Sunday, January 24, 2021

How To Prepare Your New Venture For Investor Scrutiny

due-diligence-InvestorsFor the elite startups and entrepreneurs who manage to attract the investor they dream of, and survive the term sheet negotiation, there is still one more hurdle before the money is in the bank. This is the mysterious and dreaded due diligence process, which can kill the whole deal. In reality, it is nothing more than a final integrity check on all aspects of the business and the team.

Some entrepreneurs do very little to prepare for due diligence, assuming all the talking has already been done, and the business plan and results to-date tell the right story. Others schedule exhaustive training sessions for everyone on the team, including showcase customers, to make sure that everyone paints a consistent picture. My best advice is to stick to the middle ground.

The Founder needs to remember that meetings up to this point have been primarily off-site, with staged demos, and managed personally by the CEO or a small team. Due diligence always involves on-site visits, informal discussions with any or all members of the team, vendors, and good customers as well as bad.

If there are conflicts within the team, or differing views of the strategy, or evidence of missing processes and tools, the investment process will likely be terminated. Even if the entrepreneur feels that all is well, it’s well worth the effort to prepare with the following actions:

  1. Make sure the whole team is up-to-date on the plan. That might start with the CEO giving the investor pitch to the whole organization, and distributing the current business plan document to everyone. Make sure all business processes are documented and integrated. If everyone has a different view of reality, you have no reality.
  1. Take time to review and resolve any personnel distractions. You need to brief the investor early if there are pending changes that have to be made, or conflicts that may become apparent during the due diligence process. Make sure everyone accurately posts their role with your startup on social media profiles, resumes, and references.
  1. Communicate what is happening and why to everyone. Don’t let the due diligence process be a surprise to the team. Make yourself available to answer any questions, show your enthusiasm, and explain both the positives and negatives of the external investment process.
  1. Visit reference customers, partners, and vendors. Use this opportunity to validate their satisfaction and support for your company and your solution. If you find open issues that can’t be immediately resolved, be sure to proactively communicate these to investors, with an action plan, rather than hope they won’t be found.

Based on the size of the investment, and the runway available, the due diligence process can take several weeks, or even a couple of months to complete. In any case, before the process starts on your startup, you should be doing your own reverse due diligence on the investor, as outlined in this article I published a while back.

For reference, here is a quick summary of key elements which most investors include in their due diligence process:

  • Key personnel review. In all cases, an investor will ask to talk to all key players, and will likely follow-up by calling references and prior associates to verify background, commitment, and experience. Since investors tend to invest in people, more than the idea, the personnel review is normally the highest priority item.
  • Status of the solution. Here investors are looking for feature problems or quality issues on the current product. A hard look will be taken at the technology maturity, the current development progress, and customer satisfaction with early product shipments. In addition, manufacturing and inventory levels will be reviewed.
  • Review of opportunity and segmentation. A key criteria for a good investment is a large opportunity with double-digit growth. This should be a validation of prior assessments, based on any recent changes in trends, economic conditions and customer feedback data.
  • Traction in the marketplace. A smart investor will take an independent final reading in the market on barriers to entry, active competition, demographics, and price sensitivity. Sales and distribution channel activity will be analyzed, as well as cost of customer acquisition, to make an independent assessment of your financial projections.

The key theme for a successful due diligence is full disclosure and no surprises before or after the commitment. If more marriages were subjected to the same rigor, the divorce rate would likely not be in the current fifty percent range. In business as in other relationships, people on the team that have to be above reproach, committed, and working on the same page.

Startup equity investments imply a long-term business relationship, lasting an average of five years. During that period, it is very difficult for either party to get out of the deal, since there is no public market for the stock, and business divorces normally mean bankruptcy. It’s worth your time to do a little extra work here, and make the honeymoon phase a win-win one for both sides.

Marty Zwilling

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Saturday, January 23, 2021

6 Ways To Transform Startup Constraints Into Benefits

Contextual Robotics Institute 2018 Forum: Healthcare RoboticsMost entrepreneur that fail are quick to offer a litany of constraints that caused their demise – not enough money, time, customers, or support from the right players. Ironically, as a startup investor and mentor, I have seen too many failures caused by just the opposite – too much money spent too soon, taking time to get product perfection, and assuming customers will wait.

In reality, resource constraints should be seen by startups a competitive advantage, by forcing them to develop new markets, and to think differently and act differently than existing players. The result, called resourcefulness, allows entrepreneurs to create opportunities in the face of scarcity. It allows them turn resource constraints into stunning new businesses.

In this context, constraints might more reasonably be seen as beautiful by entrepreneurs, just as they are described in the classic book, “A Beautiful Constraint,” by renowned marketing consultants Adam Morgan and Mark Barden. I like the way the authors outline how to see and turn constraints from punitive to liberators of new possibilities and opportunities, as follows:

  1. Look for ways to improve productivity. Every startup needs to think hard daily about what problem or challenge is holding back progress, what really matters today, and what entirely new possibilities exist. How many times have you actually made up work to keep an idle person busy? Startups funded by rich uncles rarely think about productivity.
  1. Rethink or reframe the challenge. Constraints are the best motivators for finding new approaches to solving a problem, building a product, or crafting an effective marketing campaign. Perhaps success itself needs to be redefined or reframed. Every entrepreneur needs to avoid locked-in ways of thinking. Let your constraints drive innovation.
  1. Find the benefit in subtraction. Isn’t it amazing how often all the necessary work gets done, even when resources are removed or the budget is reduced in an ongoing project? The benefit of working harder and more efficiently is success despite constraints. Subtraction leads to simplicity, better usability, and easier education of your customers.
  1. Find new ways to augment. The fastest way to grow your business is to find partners who can amplify or sell what you already have, and you can sell what they have. That’s a win-win relationship, which almost always takes less time and money than building something new. Adding priced services is another way to augment a product business.
  1. Create new kinds of solutions. Using the solution technology that you already have, in new ways, takes fewer resources than inventing or sourcing new technologies. That’s why computer makers offer desktops, laptops, notepads, and now even smartphones. Without constraints at the forefront, computers tend to get complex and more expensive.
  1. Build entirely new business models and systems. Pricing constraints and the need to attract consumers drove the invention by startups of the freemium model, subscription model, razor-blade model, and others. Today we see whole new ecosystems and opportunities driven by environmental constraints, safety concerns, and social issues.

Some entrepreneurs never get past the victim stage for constraints. They see every constraint as an inhibitor to their ability to realize their ambition, and an excuse for not persevering. Others proceed to the neutralizing stage, which means they tackle problems as they are encountered, and get some satisfaction by finding a way around each one. It’s still a hard road to success.

The smarter entrepreneurs jump quickly to the transformer stage, where constraints are proactively or responsively used to prompt wholly different and potentially breakthrough new approaches and solutions. They even impose constraints on themselves and their team to stimulate better thinking and new possibilities. Then they size the potential in the constraint.

We live in a world of over-abundance of choices, yet seemingly ever-increasing constraints, driven by a scarcity of time, expertise, and money. How entrepreneurs respond to these will become a larger and larger determinant of startup growth, competitive position, and success. What is your resource constraint mindset and action plan today?

Marty Zwilling

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Friday, January 22, 2021

6 Ways To Test Your New Venture Sustainability Early

new-venture-innovationHow do you convince investors that your business model will really work, before you have a revenue stream that exceeds your expenses? Even if you are bootstrapping your business, and you are the only investor, you should be asking yourself the same question. Too many founders have learned that passion and free beta products do not imply a sustainable business.

Proof of any business model starts with a finished product or solution, sold to a new customer for full price, with high satisfaction for the value received. Of course, that has be a repeatable event, with enough revenue to sustain the business. The conundrum is that once you have really proven the business model, you no longer need the investor money you asked for to start the business.

So what should an entrepreneur do to convince themselves, as well as potential investors, that they have a viable business model before it is totally proven? Here are some basic principles from my own experience that will improve your odds and keep you on the right track:

  1. Recognize that you are not the market. No matter how passionate you are about your solution, it doesn’t mean that if you build it, they will come. Don’t skip the market research, input from influencers, analysis of competitors, and the simple act of really listening to potential customers via social media, before quantifying your opportunity.
  1. Start selling it before you build it. Marketing is everything these days. On the average, it takes as long to build marketing momentum as it does to build the solution. If you wait to begin marketing until your product is final, you will find it very expensive to pivot to meet real world input, or the whole opportunity may have moved on without you.
  1. Plan for a real revenue model. The free model, with a loose intent to monetize later, made popular during the tech bubble, doesn’t work anymore. No matter how good your cause, it takes real money to sustain a business. Decide early where and when money will come from, set some milestones and metrics, and work to a plan, or be caught short.
  1. Word of mouth is not adequate for marketing and sales. Even though the Internet is pervasive and free, you should not assume that a website is all you need for sales and marketing. To get the visibility and distribution you need will likely require one or two levels of partner relationships and a real model for marketing, events and promotions.
  1. Customer support is more than handling exceptions. Customers expect to be delighted in all phases of the product life cycle -- understanding features, pricing alternatives, returns and problem resolution. A detailed process, with empowered employees and adequate budget, are mandatory to any viable business model.
  1. Everyone must be part of the sales process. Don’t assume that only customer-facing employees need to understand sales, and that these people can be hired and trained at the last minute. Everyone on your team must maintain the mindset that customers are the key to your business model, rather than technology or accounting.

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

In my experience, every great product is not a great business, and every great business model involves far more than a great product. Your challenge is to present a total business solution to the right customer set to build your credibility and momentum. Without these, your dreams and your business model may never get the fuel they need, and will burn out quickly.

Marty Zwilling

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Wednesday, January 20, 2021

6 Ways Chutzpah And Confidence Can Make Your Startup

self-confident-entrepreneurBased on my experience as a business advisor, I’m convinced that most startup investors invest in the entrepreneur, as much as a solution or product. In that context, I’ve long realized that some players seem to command real attention, even if their proposal sounds far-fetched or very risky. The attribute most often mentioned in this regard is supreme self-confidence or chutzpah.

Examples of this today would obviously include Elon Musk, and Steve Jobs a few years ago. In a new book, “The Unstoppable Startup,” by Uri Adoni, a widely respected venture capitalist from Israel, I was pleased to see real specifics on how you can successfully demonstrate the right level of confidence and boldness, without stepping over the line into arrogance and insolence.

The book author’s background and experience is with entrepreneurs and startups in and from Israel, but I believe the key rules he outlines, which I am paraphrasing here, are equally applicable and important to aspiring entrepreneurs and startups everywhere:

  1. Challenge status quo and currently accepted reality. The attitude of taking nothing for granted, of disbelieving the conventional wisdom, of challenging the way things are done, is essential for a winning entrepreneur. Of course, this passion must be backed up by documented evidence and logical arguments, not just loud talking and arm waving.

    While “personal” computers are taken for granted today, I can easily remember my early days in IBM when no one could conceive of a computer outside of business. Only people like Steve Jobs and Bill Gates had the chutzpah to propose a computer for every home.

  2. Dominate or create the market category you seek. I often hear the argument that this opportunity is so large, that even a tiny percentage will be a good business. Without the self-confidence, secret sauce, and a plan to become the dominant player over time, investors know too well that you will likely be overrun by competitors or lost in the crowd.

  3. Innovate to meet future demands you foresee. Investors are most impressed with entrepreneurs who are part futurists and part prophets, with insights to see “around the corner,” and innovation and production plans to get there first, even in a today’s rapidly changing market. They readily admit to challenges, but display confidence to proceed.

    When Elon Musk talks about us becoming a multi-planet species, or alleviating earth travel congestion with a network of tunnels, people now listen, especially when he can show that SpaceX and The Boring Company are already demonstrating results.

  4. Convince people the market needs what you have. Steve Jobs is known for asserting, “people don’t know what they want until you show it to them.” Chutzpah is often required to create and expand markets, especially in cultures that are stifled by acquiescence and authority. You have to overcome existing players, and the human resistance to change.

  5. Bend the conventional rules of what is possible. Most of us have an innate sense of what is physically possible, and what is considered “good business practice.” Disruptive innovations challenge one or both of these assumptions, and it takes real self-confidence to bend these rules with credibility and integrity. Solicit experts to support your assertions.

    Another approach is to seed your team with “divergent thinkers.” These are people with the uncanny ability to think “outside the box,” and come up with free-flowing ideas, as opposed to their convergent-thinking counterparts who think in a linear fashion.

  6. Show, don’t tell people what your product can do. If you can provide living proof of what your product can do, with a proof of concept (POC) or minimum viable product (MVP), people can’t help but believe you. Entrepreneurs with the right level of self-confidence are always ready to back up their talking with action and results.

How potential partners, investors, and customers see you is critical to their ultimate support and acceptance of your proposal and your solution. They have to believe in your confidence, as well as your ability to deliver. The principles outlined here, carefully embodied in chutzpah, will put you in an elite category of entrepreneurs. Then all you have to do is to demonstrate results.

Marty Zwilling

*** First published on Inc.com on 01/06/2021 ***

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Monday, January 18, 2021

6 Sources of Help For Early Stage Concept Exploration

US CapitolAngel investors and venture capitalists are looking for startups with real products and a proven business model, ready to scale. Yet I still get too many business plans that clearly are looking for money to do research and development (R&D) on a new and unproven technology. If you need funding for these early stage activities, I have some suggestions on better strategies to follow.

The first is to be more precise in your definition and understanding of where you are, and how the money will be spent. If this is your first foray into the entrepreneurial arena, with no track record in business or technology, your best and perhaps only supporters will be that class of investors known in the trade as friends, family and fools (FFF). They believe in you above all else.

Beyond these believers, you need to match your credentials and interests with the multitude of public, academic and government organizations that proclaim to foster research and early development, to satisfy the long-term needs of the people or organizations they support. In this context, there are at least six stages often included in the scope of R&D to narrow your focus:

  1. Search for new technologies. This early stage is often called basic research, well before any specific commercially viable products might be envisioned. Here your options are limited primarily to large organizations with deep pockets, including government grants, universities and large enterprise sponsors searching for disruptive technologies.
  1. Technology pilots. This is the transition stage from basic research to applied research. Applied research is still primarily scientific study, seeking to solve practical problems, but doesn’t yet focus on a commercial product. Funding sources for this stage extend from grants to large private fund incubators, such as the IBM Watson initiative a while back.
  1. Commercial product prototypes. Funding for commercial product prototypes is still R&D in the eyes of venture capital investors, but in business areas with large opportunities, this activity will catch the eyes of specialized angel investors. It’s still considered high risk for investment, since manufacturing and quality issues are likely.
  1. Product verification and clinical trials. These days, almost every new product is not deemed scalable until it has been certified as meeting a multitude of quality and agency standards, including the Environmental Protection Agency (EPA), Food & Drug Administration (FDA) and Underwriters Lab (UL). Specialized VCs start to jump in at this stage.
  1. Business commercialization. Product development at this stage is the process of scaling up for manufacturing and marketing rollout. The technology is now embodied in a solution that can be replicated to reliably solve a real customer problem. Your fundability with investors now depends primarily on the execution capability of your team.
  1. Expanding the product line. Even for mature startups, there is always a need for further product development and research to compete and diversify the business, and investors understand this. But to prevent confusion with basic R&D, these costs should never be called out the major category in your use of funds statement to investors.

While all forms of technology research and development will always be required, entrepreneurs need to understand that the funding for these efforts comes from many different sources, depending on the stage. Business equity investors are buying a portion of your business, so they are looking to fund a specific business with a specific offering, not a generic technology.

Don’t waste your time and energy talking to angels and VCs about technology funding when you could be focused more productively on grants, private funds and future business partners. Business investors and customers want to hear about solutions, and tend to back away from technology, until it is proven.

Fortunately, in many attractive business domains, including mobile software, Internet apps and ecommerce, the cost of product development is at an all-time low. Developers are using powerful technology tools to build mobile apps and websites for a few thousand, rather than millions of dollars. Thus the best entrepreneur strategy for funding is to build solutions, not technology.

Marty Zwilling

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Sunday, January 17, 2021

10 Keys To Building Unstoppable Startup Partnerships

StartupPartnershipsA common challenge faced by every entrepreneur is that they don’t have the bandwidth, interest or skills to do everything that is required to build their startup. Of course, they can outsource part of the work or hire employees, but that approach means more time and money to manage the work, which they don’t have. The right answer is to find a co-founder with complementary skills.

Two heads are always better than one in a startup. Both need to share the passion, long-term opportunity and risk, rather than just getting paid to do a job, win or lose. Investors worry about a single entrepreneur getting overloaded, disabled or led astray, with no balancing and supporting partner. The challenge is how to find that elusive perfect-fit partner.

Don’t expect someone else to find the partner for you, since it’s really very much like finding a life partner. Your version of the right chemistry, similar values and passion for your solution probably won’t match mine. Yet from my own years of experience in the startup community, here are ten common steps that have worked for other entrepreneurs:

  1. Write a "job description" for that ideal partner. Your best friend, spouse or a family member is the least likely candidate, so don’t start there. Take a hard look at your own business strengths and weaknesses, and write down what partner skills and experiences would best complement yours. Seek input from seasoned investors and peers.
  1. Network to find co-founders just as you network to find investors. In fact, many of the same venues, such as industry conferences, entrepreneur forums and local business organizations are useful for both. Online, it pays to join entrepreneur groups on LinkedIn and Facebook, and interact with people who meet your criteria on Twitter.
  1. Join online "matchmaking" sites for business partners. Co-founders are business partners for startups, so don’t be afraid to join and explore sites such as StartupWeekend, StartupAgents and CoFoundersLab. Also start a discussion on the wealth of business blogs frequented by entrepreneurs, where you can make your interests known.
  1. Attend local university entrepreneur activities. University professors and student leaders always know a host of top entrepreneurs, alums or staff members who are just waiting to find the perfect match for their own interests, skills and entrepreneurial ideas to change the world. Support local activities and you support yourself.
  1. Look for a partner from a different background. In today’s global economy, your ideal partner may be half way around the world, from a different geography and business culture. Every startup infrastructure is flush with smart people from all cultures, many of whom may be ready and able to bring new energy and creativity to your startup.
  1. Follow up with associates from prior job assignments. If you were impressed with someone’s drive and capabilities in a prior work role, now is the time to connect again to check their interest and availability, or recommendations they may offer. Use caution to avoid employer conflicts of interest and non-compete clauses.
  1. Relocate to a more likely geography. Finding a high-tech co-founder in the middle of Kansas may be a long search. There’s a reason that Silicon Valley and Boston are hubs for high-tech startups. These areas may have not just your co-founder, but also the robust ecosystem your startup needs for investors, programmers and customers.
  1. Explore candidate common interests outside of work. Co-founder chemistry and interest matches are best explored outside the office. Find some common hobbies or sports to get acquainted before giving away half your company. Business partnerships are long-term relationships, so take your time getting acquainted before closing the deal.
  1. Jointly define major milestones and key metrics for the startup. This process is the ultimate test of a true shared vision and working style. Building a startup is hard and unpredictable work, and people get busy, so now is the time to jointly commit. If you can’t work as a team now and easily agree, it probably won’t happen at all in the future.
  1. Negotiate and document roles early, including who is the boss. No matter how equal you all are, there is only room for one at the top to make the final decision on hard issues. Especially when everything feels good today, don’t be hesitant to ask the hard questions of each other. There can be only one chief executive officer.

For the success of your startup, finding the right co-founder is one of the most important things that a new entrepreneur needs to do. There are so many challenges in a startup that no founder should try to go it alone. When you find someone that works, I’m betting you will be together on your next startup, and the one after that. Great teams persevere, and success breeds success.

Marty Zwilling

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Saturday, January 16, 2021

6 Ways To Calibrate Your Fit To The Right New Venture

right-new-ventureBeing an entrepreneur seems to be one of the most popular lifestyle aspirations these days. According to most definitions, anyone who starts a business is an entrepreneur, but most people don’t realize there are many startup types out there, and picking the wrong one can be just as disastrous as being stuck in a cubicle at work, or doing things with no interest and no skills.

In my view, this mismatch of motivation to your business model is the primary reason that 90 percent of startups ultimately fail, and a shockingly high 80 percent of employees are dissatisfied at work. Thus it behooves every entrepreneur to pick the startup model that best matches their real motivation. Here are six considerations to get you started on the right startup:

  1. Invented a solution to a painful existing problem. You have proven that you can create an innovative product, but creating a business is a whole new challenge. The old adage of “if we build it, they will come” doesn’t work anymore. Every business needs marketing, distribution, a positive revenue model and intellectual property to survive. You won’t be a successful and happy entrepreneur if you aren’t motivated to build a business.
  1. Aspire to be in control of your own domain. There are many business types that don’t assume any new invention or service, such as franchising, multi-level marketing (MLM) or freelancing. These do require business management and execution skills, as well as the discipline to manage yourself. Just don’t look for an investor to fund your efforts here, since investors will likely be tougher bosses than corporate managers.
  1. Looking for a path to dramatically increase your income. This is a tough one, since most of the overnight startup successes I know took six years or more. Franchises and consulting businesses have an earlier and higher success rate, but typically have a lower return. With new products and services, you can hit the jackpot, but many struggle or fail.
  1. Trying to fulfill family or peer expectations. Don’t try to be an entrepreneur just to prove something to a loved one, friend or sibling. There are no business types that work well here, except maybe an existing family business that is already successful. If you must proceed, at least pick something you love, or a social cause to benefit society.
  1. Seeking a new career challenge to follow an existing success. If you have a comfortable position from a previous success, and are not looking to retire, a great business is to share your expertise and experience through consulting. Another great learning opportunity and win-win deal is to co-founder a new high-tech startup team.
  1. Fulfill your legacy and responsibility to society. Environmental startups and non-profit businesses are just as challenging as the next disruptive technology startup, and just as likely to change the world. Leaving a personal legacy is a great motivator to switch to entrepreneurial work, if you have that passion and determination.

No matter which of the entrepreneur business models you choose, don’t expect the work to be easier than a corporate job. In fact, most successful entrepreneurs would argue just the opposite. Success in any entrepreneur role requires a serious commitment, determination and learning from setbacks. Switching business models is not usually a shortcut to success and happiness.

I often recommend to aspiring entrepreneurs that they first take a job with another startup in the same realm as the one they envision to get some practical insight into the challenges, make contacts and learn more about their own motivations. Then take the big step of starting your own business, with fewer surprises, some good connections and likely more accumulated savings.

Overall, it is important to remember that happiness breeds success more often than success breeds happiness. Every aspiring entrepreneur should play to their strengths and interests, rather than listen to all the well-meaning advice you will hear from friends and experts. The exciting part about being an entrepreneur is that you can tailor the role to match your real motivations.

Marty Zwilling

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Friday, January 15, 2021

How To Prevent Your Founder’s Shares From Vaporizing

shares-founderWhen an entrepreneur first incorporates a business, they may find themselves the proud owner of 10 million shares of common stock, commonly called founder’s shares. It’s disconcerting for most to realize that these shares are initially worth nothing, and the challenge is to get that value up as quickly as possible, without losing it just as quickly to investors, lazy partners, and taxation.

This is where things get technical, but the principles are really quite simple. Every entrepreneur needs to understand the following basics, to be addressed at company formation, as they engage a qualified attorney to draw up the paperwork:

  1. Allocate founder’s stock commensurate with commitment. Even though initial stock has no value or market, it is extremely valuable in dividing entity ownership between multiple co-founders, commensurate with their investment, contribution and role. Startup owners need to assume a three to five year wait for a liquidity event, such as acquisition or going public, before they can cash out. At that time the original split makes all the difference.

  1. Make sure the government waits for a stock sale to collect taxes. In the U.S., every entrepreneur should incorporate early and file an 83(b) election with the IRS within 30 days of founding the company. Failing to file, or waiting to incorporate until a first investor arrives, is a common mistake, and will lead to a nasty tax bill when you can least afford it.

  1. Spread stock issuance over an earning period. This is the purpose of a vesting schedule, which issues allocated stock over time. Typically, vesting in startups occurs monthly over four years, starting with the first 25 percent of shares vesting only after an owner has remained active for at least 12 months (one year cliff). Key founder vesting should have no cliff.

  1. Retain the right to reclaim stock from anyone leaving the startup. To retain control, the original founder must reserve the right of first refusal to buy shares back at cost from a partner who decides to leave early or stop working. Otherwise, people with no ongoing effort (“free riders”) will own the value growth that you are adding after their departure.

  1. Minimize your own loss of ownership as major investors contribute. This is called stock dilution control. While new equity owners always have to get it from someone, actual re-allocation of existing shares should be based on a formula to maximize the value of your remaining founder shares.

  1. Accelerate your own vesting if pushed out or the startup is acquired. Don’t lose the value of stock not yet vested if your startup is bought out before the normal vesting schedule comes to a close. If new investors want to replace you as the founder early, make sure this action triggers an accelerated vesting clause as well.

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

  1. Limit board seats and manage member selection criteria. More board members is usually not better for the startup. Target no more than five members, with at least two being founders. This allows the entrepreneur more influence in controlling dilution of his or her shares, investment terms and acquisition decisions.

Every entrepreneur has heard the stories of a startup selling for millions of dollars or going public with the founder being squeezed out of all the gains. This situation only can be prevented by incorporating early, avoiding negative tax situations and managing your shares like gold.

Founder’s shares are just paper when you get them, and it’s up to you to turn them into a gold mine.

Marty Zwilling

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Wednesday, January 13, 2021

6 Market Environments Where Execution Trumps Planning

business-ready-fire-aim-strategyAs a business adviser, I often see entrepreneurs practicing what Tom Peters calls the “ready-fire-aim” go-to-market strategy to their detriment. Yet even I have been known to recommend that approach, in cases where you have a highly innovative product, speed is of the essence, and no clear existing market is available. In fact, you probably won’t get it right the first time anyway.

Certainly I believe the traditional ready-aim-fire strategy approach works best in most cases, and that should be your default. There is no substitute for talking to customers, analyzing your competition, and honing your solution to meet a target market segment. As a counter, here are some situations where it definitely makes sense to short-circuit the traditional approach:

  1. The market won’t wait for your planning cycle. The real solution in this case is to shorten your planning cycle, but sometimes unusual situations, such as the current global pandemic, make this impractical. The ready-fire-aim approach makes sense here, but it should be combined with metrics to learn from feedback, and make pivots as required.

    In general, I see that the strategic cycle for most companies gets longer and longer as they mature, which kills any ability to stay competitive. I recommend a living strategic plan, updated on a regular basis, so that the total plan cycle gets shorter over time.

  2. Cost of a solution execution experiment is low. When serious new technology is involved, and it’s not clear how it will be perceived and used, a highly focused execution cycle may be your best planning cycle. To keep the cost low, I always recommend the “minimum viable product (MVP)” approach, and a short duration for analyzing results.

    More and more companies are settling on the incremental and experimentation approach to new products, business models, and processes. They find the costs, the structured approach, and the solution experimentation myths don’t hold in today’s market.

  3. Opportunity and competitor data are not available. Be careful with this one, because no opportunity or competitor data is usually a clear indication that there is no market for your solution. Yet we all get surprised every day by new trends and changing cultures that defy conventional market logic. Be prepared for some misfires, and high risk.

    We all tend to remember those great product successes that evolved from no apparent market opportunity, including Rubik’s Cube, Star Wars, or even Apple’s iPhone, but remember that these are rare, and you shouldn’t bet your business on a gut feel.

  4. Your team seems stuck in the getting ready stage. If you have a development organization which is never ready to ship, and insist on continually adding new features, or doing more testing, the ready-aim-fire approach will not likely happen. Firing at some market will at least give you the feedback necessary to direct appropriate development.

    My experience as a software executive with IBM is that smart engineers always have a few more key features that they need to add to the product before it is ready for sale, just because they can, as well as a large amount of additional quality and usability testing.

  5. You already have a large and loyal customer base. Some customers are so loyal that they will follow you anywhere. Why waste time planning when you already know the conclusion? Even with this situation, it pays to keep a close tab on customer whims and feedback, as the newer generations of consumers are fickle, and can dump you quickly.

  6. There is a powerful advocate or cause driving demand. In this age of outspoken experts and “influencers: on social media, your new fashion or cooking solutions can likely skip the traditional market planning cycle. Similarly, if your solution satisfies a government-driven demand, such as healthcare, speed to market is more critical.

Despite the possibilities that you may hit your target without aiming, I always have to remind entrepreneurs of the probability that you will shoot yourself in the foot instead. Thus I believe it behooves every one of you to build a go-to-market strategy, even before you build a solution. A solution without a market is an embarrassing frustration that every business owner can avoid.

Marty Zwilling

*** First published on Inc.com on 12/30/2020 ***

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Monday, January 11, 2021

8 Keys To A Major Source Of Funding For New Ventures

cash-and-piggybankMany first-time entrepreneurs find themselves unable to bootstrap their startups, and also unable to find early funding at the venture capital level or even with angel investors. Their only recourse is that first tier of investors, fondly called Friends, Family and Fools. These are the only people likely to believe in newbies, with only minimal product evidence or business experience.

Yet surprisingly, according to statistics on the Fundable crowdfunding site, friends and family are the major funding source for entrepreneurs, investing over $60 billion in new ventures per year, almost triple the amount coming from venture capital sources. The average amount per startup has been $23,000, usually in the form of a convertible loan, rather than an equity investment.

Of course, most startups ultimately need much more than this amount to scale the business, but some prior contribution from friends and family (as well as your own sweat equity) is normally expected as a qualification before professional investors will consider entering the game. Their logic is that if your family won’t invest in you, then why should they?

This is confirmation that the right people are always more important than the right product. Here are some key ways that you can be viewed as the right people, whether seeking an investment from friends and family, fools or even later from professional investors:

  1. Ask for a specific amount to meet a specific milestone. Shy introverts may be great technologists, but they won’t be entrepreneurs until they learn to nurture relationships with friends and family, practice their elevator pitch and respectfully ask for funding. Waiting for someone to give you a gift with no specific objective is likely to be a long wait.

  1. Offer a formal agreement as well as a handshake. The vehicle of choice is most often a convertible note, which is really a loan with a specified duration and interest, with an option to convert it to equity when professional investors come in later. Hire an attorney to make sure the terms are fair. This shows respect and professionalism.

  1. Let people see your own investment and commitment. Friends and family are quick to differentiate between a passionate hobby and a sincere effort to change the world. Show them that you have done your homework with industry experts and potential customers, and convince them you are not asking for charity or a donation.

  1. Build a prototype first on your own time and money. We all know people who are good at talking, but never seem to risk anything or find time to get started on the implementation. Every good entrepreneur needs to invest skin in the game, to show credibility and leadership to others. Investors want to be followers, not the leaders.

  1. Don’t ask for more than your friends or family can afford to lose. In other words, don’t be greedy, and remember that you have to live with these people even if your startup fails. Ask for the minimum amount you need to reach a significant milestone, with some buffer for the unknown, rather than the maximum amount you can possibly foresee.

  1. Communicate the plan and the risks up front. Remember that no investment is a gift, and everyone who buys in deserves to hear what you plan to do with their investment, and expects regular updates from you along the way. Be honest with naïve friends and trusting family members, since more than 70 percent of startups fail in the first five years.

  1. Focus on well-connected friends with relevant business experience. A wealthy uncle may seem like an easy mark, but a less wealthy friend who has connections and experience with startups in your domain can likely help you more than any amount of money. Remember that you are looking for success, not just money to spend.

  1. Tie re-payments to revenue growth in the startup. Rather than set a fixed repayment schedule, tie investment payoffs to a percentage of new product revenue, or a plan to convert the debt to equity. Use the minimum viable product concept to get revenue early, and allow market and product pivots at minimal cost.

In any case, avoid the urge to think of friends and family as a last funding resort, when they should always be your first focus, and maybe the only one you will ever need. If you succeed, there is no joy like sharing the feeling and the money with people close to you.

But make sure you do it right, per the above recommendations, or you may be the biggest fool.

Marty Zwilling

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Sunday, January 10, 2021

7 Keys To Success In Today’s Popular Sharing Culture

Uber_car_with_lidarIn the last few years I have seen a popular business model emerging which embodies a greater focus on social and environmental responsibility, and a new requirement for trust and sharing, as well as customer and community collaboration. Companies like Airbnb, Uber, Zappos, and Whole Foods are setting the example, and leading the way in profitability and purpose.

In her classic book, “We-Commerce: How to Create, Collaborate, and Succeed in the Sharing Economy,” veteran marketing strategist Billee Howard calls this movement an economy centered on the power of “we” instead of “me.” She presents a roadmap to help us navigate this new business landscape, retaining the best of the old, while innovating the path to success.

In my work with many entrepreneurs and investors, I also see and support the strong movement to this business model, which can be characterized by the following attributes she outlines:

  1. Deliver value to the greater community, as well as customers and insiders. Provide real value and give-back to the global community and employees, generating trust and loyalty, which in turn brings in more customers. The result is a win-win situation, with more profits for the business, satisfied customers, and happy employees at all levels.
  1. Develop a personal-engagement extraordinary service mentality. The days of mass production and commodity pricing as an asset are gone. The new customer generation wants to provide input, and wants to be treated as one-of-a-kind in their solution, delivery, and service. Being good in business now looks like an art, with creativity and innovation.
  1. Customers and team members must be inspired, rather than pushed. Companies that offer value beyond their product or service, for social and environmental good, are seen as leading the way forward to a shared future abundance. This results in a new loyalty inside the organization, as well as outside, building momentum and profit.
  1. Grow bigger by thinking smaller in the beginning. Start with a niche that you want to be known for, and knock it out of the ballpark by being the best. Narrowing your focus actually broadens your appeal and allows you to charge a premium because you are “the expert.” This give you the credibility to expand to other niches and grow the market.

  1. Make innovation, creativity, and artistry your core competency. This requires team members who’ve been taught to think like innovators, and a reward system that fosters creativity. It requires actively listening to customers, and a culture of change. Most of all, it requires leadership and communication from the top on purpose and shared goals.
  1. Tell your purpose story for engagement and improved recollection. Stories have been an essential driver of change and engagement throughout human history. Good stories make us think and make us feel. They stick in our minds and help us remember ideas and concepts in a way that numbers and text on a slide with a bar graph won’t.
  1. Bridge the physical and digital worlds for your customers. Make sure all relevant customer interaction data, regardless of channel or source, is immediately available at every step of the customer’s journey. Empower all team members and customers, both in-store and online, with the right information they need in order facilitate a buy decision.

On top of the current pandemic, the business world has been forever altered by the growth of the world-wide Internet and global telecommunications. The customer and business universes are now globally and totally connected. This means that all customers see social needs and the environment as part of their own world, and expect these to be part of every business focus.

Thus, as the new sharing economy challengers continue to evolve their new business models, the traditional incumbents are being forced to change, or forced out of the marketplace. It’s time to take a reading on where you are in this spectrum. Is your company innovating a path to success, or riding an old wave into a cliff?

Marty Zwilling

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Saturday, January 9, 2021

8 Keys To Preparing Early For Your Next New Venture

exit_signsOnce an entrepreneur, always an entrepreneur. Although many won’t admit it, true entrepreneurs can’t wait to exit their current startup, and build a new and better one with their next great idea. In addition, current investors want to see every startup go public or be acquired, as an exit event, so they can get their due return for that investment which has been tied up for the last few years.

For these reasons, I always look for an overt exit strategy in every startup I might consider for an angel investment. As a mentor to many entrepreneurs, I also encourage an entrepreneur exit focus early, and I really like the specific steps outlined in the classic book, “Exit Signs,” by Pamela Dennis, who has helped companies through this critical transition for decades.

Her focus is a bit more on mature companies, but I believe the following eight steps, paraphrased from hers, are especially applicable to every startup and the entrepreneurs who create them:

  1. Think about the end game as you start. Running a mature company is totally different from running a startup. Most startup founders don’t relish the thought of managing repeatable processes, greedy stockholders, and endless regulation reports. Yet they often fall into these roles by not proactively preparing themselves for any alternatives.

  1. Set a target personal destination and timing. The first step is clarifying your personal goals and the legacy you want to leave. Exiting this startup is not the end, and may be the beginning of something even better, like Bill Gates philanthropy, or your next plan to change the world. At minimum, you need to get an exit advisor to keep you on course.
  1. Set your startup health gauges and use them. New startup founders keep all the operating metrics they need in their head. If you intend to exit, or even if you don’t, it’s never too early to think what an acquirer or stockholder looks for to assess your business health. This all starts with building a culture and strategy that can survive without you.
  1. Tune up your startup value and salability. Even if you don’t have a formal board of directors, it pays to have trusted advisors who will give you regular unbiased feedback on your team strengths and weaknesses, financial and operating ratio norms, and an external view of current company valuation issues. Listen carefully and act accordingly.
  1. Build relationships with potential acquirers. The best sale or acquisition is a gradual one, where the acquirer gets to know you through formal and informal relationships. Don’t wait for a distress situation in the business or your personal life, and hope that the ideal acquirer magically appears. Keep a critical lens on payment options and tax implications.
  1. Mature your business processes and customer base. Secure your company’s sustainability through multiple revenue streams and customer sets, and solid core business processes. Build an exit-transition plan for yourself, and a plan to retain key talent on the team. Anticipate customer and valued-supplier reaction to any change.
  1. Build a positive data bank and presentation. Well ahead of any planned move, you need to assemble hard data to support your historical and projected performance and sustainability. Your valuation and salability depends on the credibility of this effort. Plan to spend 30-60 percent of your time away from running your business during this phase.
  1. Lead your way out rather than wait for a push. The win-win startup acquisitions and successful transitions to public companies are led by the entrepreneur, rather than happen passively. You need to proactively engage the right people, drive improvements where required, and pay attention to all the external and internal factors gating success.

According to Dennis, an astonishing 87 percent of small and mid-size business owners don’t have an exit strategy or plan, leaving them to die at their desk, or get pushed out on terms they don’t like. If you are like most entrepreneurs, who look forward to a life of pride and profit after their current startup, it’s time to take some steps to make a startup exit more than a wistful dream.

Marty Zwilling

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Friday, January 8, 2021

8 Initiatives To Heighten Your Customer’s Experience

customer-service-expectationMost leaders agree that poor customer service is a business killer today, in terms of lost customers, reduced profits, and low morale. Yet the average perception of customer experience has not improved. Young entrepreneurs and startups, in particular, often remain naively unfocused, despite their passion, of what it takes to provide the high-quality service expected.

It’s a tough job, and inexperienced entrepreneurs just don’t know where to start, and how to do it. Chip Bell and Ron Zemke, who are experts in this area, provide some of the best specific insights I’ve seen, in the classic book “Managing Knock Your Socks Off Service.” Their eight initiatives should be required reading for every entrepreneur:

  1. Find and retain quality people. You have to start with hiring only people who are willing and able to make serious customer service happen. Make sure you know and communicate well exactly what you mean by high-quality service. Train them fully, give them authority, make them accountable, and tie their pay to customer satisfaction.

  1. Know your customers intimately. This means personally listening, understanding, and responding to your customers’ evolving needs and shifting expectations. Then make sure that everyone on the team does the same, and are motivated to improve the match with your startup. Seek out complaining and lost customers for the most important input.
  1. Build a service vision that everyone sees as clearly as you. This means articulating and living the customer service mindset for the team, in front of customers and in the board room. It must be understandable, written down, and verifiable, with regular measurements and metrics to make it real, benchmarked against the competition.
  1. Make your service deliver process “happy.” A well-designed service delivery process will make you easy to do business with. The process must be employee friendly, as well as customer friendly, and have feedback mechanisms to correct poor results. If service employees are not happy, the process isn’t working yet.
  1. Train and coach continuously. Companies with great service routinely spend 3% to 5% of salaries training team members – experienced as well as new. Leaders have found that keeping everyone on top of changes in technology, competition, and customer demands is critical to success. Service people need this as required team support.
  1. Involve, empower, and inspire. Involve team members in the fix to customer problems, as well as fixing the faulty process causing the problems. Empower them to look beyond simple rules for solutions, not out of habit, routine, or fear. Inspiration is the process of creating excitement, enthusiasm, and commitment, by your passion and actions.
  1. Recognize, reward, incent, and celebrate. By human nature, he team that works for and with you want to do a good job. The best incentive is to give them something good back in return. This should start with constructive feedback on how well they are doing, and what they can do to improve. Don’t forget recognition for accomplishment and efforts.
  1. Set the tone and lead the way. Like it or not, you are the personal role model for all the people in your startup. How they see you deal with and talk about peers, partners, team members, and customers tells them what the real rules of conduct are for customer service. You can’t con or manipulate people into doing quality work.

Customer service is not just handling exceptions, something that you can think about later, once the business is up and running. It’s a core process that must be up and effective when you deliver your first product or service. If you still doubt the consequences, consider the following facts from research by MTD Training Group:

  • More than 50% -- Scrapped a planned purchase because of bad service
  • 60% – Consider switching businesses after 2-3 instances of poor service
  • 69% – Spent more money on purchases from satisfied businesses
  • 90% – Tell others about their service experiences.

In the past, competitive advantage was all about economies of scale, advertising power, and service versus price. With instant low price search, ordering via smart phones, and unfiltered online reviews via Yelp and Foursquare, the advantage today has shifted to companies who can make every experience positive. Prepare for it, and don’t jeopardize your future on the first day.

Marty Zwilling

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Wednesday, January 6, 2021

8 Strategies For Sustaining Momentum In Your Startup

momentumEvery new business I know dreams of building momentum in their business, where growth continues to increase, customers become your best advocates, and employee motivation is high. The most common approach I see to achieving this is to do more of everything for everyone. Unfortunately, with limited resources, this isn’t possible, and it frustrates customers and the team.

Based on my experience advising new entrepreneurs as well as more mature businesses, I recommend the following strategies for building business momentum, while still optimizing the limited resources of every small business:

  1. Find more customers that like what you do best. Fight the urge do more things, to attract more customers in a broader market. In reality, too many choices actually dilutes customer interest in your existing market, and makes your job of production, marketing, and support much more complex. Focus first on finding more of the right customers.
  1. Focus on the mainstream customer majority. New entrepreneurs, especially technical ones, are excited by early adopters, and tend to focus on their feedback, which will always suggest more product features and options. Ongoing momentum requires a move to mainstream, or even late adopters, who demand simplicity in your base function.

    I’m sure it wasn’t early adopters who suggested that Amazon implement a simple “big red button” for a “one-click-buy,” but many experts now attribute huge online growth to this simplification for less tech-savvy customers. Most ecommerce sites highlight this feature.

  1. Select a single dimension to measure momentum. Your focus for momentum could be sales, profitability, or number of customers, but trying to keep all possible parameters growing is simply not practical. It’s important to define your growth strategy, document it, communicate it to your team, and align metrics and employee rewards to target goals.
  1. Build a strong employee culture focused on growth. One person can build a product, but it takes a dedicated team, with strong leadership, to build a business. Momentum requires a team culture of high motivation and engagement. These attributes require an effective employee feedback and reward system, as well as fostering collaboration.

    For example, Mark McClain, cofounder and CEO of SailPoint Technologies, created an employee growth culture resulting in growth of forty percent a year, with more than $100 million in revenues. The company has since gone public, and is still a market leader.

  1. Plan a long-term strategy, and avoid crisis moves. In most companies, maintaining momentum requires the right strategic partners and acquisitions, in lieu of short-term price adjustments and special sales. That means you need to focus early on where you need to be in five years, and focus on strategic planning on a regular basis.
  1. Maximize key customer transaction efficiency. Momentum normally requires an ever-increasing volume of transactions, so you must make sure that key ones can be handled smoothly and quickly. Customers have no tolerance these days for multiple interactions, necessary support requests, poor customer service, or bureaucratic processes.
  1. Utilize outside expertise and mentoring. No matter how much energy, experience, and passion you have, there is always more you can learn from an Advisory Board of external experts or a mentor. Maintaining business momentum requires constant analysis and vigilance for market and technology changes, as well an internal focus on optimization.
  1. Track competition to stay ahead of copycats. Don’t wait for negative momentum to alert you to new competition – recovery is much more difficult than proactively making focused changes to retain customer loyalty and repeat business. Incremental changes are always easier to make and market to existing customers than disruptive products.

I’m sure that you have all seen how quickly business momentum can shift, as from MySpace to Facebook, or more recently in the explosive growth of Amazon and e-commerce compared to retail. Today’s customers quickly sense the growing momentum of specific businesses, or lack of it, via social media, online reviews, and texting with friends, and change their habits accordingly.

Thus you should never be complacent in your business about the growth you have achieved, or your loyal customer base. I urge you to practice the strategies outlined here both to build that initial business momentum, as well as to sustain it. Your long-term success and satisfaction depends on it.

Marty Zwilling

*** First published on Inc.com on 12/22/2020 ***

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Monday, January 4, 2021

7 Reasons Why Every Business Leader Needs A Mentor

mentor-coach-relationshipAfter working many years in business, both in large companies as well as startups, I’ve realized that you can learn more from peers and mentors than from any formal education program. Of course, nothing beats learning from your mistakes, but that’s a painful and very time-consuming journey. Best of all, I find mentoring to be fun and fulfilling for both the giver and the receiver.

In fact, I’m convinced that the establishment of business mentoring relationships is the missing link between our education system and people who want to lead businesses today. Building and running a business is not rocket science, but it does require making practical tradeoffs, building solid relationships, and taking smart risks, all of which a one-on-one mentor can help you with.

Based on my own mentoring experience, here are seven key lessons I have learned, and offer to you as a potential source of inspiration and satisfaction, after some success in your business:

  1. Relationships are the real key to business success. We all probably thought that our initial ideas and the right products were the key, but realized later that business is all about win-win relationships with partners, team members, and customers. Mentoring will help you, as well as your mentees, find and build the right relationships for success.

  2. Focus on real issues and skip the hypothetical cases. Keep your discussions centered on actual business and market challenges, in lieu of speculation on possible future problems. These days, the pace of change is so great that trying to predict the future is not likely to be productive, even for the most confident business leaders.

  3. We all need help in honing our communication skills. Effective two-way communication is the key to every successful business transaction, and we all need practice and good feedback from someone we trust and respect on how to improve it. Mentoring gives both parties the opportunity to test their listening skills, as well as talking.

  4. Mentoring works best one-on-one and person-to-person. It pays to take the time to meet personally in a relaxed environment to absorb the body language and the inspiration required to communicate effectively. Mentoring supplements but doesn’t replace the need to continue education through industry conferences and networking.

    Bill Gates and Warren Buffett both have very busy schedules, and have always been in. totally different businesses, but they still find time to meet and talk regularly. Both give much credit to the other for success, and claim to have learned much from each other.

  5. Mentoring keeps you in tune with new culture trends. Our educational systems today do very little to help you keep up with new generations of customers, employees, and partners. One of the toughest challenges is to adapt to changing global cultures, and how people think differently today. Pick your mentor carefully to meet this need.

    In that context, one of the most unusual mentoring relationships I can recall was between Mark Zuckerberg and Steve Jobs. Early in the Facebook era, Steve convinced Mark to visit a temple in India for a month to better understand future social and culture trends.

  6. Existing leaders use mentoring to find their replacement. While I tend to look at mentoring as a source of satisfaction and social responsibility, many more active executives and companies consider it one of the best ways to identify and nurture high-potential people in their organization as the next generation of replacement leaders.

    According to Deloitte, high-potential millennials say that having an experienced mentor assigned is one of their key factors in selecting a place to work and remaining with it. Long-term company success is all about having good leaders today, as well as tomorrow.

  7. Sharing through mentoring amplifies your satisfaction. Every business owner and professional I know enjoys paying it forward as much as the learning and success. This can be particularly satisfying as you enter the later stages of your career, where your passion and energy for tackling the daily problems is more limited by health and family.

But don’t be fooled into taking mentoring lightly. It’s not easy to ask for help, and organizing times to meet, understanding the ins-and-outs of effective communication, establishing goals for your time together; all of these are reasons that mentor relationships don’t always work. Yet if you commit, and make your best effort, it can be one of the joys of business that you will never forget.

Marty Zwilling

*** First published on Inc.com on 12/16/2020 ***

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Sunday, January 3, 2021

Don’t Allow These Debunked Myths To Kill Your Dream

business-innovation-dreamStarting an entrepreneurial business, or maintaining the competitiveness of a mature business, requires innovation. Yet everyone I know seems to have a different perspective on what constitutes real innovation, and why is seems to happen so rarely. Another challenge is to debunk some of the common myths that seem prevent many from even assuming they can innovate.

As a starting point, I like the Wikipedia simple definition of innovation as “the application of better solutions to meet new requirements or market needs.” I also enjoyed the classic book, “63 Innovation Nuggets for Aspiring Innovators,” by George E. L. Barbee, based on his 45-year career and work as an innovation guru with several Fortune 100 companies and the Darden School of Business.

Some of the most common innovation myths that Barbee mentions or I have encountered in my work with entrepreneurs around the world include the following:

  1. True innovation can only come from R&D and geniuses. In reality, the best business process innovations usually come from regular employees on the front line of your business, just trying to do a better job and better serve customers. Many product innovations come from quality improvement focuses, like the Japanese Kaizen initiative.

  1. Innovation must be driven top down by visionary leaders. Some innovations are clearly implementations of visionary ideas, but anyone at the operational level can think outside the box, individually or as a team, to suggest and implement innovations. Many innovations, including Post-It notes and superglue, were even invented by accident.
  1. Real innovation only happens in entrepreneurial organizations. Startups may be quicker to adopt innovations, but there are clearly some large problems than can only be solved by companies with large resources. Other innovations, such as the ones from Kaizen initiatives, can only come from established organizations and processes.
  1. Innovation is random, and can’t be orchestrated. Current research indicates that innovation is a discipline, it can be maximized, measured, and managed through formal processes. Peter F. Drucker outlined the key elements of this discipline, including methodically analyzing seven areas of opportunity, in a classic article on the subject.
  1. Individuals who are innovators are born, not bred. Research published by Harvard many years ago in a book, “The Innovator’s DNA,” concludes that innovation is about 30 percent individual genes and 70 percent learnable and driven by motivation. The focus must be on five discovery skills of associating, questioning, observing, networking, and experimenting.
  1. Solution innovations need to be perfected before going to market. These days, with markets and technology changing so rapidly, it’s impossible to verify an innovation before taking it to market. Thus I recommend the minimum viable product (MVP) approach with iteration, to test innovations until the product or service really meets today’s customers.

  1. “Thinkers cramp” and “organization cramp” limit innovation. Innovation and creativity are two different things. Creativity is more about ideas, while innovation is all about implementation. The “writer’s cramp” type of block on ideas need not apply to the implementation of measurable and specific improvements and innovations in business.
  1. It’s impossible to innovate in a staid complacent culture. Innovations come from people, not culture. When people change, due to new leadership, new motivation, or business changes, innovations occur, which can lead to culture change, rather than the other way around. Complacent cultures cause business failures for reasons well beyond lack of innovation.

You probably know more of these myths, but the message here is that initial innovation is critical to every startup, and continuous innovation is critical to the survival of every business. The market and your competitors never stand still, so every moment your business stands still, it is losing ground.

Don’t let a few outdated and unproven innovation myths stop your business from achieving the impact and lasting legacy of your long-term vision.

Marty Zwilling

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Saturday, January 2, 2021

5 Actions To Convince Your Boss You Are Accountable

accountable-employee-awardAre you often frustrated that people reporting to you, or key peers, seem to dodge accountability for their actions? They are quick to claim the credit for things in their domain that work, but also quick to disclaim responsibility for problems that keep popping up. Perhaps you need to do more to be a role model for accountability, and provide more coaching on exactly what it means.

For example, a couple of years ago, Starbucks' chief executive officer, Kevin R. Johnson, was quick to accept accountability via a company apology on Twitter for a racial profiling incident at a Starbucks in Philadelphia, even though he could have claimed that a fired employee was at fault. He later closed more than 8,000 of his stores for a day to provide employee racial-bias training.

I often think of the scope of this example in my role as mentor to a struggling entrepreneur who is quick to blame his problems on employee mistakes, or even changing customer expectations. I would ask each of you to audit your own actions in business to make sure you always practice what you preach. In my experience, here are the key actions that will role model accountability:

  1. Proactively take ownership of a relevant issue. It’s hard to find accountability in a culture where everyone waits to be “assigned” a task. You as a leader need to set the expectation that responsible people are anxious and willing to make a difference by recognizing what needs to be done, stepping up to the task, and later being rewarded.

    In today’s world, every organization needs to be in a constant state of change to stay competitive. You are in the best position to take the initiative to address growth, emerging technologies, and changing customer needs. Don’t wait for a crisis to test accountability.

  2. Communicate effectively what needs to be done. Accountability starts with sharing your ideas and expectations with everyone involved, rather than just assuming that others will see things the same way, and understand the big picture, as well as the details. Communication must be positive and consistent, both up and down the line.

    In the Starbucks example mentioned earlier, Kevin Johnson sent a clear message, externally on social media, and internally via memo to all employees, on what he expected, and he provided the time and training so that everyone accepted the message.

  3. Take a positive and active role in the execution. Of course, talking and giving orders is no substitute for doing. True leaders model accountability by taking an active role and adding value, rather than just driving others and assigning blame. They provide ongoing motivation by recognizing and rewarding effort, and the training to do the job right.

    No one has ever accused Elon Musk of not leading the way in execution and accountability, based on his reputation for working 100 hour weeks, and his famous testament to accountability with the no-hedge statement, “I deliver in full, or I get nothing.”

  4. Track and communicate progress along the way. If you want to be perceived as accountable, it is important that key people, including stakeholders within the project and outside, know the status and the final disposition of your effort. If a project is off-schedule, the right people need to know, with recovery plans and additional resources required.

    In too many companies I know, various teams work on projects throughout the year, and no one measures anything. Everyone waits until the P&L comes out at the end of the quarter and then can’t figure out why growth didn’t materialize. There is no accountability.

  5. Follow up with credit to others and lessons learned. Accountability is not all about me, myself, and I. The reality of human nature is that the more credit you give to others on the team, the better you will be remembered as accountable in return. Don’t forget to document lessons learned, so that others who may follow in your footsteps will benefit.

    Holding people accountable should never amount to punishment. What you must build is a company culture where accountability is celebrated and plays a crucial role in moving the team, and the company as a whole, forward by learning and working effectively.

Thus you can see that accountability doesn’t happen by default, and it can’t be accomplished by edict. It is best taught by example, by individuals and leaders within teams who practice the strategies outlined here. If you are frustrated by the lack of accountability in your organization, it probably means you need to look harder at the model you project, and the mindset of your team.

Marty Zwilling

*** First published on Inc.com on 12/15/2020 ***

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Friday, January 1, 2021

7 Ways To Manage Healthy Internal Business Conflicts

meeting-team-conflictMost business professionals I know will go to great lengths to take a neutral position on internal business conflicts, on the assumption that all conflict is bad for the company as well as their political future. In my experience, a level of disagreement among key team members is a sign of a healthy organization, allowing it to survive and prosper in this age of multiple disruptive trends.

Of course, any highly emotional and unmanaged conflict can certainly lead to chaos and a dysfunctional organization. Your challenge as a leader is to encourage and reward healthy conflicts, while managing them to productive and innovative results. To get you started on the right foot, here are the key principles that I see most often working:

  1. Make the resolution a part of a larger process. Before you get too deep into an issue, make sure all parties understand the total process. If people anticipate that a decision will be made arbitrarily, or is totally outside their control, they will not be creative or willing to compromise. Make sure the process is respectful of their needs as well as yours.

    For example, in a conflict over the right branding logo, it may help to understand who and how the ultimate decision will be made, including key elements driving the decision, such as targeted customers and competition. Don’t let it be just a conflict over graphic design.

  2. Evaluate conflict win-lose versus win-win potential. Most business issues have some negative implications, as well as positive. It’s up to you as a leader to understand and be able to explain all sides of an issue. Unfortunately, some team members may see all differences as win-lose battles, which makes conflict resolution painful and emotional.
  3. Show openness to exploration and creativity. By demonstrating that you have not locked in a specific solution, and are willing to explore alternatives, you avoid the tendency for an opponent to take a hard position and not listen to your perspective. The more alternatives that you communicate, the more likely you are to find a win-win one.

    One approach is to combine disparate disciplines, such as art and science. The folks at Integral Molecular, a biotech company, as an example, brought in outside artists to be inspired by microbiology, resulting in creative inspiration which resolved several conflicts.

  4. Always postulate or support a win-win solution. The most effective leaders look for win-win alternatives, where both sides benefit. These allow change and innovation, without the destructive impact that keeps good people from wanting to engage. I find that most differences in perspective between smart people can be turned into wins for both.
  5. Don’t make the conflict a personal issue. When differences become personal, the problem can quickly get lost in the human urge to win, and becomes unmanageable. Keep the conflict separate from to person, and don’t make them part of the problem. The best way to do this is talk about an issue in the abstract, rather than naming real people.

    If you have employees who clearly don’t like each other, and insist on making every issue personal, it’s time to have individual discussions to resolve that issue, before it become toxic for the whole organization. Don’t hesitate to make personnel changes as required.

  6. Work to collaborate rather than be a lone wolf. Rather than take a hard stand alone, you will more often win if you approach conflicts as mutually shared problems to be solved as a team. Working together invokes relationships which can incrementally strengthen your position, and lead to more creative and satisfying solutions.
  7. Demonstrate active listening in a neutral location. Discussing tough issues in person is always better than sending text messages or emails. Face-to-face you can better demonstrate active listening through body language and playing back what you have heard. In all cases, choose a neutral location which eliminates distractions and biases.

In every conflict, it is important as a leader to engage early, rather than ignore the problem. The longer a conflict is active, the more likely that positions will harden, and emotions will make resolution more painful than productive. After-the-fact communication and documentation are also important, with a clearly defined resolution, follow-on action plan, and metrics to assess progress.

I believe that teams and leaders that actively encourage some conflict, and manage it with the principles highlighted here, make better and more timely decisions, as well as improving their satisfaction with their roles and their company. In these difficult times, it is even more important to be part of a mature and high-functioning team.

Marty Zwilling

*** First published on Inc.com on 12/15/2020 ***

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