrics to measure for results.

  4. Subjectively measuring employee engagement. Manually assessing engagement clearly isn’t working. According to Gallup’s most recent global engagement survey, only 13 percent of workers are now fully engaged in their job, which is hugely expensive in productivity. With data and analytics, you can gauge employee engagement accurately.

  5. Underestimating absenteeism and accident costs. Many businesses still ignore the magnitude of the problem of employee absenteeism and accidents. They look only at historical data, and lump it all under "the cost of doing business." The best leaders use data and analytics to identify key offenders to continually reduce these problems.

  6. Failure to factor in new employee ‘time-to-performance’. According to data from recent statistics, it typically takes eight months for a newly hired employee to reach full productivity, and that doesn’t include hiring. Through analytics on current employees, you will be able to predict re-training requirements and minimize employee turnover.

  7. Waiting to hire until the business is in crisis mode. It’s easy for entrepreneurs to fall into the trap of focusing only on what’s urgent and leaving aside what seems merely important. The solution is to plan ahead by using data analysis tools with predictive indicators. Trying to hurry the hiring process is a key reason for bad hires in business.

Most companies I know will claim to be busy collecting and analyzing data, but very few actually use it to drive people management. Integrating the analytics of people management with business results is key to driving a winning strategy and long-term sustainability in today’s competitive and rapidly changing environment. These should not be seen as two separate efforts.

I often have to remind entrepreneurs that good products are built with the best technology, but good businesses are built with the best people. Great business leaders have figured out how to apply the right attention, time, and tools to both. Where are you along this spectrum?

Marty Zwilling

*** First published on Huffington Post on 12/09/2017 ***

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Saturday, December 9, 2017

9 Beautiful Questions Will Validate Your Innovation

disruptive-innovation-enablersThe entrepreneurs I see are always talking about “disruptive innovation” ideas, but the plans I read are more often linear extensions of a current hot offering, like one more social network with the best of Facebook and Twitter, one more dating site dimension, or another “must-have” accessory for smartphones. Perhaps hard questions need to come before ideas, rather than after.

This approach was highlighted in a classic book by Warren Berger, “A More Beautiful Question,” which makes the case for the power of questions to spark breakthrough innovations. He and I agree that the most creative, successful business leaders tend to be expert questioners. They master the art of inquiry, raise questions no one else is asking, and find powerful answers.

Berger suggests nine key questions, which I have adapted for entrepreneurs and startups, from his focus on existing companies. Every smart entrepreneur needs to ask himself and his team these questions before charging down the road to meet the other ninety percent of his peers that fail:

  1. What business are we really entering? Many aspiring entrepreneurs, especially engineers, are focused on their invention or technology, and never consider the challenges of entering the business realm until too late. Hydrogen auto engines, for example, have tremendous advantages, but haven’t cracked the bureaucracy of government regulations, the power of existing energy companies, and big auto biases.

  2. Why have other smart people failed on a similar idea? All too often I hear the refrain that big existing players, like Microsoft or IBM, are too fat and slow to be real competitors. While these companies do have their challenges, they also have some of the smartest people out there. You need to question strongly why these failed on your innovation.

  3. What will happen if we build it and no one comes? The “unthinkable” questions need to get asked before the crisis. Customers always have alternatives, most notably continuing to do what they do today without you. Asking the hard questions early will force more thinking outside the box, and improve the potential for real breakthroughs.

  4. What if we could become a cause and not worry about profit? Every startup should start with a set of values that would fit the definition of a good cause. The new age of consumers, and the new age of young employees want to align themselves with good cause principles. Figure out what you are against, as well as what you are for.

  5. How can we create the best test, and assume the need for pivot? Your first offering will likely be a learning experience, rather than a run-away success. Plan to make it the best experiment that you can, with metrics to focus on the “why,” as much as “what.” Create a safe environment for your team to question every aspect of the offering.

  6. If we brainstorm in questions, will lightning strike? Collaborative thinking in problem solving and early planning is essential because it brings together multiple viewpoints and diverse backgrounds. Innovation flourishes when diverse ideas and thoughts are aired. Tackle the startup unknowns by generating questions instead of generating solutions.

  7. Will anyone follow if we initially embrace uncertainty? Entrepreneurs are normally all about giving answers, not admitting uncertainty. They are reluctant to take advantage of questioning input from outside advisors, investors, and even friendly customers. Business leaders from Google, Netflix, and others have uncertainty built into their DNA.

  8. Should our mission statement be a mission question? The declarative mission statement is usually seen by the team as non-questionable, thus limiting business thinking. In these dynamic times, it may be appropriate to take that static statement and transform it into more open-ended, fluid mission questions that can still be ambitious.

  9. How do we create a culture of continuous inquiry? The first mistake is not wanting a culture of inquiry, in today’s age of continuous change. Some leaders and entrepreneurs don’t want to continually explain and rationalize their actions. The challenge is to reward questioning by your actions, culture, hiring, and the way you treat customer feedback.

If you want more specifics as well as the theory behind it, I recommend Berger’s book as a practical system of inquiry that can guide you through the process of innovative questioning, helping you find imaginative, powerful answers and building the culture of continuous innovation.

Disruptive innovation is always hard, and takes a very special breed of entrepreneur who is willing to ask the hard questions, as well as listen to tough questions from advisors, team members, and customers. How effective are you and your business in asking more “beautiful questions” and sparking the breakthrough ideas you need to survive?

Marty Zwilling

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Friday, December 8, 2017

7 Plan Elements That Separate Businesses From Hobbies

handmade-hobby-or-businessUnless you are a serial entrepreneur with a string of successes behind you, you need a business plan to convince investors that you can build a business out of the dream that has been driving your passion to change the world. Don’t believe that Silicon Valley myth that all you have to do is sketch your idea on the back of a napkin, and investors will line up to give you money.

Based on my experience as an angel investor and a mentor to dozens of entrepreneurs, having no business plan is the quickest way to define yourself as just a dreamer, or at best a hobbyist. Let me be quick to say that a plan doesn’t have be a book, and probably should start as a “pitch deck” of maybe a dozen slides which cover all the right bases. The details can be added later.

Now let’s talk about the bases that need to be covered. Since this document is outward facing, it is important to keep the terminology and tone consistent with that of your customer set, investors, and business partners. Skip the acronyms and jargon. Open your pitch by grabbing the investor's attention with a statement or question that piques their interest, then hit the following key bases:

  1. Definition of customer problem, followed by your solution. Use concrete terms to quantify value and pain. For example, “I just patented a new cell-phone technology that will double battery life for half the cost. No more pain of phone shutdown in the middle of a call.” This is your elevator pitch hook, which you must be able to deliver in 30 seconds.

  2. Opportunity segmentation and competitive environment. The market scope for your solution should be quantified in non-technical terms, with data sourced from professionals in the industry, rather than your own opinion. List key competitors and alternatives, highlighting your sustainable competitive advantages, such as patents and trademarks.

  3. Provide details on the business model and cash flow. Every business, including non-profits, needs a business model to survive. Providing your product or service free to customers may sound attractive in marketing materials, but you need revenue sources to survive. Free is a dirty word to investors, since it’s hard to get a financial return from free.

  4. 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 leadership 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.

  5. Marketing, sales, and customer experience. I’m assuming that most of you will see these as essential elements of a real business, but not needed for a hobby. Yet I continue to get funding requests that never mention any specific plans or costs to be associated with these elements. No mention usually means no plan and not competitive.

  6. Project revenues, costs and investment needs. If you are not willing to set targets for yourself, don’t expect investors to commit their funds. Major milestones along the way should 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- times multiplier return.

If you don’t have the time to write things down, or your writing skills leave something to be desired, don’t be afraid to get some help. No executive I know writes all his own contracts, but every smart one owns every one that is written for him, and understands every element. An entrepreneur who can’t manage a plan, probably won’t be able to manage the new business.

There are no guarantees, but various studies have found that entrepreneurs who start with a plan generally double their chances of building a successful business. In any context, and especially in the high-risk world of startups where more than 50 percent fail, you don’t need to start your venture by convincing key players that you have nothing yet but an expensive hobby.

Marty Zwilling

*** First published on Inc.com on 11/22/2017 ***

See Polish translation, thanks to Weronika Pawlak
See Hungarian translation, thanks to Elana Pavlet

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