Wednesday, September 19, 2018

7 Tips For Building The Right People Relationships

good-business-relationshipsIn big business, as well as startups, I have found that your effectiveness can be highly correlated to your ability to build and maintain people relationships, often more so than hard work, or how many hours you give. But all relationships are not the same, and your ability to distinguish between positive and negative, or casual versus committed, can make or break your future.

I find that the most successful entrepreneurs have mastered the art and skill of building and managing relationships. For example, we all know people who really believe that everyone in the world is their supporter, when in fact many are actively working against them. The reasons may be emotional or fact based, but the key is understanding and dealing with relationship realities.

In my role as a mentor to business professionals and entrepreneurs over the years, I have found that it’s important to take a hard look at the relationships around you on a regular basis. If you have very few, or the wrong relationships, or your assessment abilities need tuning, your impact and your career may be limited. But, like most other skills, you can learn from these priorities:

  1. Everyone benefits from active mentoring. The most productive business relationships involve mentoring, or active sharing of knowledge and experience, with the intent to improve communication, cooperation, and impact. This is a powerful and positive relationship that benefits both careers, as well as the business.

    It works at all levels inside an organization, as well as outside the company. Most successful entrepreneurs and business executives admit to having mentor relationships, including Bill Gates with Warren Buffett, and Mark Zuckerberg with Steve Jobs. We all have our strengths and weaknesses, and can benefit from an external perspective.

  2. Provide and seek coach and advocate relationships. The best coaches are people who care about you as a person, without any ulterior motives, and intend to inspire you to be the best that you can be. With their advocacy and guidance, your morale, skills, and thus productivity will go up, benefiting both the company and your career.

    A good coach is not a critic. Beware of relationships with people who constantly put you down, highlight your flaws, or discuss your shortcomings with other team members.

  3. Establish relationships with people in the know. Some peers are always researching the big picture and latest details, and can keep you in the loop on what’s happening in the organization and why. I’m not talking about gossip or negative information, but positive insights that will help you spend your time to the best advantage in your career.

    These people are easy to recognize if you keep your eyes and ears open. They typically share insights early that prove to be productive, and have good relationships themselves with executives and other leaders.

  4. Actively court relationships with people you aspire to be. If your friends are all people in lesser experience, it's unlikely that you can learn new things from them. Supplement the scope of your relationships with trailblazers you respect, to be inspired by their results, and motivated to follow in their footsteps. Keep your ego in check.

  5. Expand work relationships into personal friendships. Personal friendships between peers is always good for business, even between managers and team members. Personal friendships will improve communications and trust, and will definitely improve your personal satisfaction and life balance, between work and play. .

  6. Make it a point to get to know other teams and customers. Just knowing more people both inside and outside your organization, if only as acquaintances, is still a good thing. It keeps you from becoming isolated in your views, improves trust all around, and generally leads to more cooperation and sharing. Even with all our technology, business is still people-to-people.

  7. Above all else, don’t create enemy relationships. Things change rapidly in business, and enemies have a way of resurfacing in a position to damage your career or your project. Don't burn your bridges with anyone on the team, and use your initiative to engage people directly to improve communications, rather than cutting them off or instigating a personal battle.

In my experience, even the best technology and business model can’t succeed without positive relationships all around on the team. As an angel investor, I learned this the hard way, and now I’m a believer that smart investors invest in people with the right relationships, not just ideas and skills. Work to make your ability to manage relationships your sustainable competitive advantage.

Marty Zwilling

*** First published on Inc.com on 09/05/2018 ***

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Monday, September 17, 2018

7 Keys To Selecting A Startup Idea That Works For You

startup-idea-for-youA common request I hear from aspiring entrepreneurs is for an assessment of their latest idea. I don’t even try to assess things at the idea level, since I can’t read minds. I can assess execution plans, if you have any. Yet I believe that business success is more a function of the person than the idea or the plan, so the best idea is one that is a best fit for you, and only you can assess that.

The best new idea for any entrepreneur should first be based on their own personal interests, skills, and lifestyle, rather than the characteristics of a given market or technology. I found some great insights along these lines in the classic book “Find Your Balance Point,” by renowned executive business coach Brian Tracy, and work-life balance therapist Christina Stein.

They emphasize, and I agree, that true success and satisfaction is most likely to happen when all your actions and choices are guided by a profound adherence to your deepest personal values, vision, purpose, and goals. Here are seven key considerations for how you should make your own best entrepreneur business idea decision in this context:

  1. Pick something you really enjoy doing. If your passion is social change or sustainability, with financial value creation further down in priority, you should choose to be a social entrepreneur. Don’t pick a technology idea that someone else believes will make you rich and famous, or a business area you are not intimately familiar with.

  2. The idea or technology was easy for you to learn. If you feel an idea was born inside you without thought or effort, or you learned the details easily, it’s a great idea for you. The next step is to do homework on the business issues that are common to all ideas, such as market size, business models, and marketing. Then ask me about execution.

  3. You look forward to learning and contributing more. Every new idea is only the beginning of a long journey, and the actions you take along the way will determine your ultimate success and satisfaction. You need to enjoy the learning along the way, as well as the destination. If all you see ahead is stress and pain, look for another idea.

  4. When engrossed with this idea, the hours fly by. The best and most successful entrepreneurs, such as Elon Musk, known for PayPal, SpaceX, and Tesla Motors, routinely work hundred-hour weeks, but never complain about the hours, and don’t even think of their activities as work. He doesn’t need or ask anyone to assess his ideas.

  5. Working on this idea gives you renewed energy. Everyone develops a sense of what activities build their energy, and which ones drain energy from them. As an introvert, I lose energy quickly working a room full of people, while my extrovert friends come away from a social gathering more fully energized. Find ideas that energize you.

  6. You continually strive to sell and communicate the value. Smart entrepreneurs develop quick elevator pitches for their ideas, good product and business stories, and are eager for the opportunity to communicate and learn from feedback. As an investor, I’m not attracted to startups where the founder sends in a marketing person to do the talking.

  7. You love to associate with the top people in the business area. The best ideas are ones that get attention from experts and key constituents in relevant business areas. Part of the satisfaction of being an entrepreneur is being able to interact with and learn from the people you respect most. Test your ideas on them, and listen to the answers.

Finding the balance point in your life’s work is not an easy task, but it is critical to long-term success and happiness. Establishing the right professional identity and commensurate business is equal in importance to maintaining your health and finding the right personal relationships and family life. You can never satisfy everyone, so you need to start by satisfying yourself.

So before you poll the world on what they think of your next great idea, be sure you assess your own drivers along the lines listed here. If everything fits, build a plan to make it a business. If you can’t build a plan, or your advisors and investors find it unconvincing, it’s time to give that idea to someone else and try a new one. I see more than enough great ideas to match any entrepreneur.

Marty Zwilling

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Sunday, September 16, 2018

6 Value Propositions That Resonate With All Investors

investor-prioritiesYoung entrepreneurs often are so excited by new technology or their latest invention that they forget to translate it into a value proposition that their customers or potential investors can understand and relate to. They become frustrated with investors, senior executives, and even customers who don’t seem to “get it,” with the result that everyone loses.

Senior business leaders, for example, are unlikely to relate when you pitch your latest web app, highlighting the mashup technology, which you derived from early online social networking applications. Mashup probably reminds senior leaders of a train wreck, and social networking is still seen by some business executives as a frivolous waste of time.

It’s really your responsibility and your advantage to translate your message into values and priorities that the intended receiver can readily relate to and understand. Here are some key value propositions that will resonate with every business leader I know:

  1. Ability to adapt quickly to changing requirements. Every business leader knows how difficult it is to keep up with a changing market. If you can quickly explain how mashup technology facilities this agility challenge, the technology may quickly turn from a negative to a major positive. This priority applies to big companies, as well as startups.

  2. Customer data integrity and security. Customer data, as well as internal data, is a key resource for every business that must be secured and protected. If your message starts with a focus on this priority and related costs, the technology will likely be appreciated and valued, rather than challenged.

  3. Personal privacy protection. Customers are always looking for a better user experience, and they don’t want their privacy compromised. Before you focus a senior decision maker on your new cloud technology and distributed data, make sure he or she understands how it will lower user privacy exposures, rather than increase them.

  4. Reduce litigation risks and support costs. Often new technologies are seen by senior decision makers as new opportunities for litigation and hackers. You need to address these concerns early, by highlighting patents, encryption capability, or other features which mitigate these risks and costs. Skip the acronyms and implementation details.

  5. Payback on investment. Every business executive wants to understand how each new investment in technology relates to their bottom line. Quantifying the return on investment (ROI) is “top of mind” for every investor and executive. Entrepreneurs who make this case effectively will get the decision they want, no matter how esoteric their technology.

  6. Ability to integrate with existing apps. New applications which can’t communicate with existing data and applications are often more of a problem than a solution. Mashup technology may be your biggest plus, if you position it in this context. Highlight the mashup use of existing friendly interfaces, and use of existing data in a new solution.

I challenge every entrepreneur to see how many of these priorities they can integrate into their new technology solution elevator pitch. You may be able to turn a potential train wreck into a win-win decision for both you and the investor or customer. In any case, it pays to do your homework on the background and experience of the decision maker you face. Don’t assume their understanding of technology is commensurate with yours.

Entrepreneurs need to remember that every investment decision, whether by professional investors or customer executives, is primarily a financial decision, not a technology decision, driven by limited funds. If you can translate your technology power into a solution satisfying key business goals, you will win the investors you need, as well as the customers you need to make your startup a success.

Technology is the means, not the end.

Martin Zwilling

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Saturday, September 15, 2018

6 Market Research Sources That Fit A Limited Budget

market-research-cheapMany entrepreneurs are so enamored with their product vision that they believe their own hype, and are convinced that the market for their solution is so huge that no one will ask them for independent market research data. They don’t realize that business projections with no third-party validation have no credibility with investors, and smart potential investors will walk away.

Every good business plan needs an early section which sizes the total market opportunity, and then breaks down that total into the most relevant segments for your focus. If ten percent of these numbers, multiplied by your average product price, will get you the revenue you need to scale your business, you will get the love you need from angel and venture capital investors.

A common excuse I hear from entrepreneurs for not doing the work is that real market research takes too much time, and costs too much money. Perhaps that was once true, but in this age of the worldwide Internet, big data, and pervasive business intelligence in every industry, you can use the following steps to get the data you need with very little time and cost:

  1. Start your research with Google. Use your favorite search engine and keywords describing your solution to find online sales reports, trade association statistics, and online newsletters with the latest statistics. The wealth of data available online is already much larger than the entire Library of Congress, and much more current.

  2. Modern libraries are still worth a visit. Universities and large municipalities still maintain subscriptions to the latest market research reports from key sources, including Nielsen, International Data Corporation, and Gartner Group. In most cases, these are available to the public for free access, and can be referenced and footnoted in your plan.

  3. Explore municipal development resources. The local Small Business Association (SBA) offices, or their equivalent in other countries, can often provide market statistics on key market domains in your area. New business development specialists there can also provide good additional sources for the specific information you may need.

  4. Browse the business section of your favorite bookstore. These days, it’s a great way to get some work done, while enjoying a cup of coffee, so you may not even have to buy a book. Pay particular attention to the titles discussing the latest issues having big opportunities, like alternative energy, global warming, and technology trends.

  5. Peruse company reports from your business domain. Competitor annual reports, white papers, press releases, and presentations are great sources of data and trends that you can use to support your own efforts. These are also important for your product positioning in the competitor section of your business plan.

  6. Conduct your own customized market research. With social media and the new survey tools, it’s easy and fast to set up and run your own focus group, or opinion survey. Just make sure your results are statistically significant, rather than anecdotal, and avoid any personal biases in the questions which may be used against you.

You need to find just enough information to quantify the real need out there for your product or service. For example, if you are offering an accounting service for small business owners, you would want to quantify the number of enterprises in your area, with the size, age, and spending demographics that you are targeting.

Buying large detailed reports from market research freelancers and name-brand providers usually costs several thousand dollars, and often is not required to find the summary data you need to satisfy investors. One of the free sources above, or just the teaser data from an online report advertisement, often is more than adequate as a third-party reference for credibility.

We all know that people can use statistics to prove any point they want, but not having any opportunity sizing is certain to raise a red flag above your whole business plan. On the other hand, spending your entire startup budget on market research won’t improve your odds of success or funding.

Successful entrepreneurs get the job done quickly, without breaking the bank.

Martin Zwilling

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Friday, September 14, 2018

8 Keys To Keeping Up With Technology In Your Business

high-tech-metal-chrome-ballsTechnology is so key to every business these days that experienced business-smart but non-tech entrepreneurs are feeling deeper and deeper in the hole. Even if they realize that they need real technical strength at the top, they are not sure how to attract and select the talent and expertise they really need. Should they go after high-tech nerds for partners, or professional technologists?

The right answer for a good business partner today is neither of the above. Startups succeed most often when the founding partners know how to build and run a business, rather than how to build and run technology. Only one component of running a business is managing technology, but it is a critical component, so no entrepreneur can afford to ignore it or totally delegate it.

That means every entrepreneur needs to learn how to attract, hire, and manage technical people for their team. Just like you don’t have to be a financial guru to recognize a good CFO, or a marketing genius to hire a VP of Marketing, you can find the right technical partner or team member by using the right evaluation and hiring steps, including the following:

  1. Engage a technical advisor to assist with recruiting and early interviews. Just like executive recruiters recognize the best executives, a technical expert in your business domain will recognize the right combination of skill, creativity, and experience you need for a co-founder or key team member. Don’t fall for a technical pitch you can’t fathom.

  2. Look for a match in culture and values, as well as technical strength. A great technical LinkedIn profile is a good start, but not enough to assure success in your environment. The non-technical leadership attributes of excellent communication skills, high integrity, passion, and perseverance are critical for the success of the whole team.

  3. Spend time informally with candidate peers and former employers. This approach works best with business associates that know you, or peers that you meet at industry conferences, or technical gurus that have no business connections to the candidate. Former employers will normally only give you candidate employment dates or good news.

  4. Let candidates educate you on attributes you need and they bring. The key here is to do more listening than talking in both formal and informal interviews. I find that many entrepreneurs are so passionate about their own idea that they can’t stop selling it to potential partners. They are attracted to people who agree, but may not be able to help.

  5. Evaluate their problem-solving ability in the context of your business. A business startup is not an academic environment, or a big company research organization. Practical problem solving, and communicating to business people, is often a big challenge for technical experts. Test them with problems outside their comfort zone.

  6. Challenge current team members to bring in the best and the brightest. Start with existing co-founders, extend the request to advisors and investors, and finally to existing team members. Make them part of the interview and decision process, since they all have a large stake in ultimate success of the new venture.

  7. Continually ramp up your own technical competence. Although technology is getting more pervasive in business, it’s not rocket science. If your kids can use computers by age six, every entrepreneur ought to be able to stay current with the latest social media marketing and e-commerce technologies. You can’t manage a technical team or negotiate with technical partners without understanding their view of the business.

  8. For non-core technical strength, look for outside partners. Outsourcing to expert freelancers or business partners is often a better solution for startups than managing everyone into the inside team. You may not have the breadth of technical challenge, or the budget, to lure in and keep motivated the caliber of technical expert you need.

Even if your company doesn’t sell high-tech products, like Zappos sells shoes, having and using the right technology in the business, for distribution, marketing, and customer support, can easily make the difference between winning and losing in today’s high-tech world. It’s no anomaly that Zappos CEO Tony Hsieh graduated from Harvard with a degree in computer science.

On the other hand, there are many technology companies successfully started and run by non-technologists. For example, Richard Branson, CEO of Virgin Group, with no technical background at all, has started and run many technical companies, including the futuristic Spaceship One and an orbital space launch system, and reportedly does his own social media work.

Thus non-technical entrepreneurs must not shy away from technical issues, and must also learn to find and effectively work with technical partners, inside their company and outside. Street-smart today means the ability to survive and prosper in a technical world. Are you there?

Martin Zwilling

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Wednesday, September 12, 2018

6 Steps To Creating A Business Legacy That You Love

happy-business-man-profitBefore you start down the long hard road of an entrepreneur, it pays to look inside yourself to see what you love to do, and what would fit your definition of success. For some, it’s all about the chance to run your own show, or advance a cause that you are passionate about. Others dream of being a billionaire, or proving that they can satisfy a need by starting and growing a business.

In my experience, you will have the most satisfaction and success if you can combine a strong sense of “purpose” with a quantifiable business opportunity. Some founders are so passionate about their cause that ignore the business realities, while others are so driven by money that they sacrifice their ethics. Both ends of this spectrum will likely result in more long-term pain than fun.

One example of a startup with a good balance seems to be Whole Foods, whose focus on healthy foods and a sustainable environment is legendary, yet their business success recently attracted Amazon with a $13.7 billion buyout. On the other hand, I worked with an entrepreneur who really wanted to cure world hunger, but forgot that hungry people rarely have any money.

The challenge is to do the right homework and ask yourself the right questions to find a personal purpose and a business model that are complementary, and will likely provide you with a good shot at business success as well as personal satisfaction. Here are some key steps I recommend to get you started on the right foot:

  1. Identify a “higher purpose” that embodies your passion. Do you feel strongly about a social or environmental issue where you would love to make an impact as part of your legacy? Keys to this would be something that matches your values, and could benefit from your strengths. Write it down and validate it though friends and social media.

  2. Set some specific goals and milestones for a business. Setting a business goal requires the conceptualization of an idea into structured deliverables, and formalizing that idea into one to five specifics. Ideally, that formalization is the start of a business plan. It’s hard to know when you have arrived, if you have never figured out where you are going.

  3. Start networking to pull together a complementary team. Contrary to a popular myth, entrepreneurship is not a solo lifestyle. We all have strengths and weaknesses, so we need people around us who can fill in the gaps. Your ability to motivate other people along the lines of your passion will dictate future success, as well as satisfaction.

  4. Define your target customer set and value proposition. Without customers, there is no business, and no higher purpose can be satisfied. If you can envision and size a set of customers that will be delighted with the value you bring, in concert with your higher purpose, then you are well on your way to an entrepreneur lifestyle that you will love.

  5. Look beyond today to your long-term career aspirations. Even entrepreneurs need to think about their career. Some are perennial “startup” people, who can’t wait to hand off a successful creation to a business professional, and start the whole process over again with another idea. Others, like Bill Gates, want to run a great company as their purpose.

  6. Solidify your values and expectations for workplace culture. In today’s environment, the workplace culture you crave is a key factor in the type of business you will fit. Every businesses requires a high level of employee engagement, as well as customer-sensitive processes. Be sure you understand the issues of remote workers and global operations.

Contemplating these steps should convince you that identifying your sweet spot in the entrepreneurial spectrum is not a simple exercise. It requires deep introspection, and making some hard choices. These can be painful now, but I assure you they will be more painful if ignored or pushed into the future. It’s better to decide now if being an entrepreneur is not for you.

Timing is everything. You may decide to start now, or take some time to build your skills and your experiences, as well as resources, for a later entrepreneurial effort. There is no right or wrong time to start. I see successful entrepreneurs who started in their teens, like Mark Zuckerberg, and others, including Colonel Sanders, waited until well after some more conventional business roles.

The great thing about being an entrepreneur is that you can shape the business to be more you, rather than let the employee role in a corporation drive you to be someone you don’t even like. It’s up to you. Take control of your destiny today.

Marty Zwilling

*** First published on CayenneConsulting on 08/28/2018 ***

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Monday, September 10, 2018

5 Criteria For Splitting Equity In Your New Venture

Steve_Wozniak_Apple_Co-founderI always tell entrepreneurs that two heads are better than one, so the first task in many startups is finding a co-founder or two. You need to find the skills or experience you don’t have in business, technology, or money. So the first question I usually get is what percent of the company or equity is that person worth? Giving a co-founder a salary won’t get you the “fire in the belly” you want.

The default answer, to keep peace in the family, is to split everything equally, but that’s a terrible answer, since now no one is in control, and startups need a clear leader. The next default of waiting until later is equally bad, since partners who bow out early will still expect an equal share of that first billion you make later.

Now comes the reality check. Just because it was your idea doesn’t mean you “deserve” 90% of the equity. The value in a startup is all about tangible results, so I see no equity value in the idea alone. Thus the real discussion must start with who will be doing the work, providing the funding, and delivering results. Each co-founder should get equity for value, based on these key variables:

  1. Lived a key role in a previous startup. Building a new business is quite different from an executive role in a mature company, so people from these backgrounds are often a liability. Value is embodied in previous success with investors, proven problem solving ability, and having built and executed a business plan with minimal resources.

  2. Experience and connections in your business area. Textbook knowledge and academic degrees don’t count here. Value factors include your related product breadth and depth, relationships with thought leaders, key vendors, and large potential customers. Building the product may be the easy part of your startup challenge.

  3. Key to required patents or trade secrets. In many cases, one of the co-founders may bring some work in progress that can be patented, trademarked, or copyrighted. Your idea is not intellectual property yet, so it has no inherent value. Every previous experience filing and winning a patent is a rare and valuable asset.

  4. Level of responsibility and time allocated. Co-founders only able to work part-time, with responsibility and major income sources elsewhere, don’t carry the same risk as others with more operational responsibility. Less dependence or startup success, or more cash compensation, generally means less equity assigned.

  5. Amount of venture funding provided. Investors may not be called co-founders, but they always get equity, commensurate with their share of the total costs anticipated, or share of the current valuation. The challenge is for real co-founders to keep their equity percentage above 50%, or they effectively lose control of operational decisions.

If none of these five items is a clear differentiator in your case, a logical approach would be to assign each an equal weight of 20% of the total, and partition the total equity based on each co-founder’s correlation to each variable. A friend or family investor thus might get 20% of the equity, even with no business activity contribution.

Because these considerations can be quite complex, very emotional, and have long-term implications, smart entrepreneurs don’t hesitate to get some legal advice at this early stage, in drawing up an agreement document to be signed by each of the co-founders. Obviously it should be amended later, as roles are more clearly defined, and execution proceeds.

Even with an agreed initial equity split, it’s smart to have Founder’s stock actually issue or vest over a period of at least two years, on a month-by-month basis. That way, if one of the partners disappears, or their role changes, a portion of the equity can be re-captured and reallocated to the other members. Other common terms, like the right to re-purchase, should be investigated.

In all cases, roles and titles should be clear, but not necessarily tied to any given percent of equity. In other words, the CEO need not be top equity owner, but should be the one with the most business skill and experience. The CTO of many technical startups was the original founder. The CFO may have a major financial background, but might be a minority owner.

Of course, all co-founders need to remember that allocated percentages will be diluted as angel and VC investors are brought in. Keep your wits about you to make sure that dilution is done equitably and evenly. Naïve cofounders have found themselves squeezed out in some well-known cases, including Facebook.

But don’t get greedy. It’s the power of the team that makes the business. Major equity in a startup that goes nowhere is not my idea of fun.

Martin Zwilling

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Sunday, September 9, 2018

How Today’s Full Customer Buying Journey Is Critical

Starbucks-coffee-customerIn today’s totally interconnected world with its abundance of information, choices, and marketing, how your customers buy has drastically changed. Buying has evolved from a simple transaction decision to multi-faceted experience. Whether you are an executive, an entrepreneur, a marketer, or a salesperson, it’s time to look beyond how you sell, and focus on how your customers buy.

For example, you may think that buying a commodity like bottled water is still all about price, yet buyers today check their smartphones first for positive brand reviews, environmentally friendly bottles, positive buzz from social media, and the nearest outlet for purchasing. Think about how much Starbucks customers have changed what you need to consider to sell a cup of coffee.

I found a good outline of the key elements involved in today’s customer buying experience in a new book, “How Customers Buy…& Why They Don’t,” by Martyn R. Lewis. With his two decades of experience as an entrepreneur and a sales and marketing consultant across a broad range of businesses, he has some good insights on what works with customers today, and what doesn’t.

In my own recent experiences advising small business owners and entrepreneurs, I have seen the same six elements of the customer buying journey many times, especially as they relate to selling in consumer environments:

  1. First you need a trigger to start the buying journey. You may believe your product or service is very attractive, but you won’t get a customer until someone decides to act on an unsatisfied need. These days, that trigger is much more likely to come from a friend’s experience, social media, or a memorable website, rather than conventional advertising.

  2. Understand all steps required to complete the experience. The sales steps may seem simple to you, but customers today are quick to abort if they get confused, encounter redundancy, or the process takes longer than expected. Make sure you listen carefully to online feedback and reviews, and personally check competitor’s processes.

    How many times have you been frustrated, or even given up, on businesses that make returns and exchanges more complex than competitors, or can’t handle transactions and discounts quickly? The bar is constantly moving up, so don’t get caught at the bottom.

  3. Target the key players in the buy decision and process. In the world of Millennials, parents may be doing the buying, but the kids are driving the decisions. In business, buying decisions are now often made by a network of highly connected individuals across a virtual world through instant messaging. Target the players as well as the process.

  4. Market to the dominant buying style of your customer. On one end of the spectrum, people now buy solutions, rather than products. On the other end, many people look for personalized choices, versus value received. There is no right or wrong buying style, and it’s up to you to market and sell according to the style of your target market demographic.

    For example, some customer segments prefer the one-size-fits-all approach, for speed and simplicity, while others want the solution to be customized for them, even if it costs more. You need to constantly talk to your target demographic and adapt to their style.

  5. Capitalize on key value drivers that motivate your buyer. The value drivers have to be sufficiently compelling to your customers to outweigh the costs, risks, and change associated with completing the buying process and using your offering. I see an increase in social drivers, including peer pressure, prestige, or environmental impact. Play to them.

  6. Eliminate buying concerns that can slow or stop the sale. These are the opposite of value drivers. Concerns might include complexity of the process, priority of the need, decision scope required, implications of the solution, and many more. It’s up to you to anticipate and alleviate these concerns in your marketing before they even come up.

    For example, in recent surveys, over 50 percent of online shoppers have admitted to abandoning their carts, causing you lost revenue, at least once in the last three months. Most of the reasons given could be fixed purely through simple design changes.

From a big picture standpoint, what you need today is a market engagement strategy, rather than just the traditional sales funnel that focuses on completing transactions. Your selling process has to harmonize with how the market is buying, or tackle the more difficult challenge of changing how the market buys.

Engaging your market is eminently doable with the online and social tools available today, but it takes effort and change on your part to meet your customers, rather than wait forever for them to meet you. It’s time to get started today.

Marty Zwilling

*** First published on Inc.com on 08/24/2018 ***

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Saturday, September 8, 2018

7 Business Realities To Temper Invention Excitement

Aibo-DASAEvery inventor seems to think their invention is worth a million dollars, but I haven’t seen anyone pay that much for one yet. In fact, I often have to tell aspiring entrepreneurs that their inventions have zero value, at least not until they are put in the context of a business plan, with qualified people committed to executing the plan. Early-stage ideas fall in the same category.

Don’t get me wrong. I have the greatest respect for inventors and idea people, who think outside the box to envision and even create solutions never before seen. But I have also learned from experience that there is often quite a distance between a great invention and a great business. A business is about making money, while inventions are more about spending money.

According to an old Harvard Business Review article, many people in history, famous for their inventions, like Thomas Edison, were entrepreneurs who only later were remembered as inventors of the products they commercialized. In fact, entrepreneurs will always tell you that the invention was the easy part, and building an innovative business was the real challenge.

Of course it helps to have innovative technologies before you start building a business. In other words, inventions are necessary but not sufficient to create real value for investors and customers. So what do investors look for in qualifying you for that million dollars you need to take your invention from your garage to the market? Here are some reality checks you should apply:

  1. It takes a business team to build a business. If you have been working alone, perfecting your idea, with no new business track record, your best strategy is to license the technology to a company or team with real business startup experience. You may get that million dollars someday in future royalty payments, but don’t expect anything today.

  2. Commercialization requires infrastructure. Many great technology solutions, like hydrogen engines for cars, look great on paper, but are extremely difficult to make a business. The value is tied to infrastructure outside your control, such as a pervasive network of fuel stations, trained service facilities, and new government regulations.

  3. You need a viable business model and customers. Investors expect proof that your invention can be manufactured in volume, and can justify a sales price at least double the cost, to a large customer set that has money to spend. I see too many technology solutions to world hunger, where constituencies don’t have money to sustain a business.

  4. Take a hard look at the alternatives. Just because your technology is “cool” doesn’t mean that it solves a painful problem that customers are willing to pay for. People like to complain about global warming and the plastics pollution problem, but they may not be ready to buy alternative energy at twice the price, or change bad habits for global gain.

  5. Lock in your sustainable advantage. Technology limited to a single product is seldom enough for a business. A long-term advantage usually also requires intellectual property, such as a patent, trade secret, or trademark. Investors look for technologies that can spawn a family of products, rolled out over time, for continuous innovation.

  6. Experts and market research agree you are first. Just because you haven’t heard of anything like your invention, doesn’t mean you are ahead of the pack. Even a patent search won’t uncover work in progress that may be well ahead of you in the business cycle. Test your idea with experts, scientific journals, and trade publications.

  7. Truly disruptive technologies carry an extra burden. Investors realize that big changes in technology usually take a long time, several false starts, and more money than expected to commercialize. They, and most customers, really are quicker to adopt evolutionary rather than revolutionary products. Early adopters are not a big market.

Ultimately you need to remember that customers buy solutions to problems from business people they trust – they don’t buy technology from inventors. If you really want your invention to change the world, maybe it’s time to give it to a proven entrepreneur, and split the ownership of a new company. The million dollars will come in due time.

Marty Zwilling

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Friday, September 7, 2018

Grant Applications Often Provide Early-Stage Funding

NSF-logoA critical stage for most first-time entrepreneurs is getting their idea developed into at least a prototype to validate their technology. This process costs money, which professional investors are not willing to contribute, since their interest is in scaling a proven product and business model into a growth business. Investors want potential for a large and timely return, with reduced risk.

Acquiring seed-stage funding is admittedly tough, but a source that I find often overlooked is government grant funding, accessible in the U.S. through Grants.gov, an online directory of more than 1,000 federal grant programs that don’t look for equity or payback. Specifically, I often point to the NSF or the Small Business Innovation Research (SBIR) program for high-tech startups.

Government grants start as small a few thousand dollars, but can provide a million dollars or more in capital to new ventures. But before you conclude that your funding problems can be easily solved with grant applications, you should consider the direct and indirect costs of this approach:

  • Applications are complex and labor-intensive. Many grants require special expertise and background knowledge, which will take time and people away from the thousands of other tasks required to get your business going. You should expect that a winning grant application, with all the reviews and required certifications, can take months of work.
  • The approval process is long and bureaucratic. For grants, you are often tied to pre-defined government application and approval schedules, perhaps once or twice a year, which may not coincide with your needs. The resulting delays can give your competitors an edge, or the market requirements can change before you get the funding you need.
  • Experts are available to help, but fees are high. There are professionals who specialize in grant applications, and they may even have relationships with key decision makers in the approval process, but they do cost money that you may not. You need to make an ROI assessment of value versus cost on outside help at this stage.
  • Detailed grant accounting requirements. All grants require a detailed accounting of every dollar spent, and adherence to guidelines. This may go beyond your normal capabilities at this stage of your business, but be aware that violations can result in loss of funding, or even stiffer penalties. Expect regular audits of your project and spending.

Also, it’s important that you understand just how the SBIR program works. Overall it is structured in three phases:

  • In Phase I, you can be awarded up to $150,000 for six months. This award is intended to allow you to establish the technical merit, feasibility, and commercial potential of the proposed R&D efforts and to allow them to determine the quality of your organization before additional awards are considered.
  • In Phase II, amounts up to a million dollars over a two year period awarded. This phase is intended to allow you to complete the research and development on your innovative product.
  • Phase III is all about helping you take your innovation to market, or commercialize it. While the SBIR does not provide direct funding in Phase III, funding can often be acquired through referred Federal agencies, like the Department of Defense, who may intend to use the innovation once the development is complete.

All you have to do to qualify for government grant consideration is pass the initial eligibility test:

  • At least 51 percent owned and controlled by one or more individuals who are citizens of, or permanent resident aliens in, the United States.
  • Be a small business of no more than 500 employees, including affiliates, located in the United States, and organized for profit.

In any case, I do recommend that you don’t try the grant process alone the first time. If you still have any connections at the local university, look for some guidance there from related subject-matter professors. Professors live on grants for research, but they need you for a current focus on commercialization. Another alternative is to find an inexpensive class on grant writing.

Of course, for speed to market, and to retain maximum control of your innovation, it’s always better to fund the R&D stage of your business yourself. Then seek angel investors or crowdfunding, as required, for the rollout, and venture capital for scaling the business across multiple geographies.

The best entrepreneurs I know don’t let initial funding constraints discourage them from starting. They don’t overlook any of the many sources out there, including government grants, but they do it with their eyes open, and get the help they need along the way. It’s time to get started today.

Marty Zwilling

*** First published on CayenneConsulting on 08/22/2018 ***

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Wednesday, September 5, 2018

How to Keep Your Business From Running Your Life

businessman-on-the-beachEvery entrepreneur I meet in my role as a small business advisor dreams of making the business run like clockwork, even without them. You are all frustrated when that never happens, even after years of 16-hour days, repeated efforts to hire the right people, and multiple campaigns to delegate more and sign up for less. There is no time for fun, and vacations never happen.

For example, Elon Musk, while being a highly respected and successful entrepreneur for years, still readily admits to regular 100-hour work weeks, no social life, and sleeping under his desk all too often in the Tesla factory. Is this the definition of success you want to experience? Frankly, I’ve never been sure what to tell entrepreneurs who want to break free of these bonds.

Recently, I completed a new book, “Clockwork: Design Your Business to Run Itself,” by Mike Michalowicz, that really helped me pull my own thoughts and recommendations together for the beleaguered business owners I try to help. Mike uses his own experience as a recovering workaholic building two multimillion-dollar companies to net out seven steps in his transformation.

I’ll paraphrase his key points here, based on my own experience in large and small businesses, and input from the entrepreneurs I have worked with over the years:

  1. Track where your time is actually being spent today. As business owners, you all have to balance getting work done (doing), making decisions (deciding), managing people (delegating), and constant improvement (designing). Only then can you start to adjust your time and your company to let it run without your constant involvement.

    For example, I was on the Advisory Board of a small company whose founder was killing his health through overwork, even though he felt high focused. After some honest tracking efforts, he realized that he was still involved in every detail of daily activities.

  2. Identify a single key function to your company’s success. Within every company there exists a core function that embodies the uniqueness and value that you bring to the table. It is where your offering meets the best talents of you and your team. Make sure you focus your design efforts on this area, and delegate or cut time spent on all the rest.

  3. Empower the team to ensure your core function is fulfilled. In a highly efficient business, everyone knows that the core function is always the priority, and controls are in place so that the people and resources who serve it are protected. Also you need to make sure that highly skilled key people are not diluted by unfulfilling routine work.

    For example, I once worked for a company whose core competency was computer hardware. Someone decided to initiate a software arm to grow the business, so key executives and skilled resources were re-allocated to start a software project. The result was a big hit to the hardware business, as well as an unsuccessful software business.

  4. Document required systems for repeatability without you. Each of us as a team member or entrepreneur has our way of executing various tasks, but often these get left undocumented and non-transferrable without our continuous involvement. It’s easier to use screen-captures and notes on existing processes, rather than write detailed manuals.

  5. Adjust roles and shift resources for optimal performance. To get maximum business autonomy, you need to match the inherent strength traits of employees to key jobs, always adjusting for market change and people growth. Have the right people do the right things at the right time. Use mentoring to help people develop as your business develops.

    In one of my own positions as an executive in IBM, I found that putting a high-potential employee on my own staff for a few weeks was more effective, both short-term and long-term, in gaining me some work relief than any training class I could imagine.

  6. Focus on satisfying your ideal and best customers. The more services you provide to a wider mix of customers, the more variability you have, and the harder it becomes to provide extraordinary and consistent services. Make sure your team knows that all customers are not the same, and how to provide memorable experiences to the key set.

  7. Free yourself from the need to always be at work. Your ideal business is one that delivers consistent results, including growth goals, without your active involvement. The final step is to create a business “dashboard” that enables you, and everyone else there, to stay on top of the business from anywhere.

The final big hurdle to overcome is you. I find that many entrepreneurs can’t get over their ego, or their fears, that the business can’t operate without them. Some are just stuck. Let me assure you that your best path to business success, as well as your personal satisfaction, is to work on making your business work without you, rather than working harder on the business.

Marty Zwilling

*** First published on Inc.com on 08/22/2018 ***

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Monday, September 3, 2018

A Startup That Imitates, With Innovation, Often Wins

T-shirt-MyspaceIt may not be as sexy, but starting a new business which builds on an existing technology or business model is usually less risky than introducing that ultimate new disruptive technology. There are many levels of innovation that go beyond copying someone else’s idea, but stop short of pushing the leading edge (bleeding edge).

Many of the major business successes started this way. McDonalds didn’t invent the fast food model – they simply improved on the cookie-cutter White Castle process. Before Wal-Mart made the low-cost high-volume business model famous, there was Ben Franklin and Two Guys who touted it way back following World War II. And we all know Facebook didn’t invent social media.

The advantage of imitation, with innovation, is that it gives you a solid base for building experience. There is always time later for your next startup, using that disruptive technology of your dreams. Or you may decide that your dream was not really the great idea that you thought it was.

So don’t be intimidated by the negative image that imitation currently has in the startup world. Certainly I’m not recommending just one more Facebook, with a couple of features from Twitter, since social media has an unlimited potential for innovation. Risk level has always been directly correlated to the number of unknowns, so eliminating even one variable will improve your odds:

  • Eliminate one aspect of research and development. According to a classic Harvard Research study, first inventors spend at least a third more on their initial technology than later innovators. In addition, we all know that patent disclosure rules often facilitate legal reverse engineering, and innovation at this point is now much cheaper.
  • Capitalize on the lessons from early adopters and competitors. Smart startups save cost and time by capitalizing on the pivots of others before them. Market research can thus be based on real customers and a previously tested market. Studying and learning from the mistakes of others is the best way to reduce your own risks.
  • Attract investors who fear pioneers catching arrows. Banks have always been more likely to support the franchise model of cloning an existing business, while they avoid, like the plague, a new and untested technology. Most equity investors tend to avoid truly disruptive technology startups, since they take longer and more money to scale.
  • Imitation with continuous innovation predictably drives progress. The auto industry and others have used this model for generations, so business processes and metrics for innovation are well documented. Disruptive technologies are random and their success is unpredictable. Good imitators, like McDonalds, often bypass the original innovator.

  • There is always a related market or new country. The world is now a small place, but startups usually don’t have the resources to saturate all the related markets at once. Imitation with innovation is a great way to jump ahead of the curve. Especially if that new market is your home country, you will have the advantage.

But don’t be fooled by thinking this approach is easier than rolling out a disruptive technology. In many ways, more effort and attention is required to make sure you know what works and what doesn’t work in a given domain. Timing is critical, as well as focus on marketing and customer satisfaction. Competitors can move quickly, and there is no huge technology gap to protect you.

If this approach appeals to you, I recommend that you start by looking for successful businesses, rather than failing businesses, and focus on innovations you could offer to make the businesses even more successful. Innovations are often as simple as better delivery, more customization, or better distribution. Who knows, your imitation with innovation may turn out to be the bigger than the disruptive technology of your dreams.

Martin Zwilling

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Sunday, September 2, 2018

Growing A Services Business Requires Selling Yourself

Businessmen-ConsultingThe critical success factors for a product business are well known, starting with selling every unit with a gross margin of 50 percent or more, building a patent and other intellectual property, and continuous product improvement. If your forte is a service, like consulting or web site design, it’s harder to find guidance on what will get you funded, and how you can scale your business.

On the product side, once you have a proven product and business model, all you need is money to build inventory, and a sales and marketing operation to drive the business. With services, scaling the business often implies cloning yourself, since you are the intellectual property and the competitive advantage. You have no shelf life, so you can’t make money while you sleep.

Indeed, there are some success factors that are common to both environments. For example, both need to provide exemplary customer service, build customer loyalty, and provide real value for a competitive price. Here are the additional success factors that are really key to a startup with a services offering:

  1. Get your service out of your head and down on paper. If you can’t quantify or document your service for repeatability and new employee training, you will kill yourself trying to grow the business. Even artisan-based services, like graphic design and writing good ad copy, have innovative processes and principles. Capture your “secret sauce.”

  2. Start with a service you know and love. A successful services business, more than a product business, comes from a skill or insight that you have honed from experience. If you don’t have a high level of commitment and passion, you customers won’t seek you out. Now all you have to do is pass it to the many new members as you grow your team.

  3. Don’t let your service be viewed as a commodity. Low cost and low margin products can be winners, if the volume is high enough. You don’t have enough hours in a day, or trained people, to succeed with lower margins in a services startup. Thus you need to highlight how your service is more innovative and higher value to your target customers.

  4. Recruit only the best people, with the right base skills. Customers won’t pay to see your new employees learning on the job, and outsourcing the real work to a cheap labor source is a recipe for disaster. Make sure they bring solid base skills, so your training can focus on the innovative and unique elements that your service brings to the arena.

  5. Be a visible and available expert in your domain. Be accessible on social media, write a blog or articles for industry publications, and participate in conference panels and speaking engagements. This substantiates your expertise and value, builds peer relationships, gives you access to the people and technology to keep you current.

  6. Practice being a good communicator. Customers can touch and see a great product, but services are a bit ethereal. You have to communicate how your service is the best, to your own team, as well as to your customers. If you deliver a great service, but no one knows it, your business will suffer. Make sure everyone knows your vision and values.

  7. The customer experience is more than the service. Product companies sometimes equate customer satisfaction with customer service, but it’s more than that, especially with services. Make sure that every interaction with every customer is positive, the service delivered is exemplary, and always follow-up for reference and repeat business.

For some entrepreneurs who feel the need to attract outside investors as a critical success factor, they should be aware that professional investors almost never invest in a services-only company. The investor perspective is that no manufacturing or inventory implies a minimal need for capital up front. They tell these entrepreneurs to sell themselves, execute well, and grow organically.

Thus your services business success totally depends on you, your skills and resources, and your ability to bring customers to the table. You are the ultimate critical success factor for your business. Are you ready to make it happen?

Marty Zwilling

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Saturday, September 1, 2018

7 Reasons To Turn The Enemy Into A Strategic Partner

snails-competitors-raceEntrepreneurs seem to have blinders on when looking at competitors. Generally they are so focused on killing competitors that they fail to see the positive potential of a strategic partnership or some other type of collaborative relationship. Sometimes you have to put aside the emotion and the passion, and just look at what is best for your business.

Strategic partnerships in this context can take the form of joint ventures, intellectual property licensing, outsourcing agreements, or even cooperative research. All of these offer the potential for a win-win relationship with a nominal competitor, rather than a win-lose deal, as long as both sides can remain humble and not try to dominate the relationship.

Always start with a formal proposal, limited in scope to a specific common objective or technology, for a limited amount of time, bounded by a two-way non-disclosure statement. With this agreement in place, there are a host of ways that both sides can win:

  1. Share common technology. Every startup has a core competency which should not be shared. Beyond that, there may be a large percentage of common technology where they both need to minimize cost to gain share from the big dinosaurs who already have this advantage.

  2. Expand the market for both. Typically, there are market opportunities that neither of your core competencies can win alone. A strategic evolution of your combined strengths may be able to open up a new segment that neither of you could do alone in the same timeframe or at the same cost.

  3. Up-sell related products or cross endorsement. If your customers would benefit by having products from both companies, you might negotiate the opportunity to include the other’s product as an add-on. Where your competitor isn't really competing with your direct market, you can refer business to each other without anyone losing customers.

  4. Benchmark your practices against a true peer. The best way to do this is to establish specific performance targets with incentive-based rewards for meeting and exceeding these targets. The information exchange from day-to-day interactions of engineers and marketers will drive you enhance your own processes to be more competitive.

  5. Expand core competency and solidify strengths. Both partners must not forget they are still competitors. By sharing and learning in non-competing areas, they can focus their limited resources on solidifying their core competencies, and expanding their unique segment of the market. Let market response dictate a later split, merger, or acquisition.

  6. Willing to learn from each other. Learning from each is part of the win-win equation. No entrepreneur has all the insights they need, and none should be so arrogant as to assume they hold all the cards. Of course, it’s important to start with a bounded agreement which clearly lays out expectations and areas that are off-limits.

  7. Think about the future. Once you have established your credibility and value, a strategic partnership may extend to a financial relationship. They may have the finances you need to invest in a business area they know, where you have the core competency. Longer term, when ready, it may be time for merger or acquisition.

While most entrepreneurs think of strategic partnerships as big company deals, it actually works better for small companies. In large corporate environments, competitor cultures may be so set that collaboration is difficult, while I find that small company peer competitors usually have no trouble at all getting along. The industry leader arrogance has not yet set in.

Even for small companies, it is critical that all employees be well-informed about what skills, technology and information can be shared with their partner and what is off-limits. This will offset the normal instinct to think of a competitor only as a threat. It is smarter to capitalize on the positive aspects of a competitive situation rather than killing each other so no one wins.

Marty Zwilling

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Friday, August 31, 2018

7 Growth Choices That Can Make or Break Your Business

growth iqMost of you new venture founders I meet as an angel investor seem convinced that starting the business is the hardest part. You look forward to the day when your business becomes self-sustaining, and settles into a long-term growth curve, ensuring financial success. Unfortunately, sustainability is proving to be a more and more complex challenge in this era of rapid change.

I’m sure you can all think of several examples of businesses that popped up quickly, with great business models, but then faded just as quickly. Examples would include Pets.com, Webvan, and Blockbuster. Most executives will tell you that sustaining top-line growth with bottom-line profitability is perhaps the most persistent and vexing challenge they face on a daily basis.

The problem, according to Tiffani Bova in her new book, “Growth IQ,” is that it’s never just one thing. It’s all about picking the right strategy, right deployment context, with the right combination of initiatives. As the Global Customer Growth Evangelist at Salesforce, with implementation roles at many other companies, she makes a host of relevant observations for every business owner.

Based on my own experience of many years in businesses of different sizes, I’ve prioritized a few of her top recommendations here:

  1. Make every total customer experience memorable. These days, customers remember the total experience with a company longer than they remember the price they paid. This experience includes browsing your website, social media interactions, the sales process, as well as your support and follow-up. Problems in any of these areas will stall growth.

  2. Focus on selling more to your existing customer base. According to the Harvard Business Review, acquiring a new customer is anywhere from five to twenty-five times more expensive than retaining an existing one. You need to talk regularly to existing customers, find what they like about you, and welcome them every time they show up.

  3. Accelerate growth by expanding into new geographies. Instant global communication now makes it easy to reach new markets without rethinking your entire product strategy. The work required here is a full analysis of the best markets to pursue, based on future growth projections of your customer segment, as well as those to avoid.

  4. Expand your product line, staying close to the core. Totally new and risky products will dilute your focus, and may confuse existing customers. For example, adding new but similar cosmetics is better than adding hair care or dermatology products. Another approach is to add services that are related to your current product line.

  5. Pursue strategic alliances and partnerships. Partnerships work to accelerate growth when the sum of the whole is greater than independent efforts. For example, you may have a product, but not a strong distribution channel. An alliance with a distribution organization enhances the value to existing and new customers of both your solutions.

  6. Find ways to work with your competition. This approach to growth, usually called “coopetition,” capitalizes on the unique strengths of close competitors for a win-win situation for both. For example, I once worked for a small software company selling a sophisticated enterprise workflow solution fighting a similar solution in the marketplace.

    We provided an industry-leading graphic development interface, but were not strong on modeling and simulation. Our competitor was strong on the simulation end. A friendly cross-recommendation alliance allowed both of us, as well as customers to win.

  7. Highlight your social and environmental commitment. Companies with a real commitment to a higher cause, such as TOMS Shoes, which provides a free pair to a person in need for every pair sold, have seen their growth accelerate dramatically.

From organic candy that promotes world peace, to reducing environmental pollution by eliminating plastics, there is no category that should be off-limits. These efforts also lead to a highly engaged workforce, which is also key to productivity and sustainable growth.

As your business matures, you can never be complacent about growth. The market and world is changing around you, and new competitors, sensing your traction, will be nipping at your heels. You need to explore all these growth choices and others, and plan experiments to measure their value and timing. A business that is not attracting new customers is dying. Don’t let it be yours.

Marty Zwilling

*** First published on Inc.com on 08/16/2018 ***

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Wednesday, August 29, 2018

7 Equity Crowdfunding Risks Feared By Many Investors

Crowdfunding_by_HQAlthough professional investors may discount the impact of crowdfunding, they can’t argue with the growth of this new industry in the last few years. According to statistics by Fundly, crowdfunding contributed $34 billion in funding last year around the world, including peer-to-peer lending. That exceeds the amounts contributed in the U.S. by either angel groups or VCs alone.

Yet crowdfunding is no panacea for hungry entrepreneurs and startups. According to Yahoo Finance, less than a third of crowdfunding campaigns currently reach their goals, and the rest have to return anything they do collect. Crowdfunding may look easy, via popular sites like Kickstarter and Indiegogo, but their cost in time, effort, and money by entrepreneurs is daunting.

In fact, there are many types of crowdfunding, including donations, reward, pre-orders, loans, and equity. Professional investors, and more serious entrepreneurs, are most interested in money for ownership of a portion of the business (equity), and equity crowdfunding is still a small portion of the total (less than 10 percent), but growing. It is this growth that concerns many investors:

  1. Startup valuations can’t be negotiated via crowdfunding. Neither the entrepreneur nor contributors from the crowd generally realize that high or poor valuations will likely hurt them later, when follow-on rounds are needed, and professional investors walk away. If you watch Shark Tank on TV, you will see that startup valuation negotiations are the most common reason that investors fail to sign up.

  2. Crowdfunding does not facilitate multiple funding rounds. Very few startups need only one round of funding. The infrastructure to manage thousands of shareholders in a single company, called the stock market for public companies, is missing. Crowdfunding stock owners cannot sell their stock, or buy more, increasing risk to all parties.

  3. Startup investors have no insight to management or governance. Startups are not required to have a formal Board of Directors, and can’t afford to implement many of the financial and operational controls required of public companies. Professional investors normally negotiate board seats and communication protocols to minimize this risk.

  4. Crowdfunding bypasses the due diligence process. Investors from the crowd have no opportunity to look at financial, operational, or management details before making a final investment decision. This could allow problems to be propagated to later investment stages involving professional investors, making investments more risky and expensive.

  5. The “unicorn” potential attracts unsophisticated crowd investors. People see recent equity investors making billions by getting in early, ala Facebook and Amazon, and may not be prepared for the high probability of losing everything. Professional investors typically are accredited to at least the $200,000 level, and understand the risks.

  6. Payoff after a liquidity event is difficult and unpredictable. Professional investors like to keep tight control of capitalization tables and all stock owners, to facilitate their own payoff when a sale, merger, or public stock offering is held. With crowdfunding and thousands of tiny investors, this information and processing capability are big unknowns.

  7. Challenges in crowdfunding will generate more regulatory costs. The new audit, due diligence, and liability implications from equity crowdfunding will likely be extended to all professional investors, thus slowing down all investments, and increasing the costs for angel groups and VCs. This will ultimate make the funding process harder, not easier.

As an angel investor myself, certainly I recognize that there is never enough funding to cover the requests of aspiring entrepreneurs, so more investors are always needed. Thus, I always recommend crowdfunding as an alternative to entrepreneurs who may be struggling to find conventional investors, or may not yet have evidence of widespread demand for their solution.

If you are an entrepreneur, I recommend that you evaluate existing crowdfunding platforms for a good fit to your goals and expectations. Selecting equity crowdfunding is likely to be the most difficult approach, so sticking with one of the other options may be a better solution. Remember that taking money from anyone is a serious commitment, and must be handled with caution and integrity to keep your future options open.

Marty Zwilling

*** First published on CayenneConsulting on 08/14/2018 ***

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Monday, August 27, 2018

8 Management Behaviors Drive Change Without Crisis

Elon_Musk_BFRIn this era of rapid market and technological change, I know I have to challenge my small business advisory clients to keep innovating and stay ahead of the game. As you can imagine, it is human nature to look for a stable and unchanging business process, after all the pivots and chaos of starting your business. Innovation driven only by crises is not leadership and growth.

For example, I’m even getting worried about Apple not showing the kind of innovative leaps that Steve Jobs was famous for. Per a well-known Apple evangelist, Guy Kawasaki, real innovation is a lot more than “simply making the iPhone smaller or the iPad bigger.” Apple needs a product that jumps to the next curve. Customers and analysts are always looking for innovation indicators.

These indicators are a mindset and actions that every one of us can develop and demonstrate, without any special birthright, genes, or advanced intelligence. I will suggest to you as a business owner and entrepreneur that focus on certain key behaviors will drive innovation without waiting for the next competitive crisis:

  1. Be outspoken in communicating proactive required change. Andy Grove was a master at this, with his well-known motto that only the paranoid survive. His mantra was built on evidence that the number of transistors on a chip doubles every 18 months, changing everything. He didn’t wait for competitors to prove current products obsolete.

  2. Always be looking “around the corner” for paradigm shifts. Other champions of innovation, including Elon Musk with SpaceX and Hyperloop, always seem to be building future opportunities from trends and technology turns. They have the courage to make bold decisions, often contrary to conventional market research and linear thinking.

  3. Tie your business to a higher social purpose for inspiration. I find that entrepreneurs who change ahead of the times usually start with the “big” vision of making the world a better place. If you, like John Mackey with Whole Foods, are driven by a cause, rather than just money, you may be bending the market rather than have it bend you.

  4. Create and maintain a sense of urgency for the future. Too many companies try to force a sense of employee urgency through deadlines and performance goals. The best companies, including Google, create urgency within their team by engaging them in the business, addressing personal needs and flexibility, and building win-win relationships.

  5. Isolate new product teams from decimation by daily crises. Today’s business teams are typically understaffed, so expecting them to create the next generation of innovations will not work. Make sure that new projects are an ongoing part of your business, with control of resources, and responsibility to deliver results, like other business components.

  6. Allocate funds for intrapreneurship and acquisitions. In addition to investing in internal new innovative ideas, every successful company regularly looks outside to buy innovation, and use it to change their business. IBM, for example, regularly buys about a dozen companies a year to supercharge their own innovation efforts.

  7. Create positions for exemplary talent from other disciplines. If your business hires only to fill existing openings, it is falling behind, and ripe for competitive crisis. You need to always be scouring your industry and universities for thought leaders and influencers, and working to attract them to your company with new and creative positions.

  8. Set metrics and rewards specifically for innovation. What would happen in your company if all bonuses were predicated on at least 20 percent of revenue coming from products launched within the last three years? People work on what they get measured on. Metrics can be used to change ingrained behavior, as well as build revenue.

These behaviors which accelerate innovation apply to you as a leader at all levels – from an entrepreneur with a small team, to every business executive in a large corporation, to the chief executive of a multi-national conglomerate. Every one of us must actively be inventing the future, rather than reacting to it. It’s a key part of working on the business, rather than just working in it.

Marty Zwilling

*** First published on Inc.com on 08/13/2018 ***

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Sunday, August 26, 2018

7 Reasons To Reconsider A Planned IPO Exit Strategy

alibaba-ipoDespite the fact that the number of IPOs (Initial Public Offerings) for startups have continued to stay low, I still hear it touted often as the preferred exit strategy. I suspect the exuberance for an IPO is still being driven by the highly visible successes of a few companies several years ago, including Facebook, Yelp, and Twitter. Everyone dreams of becoming a billionaire overnight.

According to Investor's Business Daily, even though IPOs in 2018 through July were up nearly 39 percent from last year, the total of 115 companies so far is still nowhere near the rate required to match the yearly total of 486 hit way back in 1999. The market for recent IPOs also remains extremely volatile, and as a result many of them are currently trading below their opening price.

Concerns over valuations being reset to a new normal, and a soft exit market, are seen as key drivers. Yet I believe the trend will continue flat as entrepreneurs become more aware of other considerations that make the IPO route less and less attractive. These include the following:

  1. Taking a company public is an expensive process. It will take many months and require endless amounts of time, money, and energy. According to a dated but still relevant study by PricewaterhouseCoopers, companies average $3.7 million spent directly on their IPO, in addition to underwriter fees of 5 to 7 percent of proceeds. It takes real money to find money.

  2. Make sure you can effectively use a big cash infusion. There is a big difference between needing a million dollars versus $100 million, or even a billion. New stockholders will expect to see rapid growth. You better have lined up a major international expansion, some major acquisition candidates, or a wealth of unfilled orders.

  3. There are real ongoing costs of maintaining a public company. You will need an experienced CFO, and the best legal and accounting help to comply with the audit requirements of the Sarbanes-Oxley Act. PwC estimates that public companies incur an average of $1.5 million in annual recurring costs as a result of being public.

  4. Exposure to increased liability risk. Public company executives are at civil and even criminal risk for false or misleading statements in the registration statement. In addition, officers may face liability for misrepresentations or speaking out in public and SEC reports. Executives shoulder new risks for insider trading and employment practices.

  5. The public company corporate culture may not fit you and your startup. Public ownerships usually lends prestige and credibility to your sales, marketing, and acquisition efforts, but it may work counter to your vision of saving the world. Most startup founders voluntarily exit or are pushed out, and the fun is gone. Analysts want escalating profits.

  6. Public companies bring new expectations of benefits. If you want to give stock options, or have already been giving them, the employees will love the liquidity of their options, and the thought of selling shares for a profit. On the other hand, “competitive” salaries will likely go up, and health and retirement benefits will jump to a new level.

  7. Market volatility usually hits public companies first. Private companies can often fly under the radar in turbulent times like the recent recession. Public stockholders are more easily swayed by emotion and the activities of the crowd, rather than real market conditions, and all performance numbers are public. Shareholders can jump ship quickly.

Before you forge ahead to an IPO, I recommend a thorough readiness assessment, to quantify the need, as well as to identify potential gaps within processes, areas needing internal controls, and positions requiring enhanced technical accounting skills to operate as a publicly-traded company.

The costs of an aborted IPO are sizable, and may not be deferred to a later period or offering. Along with the time and effort required, this can severely cripple your company for an extended period, not to mention your entrepreneur lifestyle.

While the wins can be big, I still see the IPO option as one to be considered only under exceptional circumstances, rather than as the default exit option. Your odds of hitting the lottery may be better.

Marty Zwilling

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Saturday, August 25, 2018

8 Steps To Starting A New Venture With Limited Funds

business-man-time-versus-moneyNow is the time to be an entrepreneur and create a business from your passion. The cost of rolling out a business has never been lower – it only takes a few hundred dollars to incorporate a Limited Liability Corp (LLC) online, create your own website, use social media to get attention, and you are in business. In the early Internet days, it would cost a million dollars to get this far.

On the other hand, everyone is doing it, so that means more competition, and the market and technology are changing faster than ever before. Thus you have to do your homework to stay ahead of the crowd. Those that do it right also have the unprecedented opportunity to join the elite ranks of 250 unicorns (relatively new companies with a current valuation of over $1 billion).

Even the homework is easier, with free and mobile access through the Internet to more business assistance sources, opportunity data, investors, and competitor details around the world. Yet, as an angel investor myself, I can attest that many potential entrepreneurs try to take shortcuts, or ignore the realities of business. I suggest the following sequence of startup preparation steps:

  1. Create a business entity early to isolate business efforts. Co-mingling personal and business funds and accounts creates legal risk and tax liability, and makes your efforts look like a hobby. These days you can create a C-corp or LLC online quickly at a low cost, to serve you well in signing partners, intellectual property, investors, and revenue.

  2. Prepare a pitch deck to document and share your plan. Advisors and investors need to see your whole story in as few as ten slides. Make sure you cover not only your solution, but also the opportunity size, competitors, financial projections, and team qualifications. A full business plan and financial modelling can come later to add details.

  3. Validate your solution with a prototype and real customers. Ideas are not enough to gauge business potential. You need something real that investors and customers can touch and feel. Most investors expect a minimum viable product (MVP) sold to at least one customer. Investment before that time must come from you, or friends and family.

  4. Build a following and start a brand through social media. The major social media platforms, including Facebook, Twitter, and Instagram, allow you to reach millions of customers around the world at virtually no cost. You need early customer advocacy and feedback before critical time and money are spent. This is the time for pivots as required.

  5. Participate in networking platforms and events for support. You need to recruit advisors, key partners, and cofounders well before approaching investors. In addition to local business meetings, this can now be done online through startup matchmaking sites, including CoFoundersLab, Founder2be, and StartupAgents, as well as LinkedIn.

  6. Build a quality team to complement your own skills. Building and running a business is not a solo task. Technical entrepreneurs need to surround themselves with people who have the financial, marketing, and operational experience in managing a business. A good team will likely consist of a mix of remote employees, freelancers, and contractors.

  7. Find investors through online platforms and crowdfunding. After starting with local investors acquired through warm introductions from friends and peers, you now have access to professional investors through online portals, including Gust and AngelList. A new online investor source is crowdfunding, with sites like Indiegogo and Kickstarter.

  8. Execute a pilot rollout before attempting to scale globally. A local pilot is a necessary move to test your manufacturing, operational, and marketing assumptions. Early pivots can be implemented here with minimal impact. In addition, global scaling will likely require additional investors, who will demand to see real revenue and customer demand.

With these steps, you really don’t need a rich uncle or a benefactor in Silicon Valley these days to start your own business, and keep ahead of the crowd. The resources online are tremendous, if used correctly, and even small startups can have the same global reach as the big guys. The challenge is to do it right the first time, since time is of the essence in these time of rapid change. That also means you need to get started today.

Marty Zwilling

*** First published on CayenneConsulting on 08/09/2018 ***

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