Wise Words for Startups: No Money, More Problems

When people ask me for a single piece of business advice, I always say the same thing: Never, ever run out of money. And that goes for everyone involved: the startup and its investors. 

When there isn’t enough money around, things get … let’s just say—weird. On the startup side, weird comes in the form of a “cram down.” Say the company’s product is flailing in the market or, worse, can’t get to market. The existing investors are loath to pour more money into it, and when they do, they demand more than their fair share of equity in exchange for the needed cash. The best a company can hope for is a transparent deal that motivates it to achieve specific goals and then rewards it with more favorable terms if successful. 

Sadly, these types of punitive investments are common, but company founders can take comfort in knowing that such investors quickly earn reputations that keep them out of future deals. Call it karmic payback. 

When a company runs out of money and investors can’t bail it out, the leverage could swing back to management. This is particularly true when management gets back equity in return for continuing to operate the company in distress. Often new investors are brought in to resolve a situation like this. But they usually exact punishing terms on the existing investors, who can’t afford to participate in new funding but don’t want to completely write off the chance of an eventual return. The startup’s management is stuck in the middle, praying that someone provides enough cash to keep the lights on. 

All this sounds rational enough in black and white. Unfortunately, companies running on fumes tend to bring out the worst in everyone, especially when the paychecks stop clearing. Those with irrational egos try to make power plays; others just turn apathetic. 

Which brings me back to my solution: Never run out of money. Startups and their investors must fundraise when they don’t think they need to or—even better—when their success gives them a tailwind of funding momentum. If they think they need $1 million, they should raise twice that much. They may lose an equity stake, but a startup with no money is one with no leverage. 

From Entrepreneur

Pay People for Commitment, Not for Time or Results

Sixty hours per week. That's how much I work, on average, which seems like a lot to some people. However, my job is my greatest hobby and my projects are like my children. Therefore, 60 hours per week is perfectly fine for me. Besides, my number of work hours doesn't matter because I am self-employed. It is mostly irrelevant when or where I work, as long as I get things done.

Because my work contributes to my self-actualization, I think work-life balance is an outdated paradigm. I prefer to live when I work, thank you very much!

A similar attitude toward work and life is emerging among many other creative knowledge workers. Work-life integration is all the rage these days. Results-only work environments are steadily replacing old-fashioned flextime policies. Unlimited vacation days are granted to professionals who are treated more like entrepreneurs than employees. And remote work is so fast becoming the norm that we should consider using the term office work as its antonym, for any type of job that still chains a person to a desk in an office building.

These trends have led me to believe that we should bury the concept of the 40-hour work week.

Don't pay for results.

The question is, does time really matter? When Jack can do in 24 hours what Jill does in 40 hours, should Jack still be considered "part time" and Jill "full time"? Is it fair to pay Jack less than Jill, only because his contract refers to 24 imaginary hours instead of 40? When people can work anytime and anywhere, shouldn't we be paying them for results instead of time? Shouldn't we be treating them like entrepreneurs or freelancers, who only get paid for actual value delivered?

I think not.

Indeed, some organizations pay employees for "performance," which seems to make sense in a results-only work environment. However, history shows that pay for performance opens up a whole new dimension of dysfunctional behaviors. When pay depends on measured outcomes, it is virtually guaranteed that people will game the system, aiming for the shortest path to the optimal results.

As social researcher Alfie Kohn once said, "Of course rewards motivate people. They motivate people to get the rewards!"

The fact that pay-for-performance schemes have led to company-destroying bonuses among CEOs, and service-destroying competition among sales people, isn't the only problem. Even worse, when people only get paid for outcomes, they usually avoid experimental learning because experiments can lead to failure, and failure means no income. Such behaviors are the opposite of what businesses need in the 21st century. After all, learning and innovation can only happen through experiments.

Pay for commitment.

I believe there is a better way. Instead of using meaningless 40-hour or 36-hour time constraints, and instead of using dangerous performance metrics, in the 21st century we should simply agree on commitment levels. This is how I have defined it for my virtual team:

• Commitment level 5 (or 100 percent): The money we pay you is your only source of income. You're not financially supported by anyone else (for example, your spouse or another employer) and you're not trying to develop any other business on the side. What we expect from you is total commitment to our organization.
• Commitment level 4 (or 80 percent): The money we pay you is most of your income. You either have some minor support from someone else (but not more than 20 percent of your income), or you intentionally reserve some time and effort to develop your own business on the side. What we expect from you is high commitment to our organization.
• Commitment level 3 (or 60 percent): What we pay you is more than half of your income. You either have support from someone else (but less than 40 percent of your income), or you run your own business on the side which generates some minor income. What we expect from you is that you usually give priority to our organization in your commitment.
• Commitment level 2 (or 40 percent): What we pay you is less than half of your income. You either have significant support from someone else (60 percent or more), or you run your own business on the side that generates a good income. What we expect from you is that you usually give priority to your other employer or your other commitments.
• Commitment level 1 (or 20 percent): What we pay you is a minor part of your income. You either have almost full support from someone else (80 percent or more), or you run your own successful business that generates a significant income. What we expect from you is that you always give priority to your other employer or your other commitments.

So, how does this work? Easy! Instead of defining hours per week in contracts with employees, freelancers or virtual workers, you define a commitment level. You don't care how many hours they work, when and where, or how they mix their private and professional lives. The only thing you care about is how much you can count on the contributions, effort and collaboration of your workers, in the projects to which they have been assigned.

This is easier to observe than you might think. How fast do they reply to their emails? How often do they show up in Hangouts? How active are they on the organization's social channels? How often are they credited or complimented by their peers? How often are they asked for help? How fast do they offer it? How many ideas for improvement have they generated? And how committed are they to attend company events and gatherings?

There's no need to actually measure any of this. Among co-workers it should be easy enough to identify what commitment level someone behaves at.

Commitment levels can be part of a salary formula, or they can be considered during traditional negotiations over monthly fees or wages. Either way, what you agree on with your professional workers is a level of dependency and collaboration. You should get what you pay for. In the 21st century, with people working anytime and anywhere, continuously mixing professional and private activities, what you should pay for is neither time (which means nothing anymore) nor results (which can be dangerous). What you should pay for is people's commitment to your business.

So yes, I work 60 hours per week, and I feel proud of my results. But in our business I can only commit to level 4, because in between my Skype calls and cappuccinos I'm writing a new book.

From Entrepreneur

The 3 Habits Productive People Find Time For Every Day

It's funny, really. Most of us who get into entrepreneurship start with the intention of working LESS than we did at our regular jobs. The startling reality is that we often end up doing way more because we love the projects we're involved with. And because oftentimes, that's what it takes to make things happen.

Still, the long hours can take their toll — and even the Elon Musks of the world are no exception.

To keep yourself productive, it's essential that you build build habits to help you organize your day and get the most out of your time.

Here are three of the most powerful.

1. Become an early riser by going to bed early.

There was probably a period of time in your life where it was easy stay up late into the night (or early into the next morning) trying to get things done.

For me, however, that period was over a long time ago. Recently, I've come to realize that all eight-hour periods just aren't created equally.

Going to bed at 10 pm and waking up around 6 am is EXPONENTIALLY better than going to bed at 3 am and waking up around 11 am, even though number of hours you sleep is the same. I've tested this over and over again, and the evidence is pretty clear: I don't perform well if I stay up past 11 pm-ish. 

Early risers really do have a distinct advantage when it comes to mental clarity, acuity and energy.

Simply put: waking up early works better than any other strategy for becoming more productive. But you have to make sure you get enough sleep to back it up. So get to bed!

I've had to give myself a bedtime and be my own parent by ruthlessly enforcing it. It was harder than it sounds, because I've been programmed to stay up late for so many years.

2. Start every day with an intention, focus, or meditation.

Starting your day with  a clear idea of what you want to do changes EVERYTHING.

Have you ever had a day where as soon as you woke up, there were already missed calls, text messages and emails screaming for your attention? You felt like you were struggling to stay afloat before breakfast. Oh, that sounds like every day, you say? That needs so stop.

If you like, you can meditate. You know, cross-legged, a candle, with some nice music playing in your ridiculously expensive Beats headphones. But if that's too much, you can just "take 10." 

Take 10 slow breaths, think about your main objectives for the day, then get moving. This seems too simple to have an effect, but it's not. If you're used to getting up already in battle mode, then you've probably forgotten how it feels to have a moment to yourself.

Take a few of those minutes back to refocus yourself. It really helps. You can also use that time to create a better to-do list.

3. Physical activity. Do it.

Working out is probably the highest-leverage tool in your arsenal. It predictably and reliable makes you feel  better and keeps you both physically and emotionally healthy, year round.

To have the mental energy to take on the full calendar of to-do's that people want from you, you have to be in the gym.

Period.

Training yourself physically not only gives you benchmarks to hit on a regular basis, but it also creates a predictable backbone in your daily life that you can count on, even if everything goes wrong. Mentally, that's very comforting.

Trust me, I know that integrating these habits into your life won't be easy at first. But if you're not healthy, your business can't thrive anyway. Consider them a long-term investment in your business.

From Business Insider

Why Fear Is the Entrepreneur's Best Friend

During a recent fireside chat with the Metro Atlanta Chamber (hosted by my friend John Yates), I was asked whether there was some magic pill that I take that helps me get up and keep fighting the entrepreneurial good fight every day.

My answer: Yes, it’s called fear. I drink it every morning.

There’s something really powerful about the idea of fear within the entrepreneurial experience. Entrepreneurship is, at its heart, an incredibly scary thing; individuals are laying everything on the line to pursue an idea, dream or passion. Often, new business founders are putting themselves at an incredible risk -- not mention their investors, leadership team and friends.

I don’t view fear as a roadblock. No matter the form it takes, fear provides the push I need to succeed. If you feel overwhelmed by fear in your professional life, read on to see how I flipped the script and turned fear into one of my greatest allies. 

1. Identifying the sources.

Fear, as a psychological response, keeps people safe. It triggers their“fight or flight” response as a way of coping with dangerous situations.

While you’re probably not fighting for your life at work, the impulse of fear helps people avoid pitfalls.

One of the most important steps toward turning fear from an enemy into an ally is identifying the sources of anxiety.

If a new idea is freaking you out, take time to analyze and figure out why. Is it too risky or are you simply feeling the pressure as you contemplate shaking up the status quo? Are you afraid because you haven’t yet analyzed a problem from every angle or are you simply experiencing the fear that arises before taking the plunge with a new project?

Identifying and compartmentalizing the sources of your fear is an essential tactic for evaluating your decisions. Getting out of your comfort zone is healthy and encouraged. But throwing your business plan and projections off a cliff because you haven’t vetted every outcome is not.

2. Finding motivation.

I grew up in a household as one of seven kids. I was a true middle child, with three kids on either side me in the birth order. The stereotypical middle child insecurities are still alive and well in me. My siblings are well-educated and successful. The fear of being overshadowed by siblings in the eyes of my successful entrepreneur parents drove me to be competitive and start my first business.

Even if I was just mowing grass or repaving driveways, that success was mine: It was something that no one else could claim or take from me. It was my answer to the fear of being overshadowed. Ultimately, it was that insecurity that lighted the fire that would become my entrepreneurial passion.

Today, insecurity is just as powerful a motivator as it was when I was young and members of my family all gathered around the dinner table recounting stories about our day. As humbled and thankful as I am for the success I’ve had, fear still lurks behind every action -- the worries about not being good enough, of being beaten to the punch.

3. Embracing the challenge.

Regardless of whether you are running an established business or just launching a startup, Never let yourself become complacent. Your business can be overtaken by competitors practically overnight. Fear is a healthy, essential way to avoid complacency and challenge yourself to excel and succeed -- if you learn to embrace and harness those feelings.

What I’ve found over the years is that fear manifests itself in different ways. Call it whatever you like -- a drive, ambition, passion, the fire. But what it boils down to is fear -- of losing, letting yourself down, disappointing your loved ones, forfeiting what you’ve built.

Once you recognize that it’s all just a game of semantics and that fear and drive are two ways to say the same thing, you can embrace fear for what it truly is. 

Recognizing the potential power of fear as a motivator is the key to understanding it as an ally for your business and goals. You can’t just ignore it or pretend you’re invincible and untouchable. Rather, let in the fear. Embrace it. Allow it to keep you honest and constantly driving forward. As Entrepreneur’s Amy Cosper put it, “Don’t let it hold you back from greatness.”

Fear can be the spark that drives you to greatness if you let it.

From Entrepreneur

4 Key Lessons From a Startup's Spectacular Failure

When it comes to launching a startup, it sometimes turns out that the idea with the grandest buildup results in an equally spectacular collapse. Just take the now-defunct Israeli electric automobile manufacturer, Better Place. 

Better Place’s founder, Shai Agassi, promised he would sell millions of electric vehicles, end oil dependence and completely change the world by 2020. His bold idea was heralded by many renowned investors, and everyone involved was optimistic.

Then, as one former employee put it, “Everything we needed to go right went wrong.”

The company was hit from every angle, with problems ranging from overspending to poor marketing and hiring decisions to dubious director oversight. Perhaps the most problematic issue was a company culture of hubris fueled by Agassi himself, saying things such as “If we go down, we’ll make a lot of noise.”

The company did go down, and today it’s known as the perfect storm that resulted in a massive failure every entrepreneur can learn from.

Better Place made several key mistakes that many startups fall prey to. By themselves, these mishaps might not have spelled disaster, but combined, it’s difficult to imagine how any business could have avoided calamity.

1. Better Place didn’t understand its customers.

It’s a well-known fact that consumers make buying decisions based on a human nature that readily embraces trends. Would you rather be the guy who still has to go to the gas station, or the person who hangs out at the local charging station, sipping a pumpkin spice latte and checking text messages while the car battery is swapped within minutes? Sounds like every PTA mom’s dream, right? But Better Place didn’t ask, “How many of these consumers live in metro Tel Aviv?”

2. Agassi overpromised, then under-delivered.

Confidence is critical for any entrepreneur, but Agassi went into Better Place making bold promises that he would bring millions of electric cars to cities around the globe. But as the cars failed to appear and public interest waned, Agassi’s declarations began to seem like a lot of talk with no follow-through.

3. Better Place had a great concept but poor planning.

Agassi ignored market analysis and made the poor decision to launch exclusively in Israel. Despite having the support of former Israeli President Shimon Peres, Better Place didn’t have the government backing it needed to push through early roadblocks.

4. The company became complacent.

Better Place viewed itself as the only innovator in the electric vehicle market and acted as if it had no competition. With no perceived threat, the company failed to identify its own weaknesses.

This final problem often arises when a struggling startup suddenly gets a ton of funding. The company allows itself to get lulled into a false sense of security, loses its drive, stops innovating and -- in effect --moves out to the suburbs to raise the kids. What Better Place didn’t realize was that if it didn’t keep the ball rolling, its bank account would dwindle along with consumer interest.

There’s nothing wrong with getting excited when you come up with a groundbreaking idea. The tricky thing is to remember that the idea doesn’t exist inside a vacuum and there are more factors than enthusiasm contributing to its success or failure.

Overconfidence and a lack of preparation will doom your idea from the get-go, but if you do your research, consider your customers, continue to innovate and keep a firm grip on your company’s financials, you can avoid these catastrophic mistakes.

From Entrepreneur

Consider These 10 Strategies When Preparing to Grow Your Company

Startups go through three distinct phases early in their lifecycle: building the product, selling the product and growing into a sustainable company.

Preparing a company for growth requires taking concrete actions in evolving product and service offerings, modifying the pre- and post-sales organization, addressing human resource challenges, streamlining operations and more.

Here are 10 suggestions for companies preparing to cross the growth chasm:

1. Reconsider product offerings

Now that the product is no longer in beta, questions to ask include: How profitable is each product line? Can products that don’t "move the needle" be eliminated to double down on the successful ones? How can the product’s addressable market be increased? How can the average revenue per unit be grown? How can the product sales cycle be shortened to reduce the overall cost of sales? How can post-sales maintenance costs be reduced?

Challenge conventions and consider new blue-ocean opportunities, including ones that would require a mergers and acquisitions to fulfill.

2. Invest in product marketing

As sales ramp up, there will be a diminishing productivity rate, largely because the salesforce is no longer only comprised of the passionate founder. Counteract this by making sales easier.

Consider verticalizing sales and marketing teams based on industry, use cases and/or products. Establish a product-marketing team in charge of writing marketing requirement documents (MRDs) for products, evangelizing products with customers, developing customer advisory boards, creating sales collateral, and simplifying product packaging, messaging, and pricing.

3. Adopt a channel strategy

Channels fuel much needed non-linear growth, but they also introduce risk. While a channel strategy isn’t for everyone, most companies opt for a combined direct and channel approach.

Determine if the channel’s sales team has the DNA and required knowledge to sell the product. Make sure they are adequately motivated to sell the product through a sales performance incentive fund (SPIF), but consider compensating them in other ways, too. Allocate enough pre- and post-sales support. Most importantly, be patient but also very critical of progress.

4. Establish a customer-success team

Upon entering the growth phase, significant attention needs to shift from securing new customers to retaining and upselling to current customers.

If it hasn’t been done already, establish a customer-success team with the goal of maintaining customers for life. Measure and incentivize this team by gross churn and upsell level, or by "net churn," which is the net effect of both.

5. Open channels of communication

Companies entering the growth phase are typically large enough to switch from having two levels of management (for example, vice presidents and directors) to three levels of management (chief experience officers, VPs and directors), and the staff is increasingly spread out.

Establish a culture of transparency, including quarterly company-wide video calls for reviewing updated plans, opportunities and challenges. Schedule periodic meetings for all groups with all company executives. Each senior executive should spend a significant portion of time on the "frontlines" to obtain an in-person assessment and encourage contact with all employees.

6. Strive for cohesion

As the company grows, individual offices and teams become less aware of what others are doing. However, company-wide unity and cohesion are critical for success.

Verbalize the company’s philosophy, culture and motto, and seek concrete ways to embody them so people can relate, connect and gradually make it their own. Encourage meetings between teams, trips across offices, company-wide events, and whenever possible, relocate people across countries and groups.

7. Empower middle management

Executives in growth-phase companies need to be less focused on leading by themselves and more focused on empowering others to lead with them.

Put in place a strong middle-management team, delegate responsibilities to them and empower them with rights and freedoms. Encourage middle management to be entrepreneurial and take initiative, assume risk and not fear failure.

8. Put goals and key performance indicators in place

Initial startup decisions are often made by intuition, but as the company grows, they must be backed by data collected and monitored regularly across the entire company.

Leaders at every level should define and track key yearly and quarterly goals. Key performance indicator (KPI) attainment should be shared transparently across the organization, and compensation should be tied to them directly.

9. Instill tighter controls

As the company grows, so too does the risk of losing control of approval processes and spending. Allocate resources to document-required procedures and regulations. Instill processes and systems that ensure compliance.

10. Establish a strong human resources team

Recruiting, training, empowering and retaining talent requires lots of thought, effort and attention, and is key for the company’s success. The HR team should be led by an executive who reports directly to the CEO because HR issues are of strategic importance and need to be addressed by a senior person.

From Entrepreneur

How to Recover When Stress Starts to Build Up

It was my first year of graduate school and my professor was standing at the front of the room. He was telling our class about a mistake he made years before.

About a decade earlier, my professor had been one of the senior executives at Sears, Roebuck & Company, the large department store chain. They were in the middle of a massive national campaign and preparing for a major brand launch. My professor was leading the operation.

For almost two months prior to the launch day, he was flying all over the country to strike up buzz with major partners and media companies. While criss-crossing the country on flight after flight, he was also trying to run his department from the road. For weeks on end he would meet with the media and business partners all day, answer emails and phone calls all night, squeeze in 3 or 4 hours of sleep, and wake up to do it all over again.

The week before the big launch day, his body gave out on him. He had to be rushed to the hospital. Major organs had started to fail from the chronic stress. He spent the next eight days lying in a hospital bed, unable to do anything as the launch day came and went.

Your Bucket of Health and Energy

Imagine that your health and energy are a bucket of water.

In your day-to-day life, there are things that fill your bucket up. These are inputs like sleep, nutrition, meditation, stretching, laughter, and other forms of recovery.

There are also forces that drain the water from your bucket. These are outputs like lifting weights or running, stress from work or school, relationship problems, or other forms of stress and anxiety. 

The forces that drain your bucket aren’t all negative, of course. To live a productive life, it can be important to have some of things flowing out of your bucket. Working hard in the gym, at school, or at the office allows you to produce something of value. But even positive outputs are still outputs and they drain your energy accordingly.

These outputs are cumulative. Even a little leak can result in significant water loss over time.

The Theory of Cumulative Stress

I usually lift heavy three days per week. For a long time, I thought I should be able to handle four days per week. However, every time I added the extra workout in, I would be just fine for a few weeks and then end up exhausted or slightly injured about a month into the program.

This was frustrating. Why could I handle it for four or five weeks, but not longer than that?

Eventually I realized the issue: stress is cumulative. Three days per week was a pace I could sustain. When I added that fourth day in, the additional stress started to build and accumulate. At some point, the burden became too big and I would get exhausted or injured.

In extreme cases, like that of my professor, this snowball of stress can start to roll so fast that it pushes you to the brink of death. But it’s important to realize that cumulative stress is something that you’re dealing with even when it isn’t a matter of life or death. The stress of extra workouts or additional mileage. The stress of building a business or finishing an important project. The stress of parenting your young children or dealing with a bad boss or caring for your aging parents. It all adds up.

Keeping Your Bucket Full

If you want to keep your bucket full, you have two options.

1. Refill your bucket on a regular basis. That means catching up on sleep, making time for laughter and fun, eating enough to maintain solid energy levels, and otherwise making time for recovery.
2. Let the stressors in your life accumulate and drain your bucket. Once you hit empty, your body will force you to rest through injury and illness. Just like it did with my professor.

Recovery is Not Negotiable

I’m in the middle of a very heavy squat program right now.

I’ve spent the last two years training with really easy weights and gradually working my way up to heavier loads. I’ve built a solid foundation of strength. But even with that foundation, the weights on this program are heavy and the intensity is high.

Because of this, I’m taking special care to allow myself additional recovery. I’m allowed to sleep longer than usual. If I need to eat more, so be it. Usually, I’m lazy about stretching and foam rolling, but I have been rolling my little heart out every day for the last few weeks. I’m doing whatever I can do to balance the stress and recovery deficit that this squat program is placing on me.

Why?

Because recovery is not negotiable. You can either make time to rest and rejuvenate now or make time to be sick and injured later. Keep your bucket full.

From Entrepreneur