Wednesday, February 24, 2021

7 Keys To Scaling A Startup into A Thriving Business

business-people-growthAs an advisor to many startups today, I still see that most of you entrepreneurs see yourselves as the sole driver of your new solution, and the key driver of your new business. That’s not all bad in the beginning, but as you scale, every business has to build a team to keep up with the wide range of skills needed, fight new competitors, and respond to changes in the marketplace.

For many, it’s hard to make the switch from that top-down order-giving culture, and it’s hard to find the time to recruit and coach the new team members you need to scale the business to success. Many new businesses fail at this stage because they don’t build the required team culture to keep teams engaged and committed, and founders burn out trying to do too much.

Based on my own experience in large companies, as well as small ones, here are seven key strategies I recommend for building the teams and culture that will drive business success:

  1. Admit to yourself and others that you need help. Don’t let your ego and passion prevent you from building a team around you, listening to others with complementary skills, and delegating decisions as far down as possible. We all need to be humble and recognize that what we need to know about technology and the market changes daily.
  2. Identify a business purpose and goals that motivate any team. Today, modern teams are engaged by a higher purpose, such as improving the environment or helping the underprivileged, more than just money and profit. You need them to make a personal commitment to customer service, improved quality, and change to improve the future.

    Blake Mycoskie, TOMS shoes founder, set a goal of donating a pair to the needy for every pair sold, and maintains team commitment by providing international trips to assist partners in distributing shoes in interesting places, including Nepal and Honduras.

  3. Encourage your team to make decisions and take action. Many teams I know are frustrated by the never-ending debates and constant requests for more analysis by management. Satisfaction and commitment come from choosing a path to move forward, evaluation results and customer feedback, and learning from all their best efforts.
  4. Keep teams small, diverse, and collaborative. I find that teams greater than 8 or 9 people often get bogged down on internal politics, and have trouble really sharing data effectively or reaching consensus. People all need to trust each other, and be able to recognize the value of diverse perspectives. Avoid long and never-ending projects.

    As an example, CEO Jeff Bezos at Amazon is known for his two-pizza rule: no meeting or team should be so large that two pizzas can't feed the whole group. He is convinced this assures maximum productivity, and that no one's ideas get drowned out or ignored.

  5. Practice active listening and open team communication. As the size and number of your teams grow, the amount of time you spend listening and communicating must also grow. Resist the urge to limit what teams need to know, interrupt negative messages, or jump quickly from listening to a solution. Promote the sharing of ideas and feedback.
  6. Foster a culture of constant learning, even from failures. Many new business leaders can’t wait to implement fixed team processes to improve productivity and minimize risk. While productivity is important, the bigger risk is not learning from customers and the market, and falling behind. Reward new ideas, experiments, and critical team feedback.
  7. Be the model of customer focus for the team. Too many business leaders I know retreat farther and farther from the customer as their business scales. Make sure you schedule time for regular customer visits, and make sure your team understands that providing value to more customers is your definition of growing the business.

As your business grows from a startup to a sustainable business, you too have to grow from an entrepreneur to a business leader. Of course, if your interests and passion don’t lean in this direction, you can always bring in an outside CEO who already has the skills, or you can merge or sell your startup to another enterprise, and move on to start your next new venture.

Just be aware that a winning team makeup and culture won’t happen by default. It takes recognition of the need and effort on your part. I urge every entrepreneur to take a hard look at their own situation – you may be a key part of the problem, or the driver of the next unicorn business solution.

Marty Zwilling

*** First published on Inc.com on 02/09/2021 ***

0

Share/Bookmark

Monday, February 22, 2021

8 Keys To That First Investment From People You Know

funding-friends-familyMost entrepreneurs have learned that it’s almost always quicker and easier to get cash from someone you know, rather than angel investors or professional investors (VCs). In fact, most investors “require” that you already have some investment from friends and family before they will even step up to the plate.

You see, investors invest in people, before they invest in ideas or products. Since they don’t know you (yet), their first integrity check on you as a person is whether your friends and family believe in you strongly enough to give you seed money for your new idea. If they won’t do it, they why would I as stranger invest in you?

Friends and family will likely not expect the same level of sophistication on the business model and financials as a professional investor, but they do expect to see certain things. Here is a summary of some key items to think about as an entrepreneur before approaching friends, family, or even fools:

  1. Don’t be afraid to ask, carefully. If you set around quietly waiting for someone you know to offer you money to fund a startup, you will probably have a long wait. On the other hand, if you open every conversation with “I need money,” you won’t have any friends or any money. Practice your “elevator pitch,” and end it by asking for the order.
  1. Be upbeat and respectful. Nothing kills everyone’s optimism and desire to help quicker than a negative or arrogant attitude. If they are going to put cash into your company, chances are that they will expect to spend a fair amount of time together, either helping you or certainly discussing progress. Nobody likes a downer.

  1. Be passionate about the idea. Friends and family will quickly detect your level of sincerity and thought behind the idea. You need to convince them that you have been working on this vision for a long time, and have done the “due diligence” on all the potential knockoffs. Daydreams and “the idea of the moment” won’t get much respect.

  1. Demonstrate progress and your own “skin in the game.” Saying that you need money to start is not nearly as convincing as saying that you have built a prototype on your own dime, but need more to roll it out. We all know people who can talk a good game, but never get around to building anything.

  1. Ask for the minimum rather than the maximum. We would all love to have a million dollars of funding to “do it right” and build the company of our dreams. But your chances are minimal of finding someone who will give you that much to start. Set some milestones for three or four months out, and show what you can do, then ask for more.
  1. Communicate the risks, and write down the agreement. Be honest with na├»ve family members and friends about the inherent risks of a startup – at least 70% fail in the first five years. Don’t take money from family or friends who can’t afford to lose it. Think hard about the consequences of a possible startup failure and the loss of their funding.
  1. Show some incremental value along the way. Look for ways to get some traction with a minimal product, while you are still developing the main event. In high technology, this is called “release early and iterate,” which allows you to make corrections as you go, as well as adjust for the market changes. It also shows progress to early backers.
  1. Network to build investor relationships before you ask for money. Having a real project, rather than just an idea, is a strong positive when networking for Angels or VCs. Now you really have something to discuss, and real credibility as an entrepreneur. Build the friendship first, ask for advice on a real project, then maybe money later.

Overall, don’t think of friends and family funding only as a last resort. There are massive advantages, like sharing profits with friends and family, as well as the strategic credibility than can be gained from funding from someone you know, rather than from a professional investor.

I hope all of these points seem like common sense to you, and you wouldn’t think of handling it any other way. Yet, I’m continually amazed at how often I am approached as a professional investor by strangers asking for a million dollars to fund an idea, without hitting even one of the above points.

We can all recount horror stories of families and friendships torn apart by money lost on someone else’s speculative dream. In these cases both the entrepreneur and the funding partner are the fools. Don’t be one.

Marty Zwilling

0

Share/Bookmark

Sunday, February 21, 2021

Why Every Startup Needs To Select Customers Carefully

Customer family magnifying drawingMost startups are happy to find any customer, and will hang on for dear life to every one. Only later do they realize that some of these cost more than they are worth, or lead into commitments they can’t sustain, but no business wants to violate the golden rule that every customer needs to be treated as if they were the only customer.

In reality, the real world is full of pragmatics. Every smart entrepreneur needs to realize that trying to treat every customer the same, with limited resources, may mean that you are treating them all poorly, or at least limiting your own growth. Mike Michalowicz, in his classic satirical book “The Pumpkin Plan,” makes some excellent points with the analogy of how growing a business is like a farmer who struggles to grow championship-size pumpkins.

They generally treat all pumpkins with respect, but they don’t treat them all the same. Likewise, you have to rank your customers, fire the troublemakers, and eliminate unfit ones. Then you can focus your energy on the core client group, and keep these folks so happy that they will never leave you for the competition. Here are some key principles we both recommend along the way:

  1. Favoritism . . . it’s a good thing. Playing favorites is nothing to feel guilty about. It’s simply good business, and mandatory for your success. Your top clients or customers need to know they are special, to feel special. Go out of your way to help them grow their own business. Don’t try to make every pumpkin a giant pumpkin, because it never works.
  1. The customer isn’t always right. But the right customer is always right. Make them your favorites. Think of your business as a membership organization, with reasonable rules to join. The rules are for you and your team only, so no potential customer needs to feel excluded. Your goal is to grow every joining member into a record-breaking pumpkin.
  1. Under-promise and over-deliver. This ability seems to be a lost art these days, which makes it so powerful in making your special customers feel special. Masters of this process plan to have the work done before it’s due, so there is no panic and no freaking out. Remember, you will be measured by your actions, not your words.
  1. Don’t hide the secret sauce. With the Internet, the days are gone when you could hide your key advantage, to keep competitors from catching up. Be the first to share the knowledge that demonstrates you are better. Secrets make people nervous. The more they trust you, the more they rely on you, buy from you, and sell for you.
  1. Keep yourself an inch ahead of your competition. It only takes an extra pound to beat the world record. Equal isn’t good enough. But manage your focus and resources carefully to be a little bit better, a little bit more helpful, and a little bit more creative for the long haul, as well as for the moment. Both you and your customers will be the winners.

On the other side of this equation, how do you fire a customer that doesn’t fit your business? Mike suggests the following approaches, which do take effort and discipline, and need to work within accepted norms and legal business practices:

  • Prioritize the stars. When the best clients call, they get services first. The cringe-worthy customers get pushed to the back of the line. Each will get the message you are trying to send, and you will have the differentiation you want.

  • Eliminate services. Sometimes this simply means you need the will power to not accept customer requests that you can’t satisfy. Another approach is to explain that you have shifted all your resources to another segment, and can no longer help this customer.

  • Raise prices. If you really want to see bad clients run for the hills, raise your prices. If your prices go up, your perceived value will go up, and you may no longer be the whipping boy of commodity customers. Point them to big-box providers for low prices.

  • Refuse to two-time. Another way of breaking ties with a demanding client is to explain that you have an agreement with a major client that prohibits you from servicing anyone else any longer. Introduce them to an alternate vendor, to make it positive.

The net message from “The Pumpkin Plan” is to plant the right seeds, weed out the losers, and nurture the winners, for maximum growth. Discover the unfulfilled needs of the customers you want, innovate to make their wishes come true, and over-deliver on every single promise. Just be aware that it’s easier said than done. Maybe it’s time to take an audit in your own startup, to check your own words versus actions, and the results.

Marty Zwilling

0

Share/Bookmark

Saturday, February 20, 2021

10 Reasons That New Ventures Are All About Execution

startup-executionI’ve always said that startups are all about execution. Sometimes I encounter self-proclaimed entrepreneurs who have been “thinking” about a concept for many years, and haven’t started yet. Some of these may be visionaries, but none are real entrepreneurs - yet. Elon Musk has built several innovative companies, including SpaceX and Tesla Motors, and is worth about $185 billion. I’m told he spent more time executing than thinking about any one of them.

Great entrepreneurs live by the principles discussed by Leonard A. Schlesinger, President of Babson College, in his classic book titled “Action Trumps Everything” which he wrote in conjunction with friends Charlie Kiefer and Paul Brown. In it he explains how the power of entrepreneurial action helps people create what they want in an uncertain world.

One of these principles is that action trumps thinking, when the future in unpredictable. This one caught my eye, since the future of everything for startups on any day is unpredictable. Here are ten key reasons that I can certainly relate to:

  1. You find out what works and what doesn’t. Every startup will tell you that no matter how certain they were of their solution, and the path to success, they had to pivot a few times in the face of unforeseen challenges. Great solutions are never obvious before the fact.
  1. If you never act, you will never know if you are right or wrong. You may think you know, but you won’t be able to point to anything concrete to prove you are right. The problem with that, as Mark Twain pointed out, is: “It ain’t so much the things we don’t know that get us into trouble. It’s the things we know that just ain’t so.”
  1. You will find out if you like it or you don’t. Your action, for example, the decision to take steps toward starting a restaurant, may cause you to find out that you love the cooking but hate talking to people, may convince you to go into high-end catering and hire someone to deal with the clients.
  1. Acting leads to a market reaction, which could take you in another direction. Action leads to evidence, which becomes fodder for new thinking. You act, therefore something changes, and in observing that reaction you gain knowledge that could never have been gained from thinking alone.
  1. As you act, you can find people to come along with you. For example, in talking to your suppliers, you end up meeting the world’s most organized person. She may soon be a 10% owner running the day-to-day operations of your catering business.
  1. As you act, you can find ways to do things faster, cheaper, better. You discover, after making your world-famous chicken Parmesan fifty times, that you can prepare the dish in eight steps instead of eleven.
  1. If you act, you won’t spend the rest of your life wondering “What if . . .?” If all you ever do is think, you can gain tons of theoretical knowledge, but none from the real world. You become like that woman in the fable who knows the price of everything but the value of nothing.
  1. If all you do is think, you are less interesting as a person. In other words, if all you ever do is think . . . all you do is think. Who would you rather sit next to on a plane, someone who started a rock-climbing store, or someone who only thought about it?
  1. If you act, you learn from other people. You always want to know what’s real. Talking to people is acting . . . at zero cost. You can learn an awful lot, and it usually doesn’t take much time. Just make sure you act on what you learn.
  1. Thinking without acting feels like zero cost, but actually may have a huge opportunity cost. From a dollars-and-cents point of view, zero cost may be right. But while you are still thinking, somebody else could be stealing your market or the opportunity itself may end.

But before you act, you should always double check to see that the future is as uncertain as you think. If there is a more than reasonable chance that the future is knowable, you are better off going with a prediction, and that is a good thing.

If there is no way of knowing what the future will be like, act. It is the quickest way to learn. Take one small step toward your goal when it is far away or difficult to accomplish. Then evaluate where you are. A journey of a thousand miles really does begin with a single step.

Marty Zwilling

0

Share/Bookmark

Friday, February 19, 2021

8 Ways To Beat The Odds Of A Consultant For Startups

consulting-business-startupLet’s face it, consultants have a bad image. Businesses want experienced people who get their hands dirty, rather than experts who give presentations, make recommendations, and disappear. Even consultants don’t like their job, since they don’t often get to see results, and too much of their time is spent looking for the next gig.

The Internet has changed the world. If you need to know how to do something, just look it up online. You will probably find more current alternatives and more recommendations on any given subject than any consultant could muster. For example, there are a dozen articles like this one for every area of expertise.

But certainly the Internet doesn’t do the job for you. My message today is to avoid the consultant stigma by signing up to do the job, not just talk about it. Then lead by example. There are a myriad of ways to make this happen in the world of startups. Here are a few:

  1. Take the end-role directly. An approach I suggest these days is for freelancers to contract for the actual role, probably part-time, of startup CFO, VP of Sales, or President. In this mode they take on the “doing” role directly, rather than any “consulting” role.

  2. Specialist versus consultant. Small groups of consultants have now become groups of specialists – CFO Services, Marketing Services, or Management Services. Specialists are consultants who do the work, rather than just make recommendations.

  3. Charge by task or fixed-rate. Another mistake many consultants make is to charge by the hour, and customers lose track and lose confidence as things change. A fixed rate will make sure there is no surprise at the end, and you will stand out in the crowd.

  4. Report within the organizational structure. In the past, consultants were taught to report only to the top executive, and to assume leadership rights in the organization. Today’s specialists have to earn their leadership, and prove their contribution to the department executive.

  5. Dress to fit in. Gone are the days when you can make a great impression by over-dressing. Dress to fit into the company culture, no more, no less. Share the everyday life of the startup team you are working with.

  6. Produce results. “Results” these days are not PowerPoint slides, or theories and recommendations. If you are the CFO, showing results means you set up the accounting system, and generate the first P&Ls. Speak to people, rather than write a document every time you want a change.

  7. Have "customers", not "clients." This is a minor semantic point, but an important one to the customer. A "client" implies that the consultant is in charge, while "customer" suggests that the service provider is beholden. All aspects of customer service apply.

  8. Be exceptionally easy to find. When your customer phones or emails you, his timer starts, so it behooves you to return his call or email quickly. Scheduling of a meeting at the end of the next week definitely tags you as a consultant whose focus is elsewhere.

So for all you consultants, maybe it’s time to consider changing your mode of operation as well as your title. If you have real experience in key business roles, or you are an expert in any one, then you have a good set of modern credentials. Use your credentials to figure out how to join a startup team.

Don’t be an outsider in attitude, recommendations, clothes, or rules of engagement. Every startup I know is looking for more team members, but none are looking for more consultants. If you find the right team, and do the right work, you won’t even need to look for a next gig.

Marty Zwilling

0

Share/Bookmark

Wednesday, February 17, 2021

6 Cost-Cutting Recommendations For New Entrepreneurs

co-working-spacesIt wasn’t so many years ago that starting a new e-commerce business on the Internet was a complex custom development project, usually costing a million dollars or more. Now you can do it for free, or a few hundred dollars, with one of the many web building tools available, like Shopify or Weebly. A programmer can build a new smartphone app for a few thousand dollars.

With the appearance of do-it-yourself services on the Internet, entrepreneur curriculums at every university, and a wealth of new books on the subject, the need for expensive consultants and business advisors has also been mitigated. Almost anyone can start a company today on a shoestring budget, following these cost-cutting recommendations:

  1. Establish a solid legal structure for your business. Setting up the business as an LLC or C-corporation can now be done online with low registration fees and minimal risk. The same is true for filing patents, registering trademarks, and filing copyrights. Required legal fees now average $5K or less, compared with $20K or more as a minimum.
  1. Work out of your home, and keep your own books. You can now skip the mandatory office space rental, with secretary and bookkeeping staff, or outsourcing. With a little help from a friend, you can handle expenses, revenue, and payroll, with QuickBooks or a similar package. These steps alone can reduce your monthly burn rate by at least $10K.
  1. Use the cloud and subscriptions for computing technology. Gone are the days of required $50K computer servers onsite, with big software license fees up-front. Servers needed expensive IT consultants for setup and maintenance, and required excessive power and cooling. With Google, you get all the storage you need in the cloud for free.
  1. Social media facilitates marketing and sales. For startups, social media and color printers have essentially replaced the need for external public relations and marketing services. You can optimize your website and spread your marketing messages across the world through the Internet. Savings here can easily reach another $10K per month.
  1. Minimize investment in prototypes and tooling. With do-it-yourself makerspaces such as TinkerMill, you can avoid expensive prototyping iterations. You can now get tooling and products built very quickly either in the US or in China, with delayed payment options. The need to build a new million-dollar factory for each new product is gone.
  1. Use freelance and work-at-home to reduce payroll. As an old rule-of-thumb, startups realized that employees cost double the salaries paid, to cover office costs, health-care benefits, and workers compensation. Today, productivity is way up, you can do most anything yourself, and you can outsource to contractors with more skill and less cost.

Of course, not all new businesses can benefit from all these recommendations, so think carefully about what you can do, and what you can’t. For example, if you have no technical background, you probably can’t create or sell an enterprise software product for a low price, even today. Maybe you should start with an online e-commerce site, based on your favorite hobby expertise.

My point is that one or more entrepreneurial opportunities are now within the financial reach of almost everyone. You don’t need to count on the old myth that all you need is a new idea on the back of a napkin, and investors will throw money at you. It never happened in any time frame I can remember, and it definitely won’t happen today.

If you can’t afford today to start the business of your dreams, even with all the suggestions here, the growing number of startups is still a positive for you, since you might be able to join another entrepreneur as a co-founder, or simply work for another startup to build up your skills, experience, customer savvy, and resources.

But don’t wait too long if you want to stay ahead of the curve. I see a historic shift taking place toward the entrepreneurial lifestyle, and away from the corporate job cubicle environment. People are using the new cost equations brought about by the Internet and social media to do what they love, and love what they do. Isn’t it time that you joined the movement?

Martin Zwilling

0

Share/Bookmark

Monday, February 15, 2021

6 Ways To Win By Creative Partnering With Competitors

partner-with-competitorStartup founders are known for their passion for their startup idea, and for their passion to kill every competitor. Thus they often overlook the fact that their biggest growth opportunity may be a win-win collaboration with a serious competitor, known in the business as coopetition. Of course, this path involves some risk, but you never get anywhere unless you take a chance.

For example, I once worked for a small software company selling a sophisticated enterprise workflow solution. It provided an industry-leading graphic development interface, but was not so strong on modeling and simulation. We regularly went head-to-head in the marketplace with a competitor whose strengths were on the other end of the spectrum. They sold by minimizing the value of our features, and highlighted theirs. We both often lost as a result.

As small companies, neither startup could afford to extend their product alone, but through creative leadership, we were able to negotiate a win-win strategic partnership for a joint product. As a result, we shared in capturing a new high-end market, without major new marketing or development. All this was done without damaging anyone’s credibility, or stealing customers.

This example illustrates only the first of six potential growth wins provided by creative coopetition between startups, as well as larger companies. Here is a summary of each:

  1. Complementary strengths allows extended market penetration. It’s very unusual for two competitors to have exactly the same strengths – in development, marketing, distribution, or customer support. A strategic partnership, negotiated with a win-win attitude, can accomplish growth faster and cheaper than either could do alone.
  1. Capitalize on shared costs and common distribution. Similar companies, even though competitors, usually face economies of scale and overlapping distribution channels. The auto industry learned this a long time ago. Even the giant General Motors has alliances with smaller competitors, like Peugeot, to reach certain small car segments.
  1. Ability to up-sell customers with related products. In many cases, the products from competitive companies are complementary, or many customers are natural candidates for both. That’s why most retail outlets are not company stores, meaning they sell products from multiple competitors to optimize their own growth. You can do the same.
  1. Bundling and product integration to create new solutions. With the proper contracts, it’s quicker and simpler to extend your product line with coopetition, rather than funding new development. This works especially well when the new solution takes business away from a common enemy, and strengthens both of your market positions.
  1. Affiliate marketing and link exchange agreements. Similar to the preceding point, you can grow the business of both parties this way without sacrificing customers from either. This approach has been used for years, and implies very little risk, but many startups are still “too busy” to pursuing possible partners. Simple referral fees can bring real growth.
  1. Competitors can become strategic investors or merger candidates. Good strategic partnerships often lead to strategic investments, or great acquisition relationships. These days, most large technology companies, like HP and Apple, routinely buy successful and known startup competitors rather than developing new products from scratch. They also manage internal venture funds that may be your growth lifeline.

Before you start negotiating any of these coopetition deals, I do recommend that you spend some time thinking about where and how you will be competing, and how you will be cooperating. Deals that are not win-win won’t work, and may indeed jeopardize your whole future. Make sure you don’t violate even the spirit of local laws or customs, and make sure your intellectual property is protected with proper two-way non-disclosure agreements before you start.

Think about your core values and priorities, and look only at potential partners who have the same culture. For example, if your reputation was built on excellent product quality, don’t jeopardize your future by teaming with another company whose focus is mass produced commodity products at the lowest price.

Thus, while your natural instinct may be to kill your competitors, or fight for win-lose deals, remember that you can often do the most good for your customers, as well as yourself, by thinking outside the box. It’s a lot more fun to enjoy your company as it grows and succeeds, rather than make every step a fight to the death, any one of which you might lose.

Marty Zwilling

*** Finnish translation provided by Elsa Jansson ***

0

Share/Bookmark