Wednesday, January 15, 2020

10 Goodwill Elements To Raise Your Business Valuation

business-valuationValuing a business based on assets and financial performance is a well-understood process, but every investor knows the real value goes well beyond these parameters, either higher or lower. The key elements of leadership in a company, both individual and organizational, are less tangible, but very critical in setting a market value for investment, acquisition, or going public.

In the investment community, these leadership elements are often called “goodwill.” For early-stage startups, the goodwill component can easily exceed the size of all the financial elements together, or can just as easily mark a company with good financials as not investable.

In his classic book, “The Leadership Capital Index,” Dave Ulrich, a best-selling author, business consultant, and business school professor, provides some real insights and metrics on what makes up the elements of goodwill in the minds of top valuation experts. I have paraphrased his key points here as follows:

  1. Leader personal impact. For startups, the entrepreneur and founder is almost always the face of the company. Investors, partners, team members, and customers implicitly value or devalue a startup based on the leader’s physical presence, emotional identity, social skills, intellectual agility, moral values, and past performance in the domain.

  1. Strategic proficiency. These same constituents are looking for leaders who can create the future – focus forward rather than backward, seem to see around corners, can turn their vision into committed actions, and are able to engage all the right people into bringing the future into the present.
  1. Execution leadership. Everyone wants leaders who get things done and meet commitments. Leaders are judged on key elements of execution, including a focus on priorities, ensuring clear accountability, managing decision making, mobilizing others, adapting quickly, and communicating execution urgency.
  1. People relationship focus. No leader can do the job alone, so investors assign great value to leaders who take care of their people. Positive people management elements include good communication skills, building strong teams, finding time for coaching, strong people relationships, and facilitating growth and succession.
  1. Leadership brand development. Every business and brand has unique requirements to fit into their market environment. Leaders are assessed for their ability to fit into the brand community, embody the values required, maintain the right strategic priorities, and deal with the current organization stage.

In addition to goodwill justified by a great leader and an outstanding team, investors will use their due diligence process to assess the organizational structure and effectiveness as well. The key parameters of this evaluation will always include:

  1. Strength of the business culture. Research has confirmed that culture is a primary driver for financial performance, customer experience, and team productivity. Companies are valued based on their ability to create and align their people with the desired culture, and their ability to communicate that culture to customers, suppliers, and partners.

  1. Focus on talent and people growth. Investors want organizations that manage people talent and growth, through good hiring, performance feedback, development on the job, and building commitment. They look for the use of talent analytics, such as productivity per employee, as well as the practices and attitude toward employee satisfaction.
  1. Performance accountability processes. Good performance management is more about rewarding desirable behavior than penalizing bad performance. Processes must be in place to clearly define standards, differentiate performance, link to consequences, provide rewards for accountability, and provide regular follow-up.
  1. Modern information management tools. Power, and the ability to influence others, comes from knowledge. Having information is more than access to data; it requires knowing how to synthesize, interpret, and act it. Organizations are assigned value by how well they take advantage of the best technology, and turn information into action.
  1. Stable and friendly work environment. The most valuable organizations are able to govern their work environment through innovation, to cope with the increasing pace of change in culture and the marketplace. This means adapting to social trends, new technologies, economic conditions, regulatory requirements, and worker demographics.

Investing in strong leaders, including entrepreneurs such as Steve Jobs, or corporate icons such as Jack Welch, has long been recognized as a key to reduced risk, and the key to high valuation on the side of the seller. That’s one of the best reasons I know for every business owner to up his game on leadership and organizational excellence. How much goodwill can you and your company command today?

Marty Zwilling


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Monday, January 13, 2020

7 Personal Attributes That Attract Investor Attention

Business man in suit ready for meetingAs a startup mentor, I’m always amazed that some entrepreneurs seem to be an immediate hit with investors, while others struggle to get any attention at all. Finally I realized that venture capital and angel investors are actually humans, despite some views to the contrary. As with most business and personal interactions, first impressions tend to become lasting ones.

Investors know that building any business is a challenging and risky proposition, so they start with entrepreneurs who give a first impression of passion, commitment, and work ethic to succeed. There is no room in this realm for negativism, excuses, or lack of confidence. People like Elon Musk, who have the energy to work 100-hour weeks for years, will always attract investors.

But the right personal characteristics are just the beginning.Successful businesses are measured by their results, so relevant skills, attention to details, and problem-solving abilities are critical. Early in the relationship, every investor instinctively looks for some key indicators of the ability to get results, like the following:

  1. Communicates well in every business medium. Some entrepreneurs love to talk and produce videos, but hate to write anything down. Others send investors email and business plans in all uppercase or no punctuation. Effective communication requires real listening, as well as talking. Message delivery must be customized for each investor.
  1. Surrounded by the right people and track record. It takes more than one person to build a business, so the lone entrepreneur, without support from any visible team, advisors, partners, or potential customers, will not attract investors. Of course, previous successes provide more direct evidence of a network of the right people.
  1. Exudes integrity, humility, and stability. Even business plan has strengths and weaknesses, and the best entrepreneurs are able to recognize the difference. They seek to establish win-win relationships with all partners, including investors, and treat them all as trusted advisors, rather than win-loss opportunities.
  1. Registered patents and other intellectual property. From an investor perspective, understanding and acting early to establish a sustainable competitive advantage, and barrier to entry, is the best assurance of a financial return. Being the first mover or lowest cost is not a good long-term strategy.
  1. Already set and achieved initial milestones. Contrary to popular belief, most investors are not looking for entrepreneurs who are desperate for funding. They prefer to see a rational staged plan, already in progress, with some checkpoints achieved, as well as future ones planned. A proven business model, ready to scale, is particularly attractive.
  1. Evidence of adaptability and flexibility. A strategy of learning and willingness to pivot, based on market feedback, is a great survival skill and attitude, cherished by investors. Rather than hide seemingly non-productive gaps in your work to-date, investors look for logical actions, and iterative small steps that could be quick to market or quick to fail.
  1. Expert in your chosen domain. Many key insights to success in any business can’t be learned from books or the Internet. There is no substitute for experience and trained skills in the business area you are attacking. In this context, investors are attracted to thought-leaders visible on social media, and people with strong technical credentials.

By definition, entrepreneurs need to love the art of the start, and that love needs to come across as part of the first impression you deliver to any investor. Since your product or technology may still be in the early stages of development, the investor in actually investing in you, and your previous achievements, as much as your current startup.

My advice is to start your networking early with potential investors, to establish a relationship before they see you as an entrepreneur asking for money. The strengths of those early relationships can override all of these results indicators, and let you fly with the angels without a second look when the time is right.

Marty Zwilling


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Sunday, January 12, 2020

10 Attributes That Make You An Entrepreneur To Follow

Airbnb_Co-founder_and_CEO_Brian_CheskyPeople who have been followers too long as an employee don’t realize how hard it is to be a leader. Every new entrepreneur has to initiate the right actions to be perceived as a leader in their chosen business domain by their team and by their customers, or the road to success and satisfaction will be lost along the way.

Driving these actions are some basic principles that entrepreneurial leaders, such as Airbnb CEO Brain Chesky and LinkedIn CEO Jeff Weiner, seem to have learned early. These have helped them build trust and confidence among team members, and effectively sell their message to partners, investors, vendors and customers.

If you want to be like them, it’s time to take a hard look in the mirror to see how many of these actions already show in your persona, and which need a bit more of your focus and learning:

  1. Ability to communicate clearly where you are going and why. This requires that you first know who you are and what you stand for and have a vision for change. Then you need to be willing to communicate that vision to everyone around you. People won’t follow you if they have no idea where you are headed and why it’s good for them as well.

  1. Feels a passion and commitment to the cause behind your business. This conviction is what motivates everyone around you to their best efforts, and keeps them going in hard times as well as good. Building a business is harder than it looks. Seth Godin said that “the average overnight success takes six years,” and he is an optimist.

  1. Can demonstrate domain expertise and experience. In any business domain, there is no substitute for skills acquired by personal experience to supplement any academic training and the Internet. You have to lead by example, setting a personal standard for competence for all to follow if you intend to lead your competitors and customers.

  1. Constantly strengthening your network of relationships. No entrepreneur can build a business alone. Your network of connections needs to grow with you and your business. That only happens if you take an active role in your community and relevant business associations with like-minded people. Make an honest effort to help others.

  1. Willingness to make timely decisions and take action. Remember that a good decision made early will more likely save your business than a better decision made later. In general, any decision is better than no decision. Smart entrepreneurs take reasonable time to consider alternatives, and then move forward, never looking back.

  1. Practices self-discipline and calm predictability. People don’t like to follow a leader who is unpredictable, inconsistent and prone to daily changes in direction. Authentic leaders are willing to open up and establish a connection with everyone around them. They build trusting relationships that result in loyalty and commitment from others.

  1. Encourages innovation and out-of-the-box thinking. In business, this means fostering a mindset of creativity, risk-taking and continuous improvement. Don’t wait for competitors to force the need for better products, lower prices and better customer service. Reward failures as well as successes if the result is a lesson that advances the company.

  1. Allocates adequate resources to overcome constraints. Hoping for good luck and applying pressure is not leadership. Being able and willing to size and allocate the resources to win the small battles will ultimately win the war. This means hiring the right people, providing training and tools, and improving systems to overcome challenges.

  1. Incents business growth and people's well-being. As a role model, you must continuously upgrade your own skills, be alert for new developments and hone your listening ability. It means rewarding team member growth, no punishment for failures and opportunities for success. This applies to suppliers and business partners as well.

  1. Always accepts responsibility for business actions and results. Entrepreneur leaders don’t need excuses, like a down economy, bad timing or demonic competitors. Every company and every one of us makes mistakes, which are a normal consequence of tackling new business challenges and unknowns.

The good news is that no one is a born leader -- all of these habits and mindsets can be acquired by learning and a determination to improve. Leadership doesn’t come with success, but success does come with leadership. Don’t wait for someone else you can follow -- you want your team, as well as customers, to follow you.

Marty Zwilling


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Saturday, January 11, 2020

7 Key Strategies To Ensure Long-Term Customer Growth

business-chart-growthIn my experience working with entrepreneurs, once they feel they have a winning formula for their business, they are often hesitant to change or update it. They forget that adapting their company and themselves as their customers evolve is the key to long-term survival. Think of Blockbuster and Toys ‘R’ Us, both of whom missed customer changes and the move to online.

Every business owner needs to plan to reinvent their business regularly, or their competitors and their customers will make them obsolete. I’m not talking about just making incremental improvements in their products and processes, but more fundamental changes to the business model, such as the following:

  1. Announce a new market launch that fits your core competency. Every recognized brand, including Sears and Nintendo, need to show new life and vibrancy on a regular basis to keep the attention of new generations and existing customers. Of course, it’s smart not to stray too far from your core competency for credibility and risk reduction.

    For example, Uber recently made the move into food delivery with UberEATS. By drawing on the current network of drivers and the app technology it already has in place, UberEATS could be a major competitor for food delivery services such as DoorDash.

  2. Create an overt strategy to react to emerging customer trends. Remember when you were a startup? You didn’t wait until a new market was totally proven before entering. You always need an element of your organization whose mission is to actively look for early markets, and a process to test solution viability with real customers in the market.

    Don’t be the next Xerox who totally missed the personal computer market, even though they had the technology and the processes well before Apple, IBM, and others. They were successful with business computers and technology, but didn’t see the change.

  3. Expand into key new sales and delivery channels. Today the Internet is the best example of a new sales and delivery channel that has transformed many businesses, and killed others. For you, the future could be in using distributors, licensing to other brands, or international subsidiaries. When was the last time you tested on of these channels?

    Apple is an early example of adding a channel to expand, to become a “click-and-mortar” retailer, meaning they operate both physical and online stores. This were done in a complementary fashion to provide support and education, and not undermine sales.

  4. Continually update your team with new people and technology. While fully utilizing the skills of a proven team, it’s also critical that new blood and new technology be brought in regularly to challenge your norms and expectations. Changing times calls for new skill sets, insights, and new cultures. You don’t need people fighting for status quo.

  5. Look and act on ideas from your best and brightest within. These are the people who really know your strengths, and the interests of your customers. In addition, if you don’t listen to and provide new challenges for them, they will leave and become your toughest competitors. Not every initiative will succeed, but a culture of change is critical.

  6. Enlist outside advisors who tell you what you need to hear. We are all guilty of being too close to an issue, or harboring bias against change. Thus smart business leaders proactively seek outside board members and advisors from other customer domains who can stretch their thinking, and give critical feedback on the existing strategy and actions.

  7. Use outside investment and acquisition to expand your scope. Even if your business success so far has been based on bootstrapping, it may be time to look to institutional investors to help you with acquisitions and new initiative funding. Their insights will broaden your view, and enhance your ability to keep up with a rapidly changing market.

Building a successful business is not a one-time effort. Long-term success and vitality requires a constant focus on finding the new magic in a new marketplace with new customers. What worked for you yesterday probably won’t keep you alive and competitive tomorrow.

Standing still is actually falling behind. What have you done lately to reinvent your business in the eyes of your customers?

Marty Zwilling

*** First published on Inc.com on 12/20/2019 ***


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Friday, January 10, 2020

10 Ways For Entrepreneurs To Enhance Their Leadership

leadership-entrepreneurMost new entrepreneurs don’t anticipate the learning burden of being the leader, including the sense of loneliness and isolation at the top. People outside the team can’t relate to the pressures of “the buck stops here,” and everyone on the team assumes that they are the primary ones under pressure to deliver. Even in a single entrepreneur startup, the leader carries a heavy weight.

This unexpected burden often results in a dysfunctional startup, as the entrepreneur reverts to micro-management, burnout, or even grandstanding to get some attention or sense of direction and feedback. Those who have big egos often fall into the use of intimidation, edicts and even deception. Of course, that only leads to antagonism and further isolation.

As with other challenges, it takes effort and a special focus to lessen the burden and avoid the loneliness of being a founder or top executive. Here are some key approaches endorsed by successful entrepreneurs and leaders to stay healthy, and be a respected leader:

  1. Seek guidance and affirmation from your peers. Every business domain has organizations of peers, such as Vistage or Entrepreneurs’ Organization (EO), where entrepreneur leaders can find and give support, and resolve problems with no jeopardy among like-minded leaders who face similar challenges.

  1. Actively solicit input from trusted members of your team. Even if they don’t see you as a peer, it’s your view that counts here. Don’t isolate yourself. You can always learn from the experience of others on your team. If your startup is a one-man show, there are outside advisors who can offer you an unbiased view as a team member.

  1. Keep your family and friends in sync with you as peers. Their feedback and perspective is vital to your health and success, if you maintain a balance between business and personal. Their guidance will help to keep you centered and effective. The best leaders learn to sometimes say no to work, and learn how to mix work and play.

  1. Separate your work and play environments. Everyone needs a regular change of scenery and separate time to switch modes from work to external challenges. These outside activities may be sports, non-profits or family activities where you can change roles, rely on someone else for leadership, or simply relax and recharge.

  1. Interact with customers in a non-pressure situation. Social-media vehicles, including Twitter and LinkedIn, allow interactions with hundreds of people, or one on one, without the pressure of your leadership role. Use the opportunity to anonymously test new ideas and strategies, with direct and unfiltered feedback.

  1. Proactively schedule business networking opportunities. Take the initiative on a regular basis to ask for time with peers or even competitors that you respect, without waiting for them to come to you. This not only counters isolation, but helps balance your business focus, and keep you up to speed on new developments in your industry.

  1. Actively improve your charismatic image. Charisma is that magnetic energy implying confidence and strength, arousing loyalty and admiration from others. Charismatic leaders don’t succumb to loneliness, and develop a wide range of positive habits. Key elements of charisma are listening actively to others, and reading body language.

  1. Inspire and empower your team members. The more you empower others in your organization, and the better you communicate your vision, the more they will be with you at the top. You won’t be lonely when you feel the team is with you every step of the way. This will strengthen the business for all of you, as well as relieve your burden.

  1. Share your fears and challenges with selected insiders. Too many entrepreneurs like to pretend that they have it all together, all the time. It’s healthy and productive to be more transparent with trusted team members and advisors. This leads to sharing progress on struggles, and discussing ways of mitigating business problems.

  1. Join your board of advisors, rather than contend with them. Accept that a good board will tell you what you need to hear, rather than what you want to hear. They really are on your side, so there is no need to be defensive or isolate yourself. Join them in actively looking for ways to lighten your burden at every opportunity.

More focus on improving your personal motivation is also a clear antidote to the burden of leadership. Of course the best antidote is incremental success and seeing real results, giving you the positive feedback that we all need. Make your leadership role the source of pride and accomplishment that attracted you to the entrepreneur lifestyle in the first place.

Marty Zwilling


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Wednesday, January 8, 2020

5 Strategies Recommended For Successful Bootstrapping

Bootstrapping-yoour-businessAs an advisor to entrepreneurs, I often hear the desire to run their own company, to avoid having someone else telling them how to run the business. They then ask me to help them find investors who can provide the funding they need. They don’t seem to realize that investors can be the most demanding bosses your ever had, since it’s their money you are using and potentially losing.

I have to explain that if you really want to exercise total control of a new venture, they you need to do it without external investors, bootstrapping your way with your own resources. Sure, this may limit the type and scope of your startup, but it’s the only way to get the control and freedom you want.

Although I’m a big fan of bootstrapping, I still recommend you use the same business discipline in starting and running a new company, as you might be forced to use with investors:

  1. Create and use a formal Board of Directors early. Although technically a board of directors or advisors is never required with bootstrapping, a well-experienced group of two or three outside advisors can be worth its weight in gold, to keep your focus on the right targets, and prevent you from making strategic and operational mistakes.

    I recommend that you keep your board diverse in age as well as scope of experience. Avoid family members and close personal friends. Although board members should be compensated to assure commitment, I suggest company shares rather than cash.

  2. Define a set of management objectives and milestones. Even if you don’t have a board of directors, you need to set some targets for yourself, so you can measure progress and declare success for both you and your team. For focus, the list should be short, maybe five or less, and updated on at least an annual basis, based on progress.

    In the first five years, these objectives should normally include when you intend to first become profitable, a scaling strategy and target, some short- and long-term milestones, and the key performance metrics you will use to steer and manage the business.

  3. Personally manage cash flow processing and procedures. With bootstrapping, you don’t have other people’s money to spend, and probably not as much of it. That means not delegating spending decisions, personally handling inventory decisions, and following-up on overdue receivables. You will also need a line of credit for financing.

    I strongly advise you create a separate bank account and credit card for your business, even though it is all your money. Use of a business credit card is actually encouraged, since this automatically provides the detailed reports and line of credit you need.

  4. Update board members and key employees regularly. If you want employees to stay committed, don’t keep them in the dark on status, progress against milestones, and the health of the business. For directors, your credibility and their ability to help is at stake. Running a business is not a job for an introvert who chooses to hide in an office all day.

    By law, board meetings may only be required once a year, but for small companies I recommend a frequency of at least quarterly, if not monthly. Email status reports to board members and key employees should be delivered more frequently, as key events unfold.

  5. Never keep bad business news a secret from your team. Too many small business owners try to spare their board members and employees any pain by not acknowledging key negative company, customer, or even outside events that have a potential substantial impact on the business. They find out the news anyway, and it only hurts your credibility.

    In reality, people assume the worst when they don’t hear from the leader, and may assume you are part of the problem. What they need and want to understand is the why, and what they can do to help. This transparency also keeps good people from leaving.

For many, bootstrapping may appear to be the hard way to start a business, but most entrepreneurs I know who started this way are happier and more relaxed than those who have to deal regularly with investors. In addition, by bootstrapping, you own all the gains from your efforts, instead of only a share.

Contrary to popular perception, a large majority of the fastest-growing private companies in the U.S. are still bootstrapped today, often starting with less than $10,000 of personal funds. So before you get frustrated by the “advantages” of outside investors, I recommend that you take a hard look at what you can really do with your own resources.

Marty Zwilling

*** First published on Inc.com on 12/18/2019 ***


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Monday, January 6, 2020

5 Startup Financial Questions Every Investor Will Ask

startup-financial-modelIf you think that financial modeling for a new business is arcane magic, limited in value to financial wizards and professional investors, then you have been listening to the wrong advisors. In reality, a simple Excel spreadsheet model customized around your assumptions can save you hours and avoid a wasted expense in validating alternative vendor and marketing decisions.

The way to start is with a sample financial model, available from many sources on the Internet, such as over 200 downloadable free from the Corporate Finance Institute website. Another alternative is to build one yourself, starting with a few formulas to extrapolate early revenues and expenses into the five-year projections normally requested by banks and investors.

Don’t try to build the “ultimate” business model, for all possible alternatives, in multiple business domains. For maximum value with the least effort, focus on only the “what ifs” that are the highest priority in your mind for your own startup. In my experience, the top candidates will include the following:

  1. What if you have to cut your targeted price? Pricing is always a tricky issue. Vendor costs are subject to change, customers are fickle, competitors come out of the woodwork and the economy can take a downturn. You need to quickly calculate the long-term impact on profitability of pricing and business model changes.

  1. What if you need to change your market size and volume projections? The manual calculations to translate market assumptions into costs, volumes, expenses and net return are massive. Yet they can be done by a simple financial model in a few milliseconds. Investors will test your savvy by asking where your business breaks.

  1. What if your growth and scaling projections are too aggressive? Most entrepreneurs realize that doubling their revenue each year puts them in a premium category with investors, so that may be your first target. But targets need to be adjusted as the reality of early returns sets in. Projections you know to be wrong won’t help you.

  1. What if I offer you only half, or double, what you ask for? With a financial model, it’s relatively easy to apply these amounts to your marketing, manufacturing and administrative costs, as well as business volumes, to predict the impact. Your credibility with investors, and your confidence in any request, depends on these answers.

  1. What if your customer acquisition cost assumptions have to change? The cost to acquire a customer, or traffic to conversion ratios, are critical to the success of most startups. This can be projected top down from market share assumptions, or bottom up from actual costs and sales results.

The time to start building your model is even before you incorporate the business and spend real money on building products. Just like planning a long trip with your car, you need to know where you are going before your start, or you probably won’t get there. If you are not computer literate, it’s never too early to find a partner or learn tackle this critical element of every business.

The financial model obviously has to be built in concert that the overall business and pricing model that you are implementing. The most common business models these days include the subscription model, freemium model and ecommerce. Each has a different set of variables for sales, revenue flow, marketing costs and personnel.

Creating a financial model is perhaps the only way for you to see key areas of strength and weakness in your business, before the money is spent and it’s too late to recover. It’s a great learning experience and is not rocket science, so you can do it yourself. But don’t hesitate to ask for help from a professional if you need it.

You may be surprised how clear the relationship appears between product pricing, cost and customer count. You will quickly understand the old adage that if you lose money on every customer, it’s hard to make it up in volume.

Marty Zwilling


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