Why work for an early-stage company?

Post 528 - Why should you go to work for a startup or an early-stage company? Here are ten reasons why:

1. More influence.
With a smaller workforce, everyone has more say. You’ll have more opportunity to voice your opinions and to influence key decisions.

2. More ownership.
You may not be the founder, but you might earn some equity or stock options. A sense of ownership will give you a reason to work harder and contribute more than ever before.

3. More meaning.
The best startups have a strong purpose and are built around a vision that really resonates. This provides you and other like-minded people with a common focus and meaning in their work.

4. More camaraderie.
Startup teams have to learn to work together in order to succeed. This doesn’t mean you’ll always get along, but a little disagreement never hurt anyone.

5. More diversity.
You’re going to be expected to do a lot of different things, many of which you've never done before. You’ll be forced to move out of your comfort zone and thus have many opportunities to expand your horizons.

6. More learning.
Startup environments are crash courses in business and in life. You’re likely to learn more in one year at a startup than you will in four years at college.

7. More connectivity.
With fewer levels of bureaucracy, everyone feels closer together. You should be well connected to your executive team as well as the customers, vendors, VCs, friends and family, etc. that surround the company.

8. More emotion.
Working at a startup is usually pretty intense and the emotional charge you’ll get on a regular basis makes it a worthwhile and rewarding experience.

9. More success in the future.
Many startup employees go on to bigger and better things. Whether it’s higher paying / more interesting jobs or starting their own companies, your resume and personal story will likely benefit considerably from living the startup experience.

10. More fun.
People at startup companies seem to have more fun. They work hard, then they play hard. That’s usually the way it is ...

Granted, not all early-stage companies will give you the benefits described above. You can’t always expect to find the perfect fit. But consider taking the leap. In my experience, the learning experience is well worth the risk involved.

Managing mergers & acquisitions.

Startups are often tempted to grow quickly by combining their efforts with those of other companies. However, there’s more to managing successful mergers and acquisitions than just looking at the numbers. According to the worldwide managing director of Bain & Company, 60 to 70% of corporate acquisitions don’t create shareholder value. That means for every ten deals, seven don’t work out as planned. It seems that the road to successful acquisitions is fraught with danger. Mergers today differ from marriages in that there’s seldom a honeymoon period.

Mergers are only a winning proposition if:
- the underlying business strategies are sound,
- the integration plans are well carried out,
- the cultures of the companies involved can be consolidated successfully.

Experienced practitioners use the following guidelines:

• Be clear about the logic of a potential acquisition. Don’t rely on “synergy.” Clearly understand how the new combination will leverage its assets and abilities to create value.

• Use due diligence beforehand to examine a prospective partner’s organizational health, leadership talent, and managerial abilities. While some differences can be worked out, others are insurmountable and should be avoided.

• Design the integration as carefully as the initial deal. If you’re Quaker Oats, don’t buy Snapple and then dismantle the distribution system that made it successful.

• Apply the guiding principles that were important to the success of the acquiring company to the acquired business as well.

• Specify roles for each of the partners and their top executives in advance. Working it out as you go is usually a recipe for disaster.

• Standardize transferable practices and apply what’s worked well in the past. If the acquired company insists on doing things its own way, verify it’s essential to achieve strategic leverage rather than just a way to resist changing.

• Don’t make additional acquisitions to fix, justify, or further leverage the original deal. If it doesn’t provide the value you expected, fix what can be fixed and cut your losses.

• Define the "where you want to be" before you define the "as is." Identify issues of common concern and rally everyone around these issues.

• Get the leadership established as quickly as possible. Promote a few smart people and give them responsibility for managing the integration process.

• Control the executive compensation system to reward the behaviors that support the culture you want.

• Get the transition over with as quickly as possible by making it painful to hold on to the old.

• Always bear in mind that you get big because you get better; you don't get better just because you get big.

The demographics of selling online.

Newegg had experienced management, a clear market segment to focus on (gamers), and a successful model to copy (Amazon). So, I wondered who are some of the people who buy other products online?

The global Internet user population grew 265% from 2000 to 2007 to 1.3 billion consumers, more than 1 billion of them outside of North America, according to Internet market research firm Miniwatts Marketing Group.

• Among U.S. Baby Boomers, born between 1946 and 1964, 42 million shop online.

• Among consumers born before 1946, 12 million shop online, according to Focalyst LLC. Among older consumers with above-average incomes, online shopping is growing. 65.6% of those over 50 with income of $50,000 or more said they had made at least one Internet purchase in the past year in a 2007 survey by research firm The Media Audit, up from 50.2% in a 2004 survey.

• 82% of those 65 and older agree or strongly agree that they don’t like to give their credit card or personal information to web sites, compared with 79% in the 50-64 age range, 74% of those 30-49 and 71% of consumers 18-29, according to the Pew survey.

Who’s not online?

110 million U.S. adults do not shop online. They are:

* 55 million U.S. adults who do not use the Internet.

* Nearly 36 million (74%) adults 62 and older don't shop online.

* About 12 million Internet users don't shop online for fear of providing personal or payment information to web sites.

* Consumers with dial-up Internet connections at home are less likely to shop online than those with broadband connections (59% versus 74%). That means 34 million dial-up users as well as 21 million consumers with broadband don't shop online.
* Minorities are less likely to shop online:
* 17 million African-American adults (59%) don't shop online
* 19 million Hispanics (58%) don't shop online.

Among Hispanics, language proficiency is a key indicator of Internet use. Only 32% of Spanish-dominant Hispanics use the Internet, versus 78% who are English-dominant and 76% who are bilingual.

Even with the proliferation of comparison shopping sites, search engines and new online competitors, e-retailers that meet consumers’ expectations can keep them coming back. In March '08, 48% of traffic to e-commerce sites and 67% of sales came from consumers who typed in a retailer’s URL or clicked on a bookmark, says web analytics firm Coremetrics Inc.

Reliable delivery leads to more sales. When consumers are confident they’ll get their product, they keep coming back. And that leads to business growth. Consumer loyalty isn't dead, however online retailers have to do more today to earn it.

How to grow quickly on the web.

In recent years, sales growth at online computer retailer Newegg.com has been explosive – the site posted $1.5 billion in annual sales in its first 6 years of operation after it launched in 2001. In 2004 and in 2005, annual e-commerce sales rose by 30% and 40%, respectively. "Our actual sales versus our projection was slightly below our expectation, but we are quite pleased with our improved product margin growth and this was largely due to our continued focus on product selection, customer support and logistics," the company says.

Inc. Magazine recently distinguished Newegg in its list of America’s 500 Fastest-Growing Private Companies. It’s one of four companies in the list’s 25-year history to qualify on growth merits while also recording $1+ billion in annual sales. Newegg.com is the second-largest online-only retailer in the United States (after Amazon) with more than 10-million registered users. At its award-winning web site, www.newegg.com, customers can shop for a comprehensive selection of the latest high-tech products, view detailed product descriptions, pictures, how-to information and customer reviews, and interact with members of the technology enthusiast community.

The online retailer’s core demographic are younger gamers and IT do-it-yourselfers who grew up with computers and the Internet, like the latest in computers and computer games, and are often employed as information technology workers. “We recognized an emerging segment early on,” says Howard Tong, Newegg vice president of marketing. “We sell to the individual who would rather install more memory on their own computer than always buy a new one or have someone else do the installation.”

Newegg launched as a site primarily selling computer components to video game players. Informational content on the site comes largely from customers themselves who post product reviews and ask and answer questions on the site’s community forum. “People will ask, ‘What’s in your system? What graphics card did you use? What power supply?’ These guys love to talk to each other,” says Bernard Luthi, vice president of merchandising at Newegg.

As evidence, he points to the more than 1,000,000 reviews posted to the site since its launch, including more than 250,000 in the past year. Newegg's customers can video their reviews and upload them to the site. While Newegg employees participate in forum discussions, they don’t recommend products. And the company doesn’t measure the value of the forums and reviews by whether they directly drive purchases.

“It’s about getting closer to that customer, making sure we’re giving them every opportunity to give us feedback. That’s what drives our business,” Luthi says. He’s convinced the strategy is working because more than half of new customers are referred by other customers and because the company grew again by more than 25% last year to $1.9 billion in online sales.

Newegg created pages on both MySpace and Facebook because “we heard from our customers that’s an area where they live on a daily basis,” Luthi says. Sales from those sites remain small, though growing, and the conversion rate of clicks from MySpace and Facebook is slightly higher than average, he says. “You have a community of like-minded people that have self-identified as interested in certain things and you have an opportunity to be in front of them in ways that have meaning for them.”

Learning from failure.

Failure usually comes when the startup team doesn’t get along, the market doesn’t materialize, or the company runs out of money. Running out of money happens when the team either doesn’t make enough progress to generate investor interest or spends its initial money unwisely. When either of these happen, investors lose interest.

The following four patterns of failure were described by Geoffrey Moore in Red Herring:

The first kind of failure is the slow fail - not failing fast enough or explicitly enough. You can waste a lot of time this way.

The second kind of failure is failing to transition into the mainstream market. Technology markets begin with disruptive innovations promising unheard-of benefits wholly unavailable with the current market offerings. To transition to mainstream markets, vendors must win over pragmatic buyers who look at each other during the early introduction phase and hold back until they see others like them adopting. They also wait to see if a whole product is available. So the vendor sponsoring the new technology must recruit other companies from the industry to complete the whole product. They must, in effect, bring into existence a new value chain. But value chains don’t readily form in unbounded spaces. To get going, new technologies need to be incubated in confined markets where problems are manageable and the competition is modest. This permits smaller, more vertically focused players to pitch in like Aldus and Adobe did with the Macintosh in desktop publishing.

The third kind of failure occurs when managers and investors agree they don’t need a niche market to get started and dive right in. This is the hypergrowth phase of high-tech market development where markets grow at triple-digit rates for several years at a time. Two key ingredients are needed to start this kind of tornado. The first is a killer app - a universally compelling application that creates mass-market adoption across multiple sectors simultaneously (word processing was the killer app for the PC). The second ingredient is timing. The killer app must intersect with an emerging infrastructure at exactly the right time so that the two of them can race forward together. To get first mover advantage, managers target the missing pieces of the value chain to support the killer app in an all-out assault on the mass market. This usually involves a high level of risk as it’s very unlikely that all these conditions will come together at exactly the right time.

The fourth mode of failure is ending up in the dead zone.
Dead zone products offer good but not fantastic gains that can be adopted with discomfort but not excruciating pain - such as applications compromised by too much complexity or a nice-to-have item where the customer has to endure some pain in learning how to use it.

Failing means getting blocked on an intended course, backing out and restarting. Losing means persisting in failing ways, refusing to change the current course.

In high-tech ventures, expect to fail many, many times and get back in the game. But if you lose just once, you may never have another chance.

Building collaborative alliances.

Collaborative alliances and partnerships with other companies can often be used to build world-class capability and global reach, rapidly and cost-effectively. Developing strategic partnerships makes sense when what‘s needed is a highly-specialized capability in a fast-moving field, or when significant risk is present. Through these arrangements, companies can concentrate on learning their partner’s skills while at the same time building barriers that discourage competitors from entering their markets. Some companies don’t develop core products themselves anymore. However, they make sure they still know more about them than anyone else does (as an example, Sun Microsystems knows more about circuit-board technology than any of the specialized circuit-board companies that supply it with products).

Canon has been involved in simultaneous partnership agreements with Texas Instruments, Hewlett-Packard and Eastman Kodak, all competitors at that time. Canon used its patents as bargaining chips in cross-licensing technologies, believing that you can only enter into cooperative alliances when you’re able to bargain from a position of strength. Partnerships involving competitors provide access to new markets or technologies, or they allow the creation of products that neither partner can produce on its own. However, such alliances can raise sticky issues about what information to share and what to keep proprietary. In the world of collaborative competition, negotiating skills become as important as technical or operating skills. While collaboration between rivals often makes sense, the companies involved must make sure that cooperation makes their ability to compete stronger, not weaker. Questions that have to do with rethinking strategy and redeploying assets in response to a collaborative environment are: When is it wise to enter into relationships with competing companies? How can a company strengthen its individual identity at the same time?

For a partnership to bear fruit, it should offer both parties a win-win opportunity based on a common vision and strategy, where each partner clearly understands what it might gain or lose from the arrangement. It’s important that partners not only offer the best products or services available, but that their principles, policies and corporate cultures are compatible with yours. Successful alliances depend on shared values and cultural traits. Differences in structure, decisionmaking processes and measurement systems can cause communication gaps and operating tensions. For example, a joint venture involving managers from two companies who work under different bonus systems will quite likely suffer the ill effects of opposing priorities.

Partnership is a win-win relationship where both sides give a little to get something. You have to put yourself in the other guy’s shoes to get a win-win relationship - structuring deals that make sense both ways. Start by role playing how they’ll react to your offer. You need to have each side committed to the deal to make it work effectively. When partnering with a much bigger company, an important consideration had to do with how you relate to the key players there. Obviously, they should be people you feel you can trust. Their style (casual, formal) should match your own. They should have a non-bureaucratic approach to doing business so the deal gets done quickly, without a lot of nit-picking and haggling. Speed is crucial. “Let’s start working on it today and we’ll paper it over as we go forward.” Otherwise, working with a large company can take forever, slowing you down and killing the buzz.

Find someone in senior management who will prosper if this partnership or alliance works. He’ll then lead you up through the ranks to reach the CEO or whoever else you need to work with to get the deal done. Spell out issues like licensing and pricing first. But remember, alliances are nothing but alliances. If people’s needs change, then all the paperwork in the world means nothing. Don’t worry about the big guys stealing your ideas. Gaining time is what matters most.

Go to trade shows, wear a badge, be obvious and easy to find, and go after who you want. Approach other parties with, "Here's who we are. Here's what we do. Here's the kind of transaction we're looking for." Be very directed, focused, to-the-point in meetings. Make it clear what the price range is and that it’s not negotiable. When you partner with another company, make sure the deal enhances future career possibilities for everybody in your company.

Forming strategic partnerships.

Technical and Computer Graphics in Sydney, Australia developed a network of 24 small companies with hundreds of employees and revenues in excess of $50 million. Together, they made portable data terminals, computer graphics and bar coding systems. One of the paradoxes of today’s business world is that companies must lower the walls between them rather than building them up to make them safer. Large organizations with more resources are better able to support partnership experiments that open up new possibilities than small companies. As a result, lopsided partnerships are proliferating, matching smaller innovative companies with larger deeper-pocketed investors.

Try to form alliances with people who are richer, smarter, larger, and who need you. Give or sell them what you’ve got cheaply to create market share and product awareness. You want them to eventually become your friend and help make your market. Joint marketing arrangements for building brand-name recognition can involve finding someone who is willing to subsidize your distribution. But make sure you know how the other company’s sales force is compensated. Otherwise, the cash you get up front is likely to be all the cash you get. You risk ending up as a line-item in a catalog that no one reads. Get to the sales people and tell them how much money they’re going to make from selling your product. And you still have to sell, to represent, to advertise your product. Don’t assume it’s going to be in your partner’s best interests to help you - they’re more likely to concentrate on selling their own products. Joint venture companies don’t always believe that promoting the partner’s product is in their own strategic interest.

Two key objectives should drive any strategic partnership deal. First, it should be a very good financial transaction for the company and its principals - that’s the primary consideration. Second, it should create an association with a partner who adds value. That’s the secondary part of the transaction, but it’s crucial in choosing who you sign up with.

Start by getting clear on what the absolute requirements of the partnership are and how you want the transaction to work. For example, “We want a partnership because it’s a flexible and creative form of an alliance. However, it’s crucial that we keep control of our current business."

Startup advice from Leo Speigel.

Leo Spiegel is a managing partner with Mission Ventures, a hi-tech venture capital firm. He’s been president of Digital Island, and CEO of Sandpiper Networks. He’s also a member of Dean’s Advisory Council of the Rady School of Management at UCSD. Leo says that fast growth startup companies need to pay particular attention to the following top ten issues:

1. Hire great people fast and hire executive management early. Use every possible opportunity and media to find them and when you do, pull the trigger quickly. However, make sure they’ll mesh with the rest of the team and fit in with what you’re trying to accomplish.

2. Be well funded. It doesn’t matter what percentage of the company you own - what matters is how big the pile of money is. Object Design used strategic alliances and venture financing to build its market capitalization to $500 million. Spiegel says, "We figured we'd rather own 20% of $500 million than 80% of $50 million."

3. Purposefully create a company culture that values empowerment, delegation and self-direction.

4. Employees are carbon-based units, not machines. Make each one a star.

5. Understand your own personal weaknesses and have great advisers.

6. Buzz is king - there’s a direct correlation between creating buzz and creating shareholder value. To generate buzz, you need advocates who will validate what you’re saying. And you need to capitalize on news events - use them to get your message out to the right place at the right time. Train your managers to broadcast the right message. Have them look like leaders. Google is a brand and Google is buzz - together, they make the world believe.

7. Know your target market and watch all your competitors. Be really, really aware.

8. Find the boulders. On any given day, there are too many things to do - so prioritize. Push like hell to move the biggest boulders up the hill every single day.

9. Work hard, have a “can do” attitude and be passionate. Make sure that making the company successful is all you think about at work every day. You lead by example – your passion rubs off on others.

10. Focus on keeping a balance between your personal and your private life. Work should only be a part of your life.

Grow the business.

Within a year of its founding in 1982, Compaq Computer posted revenues of $111 million. In 1995, six years after its founding, Telegroup Inc., (now part of Primus) posted revenues of $129 million - nowhere near Compaq’s record, but in many ways a more spectacular performance. While Compaq's growth was executed by a start-up team of seasoned executives who followed a detailed plan and spent a lot of investment capital in the process, Telegroup's growth wasn't planned at all. "My intention was to do this business to support my family while I decided what to do with the rest of my life," according to Telegroup’s founder, Fred Gratzon. Besides starting without any sort of plan, Gratzon was also dead broke at the time. Gratzon was an accidental entrepreneur. Down and out after losing his job, he parlayed a way to make a toll call on the cheap into one of the largest long-distance telephone companies in the world. But it might never have existed if Gratzon hadn't tapped into package deals offered by AT&T as a way of reducing his own telephone bills.

Iomega hasn’t produced a significant hit since it introduced the Zip Drive in 1995. This is usually the kiss of death for a technology company - things just move too fast for hot products to stay hot for very long. In 1995, hard discs rarely stored as much as one gigabyte of data. Today, a typical $100 hard drive can store several terrabytes. People no longer pass data on large products back and forth either - they just send the data by email. The Zip has devolved into a solution to a problem that no longer exists.

Despite its fame as an innovator, 3M hasn’t come up with another Post-it. Most unique selling points prove to be anything but, as they’re rapidly imitated by competitors. In a fast moving world, even blockbuster products have less and less time to reap the rewards. By regularly introducing new products, you give the consumer a reason to buy. You need to convince them that, “If the product you currently have is more than two years old, you’re really missing something.”

Be the first to create new products that put your existing products out of business. Develop new products fast, get to market first, that’s how you win. A McKinsey study showed that products that got to market on time and 50% over budget eventually earned only 4% less than those that were on time and on budget. Products that got to market six months late and on budget earned 33% less than those that were on time and on budget. A Stanford University study of 78 product development projects in 36 companies in Asia, Europe, and the United States, found that in negotiating a highly uncertain path through shifting markets and technologies, the key is to build on intuition and to include flexible options.

A fast product development cycle:
- Allows a company to reinforce its new brand positioning more frequently.
- Ensures the company is first to deliver new products and features through more rapid innovation.
- Reduces the impact when competitors copy the company’s innovations.
- Integrates consumer feedback into the product more frequently.
- Improves reaction time to competitive actions.
- Supports competitive advantage and price premiums.

If success arrives too big or too early, then you've got to have the passion and commitment to go beyond success - to build a durable, lasting enterprise. The best entrepreneurs don't focus on success; instead, they focus on building a company that can be a leader in the global economy. They know success will follow. If you focus on success, you won't get there. If you focus on contribution and customer value, then you can win.

To many entrepreneurs, the greatest satisfaction, owning a business, which often includes working closely with customers and employees, inevitably diminishes as the business grows and the owner’s role changes. Jack Ferner, a former dean at Wake Forest University says, “Many entrepreneurs would rather limit their company’s growth than give up those satisfactions. My experience has been that for every one who has dreams of grandeur and size and billions of dollars, there are probably five that prefer to remain small.” The other perspective is pointed out by John Thorne from Carnegie Mellon University: “I think there’s an argument in many industries that if you don’t grow, you can’t hold on to good people, you’re not going to stay in touch with the technology or the marketing trends, and you sort of slowly die.”

Keeping focused as you grow.

If you don't know where you're going, you probably won't get there. A very common problem in startup businesses is confusion of purpose and lack of focus. It's easy to fall into the trap of being scattered, unfocused, overwhelmed. Entrepreneurs are often high-achievers, but they waste time, money and energy having too many irons in the fire because they’re unable to let go of the details. It's tempting to be a jack-of-all-trades and master-of-none. But that won't work - you must focus, focus, focus.

Your thoughts, energies and ideas must all be single-mindedly concentrated on your primary objective and your strategic initiatives. You can’t pursue five goals at once. You must focus your energy until you become like a laser beam. Then, communicate, so everyone understands the vision, the plan. Talk about these every single day. Don’t ask employees to pursue vague intermediate objectives like “excellence.” If you can’t clearly state on paper what you expect from someone, you’re in trouble.

Keep people focused on bottom-line performance and long-term survival. Have really clear system-wide goals - reduce crime by 30% for example, rather than concentrating on intermediate objectives such as increasing arrests or improving the response time of police officers. Avoid goals such as launching a new advertising campaign by the end of May - focus instead on increasing market share by 20%. Don’t focus on narrow functional goals. When you do, everyone goes off in a different direction and even though the basic measures of the company’s performance may be slipping, no one feels responsible to do anything about it. Emphasize improvement in broad business performance instead. Sharon Ballard says, “You get what you inspect, so inspect the things that are key for your startup's success.”

You can't succeed without mastering the fundamentals of your business. People who are masters at anything are relentless about studying, practicing and polishing the fundamentals. There are no short-cuts to mastery. You must be doing the fundamentals right before you get to the advanced stuff. The fundamentals include: business, management and interpersonal skills, planning, financial controls, marketing strategies, superior products and services, effective sales efforts, unparalleled customer service, and effective tools and systems. And you must understand the financials. After all, it’s your money. You have to have the numbers down cold.

One of the problems that comes with success is that people don't want to change. So the person at the top has to be the champion for change. When complacency stalls growth, get people to think about redefining their markets. In the early 1980s, Robert Goizueta challenged Coca-Cola’s staff to stop thinking about their 35% share of the soft drinks market, but to remember instead that people drank 64 fluid ounces of liquid a day - and only two of these were Coke.

As your company grows, you no longer face the challenge of having to do everything yourself. Instead, surround yourself with people who are smarter than you are and get out of their way. Don’t be afraid to give up control. Include rather than exclude them in decisions about running the business. Delegate and you’ll be amazed by what people can do. However, the price of getting people’s commitment is working on their issues as well as your issues.

Entrepreneurial leadership.

The ideal personal profile of an entrepreneurial leader is someone who is strong on every level, physically, mentally, emotionally, spiritually:

- Physically strong - healthy, fit, and energetic.

- Mentally strong - tough, sharp, and disciplined. Can solve problems quickly and decisively. Comfortable handling conflict and adversity.

- Emotionally strong - in touch with his or her emotions. Human. Empathetic.

- Spiritually strong - is grounded, balanced. Has a rich inner life. Feels a deep connection and purpose. Has his or her life together.

Great leaders have high reserves in all areas of their life. This is the case when:

- They make sure their personal needs are met.
When you have unmet needs, you attract others in the same position.

- They tolerate nothing.
You are what you tolerate. When you put up with something, it costs you. Costs are expensive and thus unattractive. “The art of leadership is saying no, not yes. It’s very easy to say yes,” according to Tony Blair.

- They’re oriented exclusively around their values.
When you spend your days doing what fulfills you, you're attractive to others.

- They deliver twice what they promise.
When you consistently deliver more than was expected, people are drawn to you.

- They affect others profoundly.
The more you touch others, the more attractive you become. And optimism is a force multiplier.

Here’s a checklist of things to think about as you carry out your leadership roles:
- Are you really focused on results, or on your own needs?
- Are you open or closed to correction?
- Do you always try to learn, and teach others when you can?
- Do you hold yourself fully accountable in work, or shift responsibility when things go wrong?
- Do you move quickly to solutions or take perverse delight in problems?
- Can you earn people’s trust?
- Are you looking for progress, not perfection?

Finally, remember Pat Murray's observation; “No great leader is a scorekeeper – all the wealth happens on the way to somewhere else.”

Becoming an entrepreneurial leader.

Bill Gates says, “When I started Microsoft, I was so excited that I didn’t think of it as being all that risky. It’s true, I might have gone bankrupt, but I had a set of skills that were highly employable. And my parents were still willing to let me go back to Harvard and finish my education if I wanted to .... If you’re going to start a company, it takes so much energy that you’d better overcome your feeling of risk.“ Entrepreneurs have the innate ability to compartmentalize their fears and doubts. They believe in what they’re doing with a passion that overcomes doubt. They’re resilient, tenacious and have the guts to overcome some white-knuckle adventures, such as replenishing a bank account the day before the payroll is due. They’re very resourceful and operate mostly on instinct. They’re always rolling the dice. They have a powerful need to provide for their families and they have an overpowering urge to do it their way. If they’re too intent on the dream to recognize the risks, they often lack the experience and the resources to protect themselves. So, they take action, make the mistakes, pay the price and if they’re lucky enough to survive, a successful business emerges. Although much has been written about how the “entrepreneurial personality” is characterized by “a propensity for risk-taking,” successful entrepreneurs spend considerable time trying to define the risks they have to take and trying to minimize them.

Leaders, by definition, set standards and attempt things that “can’t be done.” So, in a startup, the CEO’s job is figuring out what the company stands for, pushing the company to understand what it’s really good at, and building mechanisms (preferably something dramatic) that will force people to pay attention, such as Granite Rock’s altered invoice that says, “If you’re not satisfied with something, don’t pay us for it. Simply scratch out the related line item ... and send your check for the remaining balance.”

An entrepreneurial leader focuses on three employee-management fundamentals to start building an innovative organization. The first step is to formally integrate innovation into the strategic-management agenda of senior executives. In this way, innovation is not only encouraged but it's also managed, tracked, and measured as a key element of the company’s growth. Second, executives make better use of existing (and often untapped) talent for innovation, without implementing disruptive new programs, by creating conditions that allow dynamic innovation networks to emerge and flourish. Finally, management fosters an innovative culture by developing and enhancing trust among employees. In this kind of culture, people understand that their ideas are valued, that it’s safe to express these ideas, and that everyone collectively shares the risks inherent in introducing and implementing new ideas. This environment will be more effective than just using monetary incentives to sustain innovation.

Startup advice from Sharon Ballard.

Sharon Ballard is the CEO of Enable Ventures Inc. and the former CEO and cofounder of Reticular Systems. She’s been a management fellow for UCSD’s CONNECT program where she advised over 60 early stage high technology companies. She served as entrepreneurial management consultant to the San Diego Technology Incubator, mentoring their high technology clients, and served several fellowships with Hunter Centre for Entrepreneurship at the University of Strathclyde, Glasgow, and the Center for Enterprise Management at the University of Dundee, Scotland. She’s been a frequent judge for San Diego State University Entrepreneurial Management Center's Annual Student Business Plan Competition. For Arizona State University, she’s assisted university spinouts with their federal proposals for research grants and contracts. She’s one of two principals of Tech Continuum Ventures, LLC, under contract to deliver education, coaching and connecting events for ASU's Technopolis Program.
Sharon cautions to watch out for the following in a new startup:

1. Product development delays.
When products run late, this can have serious implications for cash flow. Try to keep development cycles on track and on time.

2. People problems.
People are the core of most businesses and the single largest expense. Hiring great employees takes time, hard work and some good luck. Every business makes hiring mistakes, but one key to success is fixing the mistakes quickly. If your company has problems with poor individual performance, lack of teamwork, or high turnover, deal with it immediately. Don't wait until personnel issues threaten to destroy your business.

3. Sales below projections.
Revenue projections are often overly optimistic. Be realistic. Sales usually ramp up more slowly than expected. Factor this into your thinking because it affects cash flow and can cause serious operating problems.

4. New competitors.
There’s a lot of money chasing a few good ideas. If your idea works, expect investors to form new companies that will compete with you. Stay focused, and continually think about what your company can do to stay ahead of your competition.

5. Investor agendas.
A constant consideration for any startup is asking, “What am I doing and how is that going to be perceived by the investment community?” as well as, “Does it make sense and will it build value for my present investors?” An entrepreneurial CEO is constantly thinking about both.

6. Feel the fear, but do it anyway.
If you’ve been honest and have done your very best to make your venture successful, there’s no shame in failure and also no reason not to try again.

Getting support for a start up.

A startup veteran notes: "For the first few years, we were totally in a survival mode. We were very, very lean in terms of money and time. We didn't begin with clearly defined aspirations that in four years we'd achieve X and Y. It was more like, 'Let's do something and see what happens.' We went to the try-a-lot-of-stuff-and-see-what-works school. We had a business plan at the beginning but only because we needed one to get a line of credit. We didn't know much about running a business. We figured to learn what we needed as we went along. We went where the market took us.”

As Abraham Lincoln noted, “Things may come to those who wait, but only the things left by those who hustle.” Start-ups and turnarounds are very similar. You don't have much cash or much time. You have to make good decisions and make things happen quickly. Be prepared to skate fast over thin ice. Be prepared to move forward without the right answers. Concentrate on areas where you’re in control. Don’t worry about things that aren’t in your control. Work to develop an instinctive understanding of your target customers. Everyone in your organization needs to develop a proprietary, emotional relationship with the customer, continually striving to understand and respond to their needs.

To nurture start-ups toward maturity quickly, it helps if they belong to a group of interdependent yet nominally independent companies, all built around a core base of knowledge. Idealab strives to help its member companies, not by showering them with cash, but by leveraging shared creative and technical know-how. "We really don't think of ourselves as venture capital," says founder Bill Gross. "We're creative capital. The money we bring is incidental."

Idealab is a business incubator. Like a traditional VC firm, it provides seed money and takes a minority equity stake in the companies it adopts. Like a think tank, it brainstorms technology applications that could form the basis for new products. And like a parent company, it takes a substantial role in overseeing the operations of its subsidiaries. In a fast moving market, one or two months can be the difference between success or failure. The shared knowledge at Idealab enables a start-up to avoid many mistakes so that it can do in four-and-a-half months what would take another start-up nine months to do. Much of the time saved stems from the fact that Idealab companies don't have to build everything from scratch. Since they share office space and administrative services, startup teams are free to just concentrate on those factors that are uniquely related to their businesses.

Idealab is trying to harness both the power of a big company and the nimbleness of a small one. It aims to add value through shared knowledge and creativity and in that way build better companies. The CEOs of the individual businesses have complete freedom to shape their companies while determining which of Idealab’s suggestions seem most relevant and possible to their situations. Idealab uses its experience to systematize the generation of new business ideas. Among its learnings:

- You need to be incredibly highly focused to succeed.

- Even if you have a wonderful product, if you can't clearly communicate to the customers where the product's benefit is, it's not going to do you any good.

Venture Catalysts such as Artemis Ventures and Guy Kawasaki’s Garage Technology Ventures act as hybrid VC, headhunting and management consulting firms, helping startups in every way imaginable. Incubators can help by removing the need to pay attention to routine issues. "The first few months of a start-up are analogous to the first few nanoseconds in the birth of a star," says Steve Glenn, the founder of PeopleLink, which raised $35 million from GE, AT&T and Goldman Sachs and became a leading provider of online community software. "Whatever happens during that short period will determine your permanent trajectory. So if you're freed up from the administrative stuff, you can focus on aiming that trajectory as high as possible."

How to attract and keep customers.

Entrepreneurs survive by being enthusiastic about their ventures and by being committed to unceasing promotion of their their concepts. It seems unnatural for such people to equate "being silent" with actively promoting their venture. Yet, they’re not selling when they’re talking; rather, they’re selling when their targeted prospect is talking. Provide interesting information to your prospects and then listen to what they say. Let them "teach" you exactly what the hot-buttons are that can lead you to sales success. No one understands the targeted customer’s needs as intimately as the prospective customer does. If you listen closely enough, your customers will explain your business to you.

Selling is helping people make business decisions that are good for them. It’s finding a need and filling it. Learn how to offer solutions beyond price - because you know your customer’s business as well or better than they do. List the features of your product or service but sell the benefits.

Once you get a customer, keep selling to them. Customers are so difficult and so expensive to get, you don’t ever want to lose them. Sell them upgrades, maintenance, new products, new services. Aim to create a recurring revenue model. Continually refresh your memory of the reasons the customer did business with you in the first place.

The four main reasons why people buy are - Pride, Pleasure, Profit and Protection. What matters in sales is Continuity, Commitment and Content, and the last is the least important. All things being equal, the person with the best sales presence will get the order. To quote Aristotle, “People are convinced more by the depth of your conviction than by all the facts at your disposal.”

When you're selling, the ten most important "power words" that get the customer’s attention are:
- money
- save
- you
- new
- free
- proven
- guaranteed
- results
- health
- love

These words were identified by researchers in the Psychology Department at Yale University as having extraordinary persuasive power and are listed here in order of importance. Use these words early in your sales presentation and I guarantee that you'll get your client's attention.

Ten ways to attract new business.

1. Be a walking example/demonstration of how effective your product or service is. Being congruent (when people sense that you believe and live what you speak about) is the number one way to establish credibility.

2. Do your homework and discover what your "typical" customer's biggest problem is. Pretend it's your own problem. Now solve the problem. Take the solution to the customer, packaged around your own product/service. If you’re a solution provider, the barrier to entry is harder for a competitor than if you’re a product provider.

3. Polish your product knowledge and presentation techniques until they’re razor sharp. Your stories, examples, jokes, facts, comparisons and closes are your "tools of the trade." Spend a minimum of four hours a week polishing your tools.

4. Make a notebook of your best stories, best examples, most effective closes, funniest relevant jokes and the rebuttals to the biggest objections you face. Have the rest of the sales team do the same. Compare notes, then compile a "best of the best" file of the best stories, examples, closes, etc. Continually expand and add to your notebook each month.

5. Improve your communication skills so that people want to be around you. Learn rapport skills through Neuro Linguistic Programming (NLP) training, for example. Learn to identify different personality types and communications styles and know how to respond to each. Hone your listening and questioning skills. Polish your speaking and languaging skills until your presentations are very effective.

6. Add value to your current customers by making sure they're maximizing the use of the product/service. Show the customer how they’re saving money by using your product. Be willing to take as much time as necessary to educate and support them, especially after the sale.

7. Turn your customers into your company's R&D department. Get lots of feedback from them. Be so "in tune" with their needs and desires that you can anticipate what your customers will want even before they ask.

8. Ask your best customers for a letter of recommendation or a testimonial letter (on their letterhead). Three or four sincere testimonials can raise your average close ratio by 30-50%. An easy method is to interview your best customers over the phone, take notes (quotes), then email the notes to them. They can easily edit and print them out on their own letterhead, and mail the letter to you. Show the letters to all new prospects - this is more effective than the slickest brochure!

9. Strengthen your personal foundation/reserve levels so that you act like you don't need the money anymore. Then your motivation is based more on creating value, solving the customer's problems and genuinely helping them get what they want or need. This is a much more attractive sell.

10. Master the following six-step selling process until it’s second nature:

- Establish rapport.

- Ask questions to understand the customer and to find their real need.

- Based on the need, determine exactly where the real value is for the customer.

- Link their need to the value provided by your product/service using concise, persuasive communication (don't over-present).

- Assume the sale and conditionally close. If there’s a green light, then close the sale officially.

- If there are any objections, handle them by cycling back to previous steps (find the real need, link it to your product, etc).

Five steps to great marketing.

Looking at marketing as an investment rather than an expense, Craig Palubiak offers five marketing guidelines to help you maintain your edge over the competition:

1. Think mission before commission.

It's critical to have a well-defined corporate mission, and to keep that mission in the minds of employees. Understand that your mission is a vital part of your company's culture that can lead your organization to prosper. It's also important to learn the missions of your customers, prospects and partners to see if they fit with yours.

2. Learn to read the need.

Develop mechanisms that allow you to stay in touch with the marketplace, so you stay a step ahead as the market changes. When asked what made him a great hockey player, Wayne Gretzky responded, “Most players go where the puck is. I go where it will be.” The same is true for businesses. Go where the market is going. A good customer survey can prove invaluable in this endeavor. A "good" survey means one that, in addition to measuring your performance with customers, also measures how important your performance is to them and what it costs you to deliver that performance. You'll have a better picture of where you're wasting time and resources on business that doesn't really matter to the customer, and where you're doing well.

3. Move from feature to teacher.

In the days before the new economy, companies could get by merely selling a product's features. Today, however, you have to be a knowledge source for your customers. Sixty-five percent of customers defect because of service indifference. And while 96% of unhappy customers never complain, they'll tell an average of nine other people about your poor service. Welcoming complaints, seeking them out, improves your odds of keeping good customers and gaining new ones. To avoid the complacency that leads to lost customers, find out what your customers' three primary needs are and what they'll be in the future.

4. Master "customerization."

Not all customers are the same. Some are good, and some are lousy. Great marketing consists of discriminating between the two. Get rid of the lousy ones, or find a way to turn them into good ones. When you look for good customers, pay attention to margin as well as volume. You might have low-volume, high-margin customers who are well worth pursuing. See where your true opportunity is, and make a decision about where you want to go with each customer. Short-term customers often are undervalued. While long-term customers may be your company's lifeblood, certain types of short-term customers can benefit your business. Treat them separately and differently, but make sure they don't interfere with your ability to service your long-term clients.

5. Pay attention to the competition.

Nothing pushes you to new levels of performance more than competition. Just make sure the competition pushes and doesn't guide. To harness that drive, you have to know where they are and what they're doing. Talk to your customers and suppliers, and develop some clear competitive intelligence. Get out of your office and visit them. Find out who the top three competitors are, why they’re successful, what you can learn from them, and what you need to do differently.

The main purpose of marketing is to identify the appropriate markets for your products and services and then open up a conversation with prospects in those markets. This involves both attraction and seduction. Attracting customers requires that you become relevant in their world and they feel relevant in yours. Seduction entices people to do business with you by demonstrating that you understand and care about their needs like no one else, and demonstrate this by making relevant offers and suggestions. Selling is the major component in marketing that makes a product wanted.

Marketing on the Web.

In the past, “viral marketing” meant relying on word of mouth to get your product known. But like so many other concepts, it’s been reinvented by the Internet. There are three levels of viral marketing on the Web.

The first is to embed your advertising message so deeply in your product or service that your customers hardly realize they’re passing it on. Hotmail, for example, was one of the first to provide free email. Each outgoing email message had the tagline, “Get Your Private, Free Email from MSN Hotmail at http://www.hotmail.com.” Today, Hotmail has more than 260 million users.

The second level involves making the content of your Web site so compelling that viewers want to share it with others. As comic strips, video clips and other attention grabbers are forwarded to friends, the marketing messages go along for the ride. The culinary site, Epicurious.com, allows visitors to email recipes from its database. The first few lines of the recipe provide a link to to the Epicorious site, describing the recipe database and offering information about ordering cooking supplier from one of its partners, Williams-Sonoma.com.

The third level offers viewers an incentive to hand over the email addresses of friends, family members and coworkers. Onvia.com, a B2B news and information site for entrepreneurs once offered a chance to win an Audi coupe just for sending in five email addresses. The benefits of viral marketing are increased recognition among a targeted audience for far less money than traditional marketing efforts. One of the pitfalls is that you lose control over the message and its distribution, but selectivity and proper targeting can minimize this.

For marketers, Web 2.0 offers a remarkable new opportunity to engage consumers. (See an excellent WSJ article by Parise, Guinan and Weinberg in The Journal Report, Monday, Dec 15th, 2008). Web 2.0 encompasses a set of tools that allow people to build social and business connections, share information and collaborate on projects online. That includes blogs, wikis, social-networking sites and other online communities, and virtual worlds. A growing number of marketers are using Web 2.0 tools to collaborate with consumers on product development, service enhancement and promotion.

For example, a leading greeting-card and gift company set up an online community - a site where it can talk to consumers and the consumers can talk to each other. The company solicits opinions on various aspects of greeting-card design and on ideas for gifts and their pricing. It also asks the consumers to talk about their lifestyles and to upload photos of themselves, so that it can better understand its market. A marketing manager at the company says that, as a way to obtain consumer feedback and ideas for product development, the online community is much faster and cheaper than the traditional focus groups and surveys used in the past. The conversations consumers have with each other result in many new and interesting insights, including gift ideas for specific occasions, such as a college graduation, and the prices consumers are willing to pay for different gifts.

Consumers have to have some incentive to share their thoughts, opinions and experiences. One way is to make sure they can use the online community to network among themselves on topics of their own choosing. That way, the site isn't all about the company, it's also about them. For instance, a toy company that created a community of hundreds of mothers to solicit their opinions and ideas on toys also enabled them to write their own blogs on the site, a feature that many used to discuss family issues.

Crafting marketing messages.

Marketing isn’t about today - it’s all about tomorrow. It's about getting to know your audience and planing your future. Start by putting out messages to industry analysts about where you want to go. Get their feedback and advice (and pick up great inside information as well). You want them to believe they’re creating an industry so they can then become the experts in that space. But you’ve got to pay them in the interim by buying their research because that’s how they make a living.

“Pull" marketing is based on giving the prospect something of value before you ask them to buy. It’s a way of establishing the basis for a relationship that takes place before you offer them the opportunity to become a customer. "Push" marketing is asking for an order without having established a relationship and is a totally non-selective process. Anyone who wants to buy can become your customer. If your business proposition is based on having a customer for a long time, “pull” is the only way to insure that both parties are interested in a long-term relationship. A “stay-in-touch” program is a low-cost way of building top-of-the-mind awareness with existing customers and with prospects who haven’t yet found compelling value in the sales message.

Many entrepreneurs are so technology and product driven that they never recognize that marketing is important. They don’t recognize that prospects and customers don’t care directly about the functionality of products. Prospects and customers care about benefits and, more specifically, the value of those benefits in their own lives. "What's In It For Me?" is the central question that any prospect or customer is dealing with (whether consciously or unconsciously) while receiving your company's marketing message. The entrepreneur must address this question while, at the same time, providing a marketing message that:

(1) helps inappropriate prospects take themselves out of consideration (because dealing with inappropriate prospects costs money and wastes valuable time).

(2) prepares true prospects to be receptive to the sales message they’ll eventually get from you.

(3) leads them directly into the selling cycle.

Product packaging is a great way to activate the consumer’s impulse to buy. It's the loudest possible advertising vehicle you have - it’s right in the store when customers are standing there with their money. Yet, go down the cereal or pasta isles in any supermarket and you’ll see that very few companies really try to market with their packaging. Frito Lay is an exception - it’s always updating its packaging.

How to market the product.

Marketing 101 says gain market share, build your brand and profits will follow. But you need to make sure there’s a real marketing opportunity in the first place. It’s critical that the market structure is compatible with the entry of a new, initially smaller competitor. There have to be "enough" total customers for a given company to gain a share which will be meaningful in its own right. It’s equally important that the company is in a market that’s growing. Markets that are locked up - for whatever reason - mean that young companies will have far greater difficulty reaching and signing up customers. So, check the existence of a sustainable market space and don’t bother with markets that are too small. If there’s only one company in a space, it’s not really a space. However, if your market is too big, competitors will be attracted and encouraged to join in.

You're always in competition with other unknown entrepreneurs. The relevant question never goes away: Do you ship now and enter the market before your competitors, thereby gaining early market share? Or do you wait, improve the product until it's the best available and then steal market share with a superior product?

If you think you have a good idea, implement it immediately and see what happens. If you chose not to ship, you can't ever get the opportunity back and your competitors may beat you to it. Sometimes, you have to be in the market early, even if it means losing money, if you’re to be in the market at all. But if you’re too early to market, you have to wait for the market to develop. In the meantime, competitors recognize that “this is a great market opportunity.” You won’t be alone for long.

Putting something out there and being able to make noise about it is actually a great way to develop software. The hardest thing is to just get the customers’ attention in the first place. Once you get their attention - if you haven’t already pissed them off - you can then do release after release, like Microsoft. By the time you get to release number three, you actually have a working product. Get innovation out into the light of the marketplace as early as possible rather than waiting to perfect it. Once it hits the light, no one can anticipate what it will lead to - or whether it will succeed or not. Trusting the search and sanctioning experiments whose results no one can know allows progress to be made. Progress depends on serendipity and spontaneity, on events that no one can predict or foresee. Don’t ask for answers in advance. Don’t try to create a life without surprises. Trust serendipity. In a high-risk society, pain and prosperity go together.

Professional entrepreneurs use today's cheap information technology to gain a dynamic sense of their customers and competitors. They can pull up their history, the way they pay their bills, what they're talking about - and get a real feeling for them. They can get $10 worth of value for every dollar they spend on information. Jeff Spillers, who was vice president of business development at WebThreads, a startup that produced software to followed users' paths (threads) as they moved through a Web site, describes how his company used the Web to find out about competitors. “We used every search mechanism with every combination of phrases imaginable to turn over every rock and dig out information about other Web tracking companies. Then we used this information to draw a matrix of what features our competitors had. This did two things: it told us who we were up against, and it told us what the marketplace was like. When we went to a competitor's Web site, we looked for indications that they were moving in a particular direction, indications that a big announcement was coming, heightened activity in particular sectors, such as hiring. We looked at what types of jobs they were hiring for, how many ads they had. Almost anything we wanted to know about a competitor, we could find out from tracking its Web site.”