6 Acts to Keep the Focus on Urgency vs Emergency

John Kotter photo via Inc.com (Adam Amengual)

In business and startups, a “sense of urgency” is a good thing. Yet many entrepreneurs confuse this with a “sense of emergency,” which insidiously saps the life from their business. Urgency comes from a greater purpose focused outward, to make good things happen, while handling emergencies is a reactionary inward approach to saving ourselves from the daily crisis.

We’ve all known managers and executives that seem to thrive on emergencies, and often seem to instigate them. As a result, they are always too busy to proactively get to the urgent and strategic tasks, or provide the leadership and mentoring needed to motivate the team for the long haul.

In this era of rapid change and a competitive worldwide economy, every entrepreneur needs to instill in their team a sense of urgency, and be the role model for that mode. John P. Kotter in his book from a while back, “A Sense of Urgency,” asserts that urgency is not frantic activity like handling emergencies, but a series of more proactive activities, including the following: Read more

Martin Zwilling , Founder and CEO, Startup Professionals
August 19th, 2013

The Take It or Leave It Choice

The market for startup financing is a very lopsided one. For every VC pitch meeting that results in an investment, there are 399 others that typically conclude with the dreaded words, “Thanks for coming in, we’ll get back to you if we’re interested.” Given those odds, delivering a successful pitch means that virtually everything needs to come together in perfect harmony, and any one misstep, no matter how small, can derail the process.

As such, there are hundreds of ways to turn off a potential investor. But four of the quickest ways to lose my interest are:

Asking me to sign a Non-Disclosure Agreement before the pitch Because there is a very strong likelihood that I will hear many pitches from startups with similar business plans, there is simply no way that as an investor I can afford to sign an NDA, because it would cause endless complications if I end up investing in a competitive venture. I learned this lesson the hard way as an entrepreneur, when I pitched my first startup to a major VC firm during the dot-com boom. I started out by giving the partner an NDA to sign. When he politely declined, I politely got up and left, which is something I came to regret for a long time afterward.

Showing signs of desperation This one is excruciatingly painful for everyone involved. People become angels or venture capitalists because they admire entrepreneurs and want to devote their professional careers to supporting them. That is why it is so hard when a founder comes in with a tragic story about how he or she has spent his last penny on a so-far-fruitless venture, and desperately needs my investment in order to avoid bankruptcy. My heart goes out to him, but my head is screaming that I should run in the other direction as fast as I can.

Pitching the product and details, rather than the business and Big Picture One of the most frequent mistakes I see in startup pitches is for a founder to wax poetic for fifteen minutes on how revolutionary and wonderful his or her product is, and then completely miss explaining how and why this great product will mean a great return on my investment in the business. When I hear a business pitch I take note of the product, but then spend most of my time considering the business model, target customers, marketing approach, future extensions and defensibility of the business itself. I am also listening for big, sweeping visions that paint a picture of inevitable success for the company, regardless of specifics.

Stating a valuation without having a committed investor Startup financing from an investor’s perspective comes in one of two flavors: fixed or negotiable. These are very, very different things. If a company does not yet have an investor who has presented it with a term sheet, the relationship with every prospective investor is an analog discussion of terms and valuation. That means if I like the company and want to be involved, there probably is some valuation number at which I would be willing to write a check. Then our goal is to come to a meeting of the minds such that both founder and investor are comfortable with the resulting number.

However, if another investor has already completed this dance, and both sides have agreed on terms and valuation (in the form of a signed term sheet), then the potential for a relationship with company suddenly turns binary.  I am presented with a “take it or leave it” choice. That means if an entrepreneur makes up a valuation number and puts it on the table as a given, there is an excellent chance that I simply won’t negotiate. I will assume that it is a hard number that can’t be changed, and if it doesn’t fit with my assessment of the company, I’ll simply walk away. There is nothing wrong with this on either of our parts, but it is critically important that both the entrepreneur and investor understand the ramifications of a nominally fixed valuation.

In contrast to all of the above, the perfect elevator pitch is a short, sweet, compelling teaser to get me to invite you to my office for a full presentation. It will be 30 to 60 seconds long, clear and to the point. Start by explaining in one sentence exactly what the company does and why you are the right team to do it — it will make clear why you have some special advantage. Then paint a big, inevitable picture of the company’s success. That’s a lot to ask for half a dozen sentences, but I’ll be happy to listen to those all day long.

*Original post can be found on Wall Street Journal Blogs @ http://blogs.wsj.com/accelerators/2013/07/08/david-s-rose-the-take-it-or-leave-it-choice/ *

Don’t Make It Personal

For 97.5% of aspiring entrepreneurs, the issue of when and how to turn down funding isn’t a problem…because they never get offered it in the first place. For the other 2.5%, it can be agonizing, because it seems to violate the first rule of entrepreneurship: “Take money whenever it’s offered!” In reality, however, the reasons to pass up an offer of financing fall into five distinct categories: personal, strategic, operational, control-related and economic.

Personal. By far the largest source of non-founder startup funding in the U.S. is from friends & family, accounting for more than $60 billion annually. For many entrepreneurs this is the beginning and end of their capital raising, because of the 600,000 companies that get started every year, fewer than 10% raise any equity capital at all from unrelated third parties. But while funding from those close to you may be the most accessible, it’s also the most fraught with danger. On one hand, there is the ethical (not to mention legal) issue of taking a significant percentage of the assets of an unsophisticated investor and putting it into a risky startup.

So even if your pensioned grandfather or loving Aunt Edna were willing to mortgage their home and invest their life savings into your venture, you would do well to politely decline the offer…regardless of whether it was the only money available. On the other hand, there is the long-term family relations issue. Even if your parents or siblings can afford to lose their entire investment, how comfortable will you be at Thanksgiving dinner every year if you lose all their money? As Polonius warned Hamlet, “Neither a borrower nor a lender be, for loan oft loses both itself and friend.”

Strategic. When faced with a choice between a financial (venture) investor and a strategic (corporate) investor, entrepreneurs will often find that the strategic player appears to have a seductive offer: A higher valuation for the company (which means less dilution for the entrepreneur), industry expertise, access to large markets, support with distribution, development and marketing. This may well be true, but there is something else extremely important to remember: While a financial investor is motivated solely to increase the company’s economic value (usually a good thing for the entrepreneur), a strategic investor by definition has some other agenda (that’s the “strategy” they’re following!) This can sometimes mean that the entrepreneur finds him- or herself forced (or at least urged) to move the company’s product path in a certain direction, or enter into exclusive contracts with the investor — or even concentrate marketing in certain cities or among certain demographics.

While none of these requirements are necessarily wrong when taken individually, together they can turn a strong financial offer into something a company should refuse.

Operational. When an investor purchases equity in a company, the usual inclination on the part of the entrepreneur is to breathe a sigh of relief and put the whole fundraising process behind him (or her). Wrong! Taking in an equity investor means taking on a partner…if not a spouse. Like a roach motel, once an investor has a toehold in your company, there is no easy way to ignore your new family member. You can often get an idea of what the long term relationship will be like from the way investors deal with you during the courtship phase of the relationship. Did it take ten meetings to get them to commit? Did they ask to see reams of documentation during the process? Did they want to sit down individually with each of your senior managers and ‘deep dive’ into detailed spreadsheets and forecasts? Did their process take up so much of your own time that it had an impact on your ability to run the company? While these actions may well be among the hallmarks of a knowledgeable, careful and value-adding investor, they may also be a harbinger of what your relationship might be like for the next several years. If you are an experienced CEO in a lean, fast-moving business, if you have multiple options, and if you believe that a particular investor may ultimately be more trouble than he or she is worth, that may be a legitimate reason to walk away from the money on offer.

Control-related. With few exceptions, every time you exchange money for equity, you are transferring a few more shareholder votes from you to someone else. For a typical seed or Series A financing round this will rarely change control of the company, but eventually the numbers (including votes at the board of directors level) add up. Combined with the protective provisions that are invariably a part of any professional investment, taking in significant funding means giving up some (or all) of your flexibility to manage your venture as you see fit. And once you pass the tipping point, those investors who end up with control will ultimately have the ability to end your operational involvement with the company you founded. For most high-growth startups, this is a clear choice made by the entrepreneur in exchange for the funding necessary to grow the business. But if you have the option of taking in money or not, and like Lucifer you would prefer to “reign in Hell than serve in Heaven,” then turning down available funding might be a choice you would knowingly make.

Economic. Finally, the decision to take in funding or not often comes down to a cost/benefit analysis, also known as risk vs. reward, or, in its most bald and honest expression, fear vs. greed. Taking in funding means agreeing to part with a share of all the good things that will no doubt happen with the venture, in exchange for protecting yourself from failing by running out of money. So if you are the rare entrepreneur who can successfully bootstrap your business to profitability, you may well have the opportunity to turn down funding in order to keep all the rewards for yourself. Alternatively, you may at least be able to delay taking in funding until further down the road. By that point, if the business has already achieved a high enough valuation, the smaller economic dilution of your equity may well be worth taking a penny-pinching, lean startup, approach of your early.

 *Original post can be found on Wall Street Journal Blogs @ http://blogs.wsj.com/accelerators/2013/05/30/david-s-rose-dont-make-it-personal/*

Why are Good Business Plans So Rare These Days?

Image via BigIdeasBlog.Infusionsoft.com

Too many entrepreneurs still believe the urban myth that you can sketch your idea on a napkin, and investors will throw money at you. Every investor I know is frustrated with the poor quality of the business plans they get. This is sad, since “how to write a business plan” is a frequent topic found in every business journal, and a common title in the business section of every book store.

What is the definition of a good business plan? In simple terms, it is a document which describes all the what, when, where, and how of your business for you, your cohorts, and potential investors. Forcing yourself to write down a plan is actually the only way to make sure you actually understand it yourself. Would you try to build a new house without a plan? Read more

Martin Zwilling , Founder and CEO, Startup Professionals
August 12th, 2013

Q&A Forums Can Help Build a Brand

Leveraging social media as a “strategic marketing initiative” generally means raising brand awareness among a specific audience on a small budget. But unlike traditional one-way media, the interactive nature of the social sphere means that it is also possible to drive direct customer conversions along the way. Many startups use channels such as LinkedIn and Twitter effectively with these goals in mind. LinkedIn reaches a qualified audience in a professional context; Twitter can magnify the reach of a message while leveraging the reputations and connections of the most influential people in one’s network.

A more recent entrant into the social media space called Quora provides an  interesting and flexible way to customize interactions with a broad audience. While it is only a few years old, Quora is actively used by many thought leaders in the startup world to directly participate in exchanges with their constituents. These include founders and CEOs such as Jimmy WalesCraig NewmarkDick CostoloDennis Crowley and Dustin Moskovitz; investors such as Marc AndreesenMark Suster,Dave McClure and Esther Dyson; and pundits such as Robert ScobleTim O’Reilly,Jason Calacanis and Michael Arrington.

Quora—a questions and answers site—allows anyone to pose questions about any topic, either attributed or anonymously. Similarly, the community of users can provide answers to these questions, and validate the responses provided by up-voting and down-voting answers through community moderation.

I started using Quora in late 2010 because several people I respected were tweeting out links to their answers. That made me curious, so I checked out the site, signed up, and found my niche. I’m the kind of person who loves answering questions, so it was a natural.

There are two important features that set Quora apart from other question and answer sites and community forums. First, all of its members must sign up with their verifiable real names, and second, Quora enhances and tempers community participation with professional moderators, including employees and volunteer administrators.

The result of such a flexible platform is that interactions happen completely on the users’ own terms. They can be deep or shallow, individual or collective, public or anonymous, periodic or occasional. Because of Quora’s real name policy, it provides an unparalleled forum for building one’s personal brand as an expert in whatever topics one chooses to engage. I, for example, am signed up for Quora as David S. Rose, entrepreneur, angel investor, mentor…and CEO of Gust. All of my answers (over 1,400 at this point) are attached to my full identity and the entity that I represent. (See examples here and here.)

There’s no dichotomy between the personal and professional worlds. While Quora has a policy (both official and community-enforced) against direct commercial advertising, we have been astounded by the number of incoming visits to Gust that originated from a link in a Quora answer (whether by me or someone else) referencing the company. And while the site is less well known than some of the mega-social-media sites, I have as many followers on Quora at this point as I do on Twitter, which I joined in 2008.

As a marketing tool, this means Quora can be effectively leveraged to address a brand’s needs across many different dimensions. First and most obvious is knowledge sharing and domain expertise. While I have answered hundreds of questions about venture pitching, angel investing and other subjects related to the entrepreneurial space, I am not the only person from Gust who is active on the platform. Other members of our team at Gust have posted professional or market-oriented questions and received valuable insights from the Quora community, and have themselves answered questions in their areas of expertise, building their own personal brands among Quora’s tech-savvy and early-adopter community.

Second, Quora’s depth and flexibility allows brands to subtly crystallize their leadership positions in the marketplace through asking and answering questions, directly managing a personal or professional blog, or seeking and responding to ranked reviews. Even in a general, public topic, a true industry expert can have a major impact by participating actively in answering and commenting on subjects relevant to the brand, thus developing and reinforcing a domain leadership position. The benefits to the brand are significant, although not easily quantifiable.

Third, Quora allows for effective “high-caliber, low-scale” recruitment. Startups specifically want people who are excited about their ideas and products, engaged with the technology space as a whole and are self-starters. Some of our top talent at Gust found us—and intercepted us—on Quora. Great hires, at zero recruiting costs (other than my time).

Finally, there’s something about Quora that I personally appreciate and believe has great meaning in the often-cluttered world of marketing. The site’s design, structure, philosophy and community foster transparency and ownership of one’s personal point-of-view and engagement. This results in participation that is directly attributable, usually responsible and often constructive. Quora can empower brands in many ways, while it is at the same time building a solid foundation for knowledge exchange across the industry.

*Original post can be found on Wall Street Journal Blogs @ http://blogs.wsj.com/accelerators/2013/03/14/david-s-rose-why-qa-forums-can-help-build-a-brand/ *

(Don’t) Take the Money and Run

For a true entrepreneur, shutting down a failing venture is the single hardest thing you will ever do. It goes against every fiber of your No. 1 core belief, best articulated by Winston Churchill: “Never, never, never give up!”

It’s this dedication, perseverance and commitment that defines every great entrepreneur, and one of the most important qualities that every early stage investor looks for when making a funding decision. It’s the stuff of legend, immortalized in the poem “If” by Rudyard Kipling:

“If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: ‘Hold on!’”

It’s the ability to pivot instead of crashing. It’s surviving the fires of Hell to temper the entrepreneurial steel. It’s Amazon losing 95% of its value, but hanging on despite the tremendous loss.  On May 15, Amazon had a market capitalization of more than $121 billion.

And yet, with nearly one-third of venture-backed businesses — and more than one-half of angel-backed businesses — failing within just a few years, there comes a time along the entrepreneurial path when the right thing to do is to read the writing on the wall, and wind down the enterprise.

I’ve been on both sides of this event, and believe me, it’s not fun. But it is, unfortunately, a virtually inextricable part of the entrepreneurial life, and what matters most (at least in the U.S., where entrepreneurship — and even valiant failure — is celebrated rather than reviled) is how you deal with it.

The first thing to understand is just how significantly your options change once you take even a penny of outside investment. Up until then, your life is your own, your responsibilities are to yourself (and your family), and it’s up to you to decide if the game is worth the candle. If things are looking rocky, and there isn’t a clear path forward, it is completely your prerogative to pack it in and move on to something else…including taking an undoubtedly long-overdue vacation.

But the minute you have investors, your life and decisions are no longer your own. Instead, you have a legal and moral responsibility to other people who have entrusted you with their money, based on their belief that you will stick it out until the very end trying to salvage their investment. As I tell entrepreneurs during my pitch-coaching classes on fundraising, “once you have taken in a penny of my money, you have given up the freedom to walk away. Instead, I expect you to stay with the venture until the very, very end — until I drag it out of your cold, dead fingers!”

Investors are well aware of just how risky the seed/angel/venture world is. Over the past decade literally dozens of my portfolio companies have bitten the dust, losing all of their investors’ money (and whether or not they will admit it, this is also true of virtually every other angel investor and venture capitalist I know.) In every single case, however, the critical factor for me was not whether the company failed, but rather how the entrepreneur dealt with everything going on during what was an extraordinarily trying period. When bad things happen, we either blame the Fates (and everyone else), or else stick your head in the sand and hope the bad situation resolves itself.

Unfortunately, neither of these reactions are constructive — and I’ve seen the entire spectrum of responses. I’ve seen entrepreneurs simply wash their hands and walk away, leaving the clean-up work to lawyers and staff (that’s bad). I’ve seen entrepreneurs try to be cute and take the remaining assets to start another business on their own (that’s really bad).

And then I’ve seen entrepreneurs who maintained full and frequent communication with their entire investor base throughout the process; busted their butts to exhaust every single potential option, no matter how far-fetched; did all the right things regarding their staff and customers; and made it very, very clear that they were doing everything within their power to salvage whatever they could for their investors.

These are the entrepreneurs who, in virtually every case, I would have absolutely no hesitation to back again.

*Original post can be found on Wall Street Journal Blogs @ http://blogs.wsj.com/accelerators/2013/05/15/david-s-rose-dont-take-the-money-and-run/ *

Learn From the 5 Core Principles of Angel Investors

Image via AngelCapitalAssociation.org

If your startup is looking for an Angel investor, does it makes sense to present your plan to flocks of Angels, and assume that at least one will swoop down and scoop you up? In reality, hitting large numbers of Angels in multiple locations with a generic pitch is one of the least productive approaches.

Here are five key things you need to know to quickly find the right Angel for your startup: Read more