The No Fail Tactic for Winning Over Investors (or Hiring Managers)

In the great scheme of raising money for a startup, trying to get your dream job, or win a lucrative sales contract from a hiring manager, it all comes down to one or two compelling advantages you can offer that the other candidates fail to offer. What might that be? Value, experience, references, work ethic, passion, determination….no. It’s none of those things – EVERY candidate offers these attributes or they wouldn’t have gotten in the door.

All things being equal among the many choices available to investors or hiring managers, there is usually one thing they secretly want more than anything else, which few candidates offer: a manageable risk, fully-guaranteed investment, backed by the good faith and unwavering confidence of the candidate. It’s what they would LOVE to have but rarely get, because so few candidates have the chutzpah to offer it.

Allow me to elaborate with a brief story.

When I was raising money for my third company, I pitched every venture capital firm in Seattle and many of them on Sandhill Road in Silicon Valley. I was getting a lot of “sounds promising, we’ll get back to you.” Closing a round of funding, or getting a job or lucrative sales contract, is all about momentum. If you don’t have it…if you don’t create urgency for a quick decision, the effort will stall. It gives the “buyer” more time to consider alternative opportunities.

My raise was stalling and I couldn’t quite pinpoint why. The technology was awesome. The market was huge and poorly served by competitive solutions. The deal was priced right. I had assembled a good team. All the right elements to get the “job” seemed to be on my side.

I finally figured out it was “me” that was the gating issue.

Investors never come right out and say it, but in the back of their minds they are thinking: “Is this the right jockey for this horse for the next race?” My answers to their questions regarding future growth and leadership requirements were clearly giving them pause. Investors want guarantees that a founder will get out of his own way….that he won’t impede the success of the company, but will graciously step aside if and when it outgrows his capabilities.

My answers to this line of questioning were vague and, in hindsight, probably defensive. That is always a bad sign to hiring managers. BTW, investors are in essence “hiring managers,” because they are hiring a CEO to manage their money in one oftheir companies, and provide a handsome return on investment. If you are a fan of the TV sitcom, Silicon Valley, you might recall the episode where Piped Piper’s founder was removed as CEO because he “created a company that was too valuable for him to run.”

So after six or seven pitch meetings that failed to create momentum, no less a commitment to invest, I devised the No Fail Tactic.

Whenever the discussion turned to future growth, leadership, and building out the team, I slid a piece of paper to them across the table, face down. They would immediately flip it over, read it, and a sly smile would creep across their faces. It was my signed letter of resignation, only requiring their signature to become effective. I would say, “I serve at the pleasure of the shareholders, of which you would be a major shareholder. If at any time you don’t think I am the right person to lead the company, all you need to do is sign that and I will graciously step aside.”

In some discussions, if I really really wanted a particular investment firm because of their pedigree and industry connections, I would up the ante. I would offer them the right to buy all of my shares in the company at the seed valuation. Not only could the investor accept my resignation, but also acquire all of my shares at a steep discount to the present valuation. This was not a hollow ploy, but an unwavering show of good faith and confidence that I was always going to do the right thing for the company and protect their investment. If i couldn’t deliver on that promise, they could recoup at least some of their investment by taking my entire stake.

The tactic worked beautifully, the raise was oversubscribed in short order. In fact, it pained me to do so, but I had to turn away more than $10M that was offered because the first investors that signed term sheets did not want to take any more money. (And by the way, they did subsequently accept my resignation a year later and installed a new CEO, but that’s a story for another time.)

This No Fail Tactic is one that few if any other candidates will offer. It works in raising money, getting a job, or winning a lucrative sales contract. Over the years I have offered my products and services free-of-charge for 90 days. Only if they delivered the features, benefits, and ROI promised, would the client need to pay me – and they were the sole determinant if the promises were met.

I once posted an opening for an intern and asked all the applicants (several hundred) to work free-of-charge for 90 days. If at the end of 90 days I was 100% satisfied with their work and cultural fit, I would hire them full time with benefits, plus a 25% bonus (to compensate for the 90 days free). Not one single applicant took me up on it.

The No Fail Tactic is not for those who are unsure of themselves, or who have a need for control or immediate gratification. It’s for those who have an unwavering belief in themselves and their offering. And in the end, it’s that intangible that everyone wants to invest in, but is rarely offered. Good luck out there!

19 Startup Lessons from 19 Years Working with Startups

Today marks the 19th anniversary of my company, StartupBiz.com. That’s a lot of chapters…a lot of lessons. Figured I would share a few. It’s Friday, I’m celebrating with a glass of wine and reminiscing. Grab a glass and join me.

(Thank you, BTW, to all my friends, colleagues and connections that sent me a congrats note here on Linkedin.)

I started StartupBiz in 1997 as a resource for aspiring entrepreneurs. It was one of the first websites ever created for startups. Truth be told, I needed a convenient place to direct all the people who wanted to buy me coffee and pick my brain. That was the beginning of the Internet boom and everyone wanted to stake a claim.

Having just sold a company and joined another high-profile Internet startup, people wanted to know how to do it, especially how to raise venture capital. I have a hard time saying no…always try to be helpful to those who ask, but could not personally accept every request. Thus, StartupBiz was born to give people a place to start their startup.

At its height, StartupBiz was serving about 50,000 unique users per month with how-to info, templates, best practices, and links to pre-screened service providers and investors. As more and more sites cropped up to fill these needs, StartupBiz morphed into an angel investment platform and an advisory service for select startups. It’s safe to say I’ve assisted thousands of startups via StartupBiz over the last 19 years.

In honor of this milestone, I thought I would share a few lessons that I have tried to pass on to entrepreneurs over the years. There is no magic to the number 19 and these are in no particular order. I don’t declare these as definitive “truths” for startups. They are simply my truths. Embrace them or reject them. They were learned the hard way by myself and many of the entrepreneurs I have had the privilege of working with over the last 19 years.

1. Don’t waste your time on a “me-too” idea. Develop something truly unique, otherwise you will always be resigned to competing on price and features.

2. No one is going to give you money for an idea, no matter how good it is, except perhaps family and friends who don’t expect to be repaid.

(The only other exception is if you are a serial entrepreneur who has had one or more successful exits and investors simply want “in” on whatever you decide to do next. If you’re one of those people, you could be writing this column. See lesson 19.)

You have to develop something of value, i.e., a real product and/or intellectual property, if you plan to raise outside capital.

3. Sorry, you can’t be a corporate employee and an entrepreneur at the same time. You can be gainfully employed full-time by an organization while you are exploring, building and testing an idea. That’s all fine and good and you SHOULD do that before entering startup land. But until you take the leap, you are awannapreneur, not an entrepreneur. And no, investors are NOT going to invest in your startup when you are working for another company.

4. The only capital you truly need to start a successful business is creative capital, which includes sweat equity, vision, energy, passion, determination, and a bias for ACTION.

5. Stop worrying about raising investment capital. If you develop a great product for a big enough market, it will find you.

6. There is a BIG difference between a growth company and a lifestyle business. Know the difference. There is nothing wrong with starting and running a lifestyle business, just stop confusing it with a business that investors will want to invest in. Go see an SBA banker.

7. The best startups tackle a really big problem in a new or under-served market, while focusing relentlessly on a small set of metrics and business practices. Don’t over-engineer your product or processes.

8. The best startups are hyper-focused. Stop trying to be everything to everyone. Apply the rule of ONE: One product. One market. One business model. One strategy.

9. A business plan is an awesome and vital exercise for you and your team. No one else is going to read it, so don’t mistake it for a fundraising tool. (The exception is your banker – see lifestyle business.)

10. If you can’t explain or demo your product and value proposition in less than two minutes, you have already failed.

11. The best investors are (future) customers. Pick your first customers very carefully. Make them an offer they can’t refuse and get them to agree to be a reference for prospective customers. Customers attract more customers (and investors).

12. The best go-to-market strategy piggy-backs on the installed base of others. It leverages the sales and distribution channels of others. You’ll never raise enough money fast enough to win enough paying users from scratch, to reach profitability before crashing and burning.

13. Website visitors and app users are not customers. Any fool can give a product away. If you are using the Freemium model, at least 20% of users should be paying for the product and that number should be increasing monthly.

14. Money has equal value no matter what source you obtain it from. That does not mean you should take money from the source that offers the best terms. The critical variable is always the people behind the money. It’s sad but true, many investors/lenders are clueless, and they can have a devastating effect on your business. Choose your investors/lenders wisely.

15. The day you raise outside money is the day you effectively give up “control” of your company, even if the investors have less than 50% of the stock. Control should never be your objective. Shareholder value is the only real measure of a company’s success.

16. Your business is either growing or it is dying (unless you are a life-style business). If you are not doubling your business every 12-18 months and are unable to raise growth capital, sell it before it is too late.

17. Everything you create can be copied and probably will be if you get traction, including your patents, branding and other IP. You only have two sustainable competitive advantages: your team and satisfied customers.

18. The best way to grow (scale) a business is through acquisition – other products, other customers, other markets, other teams – if done properly. If done poorly, it can just as well kill you. Your stock is a currency, use it to acquire assets to grow, then actively orchestrate good tech and cultural integration.

19. The single most important thing you can do to ensure a successful, long term career as an entrepreneur, is to make money for your shareholders. Your customers and most of your team will soon forget you. Your investors won’t. Get them out whole. Good exits provide the opportunity for more good starts.

Okay, so I could go on and list another 50 or so lessons, but then you wouldn’t have anything to look forward to on my 20th anniversary. I hope that whatever you are doing, you are having an amazing experience. And I hope your 19 years of doing it will be as exciting and rewarding as mine have been. Cheers!

How to Sell Your Idea for a New Product or Service

Have you ever wanted to get paid for your ideas, without the trouble or risk of starting a company, raising money, or dedicating your life to them?

No need to be humble, admit it, you’ve had some great ideas in your lifetime. You may have even seen one of your ideas become a successful product or service. You said to yourself, “Damn, I had that idea five years ago, now someone else is doing it and they’re getting rich!” Worse yet, you might have confided an idea to a friend or colleague, then found out they ran with it. You said to yourself, “Damn, that A-hole stole my idea!”

What if you could have sold that idea?

The irony about ideas is that they are the genesis of all innovation and new wealth, yet they have no tangible value in-and-of-themselves. (They may have a lot of intrinsic value, but that’s the subject of a different post.) Ideas have to be brought to life to have tangible value. Let’s talk about how to create that kind of value – cold hard cash – for a good idea. In this case, an idea you can sell to someone, not start a company around.

To do that…to sell a good idea….it must be expressed in the form of Intellectual Property (IP). Stay with me, this isn’t a legal lecture. You don’t need to run out and hire a lawyer, you just need to create some IP around your idea and figure out which company would be motivated to buy it from you. An idea all by its lonesome cannot be protected, valued or sold, but IP can be. This assumes the IP is original, meaning you created it, you didn’t copy it. It also assumes the IP personifies a GOOD idea, meaning there is a need for it and enough people would be willing to pay for it, if it ever became a product.

You can create IP with little or no money, and you never even have to make the product. Engineers, designers and inventors have been doing this for decades. You can do it too. There is no magic to it. Creating IP is the act of describing how an idea could be brought to life, and showing why the world would care. It simply requires a little follow through after the initial inspiration.

I’m going to go out on a limb here, because many people (especially some lawyers) will disagree, but I believe you can create valuable IP for less than $1,000 and sell it for many times that amount. There are plenty of examples of people who have done exactly that. Let’s not dwell on those examples just yet (I’ll cover some of them in my next post), let’s stay focused on how YOU can do it.

What is required more than cash is “sweat equity.” That is really the only thing that separates successful entrepreneurs from people who have good ideas – the willingness to act on them. So, if you think you have a good idea, and if you want to create some IP around it with the goal of protecting it, valuing it, and possibly selling it, here are some actions you can take:

1. Gather some data on the likely customers (users) for your idea.Explain who would buy it and why. Conduct some market research and survey some potential customers. There are a bunch of free and cheap tools on the Internet for doing this. Budget: $100. Projected by copyright © and non-disclosure agreement.

2. Write a Product Specification. Outline the features and benefits of the core product, based on your market data and customer feedback. Budget $0. Protected by copyright © and non-disclosure agreement.

3. File a provisional patent application. Explain in detail how it would work in practice. Do a prior art search to make sure someone hasn’t already patented your idea, or some form of it. There are lots of blog posts on how to do this yourself. Budget: $400. Protected by patent-pending.

4. Trademark the name or logo. A good idea needs a good name and mark. Have a graphic designer create a logo and trademark the product name and/or the graphic representation of the product. Budget: $375. Projected by trademark ™.

5. Register a domain name. People have made tons of money on domain names alone. Register one that embodies your idea. Budget: $10. Protected by ownership registration.

6. Draft basic financial projections. Provide some top-line financials showing the economic potential of the idea as a finished product. How many people would by it and what would they pay for it? How much would it cost to make each unit in volume (COGS)? There are numerous free Excel templates for this. Budget: $0. Protected by copyright © and non-disclosure agreement.

7. Create a prototype or trade secret. You can use Powerpoint, 3D printing, or any number of online product prototyping tools to visualize the product. You can stipulate an exact formulation of the product that is not disclosed to anyone, which is treated as a trade secret (think recipe for Coca Cola). Budget: $100. Protected by copyright © and non-disclosure agreement.

8. Secure Letters of Intent (LOI) or Pre-Product Subscriptions from Target Users. Lots of startups have been funded on LOI’s, Kickstarter campaigns and pre-launch user registrations (like launchrock), before the product was ever made. Show enterprise (B2B) or consumer (B2C) interest for your idea. Budget: $0. Projected by one-on-one customer relationships and/or private user lists.

These are all examples of creating Intellectual Property (IP). They are not terribly expensive to create. The biggest investment is time. These are ways in which an idea that has no value, begins to amass value. And the more IP you create around the idea, the more valuable the idea becomes and the greater the chance it can be sold.

There will come a point when you will need the expertise and counsel of a good attorney to “prosecute” and solidify your IP, but you don’t need one to get started. You’ll know it when you need professional expertise, because your idea will either fade away or take on a life of its own.

After you turn your idea into IP, the challenge is to figure out who the likely buyers are and how much they might be willing to buy it for. Maybe you can only get $10k for it? Not bad for a $1k investment and a little time. But what if you could get $100k or more? If there is a market for your idea and you have created some solid IP around that idea, it can be valued and sold for a tidy sum, trust me. Having sold IP myself, I can testify that this process is both an art and a science. It deserves its own post, so stay tuned….

What Every Startup Founder Can Learn from The Music Legend Prince

“Dearly Beloved, we are gathered here today to get through this thing called life.” ~Prince

Today we mourn the passing of Prince Rogers Nelson – Prince…the Artist Formerly known as Prince…the one and only Prince. He was only 57 years old. He was one of a kind. I came to age as a startup founder dancing to his music and inspired by his unique, flamboyant style. There are people far more qualified than I to pay him tribute. I can only relay how his example helped to shape my outlook as a company founder, and what all startup founders can learn from his legacy.

Be Self Taught
No one can teach you how to be a founder and the leader of an enterprise. You teach yourself, you follow your passions and your instincts. Prince didn’t attend Julliard, he didn’t get a degree in music, he didn’t even go to college. He taught himself music. He taught himself how to play multiple instruments – and became especially expert on guitar and keyboard.

Play Every Part, Produce Your Own Products
A founder is not just a “tech guy,” or a “marketing girl,” or a “finance person.” A good founder learns to play all of those parts. He or she never becomes button-holed into playing only one role. He or she is multi-dimensional. Prince learned to play every instrument, and with those instruments, he played rock, funk, jazz, pop, blues, classical, and…yes…even country music. He played every instrument on his first five albums – and produced each one of them himself. Singer, songwriter, producer, performer, player….he did it all.

Be Prolific
A true entrepreneur never stops innovating, inventing and creating. A good founder never rests on his or her first successes. The product can always be made better. There are always new products to develop – new challenges to undertake. Prince produced a new album every single year for almost 15 years, and kept on creating – releasing his last work just a few months ago. Even after selling more than 100M albums worldwide, it was never enough. It’s never enough. Prince did not just make music; it was his essence. As a startup founder, you are a builder. It is your essence to always be creating, to always be building and solving important problems.

Build in Place, Stay True to Yourself and Your Roots
To be a great founder, to build a great startup, you don’t have to move to Silicon Valley…you don’t have to forgo your roots. You can crush it anywhere…in any country…in any town. Prince didn’t move to LA or New York, as he was advised to do. He grew up in Minneapolis. It was his home, his roots. It was a place that was part of who he was and he embraced it. He never left it, he created his own sanctuary there (called Paisley Park).

Refuse to be Categorized
You are not just a “tech” entrepreneur, or a “medical device” maven, or a “consumer packaged goods” guru. You may be all of those things. Conventional wisdom says you can’t cross industries; you have to stick to your knitting. BS. Great entrepreneurs like Steve Jobs and Elon Musk refused to be confined to any one space. They followed their hearts and their interests wherever they may lead. When Larry King asked Prince what genre he most identified with, he said, “inspirational.” He refused to be categorized. He was guided by what inspired him and, more importantly, what he thought would inspire his fans.

Protect Your Freedom, Never Allow Yourself to be Controlled
As a startup founder, it is easy to fall under the influence of investors, board members and dominant mentors and advisors. It’s all well and good until they begin to control and repress you. To them, it’s about the money. To you, it is your essence. You give in, you slowly suffocate. When corporate interests tried to control Prince…tried to claim the rights to his very name…he gave up his name. Rather than simply choose a new name, which might also be co-opted by money interests, he branded himself as a symbol. Pure genius. He said, “I chose a symbol to divorce myself from my past and all the baggage that came with it.” That’s freedom. Surrendering to your art, but not selling your soul,  is the only way to be free.

Don’t Seek the Limelight
The undoing of most startup founders who are blessed with success, is that they begin to believe their own headlines. And then they are consumed by the need to make more headlines. They lose themselves in a vicious cycle of promoting a public persona. They become a prop. Prince shied away from the limelight. He didn’t drink the Kool-Aid, he didn’t fall in love with his public persona. He didn’t appear on talk TV or give many interviews. He preferred small, intimate performances, to the large concert stage. He stayed true to himself and his craft. He wasn’t a rock and roll artist, or a black artist. He went from “The artist formerly known as Prince,” to simply…”The Artist.”

Embrace those that Inspire You, but Be Guided by Your Own Purpose
A good entrepreneur takes inspiration from other entrepreneurs, but does not seek to emulate them. You have to be guided by your own purpose and that purpose must be pure and uniquely yours. Prince was heavily influenced by Stevie Wonder, but he didn’t seek to emulate Stevie, he channeled Stevie Wonder’s inspiration to create his own unique style. He became his own musical force of nature. He became self-contained and, ultimately, a trailblazer in his own right.

Be Boundless, Be Fearless
Life is unpredictable and shorter than we all want to acknowledge. There is no time to waste. Every founder is a product of his or her time, but seeks to create that which is timeless. To do that, you must be fearless. Prince was not bound by gender, race, space, or time. He could marry spirituality with sexuality. He was not constrained by societal norms. He was fearless. Stevie Wonder said of Prince, “He didn’t allow his fear to put his dreams to sleep.”

Be the Boss
A successful founder is the boss. He or she serves no other master; does not take a backseat to anyone else on his stage. It’s fine to be coachable, but never subservient. Demand perfection of everyone, for no less is required to emerge from the startup heap. Prince’s grade school friend, Jimmy Jam, said of him, “He was in full command of the stage. He knew every note, every cue. He decided what songs to play on the spot, and everyone on that stage was expected to know them all and perform them to perfection.”

Don’t Take Yourself to Seriously; Never Lose Your Sense of Humor
No matter how much success you might achieve; no matter how dire things may get…don’t take any of it too seriously. Don’t forget to laugh. Just keep creating…keep making things happen. It will all fall into place. A little known attribute of Prince was his sense of humor. Rolling Stone editor, David Wild, spent some quality time with Prince and said of him, “He was actually a very funny guy. He could have been a comedian.”

Take Risks; Create Magical Moments
It’s a cliche to say entrepreneurs must take risks. I’m talking about risks that on the surface appear to be disasters in the making… and turning them into magical moments. It is a rare startup founder that can turn a potential disaster into an amazing experience. These are the founders who have a sense of destiny…a belief that the universe is on their side and they are entitled to succeed. That happened to Prince during the 2007 Super Bowl halftime show. It started pouring rain just as Prince kicked off the most incredible performance of “Purple Rain” that anyone has ever seen. It is still considered by many (myself included), as the best Super Bowl halftime show of all time. Destiny.

Prince…thank you…rest in peace. You startup founders…”Let’s Go Crazy!”

Don’t Start a Business, Buy a Business

Why would you start a business when you could buy one, or at least many of the core components you will need, at a lower cost than starting from scratch? You wouldn’t, but most entrepreneurs still do. If at all possible, you shouldn’t start a business from scratch…you should buy one. This is also true of growing a business. It is easier, faster and less expensive to grow through acquisition than by internal development (in most cases).

A buy vs. build strategy will save most entrepreneurs years of work and hundreds of thousands of dollars. Too many founders have a tendency to reinvent the wheel. “But my idea is insanely original, nothing like it exists!” they bellow. Not likely.

While the product or service might be novel, or the business strategy unique, the underlying components upon which all good businesses are built already exist. Certainly, the customers, supply chain, partners, distribution channels, operational systems, and talent needed to start or expand a successful business, already exist. A smart entrepreneur will look for an opportunity to acquire and integrate some or all of these components, rather than find them one at a time, or build them from scratch. They do this by acquiring a turnkey business, usually a distressed one.

This is one of the dynamics I envy about today’s entrepreneurs. There has never been a better environment to acquire, operate and grow a successful enterprise. There are so many incredible innovations sitting fallow or underutilized. The infrastructure to deploy them has already been created. Sometimes all it takes is a small tweak to the business model, new leadership, or pivoting to an adjacent market, to take a nascent technology, undersold product, or struggling business, and make it wildly successful.

By contrast, when I started my various hardware-software-Internet ventures, there were few like it. No sophisticated development stacks, no hosted services, no content management systems, no social media, no mobile devices, and precious few PC’s running anything except a handful of applications. There was no tech talent, no distribution channels, and no global marketplace. Everything had to be created from scratch — and man was it expensive and labor intensive. What I paid $1M for to develop in 1999 can be “acquired” today for less than $100,000 – and it would function 10X better.

One of the most important principles of good business is leverage. An entrepreneur that knows how to leverage the assets that have already been created by others – usually at considerable expense and trial-and-error – will triumph over the entrepreneur who tries to recreate those assets from scratch. The advantages of buying a business (or the assets and intellectual property), rather than starting and inventing from scratch, are many:

  1. Acquiring an established business (and brand) is far more likely to succeed than that of a pure startup. For example, 80% of franchised businesses are successful, whereas 90% of businesses started from scratch fail within three years.
  2. More than 300,000 new patents were issued last year – an historical high. The cost to file and prosecute a simple patent with just a few claims is about $25,000, and takes 18-24 months to get issued. Only about HALF of all patents filed even get issued. The odds are better playing Russian Roulette. Yet, many of these patents are sitting in universities waiting to be licensed, or on corporate balance sheets waiting to be spun out. They are assets that can be acquired for a fraction of the cost and time of inventing and filing anew.
  3. The biggest cost of starting and running a business is usually the people – recruiting them, training them, and retaining them. Most existing businesses already have a knowledgeable and trained team in place. That’s why many corporations buy companies…for their teams (Acqui-hiring). Smart entrepreneurs who are running young companies can play this game too.
  4. The Cost to Acquire a customer for a new business is many times higher than that of an established business. Whether B2B or B2C, a new business has to create a sales pipeline from scratch. In most businesses, the cost of marketing is 10%-15% of revenue. In a new business, the cost of marketing is exponentially higher.
  5. In addition to gaining marketing efficiencies, an existing business can leverage its sales, customer testimonials, affiliate partnerships, and referenceable accounts, to establish better lines of credit and better terms with its supply chain. A new business has to create that history, awareness and reputation from scratch, usually over several years. They pay a premium for lines of credit and vendor relationships.
  6. One of the most challenging aspects of building a profitable business is to scale it without imploding. An existing business has at least some of the necessary systems and processes in place. A new business has to implement scalable infrastructure from scratch – a very time consuming effort and usually hit-and-miss in the early stages of its life cycle. With an existing business, there is often some hard-won experience with what works and what doesn’t across all departments.
  7. Finally, financing the acquisition of an existing business is MUCH easier than raising capital to start a new one from scratch. In most cases, the owners/investors will help finance the sale by carrying a note or taking an earn out. There are lenders who specialize in financing the purchase of an existing business…. and, trust me…, they are a lot easier to deal with than angel investors and venture capitalists. Plus, you don’t have to give up equity in your company.

Whether you are looking for a turnkey business, or most of the components needed to run the business you have in mind, think about buying a business rather than starting one from scratch. The next ten years will see the largest transfer of businesses and wealth in the history of the world. The baby boomers are retiring and GenX and GenY are ascending to their peak earning years. More than 10 million businesses will change hands. Grab yourself one of them!

Starting a Business Anyway – Paradoxical Commandments of Startups

There are always more reasons not to start a business than to start one.

Start a business anyway.

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Your co-founders will not be perfect and will give you pause to believe in them.

Believe in your co-founders anyway.

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People will say your idea will never work.

Make your idea work anyway.

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Bankers will caution you not to invest everything in your startup.

Invest everything in your startup anyway.

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Lawyers will advise you not to give a personal guarantee to secure a lease, buy equipment, inventory, or other assets.

Give a personal guarantee anyway.

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Investors will question whether you have what it takes to lead the company.

Show them you will learn and do what it takes to lead the company anyway.

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Competitors will threaten to squash you.

Dare them to squash you anyway.

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Customers will challenge you to compel them to switch to your solution.

Compel them to switch to your solution anyway.

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Employees will doubt you’ll have their backs and protect their interests.

Have their backs and protect their interests anyway.

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The world believes it can not be changed by your startup.

Change the world anyway.

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Inspired by The Paradoxical Commandments

Shut Down, Sell Off, or Spin Out?

The wonderful thing about startups is that they are constantly innovating. The team is hard wired to see new and better ways of doing just about everything. And that’s also the bad thing about startups. This propensity to build vs. buy – to invent, create, develop and engineer – often leads to a promising new product or business unit. More often than not, these new opportunities take the company off mission. The founder or board eventually wakes up and yells…. STOP!

This is a very common problem in startups. Big corporations would LOVE to have this problem. They suffer from a dearth of innovation and creativity. When it does come along, they have the capacity to commercialize it. Startups do not, they have to selectively pick their battles. They have to decide which innovations to focus precious resources on, and which ones should be shut down, sold off, or spun out. This one decision alone can burn time and energy, but it can also save a startup from itself. I know, I’ve lived it three times.

At Ask-Me Multimedia, we commercialized some of the first interactive computerized kiosks. We put them in hotel lobbies, malls and airports. People would touch the screen to browse things to do, places to go, print directions and coupons. Our CTO discovered that the software could easily be adapted for new applications – Computer Based Training and Multimedia Business Presentations (before PowerPoint). The margins were so much better in software than hardware. We sold off the kiosk business to a sign and directory manufacturing company, and focused all of our efforts on these new software applications. It was the ultimate “pivot” before that term became popular.

At CompuServe SPRYNET, we launched one of the first national Internet Service Providers. To attract customers to pay us $20 per month to connect to this new thing called the Internet, we built a content-rich “portal” to give them a place to start exploring the World Wide Web. Turned out, lots of companies wanted to “private label” our connection stack and portal. After doing a few of these deals, we decided to shut down this private label unit because it was distracting the company from improving and managing its own online services.

At Design Intelligence, we launched the first desktop publishing product that integrated content from any source and enabled auto-design and layout of a document or web page. After hearing big publishers express concern that our product enabled users to “co-opt” their copyrighted content, we pioneered a feature that would enable users to instantly obtain legal permission to use any content on the Internet. The applications for this capability turned out to be much bigger than just a “feature” in a desktop publishing product, so the board made the decision to spin out a separate company…which attracted venture-funding and became iCopyright.com.

As a startup founder, investor, advisor or board member, one of the most important decisions you need to make is what the company will do and what it will not do. If you are seduced by every promising idea or innovation the company is incubating, you will surely implode if you do not choose wisely. At some juncture, sooner rather than later, someone must stand up and yell STOP! Should we continue to invest in this idea, or should we shut it down, sell it off, or spin it out? If the decision is made to continue to invest in the idea, then something else has to go.

Startup Pitch – Judging the 6-Minute

Last week I attended Graduation Day (aka “Demo Day”) for a local startup accelerator. Thirty aspiring entrepreneurs had started the 16-week program. Only eight made it to graduation. Each had six minutes to present their venture to the audience and, hopefully, score a follow up meeting with an investor.

Six minutes is not a lot of time to condense 16-weeks of lessons into a coherent and compelling story. In fact, not one of the eight presenters finished on time. The timer alarm was sounding in the background as each founder frantically tried to get through all of his or her slides. The audience empathized with the pressure they were all under.

Having sat through more than a thousand of these type pitches, I can honestly say that it is as stressful for the audience as it is for the presenters. We know this is someone’s dream. Their Demo Day pitch is the culmination of a lot of hard work. We want to see them crush it! Unfortunately, most fall flat because they try to accomplish too much in the time they have. Most don’t leave us wanting more.

In my view, a good six-minute pitch should only try to accomplish two things. It should communicate a good idea that is being executed well. If I see or hear that, I can envision traction and determine whether the venture might be fundable. I can determine whether or not I want to invest the time in a follow up meeting, to drill down on the opportunity.

Every pitch can be slotted into one of four quadrants on my mental score sheet:

Poor Idea / Poor Execution

These pitches are rare at Demo Day because the entrepreneur would not have made it through the program. Some squeak through on a wing and a prayer. They end up in the lower left quadrant on my mental score sheet. Typically, I do not understand the idea well enough. I don’t see an opportunity. In some cases, it is a “me-too” product. I’ve seen or heard the same idea a hundred times. The pitch includes rosy slides on problem/opportunity and market size, but no customers or validation for the startup’s idea. All too often, it is a product in search of a market. Nothing about the team or how they plan to develop the product and bring it to market, gives me any confidence that they can pull it off.

Poor Idea / Good Execution

These pitches are fairly common at Demo Day. The idea is either weak in the same manner as it is in the lower left quadrant, or it is not scalable and repeatable. These are often life-style businesses. They show a little traction among a relatively small group of customers. It may be a $1M business, but it is clear it will never be a $100M business. The team is good and they are doing everything right, but the opportunity is not large enough to merit equity financing.

Good Idea / Poor Execution

These pitches are the most common at Demo Day. The idea is novel and addresses a large market. It’s clear the entrepreneur is on to something. In most cases, the entrepreneur comes from the space and has garnered a unique insight. The idea is just a little ahead of its time…still in the development and testing phase. There is little or no traction, but there is an opening that could disrupt the industry, or perhaps create an entirely new industry.

The problem is usually that the entrepreneur is not the right person to run the business. The team is weak or non-existent. The business model and/or go-to-market strategy is highly questionable. Anyone with any business sense knows that the venture is not likely to succeed as currently structured.

These ideas are fundable, and some may have actually already received some seed funding, but the amount of work needed to turn a good idea into a viable business, is not insignificant. A good idea still needs a verifiable revenue model, a good team, strategy and plan. I may take a follow up meeting to see if the entrepreneur is willing to get out of his or her own way. With the right team and strategy – the right execution – it could be a winner.

Good Idea / Good Execution

These are the pitches we all hope to see at Demo Day. The upper right quadrant of my mental score sheet is my happy place. This is where I want to spend my time and money. The attributes of the idea are the same as those seen in the upper left quadrant, but without the execution baggage. The team is seasoned and well balanced. The business model is working…the venture already has traction and the customer base is growing steadily. The strategy and plan are well thought out and imminently doable with adequate funding. Where’s my check book?

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In summary, if you are an entrepreneur with 6-minutes to pitch your idea, don’t try to boil the ocean. Just articulate a good idea and explain how your strategy and plan to execute on it will work. Leave the audience wanting more.

For a more detailed look at scoring startups, download THE FIVE STAR STARTUPA System for Evaluating and Ranking Startups

The Lure of False Prophets (leaders)

The world is full of charlatans and some are disguised as false prophets. Their domain is not confined to religion. They can be found in politics, health care, business, and almost every other sector of life. They have a strong magnetic pull…an almost irresistible lure of truth and hope. They all have one thing in common:they prey on the fears, insecurities and ignorance of their followers. In a world so desperate for leadership, it is easy to fall victim to those who appear blessed to provide it.

How do they operate?

To lure people into their fold and make them converts, false prophets use a two-prong strategy:

  1. Define an enemy that can be blamed for the follower’s troubles and anxieties.
  2. Make bold promises for vanquishing the enemy and restoring the follower (and the world-at-large) to a state of health and prosperity.

In religion, the enemy is sin (Satan) and, all too often, other religions that are an affront to the religion of the prophet’s followers. The prophet promises to vanquish sin and false religions that are contrary to the tenants of the one *true* religion, to restore the word of God.

An example is Osama bin Laden, who founded al-Qaeda and claimed responsibility for the September 11 attacks on the United States and numerous other mass attacks around the world.

In politics, the enemy is the party on the other side of the political divide, along with their policies and appeasement of lobbyists and evil foreign powers who are out to destroy the follower’s way of life. The prophet promises to vanquish the other party’s policies, backers, and the evil foreign powers, to protect the country and restore it to prosperity.

An example is Senator Joseph McCarthy, who conducted a witch hunt to root out communists in America and ruined the lives of dozens of people by falsely accusing them.

In health care, the enemy is disease (very often obesity). The prophet promises to vanquish disease with a magic pill or some other new therapy, to restore the follower to health. The Internet abounds with false prophets peddling worthless concoctions.

The most historic example is Clark Stanley, who literally gave meaning to what we now call a Snake Oil Salesman.

In business, the enemy is a lack of profit, usually caused by an inferior product, strategy, waste and/or bad management team. The prophet promises to create a more competitive product and/or strategy, vanquish waste and incompetent management, and restore the company to profitability.

An example is Al “Chainsaw” Dunlap, who never created or built a company, but put several good ones out of business and thousands of their employees out-of-work.

The false prophet’s playbook is pretty simple: ENEMY. VANQUISH.RESTORE. Sometimes restore can be swapped for “CREATE,” (as often seen in startup companies), because the prophet’s promise is to disrupt the old world in order to create a better world for followers (users and investors). There are dozens of companies that were led by false prophets who raised hundreds of millions of dollars from followers. Those companies are now extinct. Some of those prophets are doing it all over again. Some followers never learn, they keep drinking the Kool-Aide.

How do you spot them?

In religion, false prophets are wolves in sheep’s clothing. In politics, they are oligarchs in liberal or conservative clothing. In healthcare, they are con artists in healer’s clothing. In business, they are malevolent dictators in management guru clothing (usually pinstriped suits).

In every sector, they look the part, but are not actually the part they are playing.

Spotting a false prophet is not always easy, they are very clever. The ramifications of the solutions that they propose are unknowable and, therefore, difficult to refute. It is easy to sell a bright future. It is easy to sell any alternative to the poor conditions that followers currently suffer from. To turn a phrase on its head, the devil you don’t know is preferred over the devil you do know, when things get bad enough.

History offers us some clues on how to spot False Prophets:

  • Their divinity is self-proclaimed. Most false prophets are self-anointed. True prophets are anointed by others. Warren Buffet did not declare himself the “Oracle of Omaha.” It is a moniker bestowed upon him by his followers, who have benefited greatly from his teachings and example. Beware the self-proclaimed “visionary,” or prophet by any other name. They never miss an opportunity to tell you how great they are.
  • Their enemy is an easy target, but not their true aim. How many wars and ethnic cleansings have been waged in the name of national security, or to defend the people’s “way of life?” Who benefited the most from those wars and cleansings? Vanquishing the enemy benefits the prophet and his backers…the privileged few, more than his followers or the world-at-large.
  • Their promises to vanquish the enemy do not match their actions.When company leaders fire half their employees and give themselves hefty raises and bonuses, the enemy is not actually a lack of profits for the company. It is not enough riches for the company’s leaders. Business gurus talk up the importance of team culture, while surreptitiously working to overthrow it and replace it with one that maximizes their own wealth and power. Followers are expected to sacrifice; false prophets are entitled to prosper. Remember the leaders of Enron?
  • Their stories of persecution and redemption are fabricated.Remember the Gulf War: weapons of mass destruction and the brutal slayings of babies in their hospital beds? All fabricated. False prophets seduce their followers with stories of wrongs that must be righted, and tall tales of repressed people who rose up to become mythic heroes and heroines. None of their stories need be verified, because to question them would be an act of bad faith or patriotism on behalf of the follower.
  • Their rhetoric is arrogant; spiced with slander and self-aggrandizement. To raise themselves up, false prophets must tear others down – usually entire groups. They are blind to their faults and convinced they have all the answers. They cannot stand on experience or competence, so they deceive with inspiration. False prophets are focused on amassing more followers. True prophets are focused on creating more leaders, who will be better than they.

All too often, the False Prophet is exposed only after much damage is done…after innocent people are made to suffer. They are easy to decipher in hindsight. To spot a false prophet before it is too late, one must know what a true prophet (leader) looks like. That requires looking into his or her past stances, behaviors, and performance, because those are the best predictors of his or her future actions. Ignorance is not only the lack of knowledge, but the result of laziness and turning a blind eye. Lazy people, and those who turn a blind eye, are destined to suffer the whims of false prophets.

The Problem of Founder / Owner Replication

What happens if the founder gets hit by a bus? This is a question prospective investors and board members sometimes ask themselves behind closed doors. The problem of founder/owner replication is often the gating issue to making an investment, or performing one’s fiduciary responsibilities to shareholders if serving as a director or advisor to a young business. When a company is over-reliant on the founder, managing partner, or other individual with a controlling interest, all could be lost if no one is capable of stepping into his or her shoes.

A charismatic founder is often the face of the company. Few people can imagine the company without its visionary leader. Examples include Elon Musk of Tesla, Jeff Bezos of Amazon, and Mark Zuckerberg of Facebook. In these examples, succession planning became a priority when the companies went public. What happens in pre-IPO startups, small businesses and partnerships? Succession planning is usually a mere afterthought and, more often than not, initiated only after it is too late.

None of us are going to live forever and no matter what superpowers we possess, escaping death is not one of them. If the entire value of the business resides in the founder/owner, then the business will die with him or her. The most common example of the problem of replication is the sole proprietor: the doctor, lawyer or creator. These owners typically practice alone. They never take on a partner or groom a successor. They pass away unexpectedly or become disabled. With just a little foresight and planning, their work could have lived on – the value they created could have continued to benefit their loved ones for generations.

The problem of founder/owner replication is more urgent in a startup that wants to raise outside capital, or a small business that has taken on debt. Founders/owners are typically control freaks to begin with. They hate the thought that they can be replaced. It is this drive and air of invincibility that attracts people to them like magnets. But ironically, it is this same trait that causes many smart investors to pass on the deal, and keeps board members awake at night. If Steve Jobs could do it, any founder/owner can do it. No big-company CEO exercised more control than Jobs, but one element of that control involved having the foresight to replicate himself and leave his company in good hands. His shareholders were protected and his legacy strengthened as a result.

What are some strategies for minimizing the problem of founder/owner replication?

  1. Take the long view. Look far into the future, to the day when the founder/owner is ready to step aside and travel the world, buy a winery, or do whatever s/he wants to do. Who will be running the company then? What kind of person is s/he? How long will it take to groom him or her?
  1. Start now, build a team, formally anoint a successor. A growing company is not going to be able to raise money without a team in any case, so it may as well recruit someone who could fill the founder’s shoes sooner rather than later. The way many startups and small businesses handle this is by hiring a President, COO or Chief-of-Staff to work alongside the founder/owner. Everyone knows that person is the likely successor in the event the founder/owner can no longer run the company.
  1. Draft a succession plan. A good succession plan is authentic. It takes into account the skills and talents needed for the top leadership role. It also assesses and forecasts the needs of the business, in good times and bad. The plan can identify specific individuals in the space that might be a good fit, such as leaders of similar companies, including both competitors and firms in other industries that share similar characteristics.
  1. Recruit awesome board members and/or advisors, and use them well. If the company recruits a strong board and uses top-notch advisors, then any one of them could step in if needed in a pinch. Too many boards are mere names on paper. They are not active in the business, or are involved passively at best. This is a huge mistake of early-stage companies and small businesses. Recruit a board that knows as much about the business as the founder/owner, and if they won’t keep abreast of the company, replace them with directors who will.

No founder/owner likes to think that they can be replicated. Fact is, failing to do so means their creation dies with them, their legacy short-lived. If you are a founder/owner, face-up to your mortality and take steps to protect your stakeholders and family. If you are an investor, board member or advisor, insist that the company have a credible plan to replicate the founder/owner.

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This post was co-authored with Mitchell Stier, a resourceful attorney, with sophisticated experience as public company general counsel and as a private equity and M&A attorney. Mitchell focuses on close strategic partnerships with business clients to promote growth.

Navigating Conflicting Advice from Startup Mentors & Business Advisors

I recently had coffee with an aspiring entrepreneur with a novel product who wanted some advice on his launch strategy. He wasn’t the type of guy who simply wanted me to tell him what he wanted to hear, which is usually the case with many first-time entrepreneurs. He was in an accelerator program and getting conflicting advice from well-healed mentors whom he liked and respected. He wanted yet another “expert” opinion from yours truly.

After hearing about his product and the market opportunity, we talked about his budget and goals for the launch. He detailed the current plan, which I thought was sketchy at best. I immediately started poking holes in it. He conceded the plan had flaws and asked me what I would do differently. Being the seasoned and ever-confident startup mentor that he expected me to be, I made a convincing case for a very different launch strategy than the one he was considering…confusing him even further, no doubt.

So who is right? Which mentor should he listen to? All of us….or maybe none of us.

One of the biggest challenges (and opportunities) facing today’s entrepreneurs is an overabundance of “expert” advice. Throw a stone in any direction and you will likely hit a startup mentor or business advisor. They are everywhere – as thick as locusts. They mentor at public-private accelerators…descend upon pitch events…trade on their past experiences as members of present-day angel groups or VC funds…volunteer at university incubators….and hangout at meet-ups organized by would-be entrepreneurs. Some of them ply their wisdom online and hang their shingles at economic development organizations and professional services firms from coast-to-coast.

Mentoring and advising a new generation of entrepreneurs is a growth industry all its own.

This is a very different environment than the one I came to age in as an entrepreneur. Very few people were entrepreneurs when I was starting out and almost no one knew anything about technology, which is where most of the startup action was. In hindsight, I was probably blessed with a dearth of good mentors and advisors. I had to figure it out on my own and, occasionally, with the help of like-minded entrepreneurs who were also trying to create new products and markets. There were few credible inputs, less options to debate, and no one to blame except myself if the strategy failed. How times have changed.

But I digress. How should today’s entrepreneurs navigate an ecosystem full of well-intentioned people who are put in a position to mentor or advise them, especially when they give conflicting advice? To answer this question, we need to first address the nuances between mentors and advisors.

Traditionally, mentors advised for free and advisors for compensation. A mentor was someone who knew the space and took a personal interest in you, or was assigned to you by the organization to show you the ropes. An advisor was someone with technical training, such as a lawyer, accountant or IT consultant. These days the terms are often used interchangeably. To confuse things even further, some people who mentor or advise for free or a fee call themselves coaches. For the purposes of this post, let’s draw the distinction this way:

Many advisors are also mentors, but few mentors are also advisors. Mentors breeze in-and-out, they don’t usually have defined roles or responsibilities in the relationship. They seldom have any skin in the game. Advisors usually have fiduciary duties or other obligations to the entrepreneur or startup. Their professional credentials and reputations are on the line. They are often investors and serve on boards of directors and/or advisory boards.

With that distinction, here are some guidelines for navigating conflicting advice from these people, regardless of what they call themselves:

First, don’t underestimate the value of free advice. When I was starting out people would say, “Advice is generally worth what you pay for it.” The implication being that I should heavily discount free advice and rely more heavily on professional advisors who charged an arm and a leg. They were generally right about that notion for the most part.

The Internet and the evolution of entrepreneurial ecosystems have changed that notion for evermore. Today, there are many free sources of advice and much of them are more valuable than professionals who charge for it. I’ve seen entrepreneurs pay tens of thousands of dollars for what turned out to be very bad advice. Conversely, I have seen entrepreneurs pay nothing, except perhaps a cup of coffee, for advice and assistance that was golden.

Advice is no longer commensurate with what you pay for it. That said, you should still give more weight to the *technical* advice of trained, paid professionals, than that of volunteer mentors. A mentor may be spot on by advising you to form a Delaware C Corp instead of an LLC, but you should still defer to a good attorney who understands your company’s needs and objectives.

Second, consider the biases of the source. Every mentor is a prisoner of his or her experiences and biases. A mentor who was a CXO of a Fortune 500 company is going to dispense different advice than an entrepreneur who started and built his or her company from scratch. That is not to say that one’s advice is any less valuable than the other. It’s just that they are both going to have very different ways of looking at the world and how to bring a new product to market. Look at what sectors they come from, what their roles were, and the kinds of resources they had to work with. That will help reveal how relevant their advice is to your situation.

Third, advice is only as good as clarity of goals and metrics. You can expect to get a lot of conflicting advice from both mentors and advisors if everyone you ask is unclear about what must be accomplished. You and your board should be very clear about the goals. You should not ask *most* third-party mentors and advisors what your goals should be and how you should measure their achievement. You should only ask them for the best way to achieve the goals, and for their assistance and connections to do so.

This was the problem with the entrepreneur with the novel product who wanted my advice on his launch strategy. Each mentor he asked had a different notion about his goals. One mentor had given him advice thinking his goal should be to generate revenue quickly. Another mentor gave him advice thinking his goal should be to get user traction. I thought his launch goal should be market validation and product pivot (refinement).

It’s not the place of a mentor or advisor to tell an entrepreneur what his or her goals should be! A good advisor/mentor can help frame the goals, but should not be setting the agenda for the venture unless they are also board members. It’s easier for you to weigh the how if everyone you ask is clear on the what and why.

The best way to start a conversation with a mentor or advisor is: “We think our goal is X and we plan to measure it by Y. Do you agree with X and Y?” He or she may encourage you to rethink the goal and the deliverables to support and measure them. Once everyone is on the same page with those things, you can debate the order and manner in which they should be implemented.

Fourth, understand the motives of the mentor/advisor. Every mentor or advisor is “in it” for different reasons. Their reasons influence the type and quality of advice they will give you. Some people mentor at accelerators and pitch events because they want first dibs on good investment prospects. Some people mentor because they are trolling for a job or new clients.

Beware the mentor or advisor who pretends it’s all about you and there is nothing they want for their time, expertise and assistance. They either have a hidden agenda or they are clueless. Mentors who are just passing the time because they are bored of retirement can do more harm than good. If you really want to see how much a mentor or advisor believes his/her own advice, ask them how much they would be willing to invest for you to follow it. That’s why your board/investors are always your best counsel.

Finally, never second guess your instincts and take full responsibility for the advice that you decide to follow. The primary reason you are running your own company is to be the master of your own destiny; to shape the world with your vision. After getting all inputs, listen to your inner compass. It will guide you. Trust yourself above all others. Once you decide on a path — in cooperation with your board and inner circle — accept full responsibility for the outcomes. Trust me, no matter which advice you accept or reject, you will stumble. Keep learning, keep iterating and optimizing. No matter how it turns out, you own it.

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In summary, there are many roads to the same place. One may not be better than another. One may be shorter and less expensive than another, but very bumpy and more stressful. Mentors and advisors may read the map differently; suggest different routes to take. As long as they all agree on the destination, your chances of arriving there are good.

You can’t always choose your mentors or advisors, but you can choose whether to accept and apply their advice – which roads to take. Choose well and happy travels.

Are You Ready to Take the Red Pill? (Self-Employment)

“You take the blue pill, the story ends. You wake up in your bed and believe whatever you want to believe. You take the red pill, you stay in Wonderland, and I show you how deep the rabbit hole goes.” – Morpheus (to Neo), The Matrix

Fans of the movie The Matrix see all kinds of symbolism in the plot – political, social, cultural, technical, and spiritual. We all create our own reality, so it’s natural for each of us to see what we want to see, or believe what we want to believe, in the message. Most people would agree that the central theme of the movie is choosing between the harsh reality of truth (Red Pill) and the ignorant bliss of illusion (Blue Pill).

For me, the movie is a metaphor for corporate life (Blue Pill) versus startup or self-employment life (Red Pill). The Matrix of most people’s working lives is the corporate construct – which includes big government. It is one that fosters dependency. The majority of working people in the U.S. get a W2, not a 1099, meaning they work for someone else, not for themselves. But a full 75% of people who get a W2 say they would rather work for themselves. They want to be independent – they want to take the Red Pill!

The fact is that people fantasize about owning their own business, but most will never unplug from the Matrix because the reality of self-employment is overwhelming to them. It’s a very BIG decision, one that would have dramatic implications for their lives. To be honest, most people shouldn’t take the Red Pill because, as Jack Nicholson said in another popular movie (A Few Good Men),“You can’t handle the truth!”

The truth is, owning your own business is not glamorous, or even more rewarding than working for someone else. Lots of people who have their own business hate it. They just hate it less than working for someone else, or they have no choice but to be working for themselves. Lots of people who are self-employed secretly wish they could do what Cypher did in the movie: become a bluepill again, be plugged back into the Matrix.

Starting or buying a business is hard work. It can be lonely and more stressful than working for someone else. You’ve heard the stats, most startups fail. You can lose everything, including your family. People who are not ready for this harsh reality should NOT even attempt it.

Still not deterred? Good!

How do you know if you are ready to take the Red Pill?


You’re an independent thinker and a rebel at heart.
You’re still young enough to take on the world. You don’t have much to lose. Heck, you’re already $100,000 in debt from student loans. Why rush into a life of indentured servitude for the privilege of making those payments for the rest of your life? You’re ready to join the resistance. You want to disrupt an industry and change the world. You would rather die trying than live the life of a drone inside of the Matrix.

You’ve been awakened. You’ve been living the life of a bluepill and you know something is dreadfully wrong with it. You’re in a dead-end job, barely making ends meet, and your situation is not likely to change. People get promoted ahead of you because of politics, favoritism or nepotism, not because of merit. You’re not on a good path no matter how hard you work, no matter how much you suck up. You’ve also done the math. There is not going to be a gold watch or a comfortable retirement at the end of the path you are currently on. You know you need to find a new path.

You live close to a Zion and you already know some redpills. There is a reason that Silicon Valley and other metro startup ecosystems are so successful at driving innovation, disrupting the Matrix and creating new wealth. They tolerate – even celebrate – risk. They offer a community that fosters bold thinking, independence and entrepreneurship. The entire community is comprised of redpills. They can’t help but encourage you to unplug and join their ranks. If you join the crew of one of their ships, they will make you an owner. If you don’t already live close to a Zion, move there. If you don’t already have friends who are redpills, get some.

You’ve been unceremoniously dejected from the Matrix and flushed down the sewer pipe.  You got downsized or laid off. You may have been a victim of ageism. You are not likely to get plugged back in and, if you do, the fantasy they will give you will not be nearly as satisfying. It may be too late for you to live in Zion. They don’t like older former bluepills  – they don’t want any contaminates who might give them up to the Matrix.

In this case, you’re going to have to find a ship – a small one. That’s okay. Not to mix movie metaphors here, but the Millennium Falcon was an old bucket of bolts that was able to wreak some serious havoc in the universe. Get out of the sewer and strap yourself into your own small business or franchise.

You’re capable of being reprogrammed. If you look like a bluepill, think like a bluepill, and act like a bluepill, you will never survive in the redpill real world. Seriously, if you think you can simply apply what you know from the bluepill world to the redpill world, you will be doomed. To make the transition, you can’t have a fixed mindset. You need a growth mindset. You need to be coachable. You’re okay with starting from scratch, perhaps even risking your nest egg to try something entirely new. You’re willing to learn a whole new way of thinking, living and working.

You have a Morpheus. Neo had Morpheus to guide him from the Matrix to the real world. You need someone who believes in you – who will stick by you when fear and doubt creep in. You have identified the right mentors (coaches) and advisors. (To understand the differences, see my last post). They will help you figure out your options, weigh the trade-offs, and make good decisions. They will understand your needs, priorities, natural strengths and abilities. They will be honest about your weaknesses and blind spots. Only then will you be ready to join a redpill crew, or take command of your own ship.

You want to create a new reality and share it with others. You want to create a Zion. You want to be a Morpheus. You want to create a world full of redpills – with friends and colleagues who are awake, self-reliant and using every fiber of their being to thrive in the real world. This is a special calling. You have already taken the redpill, you’re just trying to figure out how to help others unplug from the Matrix and join you. Start a company, launch an accelerator, join an innovation center, or become a coach.

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Taking the redpill is no guarantee of happiness or financial success. It’s a hard life. But there is no better place to live than in the real world, where you truly control your own destiny. I hope you will join us!

Should You Start & Build a Company with the Exit in Mind?

Most newbie entrepreneurs would probably answer, “Yes, of course, it’s always best to start and build a company with the exit in mind. Every entrepreneur knows that!” Not so fast. The correct answer is, “it depends” or “probably not.” What say you?

There are two schools of thought on this subject. The first school, advocated by angel investors and VC’s, is by far the most vocal. They preach exit from day one. The second school, advocated by many successful, long-time entrepreneurs (and their trusted advisors), is seldom represented in this debate. To them, the question is moot. They would say the exit should be the last thing on the minds of the founders in the early years.

It’s easy to understand why the investor viewpoint has become conventional wisdom. It’s been drilled into the head of every entrepreneur that has attended or presented at a pitch event to ALWAYS have an Exit Slide. This slide typically lists the companies that are likely acquirers of the startup. The slide sometimes includes the comps of a potential acquirer’s recent acquisitions – showing how they paid a gazillion dollars for a startup that was only 3 years old and made everyone, especially the investors, very rich. Yeah!

So here’s the real deal. Investors do not have the same objectives as *true* entrepreneurs. Most don’t even have the founder’s or the startup’s best interests at heart. They probably like the founder, the product and the space, otherwise they would not have invested. But what they LOVE unequivocally, above everything else, is getting OUT – hopefully with a very nice gain. Only in the case where your company has a reasonable shot of being among the 1% of all startups capable of attracting venture capital, should you even give this question serious thought.

An investor’s objectives are often at odds with an entrepreneur’s objectives, and can be a huge distraction in building a successful business when the emphasis is on exiting. Trust me on this one, I’ve lived it. That said, most startups have NO chance of raising venture capital. So why do so many first-time founders love to talk about the exit? Most are not in it for the right reasons.

A *true* entrepreneur is not looking to start and cash out in three or four years. If that’s how you think about it, you should seriously reconsider whether entrepreneurship is for you. You would be what seasoned entrepreneurs would call an entrepreneur-interloper. Ask any successful, long-time entrepreneur, if they started and built their company with the exit in mind, and I guarantee you most would say something like: “Not really, if anything it was a theoretical question and I never dwelled on it. I always thought that if I just focused on building a successful business, the exit would take care of itself.”

A successful entrepreneur sees his or her company as an extension of himself or herself. His or her company is integral to his or her long-term vision and goals – his or her life’s work. Entrepreneurs can not imagine “exiting” in a few years, unless they are close to retirement or are burned out after building and running a company for many years. They are very focused on disrupting an industry or changing the world, not on getting rich quick…not on dumping their company on the first corporate suitor.

I personally would never invest in a founder who wanted to start a company for the sole purpose of cashing out in a few years and moving on to something else. It’s a big red flag. It says, “no commitment…no passion…just show me the money.” Every great founder I ever met was dragged to the M&A table kicking-and-screaming, not running there with a big smile and their hands out.

The great entrepreneurs of our time – and you know who they are – did not start or build their companies with the exit in mind. They certainly may have started and built their companies with an eye towards exiting their investors, by going public or having new investors buy-out the old investors with a handsome return. But they did not think about “selling out” or “exiting themselves” in the short-term. Those who did either had to sell, or they regret having sold too soon.

Build amazing products and services that millions of people will love. Attract the best people who also want to take the long journey with you. The exit will take care of itself. And it will come in its own time.

Increase the Value of Your Professional Network by 10X

Your professional network is one of your most valuable assets. Those in your network provide you with ideas, knowledge, skills, feedback, referrals and new business. Your network puts YOU on steroids — allows you to perform faster and better. Your professional reputation, effectiveness and ultimate worth, are directly proportionate to the value of your network. A 10X increase in the value of your network could literally increase your income tenfold.

Social media is an awesome tool. It puts everyone you need to know to advance your career and increase your income within reach. You have probably already witnessed the power of this awesome tool. Someone you know, or someone you are just one or two degrees of separation from, can give you just about anything you need to be successful – a job, a new client, a purchase order, a life-changing insight. But with all its vastness and boundless promises, social media also suffers from the law of diminishing returns. You can have so many connections and so much activity (noise) in your network, that it becomes counter-productive.

There is a ton of research on the effectiveness of teams, communities, extended networks, and the limits of the number of relationships that one person can practically maintain, before it becomes pointless or counter-productive. If the people on Linkedin who call themselves LIONS and have 10,000 connections think they are any more effective or valuable than people who only have a few hundred connections, they are deluding themselves. Collecting connections is like collecting pennies. The large jar looks impressive, but when you add it all up you barely have enough to buy lunch. If you build your network properly, your jar will be full of silver dollars. That would be a 100X increase in value.

To increase the value of your professional network by 10X, you need to improve the quality of your network and the value that you provide to those in it.

Eventually, the social media platforms will automatically organize and manage your network(s) according to the best, most relevant connections that you need to have at any one moment in your career (or project). The right people will automatically appear in your network, without you having to invite them, and you will automatically appear in their networks.

The platforms will know what stage you are at in your career, what you are currently working on and who you are working with, then connect you with the right people, companies and interest groups, to exponentially improve your desired outcomes. You will have a limited number of relationships to foster and maintain, but they will be the right ones at that point in time. Until the social media algorithms evolve to this state, you sort of need to do it manually, or as I do, with the help of Excel.

To improve the value of your professional network by 10X, you should do three things:

1. Organize your connections into concentric rings based on what you want to accomplish over the next 12-18 months. (I personally accomplished this task by downloading all of my data from Linkedin, Twitter, Google+ and Facebook, then used Excel to group them. You might find other tools more suitable. Here are the suggested groupings, which I call “rings”:

a. Inner Circle – these are your allies and closest compadres. Research shows the ideal number is 9, but no more than 12. These people are mission-critical to your success in the next 12 months.

b. Colleagues – these are the movers and shakers in your space. They are your peers and your mentors. They have deep knowledge and strong connections that you can leverage. Research shows that the ideal number of close colleagues that you can reasonably maintain strong and reciprocal relationships with is between 20 and 25.

c. Community – these are like-minded people who share similar goals, aspirations, and interests. They are your tribe. They are probably already organized around interest groups and forums. The number of people in your community should be about 150. This is often referred to as Dunbar’s Number, the maximum number you can have to maintain stable relationships.

d. Network – these are the people in your extended network. Those on Linkedin, Twitter, Google+, Facebook (for companies), Instagram, Vine, etc. This is the total pool of people you can draw from, to pull into your more valuable, concentric rings, depending upon your current circumstances.

This exercise should be done at least annually. People will move in and out of these rings. You should always be adding to your network (the outer ring) and promoting people to your inner rings, or demoting people within the inner rings back to the outer rings. Your life and career are not stagnant; so neither should be your professional network. To maximize its value, it needs to be fluid and dynamic.

2. Rank all of the touch points you have with the people within your concentric rings, then use those rankings to foster, enhance and maintain those relationships. Focus on the connections that provide you with the most valuable touch points. This is a time-consuming exercise. It took me three days to do it with my connections, but it has already paid huge dividends. This exercise also helps to inform which of your connections should be in which rings.

The list above includes just some of my touch points. You might have others and you might rank them differently, but I think you get the idea. You can’t treat all of your connections equally, nor should you. Measuring the various touch points and ranking them according to short-term and long-term value is a good way to determine who you should invest time and effort with over the next 12-18 months.

3. Increase the number of “gives” to those in your network in proportion to which ring they fall within. Judiciously monitor the number of “asks” in the same proportion. Those in your inner circle need a lot of love, and you should expect a lot of love from them in return. Healthy relationships are about give-and-take. If you have ever been in a one-sided relationship, you know it is not very rewarding.

A strong professional network is governed by the law of reciprocity. Always be looking to give and don’t hesitate to ask in equal proportions. Those that repeatedly do not reciprocate should be demoted to the outer rings. Those that reciprocate, or give without asking, should be promoted to your inner rings, especially if what they give advances your 12-18 month goals.

Do not confuse reciprocity with tit for tat. Just because someone shares one of your posts or endorses you for a skill, does not mean you have to do the same for them. It doesn’t have to be one-for-one, but your gives should be increasingly valuable to those in your first three rings.

For example, I recommend and refer people to those in my inner circle. I know their goals and I’m always looking for ways to add value to their goals. I read,comment on and share most of the posts written by my colleagues. I followthose in my community, join the groups they are in, and try to jot each of them a personal email at least once a year. For those in my network, I try to write good posts that help them in their professional endeavors, and I read and liketheir updates when I have time.

Whenever I have asked anything of the people inside these inner rings, they have always give back in spades. That is how I have achieved a 10X increase in the value of my network.

It would be awesome if the social media platforms enabled you to simply drag-and-drop your connections into these kinds of groupings, then ranked them according to the value you prescribed to each of your touch points with them. I would love to get an email or text each week from the platform that says something like:

“Hey Mike, check out Bob Smith in your community, he would like to meet Amit James and you are connected to Amit. Also, don’t forget to read Ian’s post and write a recommendation for Bonnie, they are high value colleagues.” (The platform should suggest my weekly gives.)

I would also love an email or text that says, “Hey Mike, I see you started to do some work for XYZ company. One of your inner circle, José González, knows one of their board members and can probably introduce you. One of your colleagues, Margaret Finney, can also refer you to Frank Hutchinson, who happens to be in the market for your services. You might also want to promote Alicia Keys from your network to your community, she has been adding a lot of value to those in her community. (The platform should suggest my weekly asks.)

Until the social media platforms get smarter, you’ll need to be smarter and more diligent about how you organize and manage your professional network for maximum value. Good luck!

How to Tell an Entrepreneur from a Wannapreneur

There are a lot of people running around these days calling themselves entrepreneurs. They introduce themselves as such at networking events. They include the title in their social media profiles. Some even put it on their business card and email signature line. Many of these people are not actual entrepreneurs, they are wannapreneurs. How can you tell the difference and why does it matter?

The dictionary defines an entrepreneur as, “A person who organizes and manages any enterprise, especially a business, usually with considerable initiative and risk.” The operative words are manages and risk, explained in more detail below, along with other tell-tale characteristics.

A wannapreneur is an aspiring entrepreneur – an entrepreneur-in-waiting or in-training. They have not yet taken the plunge, though they may be dancing all around it. This term is in no way meant to be negative or derogatory. (In fact, there are a number of websites and incubators expressly dedicated to wannapreneurs.)

ALL entrepreneurs, great and obscure, were once wannapreneurs. When I was first starting out, thrashing around for a good idea, my parents would introduce me to their friends: “This is our son, Michael. He’s an entrepreneur. That’s a fancy way of saying he’s unemployed.” I wasn’t an actual entrepreneur. I was, in fact, a wannapreneur.

All entrepreneurs were once wannapreneurs, but most wannapreneurs will not become entrepreneurs.

To be perfectly CLEAR, wannapreneurs may be, and probably are,entrepreneurial. So are lots of people who work for universities, corporations, government agencies and non-profits. But that does not make them entrepreneurs. In the same vein, there are a lot of aspiring actors and hobby musicians in the world. If they aren’t doing it for a living, or have never been paid for it, it’s a stretch to call it their profession.

Here’s a short list to tell the difference between entrepreneurs and wannapreneurs:

Entrepreneur

  • Has a working product or service.
  • Has a business and is working full time in the business. Probably has a team.
  • Has assumed considerable risk.
  • Is addressing a sizable market with a coherent strategy and business model.

Wannapreneur

  • Has an idea, or is looking for an idea.
  • Does not have a business (but maybe a company) and is working part-time or full-time for someone else. Probably flying solo.
  • Has assumed little or no risk.
  • Has a vague notion of the market, no strategy for addressing it, and is not sure how they will make money.

Why does it matter to know the difference between entrepreneurs and wannapreneurs? Very simply, time and attention. Whether you are looking to invest, provide services, or join a startup team, you need to know whether or not someone presenting themselves as an entrepreneur has actually made the plunge, and how committed they are. I spend most of my time with entrepreneurs, but I always make time for serious wannapreneurs. I only invest my money, however, with entrepreneurs.

The next time someone introduces themselves to you as an entrepreneur, ask them 4 questions:

1. Do you have a working product or service and is anyone buying it (or at least using it)?

The one exception to this tell-tale sign is the person who has a successful track record as an entrepreneur and is working full-time on his or her next company. Don’t fall into the trap of thinking that just because someone was once an entrepreneur, they are now an entrepreneur. It is not a title for life. Just as someone who once practiced law is no longer a licensed attorney, someone who once started and ran their own business is not necessarily an entrepreneur today.

(Note that I do not use the title on my Linkedin profile even though I started and ran several businesses, because I am not currently a practicing entrepreneur. I used to be an entrepreneur. I am currently a proud wannapreneur, researching and testing ideas for my next venture.)

2. Do you have a duly incorporated business and are you working in the business full time?

Be careful with this one, the answer can be misleading. There is a big difference between having a business and a company. See this post to distinguish the difference between the two. The tell-tale sign is whether or not they are working in the business full-time and are fully committed to it, not working for someone else or looking for a job and calling themselves an entrepreneur in the meantime.

3. How much have you personally invested in the business and how much have you raised from family, friends or outside investors?

The amount and type of risk is an important tell-tale sign. The dictionary definition characterizes it as “considerable” risk. I like to think of it as “material” risk. Even if an entrepreneur has no money of their own at stake (probably because they had no money or credit to start), they will have assumed material and fiduciary risk. They took money from others. They signed a lease with a personal guarantee. They have significant skin in the game.

4. What’s the size of your market and how are you addressing it?

The tell-tale sign here is size and scope. In my opinion, someone who is selling creative or development services on an hourly basis is a freelancer, not an entrepreneur. Someone who has a lawn-mowing business or runs a local market is a small business owner, not an entrepreneur. Size and scope determine the amount of initiative and risk that meets the classic definition of an entrepreneur.

A true entrepreneur has a plan, a strategy, and a validated business model. They are crystal clear on how they are going to make money and provide a return to investors. Wannapreneurs are still trying to figure these things out.

The entrepreneurial journey is exciting, all-consuming, and fraught with substantial risk. Lots of people want to take it beyond a few steps, but most people do not. The best way to test the waters is by joining an accelerator like theFounder Institute, that does not require you to give up your day job. Being a serious wannapreneur is the first step on the journey to becoming a successful entrepreneur. For those of us looking to invest, provide services, or join a startup venture, it’s prudent to know exactly where those leading it are on this journey.