Sunday, May 31, 2020

Why Smart Entrepreneurs Build Plans For Their Startup

business-idea-planning-business-planMost technical entrepreneurs I know demand the discipline of a product specification or plan, and then assume that their great product will drive a great business. Serious investors, on the other hand, look for a professional business plan or summary first, and hardly ever look at the product plan. Is it any wonder why so few entrepreneurs ever find the professional investors they seek?

Just for clarification, I characterize a product plan as a formal description of your product or service, with a quick business description at the end for effect. A business plan is a careful layout of the business you are building, with a quick product overview in the intro to set the stage. In reality, you need both, to clarify for yourself and team that you have a viable business solution.

A product plan has tremendous value inward facing, telling your product people what to build, while the business plan has maximum value outward facing, explaining to the rest of the world how your new company will survive and prosper. A product plan is never a substitute for a business plan.

Because the product plan is aimed internally, it can assume the reader has the relevant technology and jargon background. Here are the major elements of the best product plans:

  1. Market requirements section. This first section of every product plan defines the market, sizes the opportunity, and discusses individual needs and requirements that will be provided by your product and service. These requirements must be based on market analysis, expert input, and existing customer feedback.

  1. Technology, architecture, and feature descriptions. This section of the product plan details every element of the product or service that is your solution. It allows all members of your team, including marketing, support, and sales, to size and build the business plan processes they need to find customers, deliver, and maintain grow the business.
  1. Development schedule and checkpoints. A product plan must include the timeline and milestones involved in product research and development. Each of these activities should have associated costs and resource requirements. Related activities must be defined, including performance expectations, quality certification, and proof of concept.

  1. Quality testing and approval processes. Product certification or product qualification requirements and processes are a key part of every product plan. This section of the plan would include the definition of specific test processes, how results will be measured, and who has responsibility for execution and approval.

Now let’s talk about the basic components of a business plan. Since this document is outward facing, it is important to keep the terminology and tone consistent with that of your customer set, investors, and business partners. It does need to include a high-level summary of the components in the product plan, with key additional sections as follows:

  1. Definition of customer problem, followed by your solution. The customer pain point must be defined before the solution is presented, so it doesn’t look like you have a solution looking for a problem. Use concrete terms to quantify the value of solution, like twice as fast or half the cost, rather than fuzzy terms, like cheaper and easier to use.
  1. Opportunity segmentation and competitive environment. The market for your solution should be quantified in non-technical terms, with data sourced from professionals in the industry, rather than your own opinion. List key competitors and alternatives, highlighting your sustainable competitive advantages, such as patents and trademarks.
  1. Provide details on the business model. Every business, including non-profits, needs a business model to survive. Providing your product or service free to customers may sound attractive in marketing materials, but you need revenue sources to survive. Free is a dirty word to investors, since it’s hard to get a financial return from free.
  1. Executives, marketing & sales, financial projections, and funding. These are additional critical sections of a business plan to define who is running the business, business strategy activities, and financial expectations. There are many good books and Internet articles describing each of these sections, so I won’t cover the details here.

In principle, there is very little overlap between these two plans, so it never makes sense for an entrepreneur to build one without the other. Yet I’m still often approached by aspiring entrepreneurs who have neither. If you are still in the idea stage, meaning you have nothing but a passionate verbal description of an idea, approaching investors is a waste of time and a recipe for failure.

Savvy entrepreneurs always remember that they are the key investor in their company, so they measure themselves against the same standards as professional investors. That means they invest first in a set of plans.

Marty Zwilling

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Saturday, May 30, 2020

8 Ways Your Old School Can Energize Your New Venture

Arizona_State_UniversityMost aspiring entrepreneurs look to their alma mater, or any university, as a source of classes that can help them, but neglect to think outside the box or take advantage of all the other resources to be found there. The lesson of finding help, connections, and even funding where other people may never look is one that makes all the difference in the entrepreneur lifestyle.

As a startup advisor and investor, living in an area with several local universities, I’m continually surprised by how little many entrepreneurs know about the resources available from these institutions. Even if you are no longer a student, or not enrolled now, it can pay big dividends to get to know people there and explore the possibilities, including the following:

  1. Potential to get technical work done as a class project. Every university has grad students and professors who are anxious to find a project with high commercial potential to use as the basis for a thesis or an advanced class project. They have equipment and smart students that would otherwise cost you a fortune through an outside contract.

  1. Online or evening entrepreneurship classes for anyone. If you need help building your first business plan or financial model, it’s getting easier and easier to find what you need, as well as connections to peers and investors, without an expensive business consultant. Visit the university library for access to otherwise costly business reports.

  1. Access to intellectual property and current research. Most universities have a file of patents from project work that they are willing to license to any entrepreneur for business commercialization, with little or no cost up front. Other project and research reports in their library are a rich source of new ideas, if you are still looking for a place to start.

  1. Get help with grant funding and incubator resources. Every startup needs to start their funding search looking for grants, with no equity dilution, as well as contests and foundations. These often lead to angel investors and venture capital investments later, or connections to local company venture funds for selected focus and technology areas.

  1. Find technical and legal guidance and advisors. The best university professors are anxious to get involved in real-world business ventures as advisors to maintain their currency and improve their academic credibility. Their value to you is great industry connections, free legal advice, shared learning, and credibility for you with investors.

  1. Attract a co-founder and key team members. Universities are a great source of hungry and passionate people looking to get involved with the next big thing, or an opportunity to change the world. They have connections to industry associations and entrepreneur organizations that can kick-start your networking efforts, both locally and globally.

  1. Access to entrepreneurs-in-residence, business mentors. Most schools have a rich pipeline of real-world executive volunteers available for mentoring. These also get used for guest lectures in business classes, judges for business plan competition, and introductions to accredited investors. They can also connect you to area businesses.

  1. Visibility to startup job opportunities and career guidance. Even if you are not a student, you can visit the job center to see what’s happening in your area that may be of interest, or check out what your competition is doing. If looking for help, you can find interns willing to work for the experience, and real insights into new customer segments.

For example, I live in Arizona, home of Arizona State University and Embry-Riddle Aeronautical University. Both provide entrepreneurial guidance for aspiring entrepreneurs, have technology resources, and access to expert staff members. I have done volunteer work at both these schools, and I’m not even an alumnus from either one. I’m betting you can find something similar at a university near you.

Marty Zwilling

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Friday, May 29, 2020

6 Keys To Startup Wins Without Disruptive Innovation

Non-disruptive-innovationAs an investor, innovation is a term I certainly like to hear these days, but many of you entrepreneurs try to take it to the next level, by claiming to have a “disruptive innovation.” What you probably don’t realize is that the term disruptive brings its own set of baggage, implying to investors extra high risk, high market building costs, and a long slow ramp before payback.

For example, you may think that disruptive smartphones were an overnight sensation, but in reality, it took huge investments by several different companies starting in 1992, including IBM, Apple, and Google, before the market really took off in 2007. The disruptive technologies in electric vehicles and artificial intelligence have taken even longer to see any dramatic payback.

Thus, if you are looking for initial funding for your new solution, I recommend that you focus your sights a bit lower initially, maybe even counter-intuitive to your thinking, and target markets and opportunities which have potential for a near term payback, with less up-front risk. Here are some example strategies to pitch and practice:

  1. Adapt an existing product to a new use. Innovation doesn’t even require technology. You may offer a different application for an existing product, a new pricing model, or a new level of support. Or find an entirely different application for an existing product. De Beers produced industrial diamonds, but found a market as well in engagement rings.

  2. Pick a specialized technology within an existing movement. Let the heavy lifting on major technology evolutions be done by big players, such as Apple or Google. Think smartphone cameras, as opposed to a new smartphone design. Within all large markets, there are many opportunities for smaller innovations that don’t require a huge investment.

  3. Focus on a large opportunity in a low-growth market. High-growth market segments always catch your attention, but also are likely to be attacked by bigger players with deeper pockets. Find an innovation that doesn’t require market growth to thrive – adding technology in a big market segment can be a big win even if the market doesn’t grow.

    For example, by most definitions, the retail market for a cup of coffee is mature, but that hasn’t stopped smart entrepreneurs like Roasting Plant from enjoying success by engineering a better cup of coffee. The opportunity is huge within the existing market.

  4. Find a niche market where you have unique insight. Experience is a great teacher. If you can tell me with conviction about what you have learned to be a viable innovation opportunity in a specialized area you know well, I might believe that you can produce a return in my lifetime. This step may also lead to a disruptive innovation in the future.

    Back in 2009, a new startup called Sqare used their POS (Point-of-Sale) and retail knowledge to create a popular ultra-mobile card reader and a free app, now in 30 million businesses, that turns their iPhone into a point of sale and control center for business.

  5. Target viable customer segments overlooked by competitors. Consider a non-mass-market segment less interesting to incumbents, such as needing a highly-customized solution, or customers who can’t afford the main-stream solution. Emulate the expansion of personal computers into industrial-strength versions, and cheap low-function boxes.

  6. Move an existing technology into a new business area. Usually it’s an advantage to have insider knowledge, but insiders don’t always see how a new technology fits into their domain. Just as the telephone and watch industries never realized how computer technology could revolutionize their device, other areas may quickly buy your innovation.

    In reality, neither Uber nor Lyft created any new technology, they just used existing GPS tracking and simple apps to improve the customer local transportation experience. Yet the customer and driver both appreciate the service innovations provided.

Another reason for implementing and pitching one of these alternatives is that market disruption is rarely predictable, so claiming your certainty can only hurt your credibility. Disruptive innovation is really only evident in hindsight. Thus I recommend that all you passionate entrepreneurs aim your innovation for the stars, but don’t highlight that focus to early investors or early customers.

I have found that building a new startup is best thought of as an incremental process, fueled by small successes, many pivots, and growing credibility and confidence. Counting on a “big bang” disruptive technology approach up front is a sure way to maximize your risk.

Marty Zwilling

*** First published on Inc.com on 05/15/2020 ***

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Wednesday, May 27, 2020

9 Subscription Model Variations To JumpStart Growth

globalisation-business-growthEvery new business quickly realizes that revenue coming in every period on a committed basis is the Holy Grail to survival and growth. Based on traditional research, getting new customers is five to ten times harder than getting additional revenue from existing customers. Thus the subscription model (low fixed monthly payments), has become the norm for new products and services.

In fact, subscription pricing has been around for a long time for magazines, cloud-based software, and gaming, but now I’m seeing it used for just about anything, including for more stylish clothes via Mr.Conection, gourmet foods via TryTheWorld, and toys for your kids via KiwiCo. If you are an entrepreneur not using this model, it may be time to consider a pivot.

In fact, in a classic book “The Automatic Customer,” by John Warrillow, who runs the successful subscription based research business The Value Builder System, I saw the nine most common variations on the subscription model today. If you are looking to start a new business in any domain, it’s definitely worth your time to check your fit for one of these models:

  1. Membership website model. With this model, you provide website access to insider information for a regular subscription payment. It works best in a tightly defined niche market, like antique car owners, or rare-coin junkies, or woodworking enthusiasts, where experts hare hard to find, and members can gain from interacting with each other.
  1. All-you-can-eat content model. By providing access to a large variety of titles, like NetFlix with streaming movies, or Hulu for TV shows, with new content added regularly, there is always a reason to keep up your subscription. If you already have many followers for some limited free offerings, this also becomes a natural freemium upgrade.
  1. Private club model. On the other end of the spectrum, if your service or experience is in limited supply, make it a status offering for the strivers out there who want to act and feel like affluent consumers. Here the key is to convince customers that you have something really rare, and maybe even entice them into a long-term but affordable relationship.
  1. Front-of-the-line model. If you can help with a relatively complex product or service, this one is especially appealing to customers who are not overly price sensitive, or ones for whom waiting in line can have catastrophic consequences. It works for the need to resolve IT issues in a small business, to avoiding long lines at popular clubs and hotels.

  1. Consumables model. You should consider this subscription model if you sell things that naturally run out, like Easypeasies diapers or Birchbox for cosmetics. People are willing to pay for convenience, but don’t underestimate the logistical challenges in fulfilling orders and providing services to thousands of subscribers in out-of-the-way places.
  1. Surprise box model. This model involves shipping a curated package of goodies to your subscribers each period. It may have started with wine club memberships, but has now been extended to include BarkBox for family dog treats, Standard Cocoa for those who love chocolates, and SpicySubscriptions for lovemaking paraphernalia.
  1. Simplifier model. Everyone these days wants to simplify their life, so this subscription model works well for personal service businesses, like pet grooming, tutoring, window cleaning, and even bookkeeping. The key is making sure the customer doesn’t have to remember the scheduling, deal with immediate variable payments, or worry about quality.
  1. Network model. This model works best where your product or service utility improves as increasing numbers of people join in. It was popularized with dating sites and LinkedIn, but now is popping up with many services, like Zipcar for car-sharing, Spotify for music sharing, and WhatsApp for international messaging for a low predictable fee.
  1. Peace-of-mind model. This one is an extension of the insurance model into new domains. For example, Amber Alert GPS will make sure your kids don’t wander outside of safe zones, Site24x7 will let you know if your web site is down, and Social Studio monitors social networks so you know what people are saying about your brand.

If your startup is in the Business-to-Business (B2B) world, you need to realize that the subscription model has evolved considerably since SalesForce.com introduced Software as a Service (SaaS) way back in 1999. Popular variations of cloud subscription services now include offerings billed as Platform as a Service (PaaS), and Infrastructure as a Service (IaaS).

So now may be the time to start or transform your business into a recurring revenue engine with subscriptions, or just add an option to get some extra sales growth. But be aware, these models bring with them a whole new psychology of selling, supporting, and measuring your success with customers. Do your homework before jumping in with both feet.

Marty Zwilling

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Monday, May 25, 2020

6 Strategies For Startup Exit That Investors Accept

startup-exit-strategyThe last thing a new entrepreneur wants to think about for a new startup is how it will end. Yet one of the first things a potential equity investor asks about is your exit strategy. The answer you give can make or break your ability to get an investment, so you need to have the right answer ready before anyone asks. Here are three important reasons for the question:

  • Good investment paybacks normally require an exit event. Equity investments are not loans, so there is no loan payback period or interest payments. Equity is stock, but private company stock has no market value until the company goes public or is sold or merged with another company. These events may take three to five years at a minimum.
  • Startups with no exit planned will minimize investor returns. If the entrepreneur plans to grow the company into a family business, or keep it private, they will either never be interested in buying out investors, or will certainly not be motivated to provide the 10x return that investors are looking for. Investors hesitate to invest under these conditions.
  • Most entrepreneurs like the startup role, but not the big-company role. Investors know that the fun of a startup turns into managing production processes, sales processes, and personnel in a few years. You probably will do that job poorly, unless you plan your exit early, to move on to your next startup role, to do that better the next time.

Of course, if you are able to bootstrap your startup, and don’t anticipate the need for outside investors, you can technically ignore the first two points. Even still, in the context of all three points, I recommend that you evaluate the most common exit alternatives and considerations, and integrate the right one into your startup strategy and plan:

  1. M&A - merger or acquisition by another company. This should be perceived as a win-win event, where your startup is bought or merged into a larger peer or competitor, allowing both you and investors to cash out. The resulting entity will gain complementary skills, economies of scale, new customer sets, and hopefully a larger growth opportunity.
  1. IPO – public company initial public stock offering. According to National Venture Capital Association statistics, only 16% of venture-backed startups recently used this alternative, due to high liability concerns, demanding shareholders, and high costs. Most experts don’t recommend this approach as your default strategy anymore.
  1. Find a private equity firm or friendly individual. This alternative differs from an M&A, since the result is still your original single company. Yet it is an opportunity for you and your investors to cash out. The buyer has the challenge of scaling the business, and managing all the operational growth requirements. You can kick-off your next startup.
  1. Position the company as a cash cow to fund spinoffs. If you can convince investors that your startup will generate a solid revenue stream, and the market won’t go away any time soon, they may see an opportunity for an ever larger return. You can maintain ownership, and even find someone you trust to run it for you, as you focus on spinoffs.
  1. Liquidate the assets, cash out investors, and keep the rest. This is not a recommended strategy, since business shutdowns are usually seen as distressed situations, meaning the value of hard assets will be highly discounted. Less tangible assets like the brand name, business relationships, and even your reputation may be lost or damaged.
  1. No exit. If your startup strategy is to be a lifestyle company, or a family business that will grow organically and never go public, then no-exit is a valid exit strategy. This alternative is often paired with a personal no-exit strategy. If you expect investors to help your startup scale, it probably won’t happen, as discussed in the first points of this article.

While exit discussions may somehow seem negative, an exit strategy should always be seen as positive. It’s a plan to develop the best opportunity for you, your startup, and your investors, and capitalize on it, rather than a plan to get out of a bad situation. Think of it as a succession plan, to keep growing what you have started. It may be the end of your startup phase, but it should be the beginning of a more mature and stable business.

Marty Zwilling

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Sunday, May 24, 2020

How To Reinvent Yourself As A Business Startup Today

Marcela Sapone, CEO & Co-Founder at Hello Alfred talks to DOL employees and outside attendees as they gathered in the Great Hall in the DOL Building fora panel on “Positive Choices in the Digital Sector: Building Good Jobs Principles into Emerging Platforms” "Future of Work."The era of stable lifetime jobs for business professionals within a single company are gone. Companies are rightsized quickly now as markets change rapidly, and business professionals are quick to jump to new opportunities for growth and survival, with no ties to special benefits or pension plans. Thus smart business professionals are rapidly becoming the new entrepreneurs.

As a mentor to startups, I see more startups that are really an individual professional, marketing themselves as a consultant or freelancer in this new gig economy. This is a positive in uncoupling them from a dependency on a single company or boss, but the downside is that they have to suddenly manage all facets of a business, including finances, strategy, and savings for the future.

Of course, entrepreneurs delivering services have existed for some time, including business consultant, independent contractor, and freelancer titles. But these titles are not descriptive of specific roles or skills, and have always had marginal credibility in the business community. I suggest that new entrepreneurs lead with their “professional” title, which suggests their focus and specialized skill, and can be applied to almost any role. Here are some examples:

  • Marketing Professional. Every company and startups needs marketing experts, who are skilled and knowledgeable in the development of marketing programs, content creation, lead generation, and the utilization of social media. This world changes rapidly, and needs a professional with experience in digital and conventional media to keep up.
  • Software Development Professional. Even big companies I know find it hard to keep their in-house programmers up to speed on the latest technologies, including mobile devices, the latest Web technologies, and multi-tenant applications in the Cloud. More and more are scouring LinkedIn for specialists willing to do short-term relationships.
  • Staffing Professional. Staffing requirements come and go in every company, big or small. One of the harsh realities for most product entrepreneurs is that they have deal with hiring and firing as their company grows, and they have no experience or idea where to start. For existing trained professionals, it’s an opportunity to become an entrepreneur.
  • Administrative Professional. Long ago, these were called secretaries, often starting in the typing pool, with the best aligning themselves with an advancing executive, leading to a long career. Now the new breed of these is a self-managed entrepreneur, working remotely, with real expertise on the administrative tools and ways of business today.
  • Sales Professional. The best sales people in any company are highly focused, and self-motivated by the commissions they can earn by closing a few big deals. They know how to capitalize on social media, viral marketing, events, and the new tools of the trade. They are always ready to move on to the next big opportunity as markets change.

I’m sure you can think of a dozen more examples today. Tomorrow you may be looking for a Personal Finance Professional, Health-Care Professional, or even a Startup Professional. We are becoming a society of entrepreneurs. Even the education system is starting to recognize this, with entrepreneurial courses and majors springing up in every university across the world.

Thus you don’t need to invent an innovative product or technology to be a real entrepreneur. The cost of entry as a services professional is at an all-time low, with powerful free tools to create your own website, cheap incorporation of yourself as a Limited Liability Corporation (LLC) via the Internet, and community colleges offering courses for anyone in the new technologies.

The challenge is that not everyone is ready and willing to take on the responsibility for their own skills, lifestyle management, and financial stability. Many of these new entrepreneurs come to me looking for an angel investor or crowdfunding, which will never happen. Investors don’t fund entrepreneurs offering services, since these don’t scale, don’t have large margins, and need just a customer contract to start.

So if you have some resources, some skills, and some confidence in yourself, maybe it’s time for you to jump on the entrepreneurial bandwagon. There is no longer any excuse for a professional businessperson to be stuck in a position they don’t enjoy and can’t control. The entrepreneur lifestyle is much more satisfying, and has unlimited potential.

Marty Zwilling

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Saturday, May 23, 2020

7 Reasons To Avoid Stealth Mode For Your New Venture

secret-lipsIt’s still popular these days for startup founders to operate in stealth mode, meaning no details about the idea or progress are shared with anyone until the big reveal and rollout. The common reason given is that this prevents any competitor from stealing their idea and beating them to market. In my view, this paranoid approach costs them much more than the risk of being open.

I’m not suggesting that a startup should ever disclose patent details to others before filing, but I can’t imagine why a startup would not seek visibility and feedback for their idea and solution while they could still make changes with minimal cost. Pivots and corrections are inevitable for startups in this age of rapid change, and the earlier you make them, the quicker you get to success.

Being open is the new business culture around the world. Entrepreneurs talk to customers and competitors talk to each other about the new trends and technologies they see. Coopetition is the new mantra for growing your business faster. Here are seven key reasons that being open is better for your startup than trying to fly under the radar:

  1. Visibility generates interest. You can’t get any word-of-mouth or media activity by hiding. Before you finalize the product is the best time to talk about it and see if you can get some buzz started. This will do more for your first mover advantage than more time in the lab. Most people agree that even negative media attention is better than none.
  1. Evaluate customer response prior to development. It’s never too early to get real feedback from the people who count. No matter how passionate and certain you are that your idea is perfect, the reality is that you will likely need to pivot at least once. Why not make the change before you have wasted significant time and money?
  1. Get competitors to surface early. You may be convinced that no competitors exist, which is very unlikely. If there really are no competitors, then there is likely no market opportunity, or you haven’t looked yet. If your position is so tentative that knowledge of your idea puts you in jeopardy, you need to know it sooner, rather than later.
  1. Demonstrate a minimum viable product (MVP). Surface your prototype, get customer feedback, make corrections, and iterate until you get it right. Startups in stealth mode often have a false sense of security that they can take extra time to do the job right the first time. Customer feedback is required to get it right, and hidden time is wasted time.
  1. Meet investors before asking for money. The time to build investor relationships is before you need the investment. It gives you credibility to mention your idea in general terms, without immediately asking for money. This can help you get in the door when you are ready, and asking questions early will give you insights on investor priorities.
  1. Pivots can be done gracefully at this point. Customer credibility actually improves when they see you making changes based on their input, and the cost of correcting mistakes early is lower. Operating in stealth mode for an extended period tends to convince entrepreneurs to believe their own biases, and visibly fight the need to change.
  1. Optimize your web history and presence. Stealth mode normally means no time for search engine optimization prior to product launch, not to mention relevant blogging activity, and link building. This means your whole startup effort will appear as very early stage for investors, and will likely not be adequately tuned for customers.

On the other hand, stealth mode does make sense for large companies, like Apple and IBM, who will likely be sued for pre-announcing a future product, since other companies have used this ploy in the past to freeze the market and lock out new competitors. Of course, even startups can get into serious trouble by talking about products and direction with no intent or ability to deliver.

I also realize that there are a limited set of startups, facing particularly entrenched and unscrupulous competitors, where early stealth mode is necessary. With most other classes of startups today, including smartphone apps, web services, and social media applications, early customer feedback is critical, and time to market is of the essence, so secrecy is more of an excuse than an advantage. Who are you fooling by not allowing your startup to be found?

Marty Zwilling

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Friday, May 22, 2020

8 Questions You Should Ask Before You Join A Startup

questions-before-joining-a-startupEvery startup founder loves to prompt for questions from investors and potential key team members about their vision, and the huge opportunity that can be had with their disruptive technology. Yet if you are on the other side of the table, there are some other key questions that you need to ask, which will tell you more about the real success prospects for this business.

Enthusiastic startup founders may try to deflect or minimize these questions in true media-training style, so you need to be patient, calm, and persistent to get the whole story. From my perspective as an investor, I recommend that every founder needs to know the answers to these questions, be open and honest in answering them thoughtfully, and without making excuses:

  1. What is the current runway and burn rate? These terms quantify how fast money is being spent, and how long the business can survive before another round of investments is required. Early stage burn rates over $50K per month, or a runway of less than six months may indicate an inefficient or desperate startup. Think twice before you jump in.
  1. How complex is the capitalization table? The allocation of shares among the founders, and the number and size of outside investments, will tells volumes about the health, stability, and management of the business. Most founders like to talk about their many months or years of sweat-equity, but cash invested is a stronger commitment.
  1. When did this effort really start, including pivots? If the company has been around for more than a couple of years, and still has no product or revenue flow, there better be a good explanation. One more key employee or one more investor will probably not turn the situation around. History gaps and founder turnover may indicate a long road ahead.
  1. Does everyone on the team have a clear role and mutual respect? You won’t get this answer directly from the founder, so ask to talk to other key team members to make sure everyone is carrying their weight, and communicates effectively. Some conflict and differing perspective is healthy, but too many titles or close relatives should be suspect.
  1. Any outside advisors or board members available for discussion? Every startup should have at least a couple of outside advisors who are not major investors or family members, anxious to talk to new investors and key new hires. These should be people with complementary skills to the founders as well as industry expertise or connections.
  1. Is there a real customer willing to give a testimonial? Don’t be sidetracked by potential customers in the middle of a free trial, or friends of the founder. If it’s too early for customers, make sure you understand exactly when the product ships, how detailed is the rollout and promotion plan, and how many times these plans have changed.
  1. Are any lawsuits and challenges to intellectual property pending? Before you invest your life savings, or bet your career on this startup, you need to know how much of a barrier to entry the brand and patents are projected to be. If you have questions or concerns, now is the time to seek legal advice, not after the fact.
  1. How much and when can I reasonably expect a payback? Since nine out of ten startups fail completely, serious investors look for a 10X return on their investment within five years. Look for examples of similar companies and revenue multiples achieved from acquirers. Calculate employee stock option values and vesting times, as well as salary.

These questions are the key ones in every due diligence effort, always done by accredited investors, but almost never done by key employees and new partners. Ironically, startup investors are normally in less personal jeopardy than early startup employees. Smart investors know that many startup investments will fail, while employees always plan on million dollar payouts.

In any case, in addition to the grand vision and the chance to change the world, I recommend that it’s worth your while to calmly and assertively get some good answers to some hard questions from a passionate startup founder before you sign your life away.

Marty Zwilling

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Wednesday, May 20, 2020

10 Traits Demonstrate Entrepreneur Character Strength

shark-tank-cellhelmet-pitchAs I was watching the investor show, Shark Tank, on TV the other night, I was struck by how quickly and how extensively the sharks focused on the background and character of the entrepreneurs, compared to time spent evaluating their products. I realized it was consistent with my own view as a former angel investor, that investors invest in you, more than your solution.

For example, if you as an entrepreneur come across as arrogant or too casual, many people you need to deal with in business, including investors, suppliers, and customers, will run the other way. The attributes you need to demonstrate in every meeting, and live on a daily basis, are ones illustrating your “strength of character.” These can be honed over time, and can’t be easily faked.

Based on my own years of experience in big business, startups, and the investor community, here are the key habits and traits that each of us needs to continually improve to be perceived by peers and others as leaders and innovators in business here and consistently around the world:

  1. Be aggressive in aspirations but prudent in execution. I want to see entrepreneurs who have a focus on the future, but the strength and perseverance to build realistic and well-laid plans, for follow through daily. This means you set goals, milestones, and metrics, and are able to provide financial projections to support funding requirements.
  1. Demonstrate social intelligence and concern. Today’s world of business is highly driven by social issues and environmental concerns. Entrepreneurs with a strength in social intelligence are better able to use these to their advantage, in selecting the right solutions, the right market segments, and implementing effective marketing strategies.
  1. Listens well, and seeks out critical feedback from others. If you are an entrepreneur with this trait, I believe you will seek and positively respond to feedback from three critical groups: peers, customers, and experts. I find that self-focused entrepreneurs, on the other hand, are more likely to resort to denial when faced with negative feedback.
  1. Always proclaim and deliver a positive attitude. The reality of my business experience is that people who are consistently more negative and pessimistic tend to make their views limit their results. If you demonstrate a positive attitude, I’m more easily convinced that you can make your business commitments, and your solution a success.
  1. Conversant with a variety of perspectives and concepts. This trait, sometimes called mental complexity, will convince others that you likely understand the relevant issues, are willing to challenge your own ideas, and will be quicker to adapt them to encompass new information, experiences, and meaning. Change is the only constant in business today.
  1. Takes ownership of personal strengths and weaknesses. Investors look for entrepreneurs with a high level of self-determination, who continually seek more competence in their chosen domain. We all have weaknesses, but we can all learn and improve our effectiveness. Denial and over-confidence are not good traits to exhibit.
  1. Not afraid to share personal life experiences. Everyone has a story. You can make it inspirational and supportive, or you can hide behind a veil of anonymity. Other people in business judge your character by how major events and influences have shaped your personal development, and will likely impact your response to new situations.
  1. Recognize natural leaders and seeks help from them. Great entrepreneurs have sought help from natural helpers since childhood, including parents, teachers, and business influencers. I believe this will make you feel more accepted, respected, and affirmed, and allow you to pass that feeling on to key players in your business career.
  1. Shares views and learns from a personal mentor. Entrepreneur leaders recognize and seek three types of mentoring – career mentoring for the longer term, peer mentoring for tactical guidance, and life mentoring for quality of life balancing. Even successful entrepreneurs, included Bill Gates and Warren Buffett, learn from each other as mentors.
  1. Visibly demonstrate the highest integrity. Integrity is generally defined as the act of behaving honorably, even when no one is watching. People with high integrity follow moral and ethical principles in all aspects of their business life, including decision making, and working with others. Investors ask about you, not your product, to test your integrity.

Whether you are an entrepreneur, or any other business professional, the strength of your character, as perceived by others, is of major importance to your growth and success. Don’t let the desire to find shortcuts, or egotistical tendencies, keep you from continuously improving and developing your character. Your return for showing good character in business is well worth it.

Marty Zwilling

*** First published on Inc.com on 05/06/2020 ***

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Monday, May 18, 2020

8 Ways To Get Your Business Going Without Investors

germ-plant-seedling-liveIf you really want to start a business your way without a boss or professional investor hovering over you, then just fund it yourself or through friends and family, and grow it organically. It’s more possible to bootstrap today than a few years ago, as the cost of entry continues to go down. According to Investopedia, over 90 percent of successful businesses currently start this way.

With one of the many new tools, and a dose of sweat equity, you can create a website for almost nothing -- and you are on your way to success with ecommerce, your latest invention or personal services. It’s equally easy to go online and incorporate your new entity, register some intellectual property and have some fun with social media for marketing and interacting with customers.

The key to successful bootstrapping is to master the do-it-yourself approach, defer compensation or barter services whenever possible and become a frugal minimalist in all things requiring a cash outlay. Here are the key principles I recommend as an advisor to many entrepreneurs:

  1. Start your business in your own home. With the advent of the Internet, the size and address of your office is irrelevant. Most new teams are geographically dispersed these days anyway, so paying rent for an office should be differed to later stages when revenue is plentiful. You will be in good company with the many legends who used this approach.

  1. Barter services for access to required resources. Don’t rationalize a big investment in basic equipment with long-term requirements thinking. Look for a part-time job in a local or family business to provide access to things you will need only occasionally, such as a high-speed printer, video equipment or product assembly tools and storage.

  1. Learn to be a generalist rather than a specialist. With the unlimited access to “how-to” videos and detailed instructions on the Internet, you shouldn’t need to hire experts for most things. Likewise, too many volunteers and interns will only increase your workload and rework costs. Use your networking to get advice, but all jobs can be do-it-yourself.

  1. Operate small, but show a big-company image. You don’t need a large building and staff to be visible and heard worldwide. Use multiple social-media channels, blogging, email and voicemail to build the same image and responsiveness as larger competitors. Keep expenses down, but keep customer visibility and sensitivity as a top priority.

  1. Practice living on a shoestring budget. Most successful entrepreneurs take only a very minimum salary during the formative business years and reinvest all profits back into the business for organic growth. Defer your desire for expensive perks and vacations until later when you have time for them. You can have fun without spending big money.

  1. Favor profitability over revenue and user growth. Adding free users or customers to increase valuation makes sense for a venture-backed startup looking to go public, but will kill bootstrapping. Self-sustainability, independence, and real fun requires paying customers, profitability and an early cash-flow-positive business plan.

  1. Use your equity for key executives and business partners. Bootstrapping doesn’t mean that you don’t share equity. You can use it best to entice new team members and partners, giving you more horsepower and commitment for the long run. Investors seeking equity for cash typically want more control and cash-return quickly.

  1. Don’t assume you must plan for exponential growth. Investors have spread the word that you can’t get “hockey-stick” growth without a large cash infusion. In fact, you don’t need exponential growth to give you a good return and be declared successful. You may not be acquired for 10-times revenue, but quick exits and public offerings are no fun.

In summary, bootstrapping means living within your means, watching costs carefully, finding alternatives to cash for building the team and expanding the business infrastructure. Bootstrapping does require a full confidence in your own passion to make decisions and change the world with no investors to lean on or blame. But isn’t that why you signed up to be an entrepreneur in the first place?

Marty Zwilling

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Sunday, May 17, 2020

10 Popular Business Strategies That Most Often Fail

high-risk-of-failureEvery entrepreneur I know has their favorite excuse for a previous failure – an investor backed out, the economy took a downturn, or a supplier delivered bad quality. These things outside your control do happen, but based on my years of experience as a startup advisor and angel investor, I still see too many strategies leading to failure that are inside the entrepreneur decision realm.

I certainly agree that starting a business is fraught with risk, and none of us get it all right the first time. It’s important to learn from your own mistakes, but it’s even smarter to learn from someone else’s mistakes, without paying their high price in time lost, cost, and pain. In that spirit, I offer my perspective on ten common startup failure sources that rarely get admitted by entrepreneurs:

  1. Choose to skip the written business plan. I believe the old adage that you don’t know what you don’t know until you try to write it down. A business plan is for you first, not investors. The discipline of writing down your plan is the best way to make sure you understand how to transform your idea into a business, and how to communicate it.
  1. Offer free solutions to bring in more customers. Don’t get caught in the myth that you shouldn’t worry about monetization until after you have a large customer base. Viral marketing costs real money, and your support staff and hosting systems cost even more. Even non-profits need a profitable business model to offset staff and operating costs.
  1. Assume passion level defines business opportunity. There is no substitute for market research to confirm that your passion matches a real need in the market. Not every great idea is a viable business. Social causes are great, but your ability to sustain your value contribution is directly linked to your ability to find paying customers.
  1. Practice dreaming more than doing. Dreamers come up with ideas, and do-ers come up with businesses. Building a successful business is all about execution. Don’t try to build a business unless you are comfortable with risk, uncertainty, responsibility, and hard decisions. Dreams may motivate your team, but customers expect real solutions.
  1. Convinced that many existing players means room for ‘me-too.’ Jumping into a crowded space is a great way to get lost quickly. Your chances of success are much greater if you target an under-served niche, or bring a new quantum leap in value over existing competitors. ‘Easier-to-use’ and other fuzzy terms won’t get any attention.
  1. Bypasses intellectual property as not worth the cost. ‘First-to-market’ is not a sustainable competitive advantage for startups, since sleeping giants do wake up when they see traction, and they can smash newcomers quickly. Patents and trademarks are very valuable in attracting investors for scaling, as well as future premium buyouts.
  1. Thinks boundless energy is equal to experience. The real secrets of any business domain are not intuitively obvious, nor available in books. Many entrepreneurs tackle a completely unknown business domain, because the solution looks obvious, and they plan to work very hard. Usually it pays to work in an industry for a while, before you try to fix it.
  1. Willing to start today and find resources later. Cash is always hard to find, but in many cases it’s even harder to find access to needed distribution channels, government contract expertise, or the special skills required to deliver your solution. Entrepreneurs need to spend time working on the business, as well as in the business.
  1. Finish the product before marketing begins. It’s never too early to start marketing, since it usually takes as long to build marketing momentum as it does to build a product. No startup can afford to do these serially. In today’s information age, it takes time and money to make your solution visible. Marketing should start before product development.
  1. Just give up and start over when tired and frustrated. In my experience, most startup success back-stories include an entrepreneur that simply would not give up, despite seemingly impossible odds. Most great entrepreneurs, including Steve Jobs and Thomas Edison, overcame multiple setbacks before they built their legacy of success.

None of these issues involve rocket science or MBAs. The best entrepreneurs just temper their passion with reality checks and street smarts, derived from their advisors and learning from their peers. It’s good to avoid making the same mistake twice, but it’s even more important to avoid making the same mistake as others before you, and expecting a better outcome. Even the best excuses don’t lead to success.

Marty Zwilling

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Saturday, May 16, 2020

Balance Your Focus Between Passion And Perspiration

reach-for-the-starsMany experts are certain that successful entrepreneurs are the ones with the most inspiration (passion and dream), while others will assert that it’s about more perspiration (working harder). In my experience, both are always required in heavy doses. There are no “can’t fail” shortcuts or “get rich quick” scenarios.

That’s why all those so-called million dollar ideas I hear about as an investor don’t get me excited, and entrepreneurs find that working twenty hours a day often generates nothing more than sweat, instead of the desired sweat equity. Moving a dream into reality requires balancing on a tight-rope of passion supported by unending efforts to move heaven and earth to make it happen.

For success under in this challenging and stressful environment, it’s important to recognize every small element of success to keep your inspiration alive. Here are five key ones to celebrate:

  1. Enjoy the feedback from every satisfied customer. This is the confirmation that your product or service fills a real need in the marketplace. Talking to real customers is the best way to keep your inspiration alive, as well as the best way keep on track with changing trends and future innovation ideas.
  1. Note the growth of your team and your own leadership. Overcoming obstacles and learning is one of the biggest inspiration for most entrepreneurs. Similarly, it will be very satisfying to see the productivity increases from your leadership and mentoring. Enjoy watching key members of your team grow from followers to leaders.
  1. Celebrate the ability to pay yourself a salary. Having enough revenue to finally give yourself a salary is an inspiring event, and one that you should savor. New business models that provide an ongoing revenue stream, or a secondary stream from advertising, raise your margins and can give you some additional satisfaction.
  1. Watch that patent provide a real barrier to competitive entry. Re-live that moment of inspiration that resulted in an innovative design and implementation for your product, and is now providing you with a sustainable competitive advantage. This may also be the moment when you get your first big acquisition offer, rather than a clone appearing.
  1. Appreciate the media accolades and peer success feedback. Enjoy that first video interview at an industry conference, or the newspaper story which enhances your startup visibility and credibility. Feel the inspiration from peers asking for your secret, or peers trying to model their efforts after yours.

At the same time, you can never let up on the work and the sweat required for continuous innovation, exemplary customer satisfaction, and staying ahead of competitors:

  • Marketing is a never-ending challenge. Even with the perfect product, your customers won’t even know you exist without marketing. Surprisingly, word-of-mouth and viral efforts require more work and a larger budget than you would expect. You have to react quickly to changes in the marketplace, and adapt to new customer requirements.
  • Managing cash-flow personally and continually. Cash-flow challenges must be part of your daily workload, especially if the business is growing fast. This is a task that you should never delegate. Keeping expenses down must always be top priority. One approach, which is even more work, is to keep tasks in-house rather than outsourcing.
  • Increasing customer focus and loyalty. Using the new social media channels for customer interactions and feedback is a great boon, but it requires daily attention and work to respond to customer requirements, fix satisfaction issues before they escalate, and build the level of loyalty required to make every customer an advocate to friends.

In my experience, I have found that if entrepreneurs can sustain the inspiration, even the hard work becomes part of the fun and satisfaction, leading to success. All of one, without the other, is not sustainable. How well are you doing in that balance between inspiration and perspiration?

Marty Zwilling

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Friday, May 15, 2020

10 Marketing Strategies To Drive Exponential Growth

drive-exponential-growthAs an angel investor, I see plenty of startups focusing on building an innovative product, but I’m looking for the few who are also leading with an exponential growth strategy, to put them in the category of the next Amazon or Google. Traditional marketing may be adequate for linear growth, but it likely won’t catapult you to Amazon’s unicorn status, or make waves in the business world.

For example, I usually hear about an aggressive marketing budget, with a plan to penetrate a few big retail chains, and some videos to catch your attention on YouTube. What I want to hear is an innovative marketing and growth strategy that will set you apart in the minds of investors, as well as customers. This strategy would likely include one or more of the following elements:

  1. A plan to rollout innovative support for a worthy cause. Today’s customer is especially attracted to companies like TOMS, who donates a pair of shoes for every pair they sell, or Patagonia, with its support for grassroots environmental groups. Let your highly motivated customers be your best marketing advocates for new customers.

  2. Sponsor some friendly competitive events with prizes. Everyone loves to compete, and maybe even win something. Give customers incentives, rewards, and challenges as a way to have some fun, and they will talk about you and promote you. Examples include the Nike Run Club app where people participate in challenges and win trophies.

  3. Offer an alliance with competitors to expand the market. Elon Musk and Tesla made their battery patents available to anyone, to clear the path for market infrastructure growth and compatibility, which of course benefits Tesla. A mindset of killing your competitors is not always the key to expediting your own growth and success.

  4. Initiate a visible campaign against a common competitor. On the other hand, one of the best ways to strengthen your own community is to provide leadership against a common enemy. This could be fighting some government bureaucracy with your technology, or “supporting” unhappy customer efforts against an unpopular competitor.

  5. Produce memorable product demonstrations or videos. New products being used in unusual ways attract attention, buzz, and followers. Be sure to involve real people and real customers, such as GoPro cameras, with user generated demos and amazing aspirational videos. These can easily start new trends, or capitalize on existing ones.

  6. Build relationships and partnerships to expand your influence. This one has been around for a long time, but I still see too many entrepreneurs trying to climb the mountain alone. Apple expanded their business exponentially with app developers, and Amazon found new ways to make their suppliers look and act like they are part of the business.

  7. Provide and promote an exclusive community for influencers. Like-minded people like to have a place to meet and talk to each other, both in cyberspace as well as the real world. Think of these as the future version of the old “computer clubs,” or today’s multi-player game platforms. These communities will dramatically amplify your own marketing.

  8. Include marketing initiatives to educate and help customers. Whole Foods, for example, has worked hard to establish itself not just as another grocery store, but as a lifestyle choice. Innovative marketing content is focused wholly on healthy living and earth-conscious eating, rather than the conventional food product offerings and price.

  9. Create experiential opportunities for desired customers. Experiential marketing, also called "engagement marketing," invites an audience to interact with a business in a real-world situation. Herm├Ęs, for example, used pop-up shops in New York and China to allow potential customers to try luxury things without having to go out of their comfort zone.

  10. Market an image of exclusivity or premium only. Believe it or not, Facebook started at Harvard and promoted its exclusivity to this school, then slowly spread to others, when rival social media platform MySpace was inviting everyone to join. Using this strategy requires a keen understanding of your market, and timing to yield to customer desires.

As you may guess, many of these strategies can’t be implemented as an “afterthought” once you have your innovative solution implemented. Thus investors like me are looking for a parallel and early plan that integrates your marketing strategy with your product. If you really expect to be the next unicorn, based on exponential worldwide growth, now is the time to start building that plan.

Marty Zwilling

*** First published on Inc.com on 04/29/2020 ***

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Wednesday, May 13, 2020

5 Keys To An Effective Startup Communications Mindset

leadership-communications-mindsetOne of the biggest challenges we all face when put into business leadership roles is how to communicate most effectively. As a mentor to entrepreneurs over the years, I see many of you who don’t communicate enough, others who seem to do all the talking, and some that are hesitant to be direct and open. I find that having the right mindset is key to getting all these right.

You first have to accept the fact that communication is far more than relaying information. The mindset you need for real communication must be focused on building relationships, surfacing ideas, generating trust, and building commitment, whether it be with your team, customers, or suppliers.

I found that guidance along these lines was spelled out well in a new book, “Entrepreneurial Leadership,” by Joel Peterson, based on his experience at JetBlue Chairman and a Stanford Professor. He nets out five specific mindsets that I assure you will help any of you as a leader communicate more openly and more successfully:

  1. Be convinced you have a valuable contribution to make. The first necessary mindset in communicating effectively is being convinced you have something important to say. So do your homework before you talk, to get up to speed on the current topic, identify new information that others don’t have, and quantify value to you and other relevant people.

    For example, every business team needs focus and direction to be productive. You as the leader have a responsibility to define goals, strategy, and operational metrics. One of the biggest problems I see in startups is everyone trying to do too many different things, straining resources and confusing customers.

  2. Always open to be influenced by new information. The best communicators remain open and anticipate productive feedback in the form of additional information. They realize that it’s an interactive process, and everyone wins when the process clarifies and improves the message. You have to remain open to change throughout the process.

    Most analysts agree that many major business failures, including Blockbuster, Kodak and Xerox, were not a result of leaders not knowing about new technology, but failing to communicate effectively and listen to other internal organizations for impact and timing.

  3. Never be deterred from showing a constant curiosity. True communication always invites feedback and input, rather than closing the door. Make your intentions and your perspective evident, but show a willingness to understand another’s experience or additional facts. This mindset will set the best tone and tenor for further interactions.

    Research shows that the best leaders spend more than 75 percent of their time satisfying their curiosity, which means communicating effectively with peers, outside experts, and their internal teams. To stay effective in this world of change requires constant learning.

  4. Set your goal to be the best idea will always win. You communicate best when you look beyond any self-interests you may have, to address the collective good. With this mindset, you will find that other people listen, engage, and give more of themselves. Skip the vague generalities and jargon that may confuse people or blur your intentions.

    What we are talking about here is not just communication, but creating a culture that fosters, rewards, and empowers itself through great ideas from everyone. That has to be driven by you, the leader, through consistent and empathetic messaging.

  5. Be determined to balance inquiry with advocacy. The idea behind this mindset is to lay out your thinking and reasoning, inviting others to do the same. Make the process iterative and cumulative, but don’t forget to call the question after a reasonable time. We’ve all been frustrated with people who talk forever and never make a decision.

    Examples of inquiry include asking questions to seeking the wisdom of the room, while advocacy means stating your view or urging a course of action. There is a place for both, and your challenge is to find that balance that makes people trust you and follow you.

Overall, I have learned that effective leadership starts with adopting the right mindset for every communication. After that, choose your words well, both oral and written, and recognize that your body language transmits a key part of every message. Don’t hesitate to spend the time you need optimizing your communication to get it right. Your business and your success depend on it.

Marty Zwilling

*** First published on Inc.com on 04/28/2020 ***

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Monday, May 11, 2020

5 Keys To Vetting Investors Before You Accept Funding

conclusion-of-the-contract-handshakeEven though the color of their money is always green, all startup investors are not the same. Struggling entrepreneurs are often so happy to get a funding offer that they neglect the recommended reverse due diligence on the investors. Taking on equity investors to fund your company is much like getting married – it is a long-term relationship that has to work at all levels.

Investor due diligence on a startup is not a mysterious black art, but is nothing more than a final integrity check on all aspects of your business model, team, product, customers, and plan. Reverse due diligence on the investor is a comparable process whereby the entrepreneur seeks to validate the track record, operating style, and motivation of every potential partner.

If all this checking sounds a bit paranoid and unnecessary, it may be time to take another look at some questionable investor practices and onerous term sheet requests. Beyond the technical issues, if the chemistry isn’t right, the impact on your startup and future business is likely to be similar to that of a bad marriage. It’s no fun for either side.

Thus, here are the minimum steps that I recommend to every entrepreneur in completing an effective reverse due diligence effort:

  1. Get a perspective from peer investors. Of course you need to discount any investor competitive positioning, but local investment group leaders will quickly tell you the strengths and terms of active investors in your area. If your investor is unknown, or peers offer no positive attributes, take it as a red flag. A sample of three views is adequate.
  1. Personally visit another startup funded by this investor. Through networking with other entrepreneurs, you should find one or more to visit that have relationships with this investor. Another approach is to ask the investor for references, where their involvement has made a real difference, leading to success.
  1. Do research on investor visibility via Google and social media. Start by checking the profile and credentials of investor principals on LinkedIn and industry associations. Check for positive or negative news articles, press releases, relationships, and support of community organizations.
  1. Invite the investor to dinner or fun-related activity. Outside of work is where you can best evaluate the chemistry match, and decide whether you can enjoy and learn from the relationship. Enjoy a sports event together, or find common non-profit causes to participate in. As with any relationship, it doesn’t pay to close in a heated rush.
  1. Conduct a routine credit and background check. Look for investor experience in your business domain, as well as evidence of integrity and trustworthiness. Check the content of the investor’s website, and pay particular attention to the source of funds. Personal funds imply the most commitment, and offshore funding is most suspect.

Investor agreements should always be reviewed by an attorney who is familiar with startup equity investment deals. To get the terms you want, it’s better to start with your own term sheet. It’s even better to let the attorney do the negotiating, since many innocent-sounding protective and governance provisions can have long-term negative consequences to you.

While I recognize that there continues to be a shortage of venture capital for new entrepreneurs, compared to the demand, don’t succumb to the temptation to take funds from investors that you are not totally comfortable with. The result will likely be business demands that you can’t meet, loss of key personnel, potential lawsuits, and certainly not the fun lifestyle you expected.

The only successful entrepreneur-investor relationships are win-win ones. That means you and your business must benefit from both the money and mentoring from the investor, and the investor will win from getting a larger return sooner. Win-win relationships get better over time, whereas win-lose go downhill fast and rarely survive the honeymoon period. Know your partner well before you get married.

Marty Zwilling

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Sunday, May 10, 2020

How Your Mindset Has To Evolve To Match The Business

dollar-success-mindsetAccording to most definitions, an entrepreneur is one who envisions a new and different business, meaning one that is not a copy of an existing business model. Many entrepreneurs have a passion and an idea, or even invent a new product, but are never able to execute to the point of creating a startup. Even fewer are able to grow the startup into a viable business.

As a mentor and advisor to entrepreneurs and startups, and an angel investor, my passion is to find and nurture those entrepreneurs with innovative business ideas and acumen, to make them into successful business owners. I fully realize that for some of the best entrepreneurs, success is surviving the journey, and they can’t wait to hand off the new business and start another one.

Thus, in my view, entrepreneurship is an evolution of an idea through a series of developmental stages, culminating in a self-sustaining business. A business is an entity which exchanges goods and services with people outside the business (customers) for money, social good, or something of equal value. Here is a summary of the key stages along the way:

  1. Idea and seed stage. In this first stage, a specific idea or passion is solidified into an executable plan. Typically this is done by one or more entrepreneurs with personal or family resources, with no business entity yet formed, so they would not yet be considered business owners. Market research and a business plan should be the focus at this stage.
  1. Startup and development stage. The development stage normally begins with designing and prototyping a product or service, and creating the company legal entity. While legally the entrepreneur has created a business entity, there is nothing of value yet to own since the company has no solution to offer, no customers, and no revenue.
  1. Funding and rollout stage. At this point investors should be interested in buying a chunk of the business. It is arguably sustainable with a proven value proposition and business model for customers, and operations processes that work. The entrepreneur now becomes a business owner, and must start thinking like one to get to the next stage.
  1. Growth and scaling stage. This is the stage where most entrepreneurs exit, get pushed out, or learn to operate as full-time business owners. Business owners know that growth as a business versus a startup requires replicable and documented processes, a focus on marketing and sales, personnel management skills, and detailed planning.

Another way of determining when an entrepreneur becomes a business owner is to look for the mindset change required to build and maintain a successful business. Every entrepreneur needs to compare his strengths and aspirations to this business mindset:

  • Satisfaction from business success versus the big idea. Business owners get their satisfaction from happy customers and happy stakeholders. Entrepreneurs are more focused on thinking big, stepping into the unknown, and changing the world. They embrace risk, while a business owner seeks to reduce and manage risk.
  • Seeking a stable environment now versus a better future one. Good business owners like a predictable market where they can make calculated decisions to improve and grow. Entrepreneurs love to envision breakthroughs and disruptive technologies, with tough problems to overcome, which will allow them to create lasting change.
  • Relish repeatable activities and processes versus new challenges. Most small business owners enjoy the completion of daily and weekly tasks, and cyclical processes, like inventory and receivables. True entrepreneurs are always thinking many months out, anticipating the next opportunity and the next recognition for innovation.
  • Long-term attachment to the business versus the idea. If you see the business as the core of your worth, you will make a great business owner. Entrepreneurs see their value in the change they accomplish, and their impact on the future. True business owners dream of keeping the business in the family, and making it a long-term success.

Yes, there are notable entrepreneurs who make the transition from the big idea to a big business owner, including Bill Gates and Mark Zuckerberg. But there are thousands more whose interests revolve around being a better entrepreneur. Others start and end their careers as business owners, by buying an existing business, inheriting a family business, or buying a franchise.

So I believe the bottom line is that most entrepreneurs never really become business owners. They may step into that space for a few years to maximize the impact of their idea and personal return, but their heart is in their next venture, and that’s the way it should be. Neither money nor business success will buy you happiness if you aren’t doing what you love. You decide.

Marty Zwilling

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Saturday, May 9, 2020

Why You Need To Look Beyond Big Data For Future Needs

future-needs-big-dataWe are now solidly in the era of big data, where computers are capturing and processing the details of everything we do with all our interconnected devices in real time. Businesses see this as the Holy Grail for finally being able to predict who, where, and when customers will buy their existing solutions, and what their future solutions must look like to be attractive.

According to recent estimates, ninety percent of the data in the world today was captured in the last two years, at roughly 2.5 quintillion bytes a day. That’s a lot of data, but the jury is still out on whether technology can make any sense of the data, or derive new meaning from it in our rapidly changing world. So far, we haven’t been very good at predicting the future in life or in business.

For me, the first step in understanding the potential is to better understand what human data really looks like as it comes in from all these sources. I found some help in this regard from a classic book, “Humanizing Big Data,” by leading consumer researcher Colin Strong. I will paraphrase here the keys ways he outlines that our lives are becoming increasingly datafied:

  1. Datafication of emotions and sentiment. The explosion of self-reporting on social media has led us to provide very intimate details of ourselves. Many market research companies now use this data by ‘scraping’ the web to obtain detailed examples of the sentiment relating to particular issues, brands, products, and services.
  1. Datafication of relationships and interactions. We are now not only able to see and track the ways in which people relate, but with whom they relate, how they do it, and when. Social media has the potential to transform our understanding of relationships by datafying professional and personal connections on a global scale.
  1. Datafication of speech. Speech analytics is becoming more common, particularly as conversations are increasingly recorded and stored as part of interactions with call centers, as well as with each other. As speech recognition improves, the range of voice-based data and meaning that can be captured in an intelligible format grows.
  1. Datafication of offline and back-office activities. Within many data-intensive domains such as finance, healthcare, and e-commerce, there is a huge amount of data stored on individual behaviors and outcomes. Add to that the emergence of image analysis and facial recognition systems processing in-store footage, traffic systems, and surveillance.
  1. Datafication of culture. There is a whole new discipline of ‘cultural analytics,’ which uses digital image processing and visualization for the analysis of image and video collections to explore cultural trends. For example, Google’s Ngram service has already datafied over 5.2 million books from 1800 to 2000 to let anyone analyze cultural trends.

Of course, there is a big jump needed from data to real insights, intelligent decisions, and future predictions. This book author also explores some of the major challenges associated with humans making sense of big data, and using it effectively, including the following:

  • The human psychology of cognitive inertia. Humans seem to be wired to resist change, with a set of cognitive ‘rules of thumb’ which focus us on short-term loss-averse behaviors. Human are inclined to rely on familiar assumptions and exhibit a reluctance to revise those assumptions, even when new evidence challenges their accuracy.
  • Cognitive ability to make sense of data. Even though computers can process and store large volumes of data, assessing the implications still falls primarily in the realm of humans. Sense-making is the process of deriving meaning from experience and situational awareness, which seems to be a struggle for both people and computers.
  • Information overload and data quality. In reality, more data does not necessarily lead to better decisions. More information usually means more time is required to make a decision, perhaps leading to inertia, or volumes of one type of data bias the decision in the wrong direction, since more data is not always better data.

As we continue to become more data connected online and offline, there is no question that our digital exhaust will tell more and more about us, allowing better short-term projections of our buying habits and interests. Yet, the challenge of really predicting future needs and behavior is much tougher. Thus, I predict that humans will be driving big data in business, rather than the other way around, for a long time to come.

Marty Zwilling

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Thursday, May 7, 2020

How To Develop Potential Leaders In Your New Venture

business-team-leaderEvery startup founder rightfully starts out as the single leader of the startup, but as the business grows, many entrepreneurs struggle with relinquishing any control, or fail to recognize and allow other leaders to emerge. The result is that the business becomes dysfunctional as growth stagnates, and entrepreneur health and happiness decline.

The right alternative is to focus on finding and delegating some control to the hidden leaders in your startup. These leaders are those exceptional team members who have proven themselves or developed the strength of character, behavior, and learning to be the drivers of the next phase of your business growth.

Yet, unless you know what to look for, the natural human tendency is see all team members in the same light, or see them as never changing from the day they joined your team. In a classic book “The Hidden Leader,” by Scott Edinger and Laurie Sain, I found four great initiatives for recognizing the behavior and results of team members who are likely the leaders you need:

  1. Seek out those who demonstrate real integrity. It’s important to recognize consistent individual integrity in everyday work actions – by noticing how each team member makes decisions, handles challenges, collaborates, and more. Of course that means that the entrepreneur has to foster a culture that enables and rewards integrity.
  1. Recognize team members who build win-win relationships. Team members who demonstrate great interpersonal and collaborative skills, including giving credit to others, initiating business discussions, and forging emotional connections are demonstrating emotional maturity. Entrepreneurs need to recognize and nurture these as future leaders.
  1. Demonstrate a focus on business results. Few things make a difference in a startup like hidden leaders who are focused on results. Normally this indicates the ability to take the initiative and maintain the big picture perspective, both of which are required to be a leader, if kept in balance. The result is higher productivity for everyone in the business.
  1. Driven first by the needs of your customers. Team members who are truly customer purposed, meaning proactively envisioning how every task affects the value provided to the customer, are potential business leaders. This includes a customer service focus, but goes beyond today to include more visionary preparation for tomorrow’s customer needs.

Once an entrepreneur recognizes potential or hidden leaders, the challenge is to engage and capitalize on their performance and leadership potential. Here are some key recommendations for entrepreneurs that the authors and I agree are required to further develop this emerging leadership potential:

  • Up the ante on your communication practices. Leaders on the team want to act out the value promise of your business, and bring your strategy to life. But they can do so only in an environment where the value promise is clearly understood by them, and everyone on the team. Personally discuss your strategy and goals with new leaders.
  • Make sure that startup goals are aligned with tactics. Cultures that align strategies and goals with tactics allow everyone to see the relationship between what they do and the contribution of others. With good alignment, power and leadership can be shared among people at many levels. Everyone feels confidence and a sense of leadership.
  • Embrace change and innovation as positives. Change is inevitable in a startup, and it needs to be a part of the culture for leaders to emerge. Find ways for new leaders to test their hypotheses in small, controllable experiments. Reward well-managed efforts, even if they do not work. Encourage innovative approaches, which can make everyone a leader.
  • Foster a culture of high engagement and commitment. This starts with a clear set of values and purpose. High levels of engagement will nurture hidden leaders in all corners of the business. When commitment is high, team members seek out leaders who can make the startup and everyone look good. Incent everyone to do their best work.

A startup is usually initiated by a single leader, but it requires many more to grow and scale. For maximum speed, team morale, and commitment, these new ones need to be developed from hidden leaders on the inside, and complemented by proven leaders recruited from the outside. Make this combination a key element of your sustainable competitive advantage.

Marty Zwilling

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Wednesday, May 6, 2020

5 Keys To Starting New Trends Rather Than Following

Ride-sharing-trendI’m sure all of you are convinced that your new business will create the next trend and ride the wave to success, but the reality is that most startups fail, so anticipating future trends is clearly harder than it seems. In my experience, it takes more than a gut feel, so predicting breakthrough changes and new trends is a skill that must be learned, and made part of your business process.

For example, Lyft and Uber were able to capitalize on the current ride-sharing trend worldwide by tracking statistics that indicated reduced interest in car ownership by millennials, lack of parking spaces, and auto ownership costs moving up rapidly. Others pivoted quickly based on customer need changes, rather than just spending more money on advertising and charging ahead.

If you want to join the ranks of entrepreneurs and businesses who have a reputation for being ahead of the pack, for being an initiator rather than a follower, such as Apple and Nike, here are five key strategies and skills to develop that I recommend and practice:

  1. Develop a mindset of constant change required to thrive. As a mentor to business owners, I still see many praying for the day when things stabilize, their processes are working, and they can relax and enjoy business growth. As Andy Grove famously wrote, “Only the paranoid survive.” Accept and act as if the only world constant is change.

    One way to adapt your mindset to appreciate change is to reflect more on those cases where change has made your personal life better. Your new car is a pleasure to drive, online shopping takes out the pain, and social media makes connection to old friends fun.

  2. Spend more time outside the business, looking for trends. Smart entrepreneurs continually test their perceptions against those of customers, outside leaders, and experts. They actually search for indications of change and opportunities across diverse environments, rather than just more customers who might use their current offerings.

    Get out of the office to visit real customers, attend industry conferences, and network with peers and influencers. You will find it amazing how much your perspective will improve as you establish relationships and really listen to others. Learning can be fun and profitable.

  3. Continually initiate experiments to test before committing. Many established businesses are so confident of their brand power that they commit huge amounts to change initiatives that are untested and possibly wrong. No one has perfect insight, and things change so quickly that business rollout trials should be your norm to test change.

    Even the smartest entrepreneurs have found that a well-designed market experiment will test a number of different hypothesis and variables at once, without a major investment, proving bad assumptions as well as validated ones as the experiment goes on.

  4. Focus on agility as the key skill your organization needs. This starts with strong leadership and communication on your part, but it has to extend into the training, decision making, and reward systems that you foster. The ability of you and your team to move quickly when change happens will set your outcome with customers and competitors.

    As a first step toward faster decisions and agility, practice applying the 80/20 Principle to your thinking. In most situations, you can gather 80 percent of the relevant information in the first 20 percent of the time available. The rest does not often improve decision quality.

  5. Spend more time on long-term strategy than daily crises. I still see many businesses who let current challenges lead them on a random walk into or out of the future. You need to build a vision of the future that can become a self-fulfilling prophecy. Of course, this vision must be continually tuned by new customer trends and technology arrivals.

    Your team and your customers will be more responsive when they feel a sense of purpose and direction, and they can provide better feedback. Patagonia are Airbnb are examples of businesses that put their purpose first, and are leaders in change as a result.

Even though none of us can really see around corners, it helps to overtly hone your business acumen to see bends in the road before others. With that, and the courage to accelerate towards these curves as opportunities, rather than slowing down to put up a defense, you too can be perceived as a leader, rather than a follower, in today’s ever-changing but ever-growing market.

Marty Zwilling

*** First published on Inc.com on 04/22/2020 ***

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