Wednesday, January 31, 2018

5 Solution Differentiation Moves That Customers Love

JeansFabricEvery entrepreneur believes that their product or service is memorable, and that every customer will quickly see the advantage over competitors. Yet true product differentiation in the eye of the customer is rarely achieved. According to an old survey by Bain & Company, 80% of businesses believe they have differentiated offerings, but only 8% of customers agree.

Even back then, experts projected that businesses with truly differentiated offerings had only an 80% chance of long-term success, compared to ‘me-too’ companies with a 20% chance. In my view both of these numbers have come down recently. Differentiation is still a key requirement for a successful startup rollout, and but it must be sustainable to keep ahead of new competition.

Since I’m a fan of real-world feedback, I was intrigued by the insights on differentiation in the classic book, “Roadside MBA: Back Road Lessons for Entrepreneurs, Executives, and Small Business Owners,” by Michael Mazzeo, Paul Oyer, and Scott Schaefer. As well as having great academic credentials, these guys traversed the USA getting lessons from real small businesses.

Here are a few of their conclusions relative to product differentiation, supplemented by my own recommendations from experience and other experts:

  1. Work on perceptions, as well as reality. It doesn’t do you any good to be different, if your customers can’t perceive the difference, or you don’t tell anyone about it. The days are gone for the “if we build it, they will come” mentality. Marketing and target customer relationships are always required, no matter how obvious the differentiation is to you.

    Of course, working on perception can backfire if the differentiation reality isn’t there. Remember the old saying, “You can put lipstick on a pig, but it’s still going to be a pig.” Like a damaged reputation, a discredited differentiation is extremely difficult to turn positive.

  2. Quantify the difference for your customers. Use numbers to make your offering the clear alternative. Fuzzy marketing terms like easier to use, lower cost, and higher quality are not effective differentiators, since they have been overused to the point of having no meaning.

    Real data and customer testimonials say it best, such as get it done in half the time, or half the cost, or comes with a 5-year warranty. In my experience, numbers less than 20% are not enough, since small numbers are not likely to overcome the inertia and learning curve required of most customers.

  3. Focus on customers you really care about, and who care about you. Trying to be all things to all people never works. Identify your target customer segment before you finalize your differentiation. For example, customers with high disposable income will likely respond better to unique features, rather than a lower cost.

    One business visited on the road had successfully implemented a product-differentiation strategy to appeal to the 20% of their clients who were the most profitable, and discourage the 80% who were more costly. They noted that customers’ loyalty grew with their real preference for the unique product features offered.

  4. Customize to differentiate, but do it efficiently. The new generation of customers expect to get what they want, when they want it, customized to their taste. So customization is an important differentiation strategy, but be sure to strike a balance between the revenue potential of the effort, versus the costs required to execute.

    We have moved from the era of mass customization to collaborative customization. Today, differentiated companies enable customers to determine the precise product offering that best serves that customer's needs. For example, MakeYourOwnJeans encourages customers to tailor-make jeans dynamically per their specifications.

  5. Define a unique selling proposition (USP), and keep it simple. Complex or highly technical selling propositions are not good differentiators, since they will likely not grab people’ attention or be remembered by most customers. A good example is Dominos Pizza “We’ll deliver in 30 minutes or less, or it’s free!”

Successful product differentiation requires a conscious and continuous effort, including listening on the right social media channels, being consistently helpful to your customers, and continuous innovation. But the results can put you in that coveted 8% that customers remember for real fun and profit. Isn’t that why you signed on to the entrepreneur lifestyle in the first place?

Marty Zwilling

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Monday, January 29, 2018

8 Ways To Nurture New Venture Stock Into A Goldmine

goldmine-stock-certificateI’ll never forget that great sense of excitement I felt when I incorporated my first business, and realized that I was now the proud owner of 10 million shares of common stock. Of course, initially these founder’s shares were worth essentially nothing, but it doesn’t take much of an imagination to grasp the possibilities. It’s great motivation for every entrepreneur to get that value up quickly.

Unfortunately, in my years since as a small business advisor, I have seen too many founders squander this asset through a lack of understanding of some basic legal and operational issues, or by handing out nominally “free” stock to the wrong people at the wrong time. Now is the time to talk to a qualified attorney, and get some discipline in place for the following strategies:

  1. Manage founder’s shares like gold with partners. Even though initial stock has no market value today, it is extremely valuable in dividing equity ownership between co-founders, investors, and early partners. Make sure you make allocations commensurate with commitments and contributions. Don’t allow personal assumptions or verbal offers to go undocumented. These will be back to bite you later when you achieve unicorn status.

  2. Register your stock early with the IRS to minimize taxes. Waiting to incorporate until you have investors gives your founder’s shares immediate value, and the IRS will want to collect on that value when you can least afford it. Every entrepreneur should incorporate well before this time and file an 83(b) election within 30 days of incorporation.

  3. Always specify a vesting period for new partners. Where possible, pay out committed shares over time as they are earned, as opposed to all up front. Typically, vesting in startups occurs monthly over four years, starting with the first 25 percent vesting only after a participant has satisfied commitments for at least 12 months (one year cliff).

  4. Reserve the right of first refusal to buy shares back. To retain control of your business, you need to reclaim stock shares from anyone leaving the startup for any reason. Otherwise, later stock value growth may be lost or used against you before you can capitalize on it. Buying back stock on the open market may cost a huge premium.

  5. Manage dilution with proper use of new investment terms. When new equity investors purchase a share of your company, the re-allocation of existing shares should be based on a formula that maximizes the number of your remaining founder shares. Some reduction is ownership percentage should be expected with every new investor.

  6. Maximize your own vesting if the business is acquired early. If you are pushed out by an acquisition due to unusual success or strategy conflict before the normal vesting schedule comes to a close, only an accelerated vesting clause can save your original percentage. Here is another case where work up front is required to make this happen.

  7. Negotiate an upgrade from common shares to preferred stock. Investors typically demand preferred stock to give them more control and first payouts, but these advantages can be at least partially offset (up to 20 percent) if you plan ahead. The acceptance of this option is now common, even though introduced only a few years ago.

  8. Set maximum board seats and select criteria in bylaws. Typically, every new investor expects a board seat, which can lead to an operational nightmare and loss of control. I recommend a limit to no more than five board members, with at least two being from within the company. This assures you a reasonable voice in strategy and investments.

Sometimes opting out as Founder and CEO, as your company scales up, or even being pushed out, is not a bad thing, as long as you still retain a reasonable percentage of your original founder’s shares. Most true entrepreneurs I know are really good at starting companies, but are not ready for the focus on processes and personnel that come with a more mature organization.

If you have done the proper homework along the way as suggested here, you won’t be a part of one of those sad stories of a new venture selling for millions of dollars, or going public, with the founder being squeezed out of all the gains. Remember, founder’s shares may be just paper when you get them, but they can be a goldmine if you treat them right.

Marty Zwilling

*** First published on Inc.com on 01/12/2018 ***

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Sunday, January 28, 2018

5 Key Decision Points Highlight Great Venture Leaders

julia tang petersMost aspiring entrepreneurs are convinced that the strength of their initial idea somehow defines them as a leader, as well as the success potential of their derivative business. In my experience, it’s a lot more complicated than that. It takes leadership ability, as well as a good idea, to make a successful entrepreneur, and great leaders evolve from key leadership decisions along the way.

Fortunately, basic leadership and entrepreneurial skills can be acquired from experience and training. If you don’t have the entrepreneur leadership attribute or interest, but want to be an “idea person” or inventor, then I recommend that you find a partner with the requisite skills to implement and run the business from your idea.

Yet we all know that there is a big gap between good entrepreneurs and a great business leaders. Great leaders seem to make the right pivotal decisions at every critical point along the way. I’ve never been able to clearly define those key points, and what separates the good from the great at these points.

So I was happy to see Julia Tang Peters, in her classic book “Pivot Points,” tackle this issue. She concludes from her work with many modern business leaders, including CEOs Bud Frankel (Frankel & Company) and Glen Tullman (7wire Ventures), that there are five pivotal decisions that propel certain entrepreneurs to be gifted leaders:

  1. The launching decision. At some point an idea captures your imagination and creating a business becomes more than just about income. You define goals that rivet your attention, galvanizing you to turn dreams into reality. The launching point establishes the platform on which every potential entrepreneur becomes an actualized entrepreneur.

  2. The turning point decision. This is the confluence of your willful decision to do more, and the pressing need to take action. It unleashes an extraordinary verve to take the idea or business to the next level. It tests your capabilities and capacity in various ways, stretching them far beyond your comfort zone and requiring total commitment.

  3. The tipping point decision. Here you are catapulted into leading and working on the business, as distinctly different from the work of mastering your subject and working in the business. At this point you will have built a team whom you trust with substantive responsibilities, freeing you to hone the art of leading, inside and outside the business.

  4. The recommitment decision. Now is the time when you as the leader look at where you are and where you want to go, knowing the need to renew the commitment or leave. For many this happens during disruptive change, like being acquired or being the acquirer. For others, it’s a personal decision to balance family life, or do something different.

  5. The letting go decision.  The ultimate test of leadership is letting go at a time of strength so that others can carry on the work. It may be a hold’em or fold’em business situation, or simply time to plan for succession. This decision point is the most emotionally challenging, since letting go is pivotal in defining the terms of the entrepreneur’s legacy.

I’m certain that an understanding of these points will equip you with the knowledge you need to take the right path on decisions when it matters most. The world is full of high-achievers and high expectations, but without the proper framework for turning entrepreneurial determination into real leadership accomplishment, you risk going nowhere.

I agree with Peters that entrepreneurial leadership is not all about people traits or characteristics, but often about the choices they make at key decision points along the way. Of course, skills in decision-making are not enough alone to make a great entrepreneurial leader. Here are some of the other characteristics I look for:

  • Willing to listen, and will address skeptical views.
  • Always an evangelist and a good communicator.
  • Willing to question assumptions and adapt.
  • Proactively sets metrics and track goals.
  • Ties rewards to performance results.
  • Aggressively takes smart risks.

So a great idea is necessary but not sufficient to make you a great entrepreneur and a great leader. Work on the right characteristics, and think hard about those five key pivotal decisions that can make or break your satisfaction and your legacy. It’s more fun when you are the entrepreneur leader you want to be.

Marty Zwilling

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Saturday, January 27, 2018

Avoid Competitor Bashing In Your Pitch To Investors

Business_presentationDon’t bash the competition. Every investor knows how vulnerable a new startup is to competitors, so investors always ask about your sustainable competitive advantage in the marketplace. How an entrepreneur answers this question speaks volumes about their knowledge of business realities, customers, confidence, and their ability to handle investor funding.

There is no perfect answer to the competitive advantage question, but investors are looking for how your offering will keep ahead of competition, not just at this moment, but throughout the life of their three to five-year investment. They are also seeking to find out how you handle one of the many tough questions that a new founder will get in today’s market.

A strong answer should be something like “Our product introduces a new lower-cost technology, which we have patented and trademarked, that makes us very attractive today, and will provide a wealth of additional products as we move forward.” That says you are competitive today, have a real barrier to entry, and the potential to remain ahead of the competition for a long time.

Based on my own experience as an angel investor, and feedback I get from many other investors, here are a collection of answers that we often hear instead, from the least credible to at least reasonable:

  1. Insist you have no competitors. Leading with this answer will likely terminate any further investment opportunity with this investor. He or she will assume your comment means there is no market for your product or service, or you haven’t looked. Neither speaks well for you or your startup. Even if you hedge by saying no direct competitors, we all know that existing cars are still big competition to your new flying automobile.

  2. Claim the first mover advantage. This is one of the most frequent responses I hear, and is rarely convincing. The problem is that startups have limited resources to keep them ahead of big companies. If your early traction highlights an opportunity they have missed, they can mobilize their huge resources and run over you. First mover advantages are only sustainable by large companies, or founders with deep pockets.

  3. Proclaim your solution as a paradigm shift. If you insist that your technology is so new and unique that it will disrupt your competitors and the whole market, investors will fear that neither they nor you can afford the time and marketing required to weather the change. They will likely decline on the basis that historically, pioneers get all the arrows.

  4. Highlight your world-class team as the secret sauce. Insisting that your team is better than any other, giving you a sustainable competitive advantage for the long term, will likely come across as naiveté or arrogance. Investors know that no startup has a lock on the best people and processes, and investors don’t deal with unrealistic founders.

  5. Declare that you will offer the product or service free. Free is a dirty word to investors, since they need a return on their investment. Perhaps you intend to collect money from advertisers, but this requires a large investment to get the audience you need before monetization can work. Facebook spent over $150 million before revenue.

  6. Intellectual property as barrier to entry. I like patents, trademarks, and trade secrets, so this answer is a better sustainable competitive advantage than the other five answers. Now all you have to do is defend your position, and we all know that patents can break a startup in court battles, and will have alternative implementations if the price is right.

Thus, there is no perfect answer to this question, so the best entrepreneurs see it as an opportunity to highlight their own advantages, rather than put down a competitor. Being negative is never the answer. For example, it’s tempting to say that your worst competitor has poor quality products, requiring costly maintenance, but it’s much better to say that you provide a five-year free warranty that no competitor can match.

After highlighting your best competitive features and your intellectual property barriers to entry, I encourage you to put on your humble face, and proclaim your determination to never stop improving your products and processes to out-distance competitors. You want investors to believe that you are a realist, but have the confidence and determination to win.

Investors know that winning in today’s highly competitive environment is more a mindset than a product feature. Competitor bashing is not a skill that you need to hone. I look for entrepreneurs that can sell themselves and their offering to discerning customers. Money from customers and investors is the same color.

Martin Zwilling

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Friday, January 26, 2018

6 Strategies To Build Traction and Validate Your Plan

growth-curve-tractionAs an advisor to many new venture founders, I often hear their frustration at being told by investors “I love your idea, but come back when you have more traction.” As a member of an angel investment group, I have to admit this is probably the most common rejection we issue. The intent is to indicate that founder passion is not a substitute for real customers buying the product.

The challenge is to convince investors that your business will attract real customers, before you have a revenue stream that exceeds your expenses. Even if you are funding the project yourself (bootstrapping), you should be asking yourself the same question before you have burned all your resources. Pivoting early, based on real customer feedback, is always cheaper than later.

I learned this the hard way a few years ago in a startup where customers loved our idea and the free prototype, but we couldn’t sell one for the full price needed to meet our financial projections. We simply hadn’t tested the price sensitivity in the market segment and geography that needed the features we offered. In fact, no founder can predict all the variables in today’s marketplace.

So what should a new venture founder do to convince themselves, as well as potential investors, that they have a viable business before the results are conclusive? Here are some strategies that I recommend from my own experience, to improve your odds of business success, as well as build traction points with your investors:

  1. Quote market research and input from outside experts. No matter how passionate you and your friends are about your solution, it doesn’t mean that if you build it, they will come. Seek evidence from recognized sources, like Gartner Group, and spend time with industry experts and real customers, before quantifying your opportunity and prices.

  2. Start selling it on social media before you build it. Marketing is everything these days. On the average, it takes as long to build marketing momentum as it does to build the solution. Really listen to the feedback you are getting. If you wait to begin marketing until your product is final, you will find it very expensive to pivot to meet real world input.

  3. Build a realistic revenue model and price, based on cost. The free model, with an implied intent to monetize later, doesn’t work with investors anymore. It takes real money to sustain a business, with a margin in the 50 percent range, and some realistic milestones and metrics. Sell at least one at full price to a real customer to show traction.

  4. Document and initiate a multi-faceted marketing plan. Word of mouth and viral marketing alone are not adequate, and a website is not all you need for credibility. To get the visibility and distribution for scaling, plan on one or two levels of partner relationships, as well as real events and promotions early. Traction is marketing and sales results.

  5. Gather early customer testimonials and commitments. Great customer experience expectations these days span the range from shopping, closing, delivery, usability, to support. If you don’t have real customers yet, focus on the size of the pipeline, letters of intent, and penetration into recognized retail and distribution outlets.

  6. Show team organization and preparation for scale up. New ventures requesting funding without credible operational and financial leadership will likely be declined. Don’t assume that customer-facing employees can be hired and trained at the last minute. Your plan targets and milestones in these areas are key to achieving the results you expect.

I’m not suggesting that all these business elements need to be perfect before you ask for funding or open doors for business. As an active angel investor, I do expect founders to be able to communicate a plan and progress toward these elements, just as I expect them to understand and communicate all the elements of their technology and their solution.

There is no magic indicator in business, just results. The more evidence that you can provide of customers in hand, or waiting impatiently outside the door, the more likely and timely it is that you will be able to achieve the next step. Your passion and personal conviction are necessary, but not sufficient, to turn a great idea into a scalable business.

Marty Zwilling

*** First published on Inc.com on 01/09/2018 ***

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Wednesday, January 24, 2018

7 Tips For Success With Today’s Demanding Customers

customer-experience-ratingIf you think your business has weathered the storm, think again. In addition to obvious economic challenges, the emerging generation of customers is determined to radically change the rules for customer engagement. Their expectations of relationship and personalization are taxing businesses today, and their power through social media will kill those who can’t or won’t comply.

An eye-opening list of insights was highlighted in a classic book, “Build for Change,” by Alan Trefler, Founder and CEO of Pegasystems. He makes a convincing argument that it’s time for every company to get prepared for the next customer generation, or your company is heading toward life support.

As a backdrop, he defines the evolution already in progress from current Gen Y customers to a more demanding and less tolerant state (Gen D) that will make them even quicker and more technologically able to demonize and destroy your business, if it won’t meet their norms of interaction, personalization, and purpose.

While I’m not so sure that I agree that these represent the ultimate apocalypse of customers, I do believe the solutions he recommends should be taken seriously by every entrepreneur. I summarize here my interpretation of his key points:

  1. Take heed of serious next generation customer expectations. More and more, I see evidence that customers want to be pulled to your company, rather than feel that you are pushing yourself on them. They are not hesitant to engage the crowd through social media and sites like Yelp to drive you from the marketplace. Your reputation can be compromised these days by poor handling of even a single customer experience.

  2. Don’t count on big data alone to save you. In reality, data today is only memory about past transactions. Responding to transaction trends without the proper context can lead to broken relationships. Your changes must allow them to discover something so awesome that they are excited, versus disgusted, that you seem to know who they are.

  3. Add context and intent to your customer analysis. Use aggregated data from social media, professional market research, public sentiment, and key influencers for change analysis. Going beyond data to get intent is common sense, more than technology. Intent goes both ways, so make sure your customers understand your business as well.

  4. Make sure all your processes are customer-centric. Most business processes today are driven by internal needs to cut costs and maximize quality. Customers want their interactions and transactions to be painless and personalized. It’s time to rethink every process from the outside-in, to be consistent with customer expectations.

  5. Upgrade to modern information technology tools. Too many businesses still tolerate archaic IT tools, or resort to rogue mashups developed to circumvent the approved tools. Only modern tools can assure you the best and seamless execution for every customer interaction. Traditional waterfall development and outsourcing won’t keep up with change.

  6. Rethink how you organize, train, and reward employees. The first step is to break the legacy silos and underground channels in the current organization, which usually means realigning executive leadership and roles. Integration of all groups is the key to an optimal customer experience, starting from the hiring process to pay for performance.

  7. Adopt new core principles to stay competitive and assure survival. These must include democratizing how you do technology, thinking in layers, and using modern analytics to optimize continually. Technology need no longer be only the realm of expert gurus, business professionals in each layer of the business can build solutions, and executives with analytics can continuously refine the high-definition view of the customer.

Your ability to meet the test of the ever more-demanding and less-tolerant customer, as well as the emerging swarm of new competitors, is dependent on your willingness and ability to change your thinking and your company. The challenges ahead are great, but the opportunities are greater. Don’t be left behind in the ashes.

Marty Zwilling

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7 Tips For Success With Today’s Demanding Customers

If you think your business has weathered the storm, think again. In addition to obvious economic challenges, the emerging generation of customers is determined to radically change the rules for customer engagement. Their expectations of relationship and personalization are taxing businesses today, and their power through social media will kill those who can’t or won’t comply.

An eye-opening list of insights was highlighted in a classic book, “Build for Change,” by Alan Trefler, Founder and CEO of Pegasystems. He makes a convincing argument that it’s time for every company to get prepared for the next customer generation, or your company is heading toward life support.

As a backdrop, he defines the evolution already in progress from current Gen Y customers to a more demanding and less tolerant state (Gen D) that will make them even quicker and more technologically able to demonize and destroy your business, if it won’t meet their norms of interaction, personalization, and purpose.

While I’m not so sure that I agree that these represent the ultimate apocalypse of customers, I do believe the solutions he recommends should be taken seriously by every entrepreneur. I summarize here my interpretation of his key points:

  1. Take heed of serious next generation customer expectations. More and more, I see evidence that customers want to be pulled to your company, rather than feel that you are pushing yourself on them. They are not hesitant to engage the crowd through social media and sites like Yelp to drive you from the marketplace. Your reputation can be compromised these days by poor handling of even a single customer experience.

  2. Don’t count on big data alone to save you. In reality, data today is only memory about past transactions. Responding to transaction trends without the proper context can lead to broken relationships. Your changes must allow them to discover something so awesome that they are excited, versus disgusted, that you seem to know who they are.

  3. Add context and intent to your customer analysis. Use aggregated data from social media, professional market research, public sentiment, and key influencers for change analysis. Going beyond data to get intent is common sense, more than technology. Intent goes both ways, so make sure your customers understand your business as well.

  4. Make sure all your processes are customer-centric. Most business processes today are driven by internal needs to cut costs and maximize quality. Customers want their interactions and transactions to be painless and personalized. It’s time to rethink every process from the outside-in, to be consistent with customer expectations.

  5. Upgrade to modern information technology tools. Too many businesses still tolerate archaic IT tools, or resort to rogue mashups developed to circumvent the approved tools. Only modern tools can assure you the best and seamless execution for every customer interaction. Traditional waterfall development and outsourcing won’t keep up with change.

  6. Rethink how you organize, train, and reward employees. The first step is to break the legacy silos and underground channels in the current organization, which usually means realigning executive leadership and roles. Integration of all groups is the key to an optimal customer experience, starting from the hiring process to pay for performance.

  7. Adopt new core principles to stay competitive and assure survival. These must include democratizing how you do technology, thinking in layers, and using modern analytics to optimize continually. Technology need no longer be only the realm of expert gurus, business professionals in each layer of the business can build solutions, and executives with analytics can continuously refine the high-definition view of the customer.

Your ability to meet the test of the ever more-demanding and less-tolerant customer, as well as the emerging swarm of new competitors, is dependent on your willingness and ability to change your thinking and your company. The challenges ahead are great, but the opportunities are greater. Don’t be left behind in the ashes.

Marty Zwilling

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Monday, January 22, 2018

10 Outsourcing Myths Jeopardize Too Many New Ventures

OutsourcingThese days, it is almost impossible to find a small business where everything is done at the home location, by full-time employees. We are in the age of outsourcing, by any of many popular names, including subcontracting, freelancing, and virtual assistants. These approaches allow your startup to grow more rapidly, save costs, but costly mistakes can lead to business failure.

There are many books written on this subject, but this classic by Chris Ducker, “Virtual Freedom,” manages to pack a lot more practical guidance into a small space that many others I have seen. He is regarded by many as the number-one authority on virtual staffing and personal outsourcing, and is himself a successful entrepreneur based in the Philippines.

I was impressed with his summary of the top ten outsourcing mistakes made by entrepreneurs, followed by real guidance on how they can and should be avoided. In terms of quotes I hear too often, here is my interpretation of his most common mistakes, which every entrepreneur should avoid at all costs, before these assume that outsourcing will be their salvation:

  1. “With outsourcing, we won’t need many managers.” Contractors and freelancers, like any other business, manage their own internal processes, but they can’t manage your business. Don’t over-manage remote workers, but don’t expect them to manage your business. Hire and train your own managers for internal and external work projects.

  2. “With the high-speed Internet, our workers can be anywhere in the world.” Labor rates are lower in some countries, but culture and language match are the real keys to productivity. Countries near you may be in the same time zone for easy communication, but lack the skills you need. As with real estate, it’s still about location, location, location.

  3. “Let’s cut costs by outsourcing all from this point forward.” Some entrepreneurs get outsource-happy to save costs and begin outsourcing everything and anything that lands on their desks. Ideal outsourced tasks are outside your core competency, can be specified in detail, and managed with quantified deliverables and checkpoints.

  4. “Fixed price bidding is the only effective outsourcing model.” Getting a fixed price bid works for well-defined short-term projects, like blogging or programming. But trying to use it on call centers, affiliate marketing, or even data entry probably won’t be effective. Do your research with peers, and check the alternatives on every project. Be flexible.

  5. “Fair compensation is the lowest price we can negotiate.” Outsourcing won’t work if you don’t keep the virtual team happy. Unhappy workers will do a poor job, so cheap is not a good deal. Fair compensation is normally something higher than the market price at the outsourcing location, but lower than you would have to pay in your location.

  6. “I expect everyone working for me to adopt my culture.” The outsourcing team will always try to adapt to your situation, but success depends on their cultural work ethics, time constraints, social status, language quirks, and an overall attitude. Adapting to culture goes both ways, and training is the key. Recognize and embrace differences.

  7. “Current workers will manage the outsourcing as I grow.” Don’t set up outsourced projects under a professional who doesn’t want to manage, or is simply unavailable to the different work hours, or insensitive to cultural differences. Virtual teams need a lot of stability and structure, extra communication, standard protocols, and contingency plans.

  8. “My IT budget will go down as remote users use their own tools.” When you sign up remote workers, you’ll start to rely heavily on collaborative tools, Internet bandwidth, and new data security tools. You will need to invest more in training your own team, and increase your capital budget for new hardware and software. Don’t get caught off guard.

  9. “Utilization and personal growth of virtual employees is not my problem.” Some entrepreneurs view their outsourced employees as temps, or as a cheap way to staff the company during its startup phase. You should never hire internal or external staff based solely on what they can do now. Bored and unmotivated teams are never cost-effective.

  10. “I’ll outsource software development, since I don’t understand it.” Entrepreneurs need to know every component of their business at a management level, or have a cofounder who does. Relying totally on a virtual team implies they are managing your company, not you. If you don’t know where you are going, you probably won’t get there.

In summary, an entrepreneur should never approach outsourcing as an inexpensive and easy method of offloading work. With modern technology, and worldwide reach, it should be seen as an important tool for building an efficient, lean, and competitive business, optimized to give you more time for strategic focus.

As every entrepreneur quickly learns, their time is a scarce resource, and it can’t be outsourced. To grow the business, every entrepreneur needs to spend more time working on the business, rather than in the business. How many hours a day are you working on your company? Maybe it’s time for some smart outsourcing.

Marty Zwilling

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Sunday, January 21, 2018

10 Signs That The Age Of The Entrepreneur Is Here Now

age-of-the-entrepreneurWith the current strong economy, and sparked by the last recession, I’m seeing a real resurgence of entrepreneurial spirit, and more startup activity than ever before. I believe the days of the “job work” mentality are thankfully waning, with more people looking to get satisfaction by making the world a better place, rather than just tolerating brain-numbing work to fund enjoyment elsewhere.

According to the 2017 Kauffman Startup Activity Index, the share of new entrepreneurs who started businesses to pursue opportunity rather than from necessity reached 86 percent, more than 12 percentage points higher than in 2009 at the height of the Great Recession. In addition, young businesses enjoyed a three-decade high five-year survival rate of nearly 50 percent.

There is additional encouraging news for aspiring entrepreneurs on many fronts, just in case you are thinking about joining the existing ranks:

  1. Valuations of successful startups have hit an all-time high. An unprecedented number of startups, almost 200 at last count, are now valued above $1 billion, according to a recent Forbes article. Two of these, Uber and Didi Chuxing, have already passed $50 billion. Thus a record number of entrepreneurs (and team members) are getting rich.

  2. Initial Public Offerings (IPO) are back as an exit strategy. Bloomberg reports that forty-nine percent more companies went public in 2017 versus 2016. The average amount raised also increased to $175 million. Investors showed an increased appetite for new stocks, with 18 percent of deals pricing above the marketed share price range.

  3. Funding for early-stage startups is more available than ever. Last year 200,000+ American angels invested an estimated $25 billion in more than 71,000 startup deals. Crowd funding is setting new records worldwide, with an additional $34 billion in 2017, and VCs poured around $150 billion more into private growth companies last year.

  4. Cost of entry for a startup is at an all-time low. I can remember when creating a web site for eCommerce could easily require a million dollar investment. Now you can create a web site for almost nothing - and be on your way with your latest invention or personal services. Smartphone apps can be built for less than $10K, so who needs an investor?

  5. Startup incubators and accelerators are popping up everywhere. Business incubators were all the rage before the dot-com bubble (700 for profit, many more non-profit). After the bubble burst and the recession, more than 80% of them disappeared. Now they are back in every community, with the best even waving money at graduates.

  6. The world is a now single market, both homogeneous and heterogeneous. Entrepreneurs now can think globally about the opportunity, from day one but start locally. This approach, popularly known as “glocalization,” means you design and deliver global solutions that have total relevance to every local market you plan to attack.

  7. Social media is a boon for entrepreneurs and startups. With the key social media platforms today, an entrepreneur can tune a product, build a brand, and grow the business with very low cost and a high interactivity never before possible. The elements include communications, mobile platforms, and location-based services.

  8. Large corporations have lost their ability to innovate. Conglomerates, which were the engines of growth and vitality in the twentieth century, have proven themselves unable to innovate, and have a tarnished public image due to financial woes and poor management. Most now routinely buy startups for new technology and new products.

  9. Women are a growing force as entrepreneurs. According to the latest Women’s Entrepreneurship Report, overall female rates have increased by 10% and the gender gap has narrowed by 5%. Women inherently should have an advantage, since women already control over 70% of household income and $20 trillion of consumer spending.

  10. Baby Boomers are joining the fun in record numbers. The percentage of startups created by entrepreneurs between the ages 55 and 64 continues to grow more than any other age demographic. Driving forces include their need to work and stay energized for the longer life expectancies, as well as the opportunity to give life to long-held dreams.

Looking ahead, Investopedia predicts that in 2018 the supply of VC money will continue to grow. The record-high fundraising activity of the past 18 months has been driving a growing amount of dry powder. They also suggest that a business valuation discipline has returned to the Valley. The investment thesis has shifted from “growth at all costs” to “growth with fundamentals.”

The image of an entrepreneur is at an all-time high, so why would you continue to work in a job that you hate, or provides no satisfaction? Step into a new entrepreneur era where the definition of “work” is something you love. It’s not too late to start, but don’t forget the fundamentals.

Marty Zwilling

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Saturday, January 20, 2018

5 New Venture Deliverables Put You Ahead Of The Crowd

audience-entrepreneursAs a mentor to startups and new entrepreneurs, I continue to hear the refrain that business plans are no longer required for a new startup, since investors never read them anyway. People cite sources like this recent Inc.com article “5 Reasons Why You Don't Need a Business Plan,” or my own blog discussion on this subject, “Situations Where A Business Plan Does Not Add Value.”

Let me be clear – business plans are never “required,” they should never be written “just for investors,” and if you sold your last startup for $800 million, most investors will not ask for a written plan for the next. On the other hand, if you are a first-time entrepreneur, the discipline of building a business plan will dramatically improve your success odds, and your odds of finding an investor.

For aspiring entrepreneurs, or if your last startup failed, it’s all about standing out above the crowd of others like you, and demonstrating your readiness. There is no crowd of successful entrepreneurs. Here is my outline of key deliverables that could convince me that you are a cut above the “average” entrepreneur that approaches me with nothing but a dream and a prayer:

  1. Personal video introduction with elevator pitch. Successful startups are all about the right people with the right stuff. In a two-minute video clip, you can introduce yourself, show your passion and the engaging personality you need to win over customers, partners, and employees. Net out the problem and your solution in the first 30 seconds.

  2. Executive summary glossy. For the more traditional investor, or for that chance meeting in a real elevator or meeting, you need a two-page brochure (two-sided page). The challenge here is not to see how many words you can get onto each side, but how you can make this so engaging in layout and content that an investor will ask for more.

  3. Investor and strategic partner pitch. A perfect size is ten slides, with the right content, that can be covered in ten minutes. Even if you have an hour booked, the advice is the same. I’ve seen a lot of startup presentations, and I’ve never seen one that was too short - maybe short on content, but not short on pages. Pitch your company, not your product.

  4. Written business plan.  Disciplining yourself to write down the plan is actually the best way to make sure you actually understand it yourself. Would you try to build a new house without a plan, if you have never done it before? In simple terms, it is a 20-page document which describes all the what, when, where, and how of your new business.

  5. Financial model.  Most new entrepreneurs tend to avoid the financials of the business, and as a result are badly surprised by cost realities, and can’t answer investor questions. I suggest a simple Excel spread sheet loaded with your revenue, cost, and margin targets covering the first five years of your business. Investors will expect it for due diligence.

Thus you see the business plan is only one of five elements of a package that every aspiring entrepreneur needs to build to stand above the crowd, in your own level of understanding of your business. You need it for communicating to your team, finding strategic partners, or soliciting investor funding from friends and family, angel investors, VCs, and crowd funding.

The ability to communicate effectively is critical to standing above the crowd. Good communication is not talking louder and longer than others, but practicing active listening, and providing a package of other elements to effectively to back up your words. Make yourself unforgettable, in a good way. This means adding value before, during, and after every interaction.

Believe it or not, there are many people in the entrepreneur crowd with outstanding ideas, but building a business is more about execution. If you have built a successful business before, you don’t need all the components above to convince anyone, including yourself, that you can do it again.

Even including repeat entrepreneurs, statistics continue to show that the overall failure rate for startups within the first five years is greater than 50 percent. The real objective of “standing above the crowd” is to give you as an aspiring entrepreneur every chance to end up in the winning group, rather than the crowd of losers.

Starting without any written plan elements may seem easier, but is not the way to win.

Marty Zwilling

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Friday, January 19, 2018

7 Guidelines For Funding New Research & Development

141010-F-DF892-703As an advisor to new business owners, and an occasional angel investor, I see new business proposals daily, many seeking investors to fund early research and development (R&D) of a new product idea. Unfortunately, most entrepreneurs don’t realize that the words “research” and “development” are red flags to investors, and all such proposals are routinely discarded.

Although it may seem counter-intuitive, angel investors and venture capitalists (VCs) are looking for solutions that are already complete, with some real market traction, that need funding to be scaled to a large market, with potential for rapid growth and a large return. Funding new product research and development is just too risky, with a large time delay before any return is likely.

In fact, there are people and organizations amenable to very early stage opportunities, so my advice is target your proposals to the right people to match the stage of your effort. Broadcasting or repeatedly hitting the wrong people is not only is a waste of time, but it kills your credibility with those investors later when you really may need their help. Here are the guidelines I recommend:

  1. Recruit friends and family at any stage. People who know you, trust you, and believe in you above all else are always candidates for requesting an investment. In the trade, this category of investors is called friends, family and fools (FFF), and is the primary source of funding for entrepreneurs with no prior track record in business or technology.

  2. Look to academia and the government for basic research. If you are looking to fund a technology study, before any specific commercial product can be considered, you need to focus on relevant large organizations with deep pockets. Sources include government grants, universities, and large enterprises searching for next generation products.

  3. Find private fund incubators for technology pilots. If you project is more in the applied research stage, ready to solve practical problems, but haven’t yet named a final product, the investment sources should be extended to include large private and public fund initiatives, such as AMA IBM Healthcare or Environmental / CleanTech Projects.

  4. Explore crowdfunding for the prototype stage. Funding for commercial product prototypes is still R&D in the eyes of most VC investors, but in business areas with large consumer opportunities, this activity will catch the eyes of crowdfunding investors. It’s still considered high risk for investment, since manufacturing and quality issues are likely.

  5. Target specialized VCs for the certification stage. These days, almost every new product is not deemed scalable until it has been certified as meeting a multitude of quality and agency standards, including the Environmental Protection Agency (EPA) and Food & Drug Administration (FDA) clinical trials. Industry specific VCs may jump in at this stage.

  6. All professional investors love the scaling stage. Solution development at this stage is the process of scaling up for manufacturing and marketing rollout. The technology is now embodied in a replicable solution, and has been sold to at least one customer. Your fundability with investors now depends on traction and perceived execution capability.

  7. Reinvest early returns to expand the product line. Even for mature startups, there is always a need for further product development and research to compete and diversify the business, and investors understand this. But to prevent confusion with basic R&D, these costs should never be called out as a major category in your use of funds to investors.

Fortunately, in many attractive business domains, including mobile software, Internet apps and ecommerce, the cost of product development is at an all-time low. Developers are finding powerful tools to build mobile apps and websites for a few thousand, rather than millions of dollars. They don’t need the long research and development cycles of a new technology.

Thus smart entrepreneurs often find personal funding for solution development, and save investor funding pitches for the larger scaling-up marketing costs later. Build solutions, not technology, and don’t waste your time and credibility talking to angels and VCs until you have something of interest to them.

Marty Zwilling

*** First published on Inc.com on 01/04/2018 ***

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Wednesday, January 17, 2018

8 Elements Of A Mindset For Success In Your Business

dollar-success-businessMaybe starting a new business isn’t your passion, but in these days of rapid change, where everyone is dealing with uncertainty, I believe that thinking and acting like entrepreneurs will help you get ahead in any profession. In simple terms this means taking control of your life, going after something you love to do, and taking action. Stop letting life decisions happen to you.

As a long-time mentor to aspiring entrepreneurs, I’ve been convinced for some time that good entrepreneurs have the right mindset, and the right attributes, to be good at anything they want. Starting a new business is actually one of the toughest things that anyone could aspire to, since it always involves making decisions and progress in uncharted territory, with no one to follow.

So how do good entrepreneurs do it, and what do they do that everyone can learn from? I saw some good insights in the classic book “Own Your Future,” by Paul B. Brown, who has been studying and writing about business leaders for many years for Forbes, BusinessWeek, and Inc.

He offers a collection of lessons regarding how entrepreneurs think and act, which relate equally well to almost any profession or lifestyle. I’ll summarize a few of his principles here as examples, and I’m adding a few from my own experience:

  1. Use act, learn, build, and repeat to move forward in increments. The entrepreneurial approach is to decide what you want, take a small step toward that goal, pause to see what you have learned, build off that learning, and iterate the process. Other people often seem to bounce around randomly, and be the unhappy victims of other people’s actions.

  2. Embrace smart risks, but don’t be reckless. Smart entrepreneurs work extremely hard to find smart risks, like really large opportunities, but limit potential losses, because they know that success is an iterative learning process, with many pivots required. Other people never take risk, or let their passion overcome them to bet the farm on a long shot.

  3. Avoid overthinking yourself, leading to no action. When the future is unpredictable, as it is today, action trumps thinking. Action leads to evidence, in your job or in the market, which is the best fodder for new thinking. If all you ever do is think, you can gain tons of theoretical knowledge, but none from the real world, and make no real progress.

  4. Nurture relationships with people who can really help. Entrepreneurs build listening relationships with peers, mentors, and investors who may not even be social friends, and ask them the hard questions they need grow their business. Other people think relationships are only for personal and social use, and only mention work while venting.

  5. Find and sell your unique competitive advantages. Successful entrepreneurs focus on amplifying their strengths, while many people focus on eliminating their weaknesses. Everyone needs to sell themselves with the same fervor that entrepreneurs sell their product or service. If you don’t highlight your competitive advantages, no one else will.

  6. Focus on problems you can solve and who is your target. A key step in selling yourself or your product is to identify your customer, and focus on value that you can deliver to that customer. Don’t discourage yourself by broadcasting your value to the wrong people, or not doing your market research on the problem they need solved.

  7. Always see the glass as half-full, rather than half-empty. Maintaining and projecting a positive attitude is critical to career and personal progress, as well as business growth. How many people do you know that always focus on their setbacks, rather than their progress? Every hiring manager, as well as investor, reads your attitude carefully.

  8. Generate energy, rather than sucking it out of others. Your actions must always create positive energy for those around you, or people will hasten to get away from you and your business. Entrepreneurs learn this early, to keep their team and customers motivated. You need to do this, to keep your lifestyle and your career moving forward.

I assure you that if you follow these principles in your current career, and think like an entrepreneur, you will advance more quickly, get more done, and be a happier person. According to a recent article and many others, entrepreneurs running their own business still rank themselves happier than all other professions, regardless of how much money they make.

More career planning and more education is not always the answer, especially when the future is as unpredictable as it is now. Embrace entrepreneurial tactics, assume control of your lifestyle and career, and take action today to assure your own success. Are you still thinking about it?

Marty Zwilling

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Monday, January 15, 2018

10 Keys To Finding That Perfect-Fit Business Partner

Building92microsoftIn my experience, the initial idea for a new product usually comes from a single entrepreneur, but the implementation plan for a new business requires a team, or at least a co-founder. The reason is that any one person rarely has the bandwidth, interest, or skills to manage all the tasks required to build a business. Thus I find that two heads are usually better than one in a startup.

Way back in the early eighties, I had the privilege of working with Bill Gates and Steve Ballmer, when Microsoft was still a startup. I realize now that these two were near-perfect co-founders, with Bill having the technical passion, and Steve bringing the business experience from his prior stint at Procter and Gamble. Their skills and interests were complementary, and their trust in each other was palpable.

The challenge is how to find that elusive perfect-fit partner. As a mentor to aspiring business owners, I often get asked to find that partner for them, since founders are usually too busy with their solution. I always laugh, and ask them if they want me to find a spouse for them as well, since the right partner requires many of same attributes of chemistry, values, and passion.

I may indeed be able to mention a couple of possible names from my meeting with others, but I believe that finding the right co-founder or partners is more critical than any other task for a new entrepreneur, and it needs to be done personally. Thus I always recommend a common series of steps that I have seen working for other entrepreneurs:

  1. Write a partner description for that ideal co-founder. Take a hard look at your own business strengths and weaknesses, and write down what partner skills and experiences would best complement yours. Your best friend, spouse or a family member is the least likely candidate, so don’t start there. Seek input from seasoned investors and peers.

  2. Network to find co-founders as you network to find investors. In fact, your ideal partner may also be an investor. Many of the same venues, such as industry conferences and entrepreneur forums are useful for both. Online, it pays to join entrepreneur and investor groups on social media, and build relationships with people meeting your criteria.

  3. Explore matchmaking sites for business partners. Co-founders are business partners for startups, so don’t be afraid to join and explore sites such as FoundersNation, StartupWeekend, and CoFoundersLab. Also start a discussion on the wealth of business blogs frequented by entrepreneurs, where you can make your interests known.

  4. Support local university entrepreneur organizations. University professors and student leaders always know a selection of top entrepreneurs, alums or staff members who are just waiting to find the perfect match for their own interests, skills and ideas to change the world. Support local activities and you support yourself.

  5. Look for a partner from a different culture or background. In today’s global economy, your ideal partner may be half way around the world, from a different geography and business culture. Every startup infrastructure is flush with smart people from all cultures, many of whom may be ready and able to bring new energy and creativity to your startup.

  6. Re-connect to strong associates from prior assignments. If you were impressed with someone’s drive and capabilities in a prior work role, now is the time to connect again to check their interest and availability, or recommendations they may offer. Use caution to avoid employer conflicts of interest and non-compete clauses.

  7. Relocate to a more lucrative geography. Finding a high-tech co-founder in the middle of Kansas may be a long search. There’s a reason that Silicon Valley and Boston are hubs for high-tech startups. These areas may have not just your co-founder, but also the robust ecosystem your startup needs for investors, programmers and customers.

  8. Explore candidate values and goals outside of work. Co-founder chemistry and interest matches are best explored outside the office. Find some common hobbies or sports to get acquainted before giving away half your company. Business partnerships are long-term relationships, so take your time getting acquainted before closing the deal.

  9. Jointly define major business milestones and key deliverables. This process is the ultimate test of a true shared vision and working style. Building a startup is hard and unpredictable work, and people get busy, so now is the time to jointly commit. If you can’t work as a team now and easily agree, it probably won’t happen at all in the future.

  10. Negotiate and document roles early, including who is the boss. No matter how equal you all are, there is only room for one at the top to make the final decision on hard issues. Especially when everything feels good today, don’t be hesitant to ask the hard questions of each other. Investors and stockholders expect only one chief executive officer.

There are so many challenges in a startup that no founder should try to go it alone, as you need someone to share your successes, and help you recover from the inevitable setbacks. When you find someone that works, I’m betting you will be together on your next startup, and the one after that. Great teams persevere, and success breeds success.

Marty Zwilling

*** First published on Inc.com on 01/02/2018 ***

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Sunday, January 14, 2018

5 Strategies To Capture Sustainability Opportunities

Sustainable_development.svgAs I have said many times, the cost of entry for an aspiring entrepreneur has never been lower, and the total wealth of opportunities has never been larger. Today you can start a new web site business for as little as $100, produce cheap smart phone apps, or lead the effort to tap the multitude of opportunities brought by capitalizing on our concern for dwindling natural resources.

A while back, I focused on the new sharing economy, so this time I will highlight how a shortage of something, like natural resources, should be seen by an aspiring entrepreneur as a wealth of new startup ideas. I was inspired by the classic book, “Resource Revolution: How to Capture the Biggest Business Opportunity in a Century,” by Stephan Heck and Matt Rogers.

Based on their work in CleanTech and sustainability, Heck and Rogers outline five strategies for existing companies to apply to current practices and processes for dramatic efficiency improvements in the use or production of resources. I have recast these strategies here for new entrepreneurs and startups, who thrive on change, to show the wealth of opportunities for them:

  1. Substitute new materials for scarce natural resources. Entrepreneurs have huge opportunities to deliver higher-performance materials at lower cost, like carbon fiber for steel. These will not only save some weight, but build better vehicles, and improve the environment. Consider the startup MarkForged, which takes carbon-fiber to a 3D printer.

  2. Eliminate waste throughout existing processes. Mature companies often lose sight of scrap and changeover time in existing systems. Entrepreneurial minds can more easily see energy, water losses, and inefficient material usage. For example, a startup named Dirtt has been able to take reusable building components to a whole new level.

  3. Upgrade, reuse, or recycle every product. Make every product a natural loop, from creation to use to recycle to reuse. The tighter the loop, the greater the value captured and the stronger the competitive differentiation. Reusing a phone, like the ecoATM story, is more valuable than reusing a chip, or just extracting the gold and silver.

  4. Optimize existing product efficiency, safety, and reliability. Sadly, cars are parked 96% of the time, and shipping containers takes lots of space while empty. You don’t have to be an aspiring entrepreneur to see opportunities for improvement. Startups like Uber for cars, and Staxxon for containers are already there, but these are only the beginning.

  5. Move physical products and services into the digital realm. Steve Jobs has led the way here, by turning music, movies, cameras, and flashlights into apps. The opportunity is to reinvent whole products and whole industries, making things ten times better in the process. This not only saves scarce natural resources, but adds value to the economy.

Relative to all these principles, the “big three” of scarce natural resources consist of land (food), water, and energy. The stark reality is that the people and businesses of the world need to produce more with less in all these areas, while eliminating wasteful practices and policies. The effort has started, but there is still a huge need in all areas.

A key fact for both startups and existing businesses is that we have more than 2.5 billion people in developing countries to support who need to be moving out of poverty and into industrial and service occupations by 2030. This number almost doubles the number who have already moved into the middle class and urbanized. These will be your customers, and your competitors.

Overall, with all these opportunities, entrepreneurship is perhaps the most scarce and valuable natural resource in today’s society, for driving economic growth and social development. So now is the time to invest in all natural resources, by supporting aspiring entrepreneurs, in support of the opportunities they are mining. It’s a higher calling than one more social media platform.

Marty Zwilling

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Saturday, January 13, 2018

6 Hurdles For Going Public Through A Reverse Merger

stock-exchange-reverse-mergerWith the current strong economy, as an active startup mentor, I’m seeing a new surge of entrepreneurs and startups, with the commensurate scramble for funding. There just aren’t enough angel investors and VCs to go around. Thus I’m getting more questions on new mechanisms, like crowd funding, or going public through the side door as a reverse merger.

A reverse merger is the acquisition of an already public company (usually a dormant shell) to avoid the Initial Public Offering (IPO) process and cost, to quickly get your startup on a public exchange for fund raising through visibility and selling stock. It sounds like a great way to raise money, but here are some of the challenges you need to consider before trying it:

  1. Make sure the shell you choose is squeaky clean. The image of shell companies has long been tarnished by true stories of lawsuits and “pump and dump” schemes. I recommend you work only with financial and broker organizations who have done the due diligence required, and who have a track record of success.

  2. It takes real money to get into the game. The cost of the shell, plus the cost of navigating the process, can now easily exceed a half-million dollars, depending on the shell company, according to The Labrecht Group, a law firm based in Irvine, California and Salt Lake City. This approach is not for entrepreneurs already out of money.

  3. Being a public company isn’t cheap or easy. Is your startup really ready to play in the corporate world? It better be an established company, with millions of dollars in annual revenue and profits, following generally accepted accounting, reporting, and audit procedures. A PwC survey averages the burden of public companies at $1.5M a year.

  4. Increased jeopardy and less fun for the entrepreneur. The increased exposure and opportunity of a public company comes with a higher risk to you and your Board with severe civil and criminal penalties for regulatory mistakes and non-compliance. These looming constraints can turn your startup dream into a nightmare, all to increase funding.

  5. Reverse mergers may not get your startup on the Nasdaq. Most public shells ready for sale are not listed on a national securities exchange, but are instead traded in a less glamorous setting, such as the OTC Bulletin Board. Of course, they can be renamed and moved, but that may negate the cost and time advantages originally sought.

  6. Make sure that your team can motivate shareholders. The reverse merger process itself doesn’t raise any capital. That still requires a business team and story that continually motivates stock brokers and public stockholders. You may no longer have the option of investing all earnings into growth, or servicing your special corporate cause.

Yet reverse mergers are not all bad. Even the New York Stock Exchange did one with the acquisition of Archipelago Holdings via a "double dummy" merger way back in 2006 in a $10 billion deal to create the NYSE Group. Some people believe that reverse shell mergers may soon become the preferred IPO approach for emerging high-growth companies.

In fact, the number of companies taking the side door into a public exchange seems to be getting larger, and it has become the legal but still controversial and risky choice for Asian companies seeking to go public in the American market. Being public makes the company more visible to shareholders and potential acquirers, and provides a presumption of future liquidity.

Other than raising money, the reverse merger may be the quickest way to get you to other benefits of a public company. These include the ability to offer meaningful stock options to employees, the use of liquid shares to purchase other companies, and the credibility and public access to information you need to attract key customers and suppliers.

In summary, a reverse merger, or going public through the “normal” IPO process should never be seen as just a way to fund your startup. It is a strategic decision that may indeed attract more funding, but also will likely change the culture and focus of your company, and your role from an entrepreneur to a corporate executive. What price are you willing and ready to pay for funding?

Marty Zwilling

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Friday, January 12, 2018

10 Startup Strategies To Minimize Cash Flow Disasters

cash-flowThe “valley of death” is a common term in the startup world, referring to the difficulty of covering the negative cash flow in the early stages of a startup, before their new product or service is bringing in revenue from real customers. I often get asked about the real alternatives to bridge this valley, and there are some good ones I will outline here.

According to a recent Motly Fool report, the challenge is very real, since around half of all businesses fail in the first five years. Only one-third make it past their tenth anniversary. The problem is that professional investors (angels and venture capital) want a proven business model before they invest, ready to scale, rather than early projections and product development.

My first advice for new entrepreneurs is to pick a domain, such as online web sites and smart phone apps, that doesn’t have the sky-high up-front development costs. Leave the world of new computer chips and new drugs to the big companies, and people with deep pockets. For the rest of us, the following suggestions will help you survive the valley of death:

  1. Accumulate some resources before you start. It always reduces risk to plan your business first. That includes estimating the money required to get to the revenue stage, and saving money to cover costs before you jump off the cliff. Self-funding or bootstrapping is still the most common and safest approach for startups

  2. Keep your day job until real revenue flows. A common alternative is to work on your startup on nights and weekends, surviving the valley of death via another job, or the support of a working spouse. Of course, we all realize that this approach will take longer, and could jeopardize both roles if not managed effectively. Set expectations accordingly.

  3. Get a loan or line-of-credit. This is a most viable alternative if you have personal assets or a home you are willing to commit as collateral to back the loan or credit card. In general, banks won’t give you a loan until the business is cash-flow positive, but there are notable exceptions. Nevertheless, it’s an option that doesn’t cost you equity.

  4. Solicit funds from friends and family. After bootstrapping, friends and family are the most common funding sources for early-stage startups. As a rule of thumb, it is a required step anyway, since outside investors will not normally consider providing any funding until they see “skin in the game” from inside.

  5. Use crowd funding to build reserves. The hottest new way of funding startups is to use online sites, like Kickstarter, to request donations, pre-order, get a reward, or even give equity. If your offering is exciting enough, you may get millions in small amounts from other people on the Internet to help you fly high over the valley of death.

  6. Apply for contests and business grants. This source is a major focus these days, due to government initiatives to incent research and development on alternative energy and other technologies. The positives are that you give up no equity, and these apply to the early startup stages, but they do take time and much effort to win.

  7. Join a startup incubator. A startup incubator is a company, university, or other organization which provides resources for equity to nurture young companies, helping them to survive and grow during the startup period when they are most vulnerable. These resources often include a cash investment, as well as office space, and consulting.

  8. Barter your services for their services. Bartering technically means exchanging goods or services as a substitute for money. An example would be getting free office space by agreeing to be the property manager for the owner. Exchanging your services for services is possible with legal counsel, accountants, engineers, and even sales people.

  9. Joint venture with distributor or beneficiary. A related or strategically interested company may see the value of your product as complementary to theirs, and be willing to advance funding very early, which can be repaid when you develop your revenue stream later. Consider licensing your product or intellectual property, and “white labeling.”

  10. Commit to a major customer. Find a customer who would benefit greatly from getting your product first, and be willing to advance you the cost of development, based on their experience with you in the past. The advantage to the customer is that he will have enough control to make sure it meets his requirements, and will get dedicated support.

The good news is that the cost for new startups is at an all-time low. In the early days (25 years ago), most new e-commerce sites cost a million dollars to set up. Now the price is closer to $100, if you are willing to do the work yourself. Software apps that once required a 10-person team can now be done with the Lean Development methodology by two people in a couple of months.

The bad news is that the valley’s depth before real revenue, considering the high costs of marketing, manufacturing, and sales, can still add up to $500K, on up to $1 million or more, before you will be attractive to angel investors or venture capital.

In reality, the financing valley of death tests the commitment, determination, and problem solving ability of every entrepreneur. It’s the time when you create tremendous value out of nothing. It’s what separates the true entrepreneurs from the wannabes. Yet, in many ways, this starting period is the most satisfying time you will ever have as an entrepreneur. Are you ready to start?

Marty Zwilling

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Wednesday, January 10, 2018

6 Steps To Empowered Employees And Unstoppable Growth

womens-power-unstoppable-growthAs a business advisor, one of the things I see most often as a drag to productivity and growth is employees who, despite their best efforts, can’t change things that they know are hurting the company. They want to grant deserving customers special concessions, or fix a broken process, but are convinced it may cost them their job, or find that no one above them seems to care.

Perhaps you remember as well when the norm in business was a no return policy, or one size fits all, or getting support meant waiting hours on the phone to reach an unhelpful and unhappy employee. If these still exist in your organization, they are huge red flags and you can be certain that you are losing your best employees as well as customers.

Yet every CEO I know believes that his team is motivated and empowered to make the business better for both customers and the company. I’ve spent many hours identifying the causes of this dichotomy, and working on specific steps to fix it. In that context, I found in a new book, “The Unstoppable Organization,” by Shawn Casemore, some good steps for every business owner:

  1. Schedule time for personal feedback from employees. Don’t assume that feedback filtered through your management chain is adequate. We have all heard how messages change, when passed up or down the line, even without any politics or personal agendas. You need to hear first-hand what is working well, and what is not delighting customers.

  2. Plan to redesign and realign employee teams every quarter. Market changes happen rapidly and regularly these days, requiring a realignment of skills, processes, and approaches to keep up. Don’t let your team get stuck in the “way we have always done things.” New perspectives are invigorating for the team, as well as for your customers.

  3. Provide multiple direct communications to every individual. Don’t assume that your priorities, challenges, and support needs will “trickle down” through the management chain. Use multiple and regular communication opportunities to amplify your message, including daily briefings, team updates, as well as management by walking around.

  4. Utilize technology and tools for collaboration and sharing. Things that are not measured cannot be managed. New and better technology is becoming available every day to present dashboards and metrics to show how well processes and empowerment are working, assess workload backlogs, and capture customer feedback and satisfaction.

  5. Identify team champions to drive initiatives and processes. Employees who have the respect of other team members, and have shown more motivation, are typically more effective than managers in driving new processes, and identifying areas that need tuning or change. Make sure these champions get your full attention, recognition, and support.

  6. Assure employee engagement and buy-in for each change. Buy-in starts by clearly listening and implementing ideas from the front lines, with full employee attribution, rather than implying management initiatives. Engagement is always enhanced with the right incentives, financial and recognition, as well as quick reaction to interim feedback.

I recognize that all of these steps go against the traditional business wisdom that growing successful businesses must define inflexible and fully documented customer processes for efficiency, automation, and lower cost. But the reality is that customer and employee expectations have changed, and your competitors have stepped up to the demands for positive experiences.

Of course, every successful business is about achieving the right balance between costs and returns, as well as keeping up with marketplace demands. So while you must continue to strive for repeatable processes, it’s time to recognize that your customers are now much more empowered, and you must do the same for your team.

It will make your organization unstoppable, more profitable, and you will certainly find the business to be a lot more fun.

Marty Zwilling

*** First published on Inc.com on 12/26/2017 ***

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Monday, January 8, 2018

8 Ways New Ventures Burn Resources Without Thinking

too-much-inventoryEvery entrepreneur I know is short on resources, including time, money, and skills. The last thing they can afford is to waste any of these, but in my mentoring and coaching activities, I see it happening all too often. Waste in a startup is any activity that spends resources, but creates no value or competitive advantage in the eyes of customers.

Much has been written about this subject in the world of manufacturing, stemming primarily from the 1990’s work by Taiichi Ohno, called the Toyota Production System (“Lean”). More recently, the concepts have been applied to the general business management context, in a classic book by Certified Turnaround Professional, Thomas H. Gray, titled “Business Techniques for Growth.”

While his book goes well beyond controlling waste as an element of growth and success, I was struck by how relevant the waste points are for every startup and every small business. Thus I am morphing the points here, with specific focus on the entrepreneur, who would never think of themselves in the context of automobile manufacturing:

  1. Offering too many products and services concurrently. In the startup world, this is often seen as a lack of focus. Trying to do too many things with too few resources, usually means the startup will not shine at anything, and will not survive the competition. That’s a deadly waste you can’t afford. My advice is to keep it simple, and do it well.

  2. Inventory and features added too soon. Inventory is money sitting idly by, adding no value. For market changing products, build first a minimally viable product (MVP), and never build products for sale until you have real orders in hand. More features and inventory added early will be wasted as you will need to pivot to match the real market.

  3. Bottlenecks to team productivity. Time utilization inefficiency is wasted time. Make sure you are not the bottleneck for your team. Many entrepreneurs insist on making every decision, and spend too much time working in the business, rather than on the business. The result is lower productivity all around. Hire real help and learn to delegate.

  4. Lack of communication. Communication is the fuel that controls the speed of startups. Delays in sharing, or lack of communication from the top, result in time and effort wasted, adding no value to the business. As an entrepreneur, you need a visible business plan and weekly team meetings, so everyone is working on current issues and real goals.

  5. Poor or too many business processes. Business processes can be your biggest time saver, or your biggest waste. Productive processes start with a plan, and end with metrics that measure value delivered. Entrepreneurs have to embrace creativity and change, yet move quickly with trained teams who can deliver repeatable processes.

  6. Focus on activities rather than results. Too many entrepreneurs confuse action with momentum and results. Focus on the 20% of your important tasks that will deliver 80% of the results. Judiciously apply 20% of your energy where it will achieve 80% of the momentum you desire. Then always measure customer results, not work.

  7. Defective products and services. Poor quality products and poor customer service are doubly deadly wastes. You lose the customer you paid to acquire, and the unhappy customer spreads the word to potential customers that you are spending marketing resources on, but will never win. Recovery efforts are wasted resource which rarely succeeds.

  8. Underutilizing people skills. When people can do more than they are asked or motivated to do, the money spent on others doing that work is waste. The solution is to maximize your own staff productivity first. Recognize and reward the people who excel, provide training, and challenge the team to invent new methods for significant change.

Entrepreneurs and small business always operate on the edge. There is no cushion. Waste means death. Are you as an entrepreneur really ready to deal with the new technology, new regulations, and a new workforce schooled in the digital age? How much time have you spent learning to use the practical techniques and new tools available? It won’t be wasted.

Marty Zwilling

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