7 Tips To Maximize Breakthrough Thinking In Business

Most of you realize that survival in business today requires grabbing hold of tomorrow’s opportunities with disruptive innovation, before your competition or a new startup gets there. The challenge is to create a culture of forward thinking in your company, and avoid the traps of following the paths of least resistance and most comfort that appear in every mature company.

For example, Hewlett Packard, the recognized leader in scientific calculators at the time, rejected Steve Wozniak’s idea for a personal computer as having no opportunity, since they were sure that no ordinary person would ever need to use a computer. Wozniak’s ideas were too far outside the HP comfort zone of business and scientific users, but Steve Jobs wasn’t ignoring the clues.

I just finished a new book, “Create the Future: Tactics for Disruptive Thinking,” by Trend Hunter CEO Jeremy Gutsche, who outlines his proven methods you can use to break free of the traps that limit future thinking in most companies as they grow and stabilize. I see these traps all too often in my role as business advisor to small companies as well as large.

Thus I support the following key strategies, recommended in the book, to help you and your team realize your full potential in keeping up the ever increasing pace of change in the marketplace:

1. Spot the subtle clues that hint toward great ideas. The first challenge is to make time to scan for ideas, filter down to the best ones, and look for patterns. This means talking to your loyal customers, as well as non-customers who are in related market segments. It also helps to bring in outsiders periodically to suggest ideas you might be overlooking.

2. Eliminate learned behavior and mental shortcuts. We are all human, so our creativity gets limited by learned behavior and all the things we do to function as productive adults. One antidote in any business organization.is to schedule a monthly “fun day” to foster and reward creative thinking, team bonding, and set the culture for breakthrough ideas.

3. Maintain a sense of urgency and need to be proactive. Most entrepreneurs remember the sense of urgency they felt in startup mode, but don’t see it in their team today. In stable businesses, you get what you reward, so you must incent urgency with metrics for number of proactive projects, expected implementation guidelines, and no failure penalty.

4. Expand rather than reduce options for future choices. In business, you tend to make decisions that get short-term results, not realizing that certain choices can fix you to the path you are on and reduce your future potential. You need to push yourself to consciously make decisions that open up options for the future, rather than close options.

5. Don’t let success make you complacent and protective. Every business needs a balance of hunting for new opportunities, versus farming the results of the market you have won. Too much farming, and you fail to adapt. Many of the most iconic brands suffer from the traps of farming. Maybe it’s time to reorder your top ten priority list.

6. Bypass linear thinking in an exponentially evolving world. As we are bombarded with what’s happening today, we fail to forecast tomorrow, because we forget that the pace of change is not simply faster, but accelerating. It helps to track the amount of change in your market, and maintain scenarios to disrupt it or avoid being disrupted.

7. Master discomfort to achieve breakthroughs. New ideas are awkward, because they require you to change. We all have many traps that create discomfort and block us from seeing the potential from change, including unknown risks and hidden costs. Accept that comfort is not a good thing in business, and counter it with the anticipation of success.

Now is the time to be excited as an innovator during the greatest period of change in human history. You, your team, and your kids need to choose to enjoy the enhancements, disruptions, and changes of key technologies that reinvent humanity and business. You can make it a great time to be alive, or an oppressive burden. I find the former to be a lot more fun and satisfying!

Marty Zwilling

*** First published on Inc.com on 03/11/2020 ***

9 Keys To Effective Networking, In Person Or Virtual

Too many entrepreneurs I meet in my role as a business advisor still seem to believe networking is all about selling and convincing everyone that what you have will change the world. While selling is still key with customers, networking with peers and investors today is still about building relationships, listening to the needs of someone else, and suggesting a win-win opportunity.

For example, if that person is an investor, listen for a background in technology or a focus on financial returns, before highlighting your vision to change the social culture. If the peer is a potential co-founder, find out what complementary skills they could bring to your startup before wasting time for both of you, and missing a relationship, by pitching the product or technology.

If your networking style and mindset is still focused on the hard-sell, push-marketing approach, it’s time to take a close look at feedback, and your own frustration with the results. The way to win today is to build relationships first, by listening and responding, whether it be in person or through social media, before kicking into full sales mode. Here are some techniques that work for me:

1. Focus on listening more than talking for the first five minutes. Effective networkers are quick to empathize with other people, to understand their position and where they are coming from. Practice connective listening, and minimize your tendency to be defensive, go into problem-solving mode, or simply tuning them out until it’s your turn.

2. Find common ground and engage them in that space. Ask questions first to find what people or interests you might have in common, and then explore these at a personal level to build a positive relationship. Once a relationship is established, you will have their trust to listen to your mission and needs, and get the most positive feedback and interaction.

3. Lead with your achieved results rather than future aspirations. Your goal is to inspire people with demonstrated abilities which make them want a stronger relationship. Leading with problems or needs automatically make most people wary of a commitment, and they see you as needing them, rather than them benefitting from your relationship.

4. Make yourself memorable with a couple of personal anecdotes. People remember positive personal stories, and these will make you unique from the many other people met at most networking events. If possible, select stories that add value or highlight a comparable situation for the other person, giving you more credibility and interest.

5. Highlight instances where you have overcome adversity. Don’t hesitate to mention the positive lessons you have gleaned from challenges or un-anticipated problems. If possible, relate these to similar situations in the lives of the people you meet. Have the courage to share your feelings, since shared feelings will strengthen any relationship.

6. Express gratitude for any insights and expressions of support. Any act of gratitude or appreciation on your part for feedback and advice will create a stronger bond and interest in continuing the relationship. An even more positive form of gratitude is offering to follow-up on questions, make relevant people introductions, or pass along information.

7. Don’t try to monopolize one person’s attention or time. Sometimes the most positive thing you can do is recognize that it’s time for both of you to move on. Gather the information you need, exchange business cards, if appropriate, and politely say, “I’m sure you would like to do some mixing now. It’s been a pleasure speaking to you.”

8. Dress professionally and appropriately for the venue. You only get one chance to make a great first impression in business, and what you wear is a large part of that impact. This does not mean that you need to wear the most expensive clothes, but networking is not the place to make a statement or appear to be defying authority.

9. Follow-up with a connection via social media or a meeting. Especially in this digital world of social media and virtual relationships, closing the loop on both sides is important. If you do your initial networking online, close the loop by suggesting a meeting at their office or over coffee. If you met at an event, make the digital connection to close the loop.

In my experience, a successful business is today still more about people relationships than products. Who you have on your team, both inside and outside the company, and how you interact with them, are the critical elements. Networking is where and how most of these relationships start, so don’t push or ignore the people you meet, either in person or online.

Marty Zwilling

*** First published on Inc.com on 03/09/2020 ***

6 Keys To Managing Funding From People Close To You

In their passion to succeed, too many entrepreneurs treat friends and family investments as “low-hanging” fruit, only to find out later, after a stumble, that the pain of lost relationships is greater than the loss of their beloved startup. Other entrepreneurs never start their adventure, because they can’t face the prospect of even approaching friends and family for an investment kick-start.

The only way an entrepreneur can really dodge this issue is to totally fund the startup with personal funds (bootstrapping). Then you don’t have to worry about the fact that most angel investors and venture capitalists won’t take a bet on you if none of your friends and family have given you a vote of confidence with money.

This is a sensitive and critical area for new entrepreneurs, and it’s important to get it right the first time. Brian S. Cohen and John Kador, in their classic book “What Every Angel Investor Wants You to Know,” includes these great points of practical advice on this subject:

1. Manage expectations before the fact. Even if you passionately believe that your idea is a winner, it’s smart to remind friends of the historical facts with startups. More than 50% fail in the first two years, and even the “overnight successes” take six years on the average. In the interim, there is no market for the shares, and no dividends or interest.

2. Make sure the money is discretionary. If friends and family are still willing to take the risk because they believe in you and love you, you need to be convinced that they can afford to lose it all without major impact, and their emotion won’t generate unreasonable expectations over time. If you are not sure on this matter, then don’t take their money.

3. Be professional about it. Treat the transaction as you would expect to be treated by an angel investor or VC. That means writing down and signing the terms of the agreement, after making sure everyone understands them. Insist on paying market rates for commercial loans, since the IRS can instigate some nasty consequences on “gifts.”

4. Tie payments to your product or service revenue. Try to avoid obligations with fixed repayment schedules. With “cash flow” obligations, investors receive a percentage of your operating cash flow (if any) until they have been repaid in full, or have achieved a specified percentage return on their investment.

5. Loans are a safer option than equity. Offering debt is better than offering direct equity, especially in early stages when you have no valuation for setting equity percentages. Many use a convertible loan note that may be converted into equity upon the closing of the first formal angel or VC round of financing, with a more realistic valuation.

6. Pay the money back, with thanks, as quickly as you can. This money is real, so don’t assume it doesn’t have to be repaid. Some founders are too focused on quick repayment, and they compromise strategic decisions. That’s why it is better to use institutional investors and loans when you are able, with realistic time frame expectations.

Don’t forget a couple of additional potential negative realities. For entrepreneurs, friends and family money usually represents the smallest increment of funding, yet requires the most time to manage. Everyone wants to keep up and even have a say in your activities, and that can be a lot of conversations to manage.

A second harsh reality for entrepreneurs is the realization of how little power you have to protect the position of these early investors. New money from professional investors sees no value in old money, so the equity of early investors is “crammed down” and often lost in the scale-up surge. Later investors all think you have given away too much of the company too soon.

These realities are part of the reason that this first tier of very early investors are often referred to as “friends, family, and fools.” Most experienced entrepreneurs and investors can recount a horror story of families and friendships torn apart by money lost on someone else’s dream. In these cases both the entrepreneur and the friends are the fools. Don’t be one or create one.

Marty Zwilling

5 Forces That Kill Momentum For Business First-Movers

Is your strategy as a business leader to be a first-mover or a follower? Despite the fact that most of the CEOs I advise would claim to be in the first category, when I dig deeper I find that at best they are fast followers, due to the time consuming challenges of transforming any business in this digital age. Fast change today requires commitment and an adaptive learning culture at all levels.

I found this reality addressed well in a new book, “Fast Times,” by McKinsey Partners Arun Arora, Peter Dahlstrom, Klemens Hjartar, and Florian Wunderlich. They outline and give some positive recommendations to counter the key organizational impediments to fast transformation that I see all too often, even in businesses with top management committed to first-mover speed and agility:

1. Passive resistance to change from within the organization. Concern about what the future might hold often results in hidden waves of passive resistance. These must be countered by a focus on changes and training that benefit your people, as well as your business. Set up training courses that highlight agility, and adopt agile working practices.

   For example, when I was with IBM, in an era where constant change was necessary to compete, we made job rotation and training a prerequisite for good performance ratings, so that team members sought change and new learning, rather than passively resisting.

2. Transformation fatigue from continual challenges. The passion and commitment that characterizes startups inevitably fades, particularly if things aren’t always going well. It’s important to note slippage indicators, including less internal feedback on requirements to fight competitors, and more focus inward than outward on customers needs and trends.

   One effective intervention is to take a step back every few months, and review how things are going. Assess many change initiatives have come to fruition from your team, visit a couple of key customers and listen for future needs, and study your newest competitor.

3. Difficulty in securing and protecting funding. Even in the best of times, funding for change initiatives can become a tempting target. You need to maintain explicit C-suite and Board buy-in for constant transformation through effective communication, highlighting the struggles of peer businesses, and establishing the right metrics.

   The authors recommend, and I support, the establishment of a transformation advisory board, including key board members, the CEO, and a couple of outside experts who understand the market, to set mandates, define milestones, and make funding decisions.

4. Keeping priority on what matters for long-term success. By default, short-term-wins get the priority, as we all get drawn to the “crisis of the moment.” Future growth and vitality requires equal attention to different metrics, including customer satisfaction, partnership growth, time to market tracks for new products, and internal change counts.

   Other experts point that your employee improvement culture, sense of direction, personal purpose, and job satisfaction may be more important than any metrics. It is your responsibility as a company leader to communicate a winning long-term strategy, and then put into the place the incentives to drive team behavior to deliver on the strategy.

5. Maintaining digital transformations through a downturn. While many leaders minimize new initiatives during a business recession, the best ones expedite changes to accelerate scaling, acquire assets more cheaply, and divest poor-performing business elements. They view downturns as an opportunity to get ahead of key competitors.

   Amazon, for example, “grew up” in the last recession by continuing to expand their range of products and focused on automation. They grew sales by 28% in 2009, while most companies were hunkered down and losing share. In the same year, Lego's profits soared 63% as they expanded their initiatives and operations in Asia and Europe.

In my experience, every business transformation will take longer to implement than you expect. You and your team both need that sense of momentum and having the wind at your back to carry you through the challenges and tough times. The only way to build that momentum, and stop it from evaporating over time, is to drive through the challenges outlined here, no matter what.

Marty Zwilling

*** First published on Inc.com on 03/03/2020 ***

10 Keys To Investor-Friendly New Venture Financials

If you need to attract investors to your startup, your financial projections have to be as attractive as the idea. The problem is that these business financials are future projections, while the idea is “now,” so you believe the idea can do most of the selling. Your challenge is that investors recognize a good business, and they judge your idea by how you translate it into financials.

For example, every investor I know can tell you about meeting a passionate entrepreneur who is pitching a great technology innovation, but has not done the financial homework on making it a good business. Thus the investor can’t visualize any return on investment (ROI), so the entrepreneur gets no money, and a good opportunity is lost to all.

Even if you are bootstrapping the business, and not looking for outside investors, the “rules of thumb” that smart investors look for should be the same ones that you use to assess your own risks and set reasonable expectations for progress and success. In that context, I offer the following financial projection strategies, from my own experience:

1. Forecast a business that has plenty of room to grow quickly. Find some credible opportunity statistics that can support your own revenue expectations of between $20 million and $100 million in the fifth year. A larger number exceeds most investors’ rational growth expectations, and a smaller one implies a limited return potential.

2. Demonstrate an understanding of business operation realities. No matter what the potential, every business is constrained in growth by the time and effort required to hire people, spread the message, and deliver and support solutions. If you insist on projecting $100 million in sales the first year, smart investors will likely run for the nearest exit.

3. Assume margins and prices that are realistic in your target market. As an investor, when I see projected margins below 50 percent, I see low resources for scaling the business, high risk, and likely no return on investment. Even if you work harder than everyone else, you probably won’t stay ahead of rising costs and new competitors.

4. >Market penetration and revenue targets related to opportunity size. Five-year projections should show at least a 10 percent penetration of the market segment you target, but not more than 50 percent. Don’t assume that you can dominate the market in a few years, or that the potential is so large that even a trivial entry will mean success.

5. Project growth equal to or better than current premium startups. Companies that get investor attention usually double their revenue or more every year. Lower targets indicate a very conservative team, or challenges that have not been disclosed. Investors want to bet on someone with aggressive targets, and a demonstrated track record, if possible.

6. Clearly delineate the break-even point in your projections. Investors today are not interested in startups that don’t even plan to cover their own expenses for the first five years. A reasonable break-even point is two or three years out, which indicates an ability to manage your own show, and allows for investors to collect their own good return.

7. Break funding requests into tranches, with dates and milestones. Rather than ask for a single million dollar investment now to forestall future requests, it’s much more credible to ask only for what you need in the next year. That may translate to $200K now, with increments of $400K to follow every eighteen months, based on specific milestones.

8. Prepare an itemization of your intended use of investment money. Highest on your list of fund usage categories should be business scaling requirements, such as marketing, inventory building, and staffing. Unattractive uses, from an investor standpoint, would include research and development, buying a building, or large salaries.

9. Define an exit strategy for investors to liquidate their share. Investors have learned that simple buy-outs of their share by owners often become major squeeze-plays. They prefer a liquidity event such as an IPO or an acquisition by an existing large industry player, with a valuation at that time of five multiples or more of your projected revenues.

10. Back up your projections with a simple financial model. No matter how good your projections appear, you should anticipate being asked questions by investors, such as what happens if your costs go up, growth slows, or market explodes. With a simple Excel spreadsheet, you can answer these questions quickly and totally impress everyone.

Of course, projections don’t make reality, but they do force you to declare. Don’t create a fairy tale for investors, and hope to protect it with fast talk from probing and knowledgeable investors. You have only once chance for a good first impression with investors, so do your homework first and put together a plan that will get all of us excited and optimistic.

Marty Zwilling

*** First published on Inc.com on 02/27/2020 ***

7 Business Experimentation Myths That Are Outdated

In my work with you as an entrepreneur or small business owner, I find that most understand the need try out new business models and product innovations, but trust their intuition rather than running a disciplined business experiment first. The result is that you often take a big financial hit, and lose key customers, before you realize that the change didn’t work. There is a better way.

For example, several years ago Apple was so convinced that their new Apple III model would be a winner that they rolled it out broadly, rather than do a controlled release first with some key customers. The result was a huge negative quality hit for Apple in the marketplace that could have been avoided, and high repair costs that took years to recover.

I just finished a new book, “Experimentation Works,” by Stefan H. Thomke, which shows how to make experiments pay off, describes best practices, and provides some great examples of the process done right. He also debunks the most common myths I have heard about business experimentation, including the following:

1. Experimentation-driven innovation will kill intuition. Before you can experiment, you still need intuition and creativity to come up with innovations to test. Thus experiments are complementary to intuition, not mutually exclusive. Unfortunately, even expert intuition has been proven unreliable in predicting customer behavior, so we need both.

2. Experiments will lead to incremental, but no big changes. Incremental change has proven to be less risky, and multiple small change cycles done quickly often lead to a breakthrough. Even big changes, like a new business model, can have few elements and be validated by an experiment. Changing too many factors at once is never a smart risk.

3. We do so few changes, we don’t need formal testing tools. The pace of change to stay competitive in business today continues to increase. Every organization needs to look ahead to keep up with Amazon and Booking.com, who are rolling out hundreds or thousands of changes each year. Now is the time to update your processes and tools.

4. Brick-and-mortar companies don’t have enough transactions. While online retailers may define a sample as fifty thousand customers, a realistic test group for a physical store may be dozens or less. Yet a large sample does not necessarily lead to better data. In addition, even a small sample size shows statistically valid results for large changes.

5. A/B testing has been used often, with only modest results. This type of experiment has been around a long time, and many executives have an unreasonable expectation that the cumulative business impact should be at least the sum of the results. In reality, better techniques are now available, so don’t skip experimentation based on old news.

6. Big data will show results quickly, so experiments waste time. Analytics show results, while experiments isolate the cause. Thus these are actually complementary, and understanding causality is necessary for effective follow-on enhancements. Using intuition to deduce the cause is unreliable, and even dangerous in the case of medicine.

7. Experiments on customers without consent is unethical. Of course, every new offering to customers must be lawful and delivered ethically, and every business model and product is essentially an experiment in providing maximum customer value. A bigger ethical risk is not to experiment and forgo a change that’s critical to increasing that value.

Tricking customers or persuading them to do things that go against this value objective make no sense, and simply won’t work in the long run. Thus it makes sense to be as transparent as possible, and to do your testing with as much speed as technology allows.

To counter these myths, there is more and more evidence of the value of building a business experimentation culture in your company, compared to relying on intuition or flying blind. The tools are out there to collect data in real time, and provide the analysis that you could never do manually to show what innovations are working with customers, and which are not contributing.

Looking ahead, as customers get more demanding, and competition continues to expand worldwide, the ability to iterate more quickly and effectively will be key to your survival and growth. It’s time to take a hard look at how you and your organization make change decisions today, to make sure you are ready for the changes your customers expect from you tomorrow.

Marty Zwilling

*** First published on Inc.com on 02/20/2020 ***

5 Steps To Get You From Your First Idea To A Business

One thing I have learned the hard way in business is that implementing new ideas is usually much more difficult than conceiving the idea in the first place. That’s why I caution my aspiring entrepreneur clients against proclaiming to investors that they are a great “idea” person. The bridge from thinking and talking, to doing, is a long and difficult one for many to get over.

For example, I have a friend with a Ph.D. in Physics who talks passionately about starting a business producing nuclear powered batteries. I have tried to convince him the general idea alone does not make a business.

His challenge is to focus on one market, with a specific design, cost, and price. Then, he'll need to patent it and create a plan to show opportunity, competition, and financial projections. Yes, there are a lot of bridges to cross.

In addition, creating a business requires leading and interacting with other people, including partners, investors, and customers. Finally, implementation requires a commitment of real money and other resources that can’t be written off so easily as an idea ahead of it’s time. Yet there are clearly some positive steps I can recommend for getting you (and him) over the bridge:

1. Find a co-founder who has been there and done that. At least the first time around, it pays big dividends for an idea person to find a partner with the business skills you haven’t tested yet. Don’t assume you can outsource the implementation decisions. You need someone you can trust and learn from every day, with equal “skin in the game.”

   For example, I often cite the case of Bill Gates and Steve Ballmer, who grew Microsoft together. Bill was initially the idea person and technologist, while Steve had the business and marketing experience from Proctor & Gamble to close the business equation.

2. Create a written plan, with target milestones and metrics. I have found that the process of writing down your idea, with a plan for implementation, and reviewing that plan with a business advisor, will force you to learn and acknowledge the real requirements for implementation. Target measurements allow you to assess your business progress.

   I find the best business plans are not books, but may actually should start as a one-page “elevator pitch” that succinctly encompasses your business goals, problems and solution, opportunity, competition, and business model. A full plan may be no more than 20 pages.

3. Take your time in moving from your idea to a business. Aspiring entrepreneurs are often impatient in rolling out the business, assuming the hard work was finalizing the idea, and that if you build it, customers will come. The reality is that building a business always takes longer than anticipated, so don’t quit your “day job” until revenue is flowing.

   These days, even with the pervasive Internet and social media, it still takes time and money for your marketing and customer communication efforts to have an impact. Build your own personal brand image through blogging, industry forums, and networking.

4. Build a strong team around you and learn from them. Don’t make the mistake of relying on interns and family members to do the work. Hire only qualified team members you can trust, and listen to their feedback. Your good idea can come from you as one person, but a good business requires a team. You must also learn from your customers.

   Only a great team, and listening to customers, will allow you to adjust as you learn more, or the market changes. Every startup I know, no matter how good their idea, has had to make one or more changes or pivots, as they adjust to the challenges of the real world.

5. Expand your own learning and knowledge by helping others. Once you have achieved some success as an idea person who has implemented a business, you can broaden your positive impact by mentoring and coaching other aspiring entrepreneurs, supporting worthy causes, writing a book, and speaking at leadership conferences.

   In the example I mentioned earlier of Bill Gates, he tells everyone that he has continued to learn about business from his philanthropic efforts, as well as funding more leading-edge innovations, including clean nuclear energy and global health breakthroughs.

After these steps, you too can proclaim yourself to be an idea person, with no jeopardy. You can now argue, as I do, that starting and leading a business is not rocket science, but it does require the confidence and leadership to continuously make decisions, work with other people, and the humility to recognize that continuous new learning and change is required.

Marty Zwilling

*** First published on Inc.com on 02/17/2020 ***