10 Key Business Plan Elements Not In A Product Spec

As an advisor to new hardware entrepreneurs, I often hear the myth that a business plan is no longer required to find an investor, if your idea is good enough. You may have heard that venture capitalists in Silicon Valley no longer read business plans. What you don’t realize is these famous investors only deal with entrepreneurs who sold their last company for a $100M dollars or more.

For the rest of us, we need a business plan, as well as a product plan. Some of you may be convinced that your product specification communicates the product message even better than a business plan, so why be redundant? Let me assure you that a business plan and product plan are two different things (I have personally written several of both). You need both to survive.

To be clear, I define a product specification as the technical definition of your product, to be used for development and testing purposes, with a quick business summary for context. A business plan is the outward facing definition of the business you hope to drive with your hardware solution, with a hardware overview in the intro to highlight customer value and competitiveness.

As a hardware engineer, you already know the value, importance, and layout of a spec to keep you focused, but you may not be so familiar with the key elements of a business plan, and the way to use it to support and add credibility to your hardware solution. Thus I offer the following outline for how to organize and present your business plan, with specific examples:

1. Start with outlining the customer problem, and your solution. Use non-fuzzy terms to quantify customer value. For example, “We just patented a new battery technology that will cut your smartphone charge time and cost in half.” Be sure to include this in your “elevator pitch,” which you must always deliver as a prelude to your technology features.

2. Description of the business entity you plan to form. The most common business entity used for startups is a Limited Liability Corporation (LLC), which is the cheapest and simplest to manage. If your goal is a large national corporation with more than 100 investors, and multiple classes of stock, you might prefer a C-Corp or S-Corp.

3. Quantify the market opportunity in business terms. The answer is not “if we build it, they will come.” Investors and advisors want to see recent survey data and projections from industry professionals here, not just your opinion. For example, “Nielsen projects that the market for smart phones will double every year for the next five years.”

4. Highlight your advantages over three top competitors. Call out your top competitors, highlighting your sustainable competitive advantage, including patents, trade secrets. and trademarks. Don’t denigrate your competitors, but use their limits to highlight your edge.

   For example, rather than saying, “Competitor X has poor reliability,” use the positive approach to list your reliability features, compared to X. If possible, quantify these in non-technical business terms, such as dollars saved or replacement costs over time.

5. Provide specifics on the customer business model. All startups, including non-profits, need revenue to thrive, such as such as from subscriptions, retail, online, licensing, or services. Positioning your hardware solution as almost free may sound attractive to customers, but it won’t attract investors. They want to see revenue to share in the return.

6. Document why your team is the best for this challenge. Be sure to highlight any special credentials or relevant experience that you or key members of the team, including advisors or existing investors, may have. Don’t assume titles will convey this information. Professional investors and even customers invest in people, rather than just a product.

7. Include marketing, sales, and customer rollout plans. Don’t let your passion convince you that word-of-mouth and viral marketing will suffice against well-funded competitors and ever more demanding customers. Set specific targets on the sales channels and marketing initiatives you need, including the use of social media, brand building, franchising, trade shows, affiliates, and distributors. Budget time and dollars for each.

8. Target income and expense by year, including funding. Here I recommend a 5-year projection of revenues, expenses, and funding requirements. Major milestones along the way should be outlined. Scale your funding requests to the value of your startup today, consisting of assets, contracts, and intellectual property you currently own.

   The best way to do this is to reference actual data from a recent similar startup success. Investors look for high-growth-potential companies who can double revenues yearly, hit break-even in two or three years, and penetrate at least 10 percent of the opportunity you quantified for the first five years, to give them a 10X return on their investment.

9. Outline a viable exit strategy for you and investors. Investors want to know how and when they might see some return on their investment, since startups require some event to show value. The options here include going public (IPO), merger/acquisition, liquidate, or no exit, just paying off investors. Most investors don’t want long-term commitments.

10. Summarize all of the above in an executive summary. Since everyone wants a quick overview of the whole plan, you need a tightly written and formatted two-page content summary, using the first paragraph of each of the above sections. This summary if often extracted as marketing collateral, with text and graphics for pitch handouts.

Based on my experience in the investment world, aspiring entrepreneurs seeking an investment with no written business plan are routinely requested to come back later, when “you have more traction.” Every good technologist should start with at least a single page business plan, or construct a “pitch deck” of maybe a dozen PowerPoint slides to cover all the important content.

Most of the business plans I see getting funded today are less than 30 pages in total, even including financial statement attachments. What investors expect, and what you should be looking to provide for your own use, are answers to all the relevant questions a good advisor might ask about your business goals, objectives, structure, and milestones over time.

I personally find that writing down my business plan is a good discipline to incent me to think through all the issues, and do the research on the alternatives available. As a hardware designer, I’m sure you do the same thing as you document your product specifications and pass them on to other members of your team for implementation. In addition, I know from experience that most investors look for written plans to separate what they call “hobbyists” from serious entrepreneurs.

If you have no idea what needs to be included in your business plan, fortunately there are many useful templates available online, books on how to write business plans in every bookstore, and several software applications being marketed to at least partially automate the process. Part of the fun of starting a business is the learning process, and this is an easy place to start.

If all else fails, working on your business plan is a good time to ask for help from a peer entrepreneur, or follow up on a friendly relationship with someone who has been there and done that. In fact, this context is your best opportunity to attract a co-founder who has the business skills and interests that are complementary to your technical strengths.

Keep in mind that multiple studies have found that hardware entrepreneurs who create a good business plan at least double their chances of securing funding and growing a business to change the world. Thus, building the plan is a small investment compared to the potential for being the next “unicorn” or billion dollar company, and leaving your dent in the universe.

Marty Zwilling

*** First published on Predictable Designs on 06/10/2020 ***

5 Stages Of The Market Lifecycle Gate Startup Success

As a frequent advisor to new entrepreneurs and startups, I often hear your frustration with being treated differently from other startups by investors, on expectations for valuation, traction, and market size. Of course, it could be your level of experience, or the quality of your team, but the difference is often more related to the lifecycle stage of the market you are trying to enter.

For example, if your idea is so new and different that it implies real social or technological change is necessary before widespread acceptance, investors will define your market as nascent or unproven, and be very reluctant to fund you, no matter how convincing your projections may be. On the other hand, if the market is super-hot, many will be willing to jump in to make your case.

So rather than being stressed out by the seeming inequities, I recommend that you take a realistic look at where your startup fits in your market lifecycle, and adjust your expectations and arguments accordingly.

I found some good guidance that supports my own view in this regard in a new book, “Startup Myths and Models,” by Rizwan Virk, who has been there and done that. Both of us have found it very useful for you to first position your startup in one of the following market lifecycle stages, and then set your strategy and expectations accordingly:

1. Emerging technology stage with signs of future potential. The market at this point is largely unknown and untested. This is normally the domain of technologists and idea people, often using the term “disruptive innovation.” Valuations here are always low, and funding generally depends on friends and family, or a few forward-thinking angels.

   For many years, startups featuring all-electric vehicles fell into this stage of the business lifecycle. Everyone knew these had potential, but had not demonstrated success to date due to infrastructure and support requirements, or cost constraints. Finally, Elon Musk and Tesla were able to break through, using their own funding and proven credibility.

   Now the emergence of autonomous and driverless vehicles fits into this nascent future potential category. I don’t recommend an expectation of funding on that one just yet.

2. Market is recognized as real and growing by investors. Influencers are talking about this opportunity as one of the “next big things,” like the Internet of Things (Iot) or artificial intelligence (AI). Many investors and big companies are putting money into this space or adding it their product line today. Typical valuations range from 3x-5x revenues.

   In the last couple of years, Nest's smart thermostat has put IoT in the “real” category and Amazon's Echo product accelerated the industry forward toward AI as able to deliver real value to consumers. Now is the time to fund your startups touting these capabilities.

3. Everyone feels behind the curve of a super-hot market. One or more startups here have already proven the market and achieved unicorn status, such as Uber and Airbnb. Investors are rushing to offer ridiculous valuations, even to pre-revenue startups, to keep from missing out. Your challenge is to get there quickly, before market saturation occurs.

   Once Uber made the ride-hailing market hot, a whole host of competitors have jumped in with immediate high valuations, with or without traction, including Ola, Careem, Taxify, and many others you never heard of. Of course, getting money doesn’t assure success.

4. Market is maturing with consolidation as a key driver. There is still an opportunity to make money, but market leaders have already emerged. Very few new startups are getting funded at this stage, and existing ones are looking for strategic partners and being acquired to achieve continued growth. Valuations are back to 3x-5x revenues.

   Amazon is a great example of continued growth through consolidation in the maturing ecommerce market, having acquired or invested heavily in over 100 companies and startups. If you are an ecommerce startup, this may be your path to fame and fortune.

5. Focus shifts from growth to profitability as a mature market. Established company process rules and metrics now characterize the leaders in this market stage. Outside investors may no longer are interested in this space, unless your startup brings a new technological innovation that can undermine the base, or attract a new market segment.

Because startup markets change quickly in today’s world, understanding the lifecycle stages will help you avoid frustration, and make more effective decisions on when to start, how much funding to expect, and the ideal way to exit your startup. I recommend it, since it is a lot more fun to enjoy the startup journey, as well as the destination.

Marty Zwilling

*** First published on Inc.com on 06/10/2020 ***

6 Entrepreneurship Advantages For Seniors In Business

A popular myth that most of you probably believe is that startups are only for the younger generations. In fact, I see more and more evidence that new entrepreneurs are coming from the older age groups (age 45-64), and success rates move up with age. Is it possible that age and experience are more of an advantage in this business than young passion and fearlessness?

Based on my own years of experience in big businesses, as well as startups, this is no surprise to me. I’ve long had my own views about why this is happening, and they were supported by what I found in a new book, “Ageless Startup,” written by a fellow successful entrepreneur and senior, Rick Terrien. We summarize the advantages of older entrepreneurs along the following lines:

1. Think life-changing, not lifestyle entrepreneurship. Being an entrepreneur is indeed a lifestyle, implying for the young an ability to follow your own dream, and control your own destiny. More importantly, I believe that it should mean making a better life for others, through more jobs, technology innovation, or improving the environment.

   Over time, those of us who have grown up in business have a better idea of what really counts and what really is life-changing, both from a personal perspective as well as a business perspective. We are more prepared to focus on life-changing entrepreneurship.

2. Find and see the opportunities hidden in plain sight. As an angel investor, I often hear from young entrepreneurs who have invented a shiny solution, without really focusing first on the need or the opportunity. Time and experience in business teaches you to listen for potential customers, and carefully evaluate the real business potential.

   For example, most professional services and consulting startups today are led by more experienced professionals who worked in business for many years before they decided to strike out on their own with their own brand of solution to a commonly seen requirement.

3. Time to think about and develop your purpose and “why.” People are living longer today, and find they are only getting started after 30 years of experience. They are seriously looking for opportunities to grow personally and professionally, and leave their mark on the world. They can more clearly see what is important to them and to others.

   Paul Tasner, a celebrated Purpose Prize winner, started his new business at the age of 66. In a recent TED Talk, he summed up this perspective by saying, “I am doing the most rewarding and meaningful work of my life right now.” Making money is not his passion.

4. You can look back so than you can lead going forward. Being able to look backward in your experience is an advantage in avoiding common mistakes, as well as recognizing a recurring but unsatisfied need in the marketplace. It takes time to build networks, know-how, and the leadership skills to chart a successful path and mobilize others around you.

   You don’t need permission from anyone, and you are less dependent on coaching and mentoring from the rare skilled and available people that most smart young founders depend upon. You also know when to say no, and don’t try to solve every problem.

5. Use your ability to bootstrap and set a sustainable base. You as a second career entrepreneur are more likely to bootstrap, meaning able to pay strict attention to sustainable cash flow and utilizing your own capital at the outset, thus avoiding the pressures of finding and managing external funding.

   You recognize that new businesses are a journey with continuous challenges, so you need to focus on building a sustainable foundation early, with true-to-you values, and an achievable set of goals. Solutions will become obvious, and you can execute effectively.

6. Play to the fastest growing customer segment you know. Globally, the population aged 65 and over is growing faster than all other age groups. According to projections, by 2050, one in six people in the world will be over age 65 (16%), up from one in 11 in 2019 (9%). Nothing gives you insight into customer needs like being in the segment with them.

Terrien and I both believe that now is the renaissance age for entrepreneurship, and it’s just beginning. Conventional models are falling by the wayside. It’s time now to start thinking about how you will make a smooth transition from working in a business to working on your business.

You are allowed to start small and go slowly, but it pays to start smart. Don’t hesitate to capitalize on your growing advantages.

Marty Zwilling

*** First published on Inc.com on 06/08/2020 ***

7 Ways To Optimize Passion And Energy In Your Startup

Most of you will start your business with plenty of passion and purpose, but all too often I see both disappearing after months of facing unanticipated setbacks and challenges. Indeed, it is even more critical that you keep your key team members energized with a high level of passion and purpose, or burnout rears its ugly head, putting the future of your whole business in jeopardy.

The challenge is to create positive recharge events for you and your team on a regular basis, rather than waiting for that one big success indicator, like record profits or going public, to override all the negative crises along the way. Here are some key initiatives from my own experience, which can make even the toughest business journey seem worthwhile and fun:

1. Prioritize and highlight many small wins along the way. A good way to start is to create and communicate bite-sized milestones toward your end objective, including product development stages, customer threshold targets, and funding achievements. Schedule all-hands events to celebrate each and get everyone’s batteries recharged.

   These events can be as simple as a team pizza party for meeting development milestones, to an off-site adventure or concert to recognize progress and generate new team enthusiasm. Frequent small events are always better one large formal bash.

2. Give your business a higher purpose than just profit. These days, even customers look for businesses who create a social or environmental impact, and flock to support them. They feel the same passion that you and your team need to be reminded of on a regular basis to keep up the necessary level of energy, positivity, and commitment.

   For example, Blake Mycoskie, founder of shoe company Toms, donates a pair one-for-one, keeps himself and his team recharged by sending employees to travel internationally and work directly in the field where the shoes are donated.

3. Focus everyone on the bigger paybacks than a paycheck. There is increasing evidence that employee happiness and job satisfaction, including yours, does not scale up with your success. Make sure that all of your business efforts create and capitalize on positive people relationships, personal growth, and matching people needs to results.

   In addition, according to recent reports, the size of employee paychecks ranks behind advancement opportunities and work-life balance as the key reasons people are burned out with their job. Just think about what is important to you, and talk to them about it.

4. Maintain a balance between work and other life activities. Provide yourself and everyone some time to recharge, whether it be scheduled reward events, or just some time off for vacations and time with family. Remember that your well-being, and that of your team, should always come first, on the road to making your business a success.

5. Incent change, learning, and innovation as business norms. Nothing kills passion and purpose like a static environment. The business world is constantly changing around you, so you and your people need to do the same. Make sure your objectives and rewards motivate employees through innovation, and desired training and coaching.

6. Regularly reconnect and communicate your “why.” Every business was started to satisfy a need in the marketplace, and it pays to remind yourself and communicate to your team that purpose on a regular basis. Everyone is energized when they feel really needed, and that need can be easily lost in the day-to-day challenges of a business.

   Your “why” is the emotional appeal of your business, and it can be as simple as Toms improving the lives of the less fortunate, to Airbnb’s effort to make every stay a unique and enjoyable experience. Don’t let you or your team forget it for a moment.

7. Give up expecting perfectionism in you and others. Stop penalizing yourself and others on the team for every less than perfect move, and relish the learning that normally comes from mistakes. Make it a habit to take pleasure from doing your best and helping others learn, rather than agonizing over business outcomes that are never good enough.

I’m convinced that most entrepreneurs and most teams are operating well below their fully-charged capacity most of the time. Feedback from employees indicates that only about one in five feels fully engaged and productive. Just think what your company could do if you and everyone worked at the level of passion and purpose you felt when you started the business.

Marty Zwilling

*** First published on Inc.com on 05/29/2020 ***

8 Business Accountability Lapses And How To Recover

As a business investor, I look for investments where I see founders really holding their people accountable for their actions. More importantly, I look for entrepreneurs and owners like you who are not afraid to hold themselves accountable for the success of the business. If I see or hear evidence of a victim mentality, or someone playing the blame game, it may be time to walk away.

I do believe that lack of accountability is an easy trap to fall into, but one that you can avoid, and even consciously crawl out of. Based on my experience in several businesses, accountability has several levels from none to poor commitment as outlined below. You may recognize these in your own company, and can overcome all of them with a proactive management focus and conviction:

1. Everyone is proceeding with unreasonable expectations. This almost always starts at the top, based on a founder’s dream and passion, without the proper homework on sizing the market, or assessing product realities. The team accepts no accountability, because they have not been made believers. You have to give them a credible plan and evidence.

   Every investor can recite examples of passionate entrepreneurs who seek funding for a worthy cause, like feeding the hungry, without a real business case for who will pay. If you can’t convince investors, you probably won’t get accountability from your team.

2. Team members oblivious to business success or failure. Too many employees these days, and even executives, are focused only on doing what they have been told, without regard to impact on the business. You can and must fix this by communicating business goals and objectives, and establishing personal metrics which only reward success.

3. Unclear, misaligned, or overlapping job responsibilities. When I find two or more people who believe they have responsibility for an objective, it is hard for anyone to feel accountable. Your job as the entrepreneur is to make sure that goals and objectives are uniquely assigned, with proper follow-up and measurements, to clarify accountability.

4. Key people resort a victim mentality when things go wrong. It’s easy for you to blame someone else in the organization, economic conditions outside, or even overly demanding customers, when things are not going well. It’s your job as a leader to be the model for accountability, and build it into your team culture through trust and rewards.

5. People are focused on workload rather than business results. I often hear about how hard people are working, rather than milestones achieved or business growth. This argument is used to justify the need for more funding, more people, and more time for delivery. Raise accountability by narrowing your focus and tools to improve productivity.

6. High employee turnover and poor employee morale. When I do due diligence on a potential funding candidate, I always inpect high levels of employee change, and low morale indicators. Accountability is impossible to maintain in an environment of high people change, tension, and uncertainty about the organization or company mission.

7. The business remains static despite changing realities. Every business today must recognize that change is the only constant for survival. Accountable leaders and teams realize that pivots are often required, and the agility to make changes to the product, business model, and even the customer set, must be part of every accountable culture.

   Kodak, as an example, had made so much money on film that they were reluctant to believe in the digital trend, even though they had one of the first digital camera patents. No company leader wanted to be accountable for a change of the magnitude required.

8. A lack of openness to outside guidance and coaching. I believe that every business, whether public or private, needs to engage an advisory board or outside directors for a regular review. Executives with no external input, even if they think they are accountable, easily mislead themselves into missing alternatives and trends that will hurt them.

Based on my own experience and feedback from other executives, accountability is not only the key to business success, but it is the key to employee happiness, engagement, and retention as well. In all cases, accountability has to start with you. So before you start to challenge the commitment of your team, it may be time to take a hard look at yourself as the role model.

Marty Zwilling

*** First published on Inc.com on 05/27/2020 ***

7 Ways Investors Assess Your Focus As An Entrepreneur

In my experience as a business mentor, one of the biggest challenges I see is a failure to focus. Most of you aspiring entrepreneurs have new ideas on a regular basis, and find it hard deciding which to pursue, or try to tackle several at the same time. The result is that nothing ever really gets done well, or you burn out trying to address too many opportunities, all at the same time.

Good examples of initial focus by an entrepreneur would include Jeff Bezos when he started Amazon as an online marketplace for books only, and Elon Musk starting PayPal as an online bank. Both have obviously been able to expand their focus and impact, based on learning from early challenges, availability of additional resources, and early success applied more broadly.

In addition to personal focus, I find that the best entrepreneurs build and demand a culture of focus and excellence in their team, their investors, and even their advisors. This culture is best maintained by every business leader at every stage of company maturity. You will find it highlighted, for example, in most articles about Jeff Bezos and Elon Musk even today.

Here are the key elements that I look for as an entrepreneur mentor, as indications of a top level of focus:

1. Willing to share your personal story to build credibility. Even if this is your first startup, you must have some personal life evidence that you finish things you start, never give up, and stay focused. Every investor will tell you that they invest in the person, more than the product, because they have learned that people with focus find success.

   Mark Zuckerberg, now the well-known founder of Facebook, convinced early investors of his ability to focus by relating the story that he had just completed a year-long challenge to only eat meat that he killed himself, in an effort to learn about sustainable resources.

2. Documented business objectives and a timeline. Of course, these may need to be updated for cause, but it’s hard to get anywhere if you don’t have a specific destination. Unless you have a proven track record, investors still look for a written business plan, even if only a few pages. Key parameters always include opportunity size and forecast.

3. Some element of “secret sauce” or intellectual property. It clearly takes focus to create and file a patent, but it will give you a tremendous advantage over “me too” competitors. Without a sustainable advantage, it’s almost impossible these days to keep an existing giant from smashing you as soon as your idea gets traction.

   I often hear the pushback that it is too difficult and expensive to file a startup product patent, and yet I can tell you from personal experience that the process can be done for a couple of hundred dollars by any focused entrepreneur with average intelligence.

4. Highlight results and urgency, rather than variety of activities. I look for a highly motivated team, who measures themselves by results against aggressive schedules. This ability to focus and get the job done is the only way to keep you ahead of competitors today’s in a rapidly evolving market with highly demanding customers.

5. Demonstrate real knowledge of your market and competitors. Most aspiring startups have a great product idea, but a good product doesn’t make a business. Even if I am impressed with your technology, you have to convince me with evidence that your customers are ready to buy, and you have what it takes to differentiate from competitors.

6. Able to prioritize and keep your attention on the right items. We are all busy, and it’s easy to be driven by the daily crisis, rather than the few key objectives that will make or break your startup effort. If I ask you for the top three items you spend your time on, I expect to hear a correlation with key business objectives and items within your control.

7. Celebrate small victories at every step along the way. Just the process of breaking your journey into steps, and planning to recognize success at each step, will force you to maintain focus. There is no room in business for the “big bang,” or single big success. Focus is all about keeping things moving, with no room for status quo or complacency.

In the long term, and to have a long term, your mindset and that of your team needs to be to find innovative ways to sharpen your focus, while improving customer value and time to market. Anything less will lower your credibility with investors, and confuse potential customers. Over time, your credibility and resources will increase, and you too can then aim to be the next unicorn.

Marty Zwilling

*** First published on Inc.com on 05/19/2020 ***