Do You Have Bad Start-Up Common Sense?

By Jason Freedman

I had a really interesting conversation with an entrepreneur recently. He is the brother of a close friend who wanted to talk about his world-changing start-up idea. It was so world changing, in fact, that he didn’t want to tell me about it until I signed an NDA. I gave him my usual spiel about why operating in "stealth mode" is a terrible idea. (Your idea probably isn't that new, and if you don't get some feedback, you will probably fail due to your incompetence.)

He’s a lawyer by trade, so he was more argumentative than most and forced me to defend my opinion about why he should be sharing his ideas freely instead of requiring NDAs. As we talked, he began challenging other start-up philosophies I hold dear. I told him he should launch fast; he said he wanted to take his time and make sure he got it right. I told him to forget about scaling until product-market fit had been validated; he knew it was the right product and wanted to scale from the beginning.

"What is the basis by which you are forming your opinions?" I eventually asked him. "You have very strong opinions even though you’ve never done a start-up before."
"I’m using my common sense," he replied. "I think through each problem and come up with a solution that makes the most sense to me."
I asked, "What if I could prove to you that your start-up common sense was categorically wrong?"
Finally, for the first time in 45 minutes, there was silence on the phone.

There is something about how to launch a start-up in 2013 that is the exact opposite of what an intelligent, thoughtful outside observer will intuitively do using his or her own common sense. But for me to prove to my friend's brother that his common sense in this particular subject was categorically wrong would mean that he couldn’t trust his own judgment. Therefore, his most relied upon tool would be of no use to him. It’s a terrifying thought.

I know this terror well. After I finished my MBA, I had developed my own common sense about how to launch start-ups. I launched a company relying on these beliefs, and it failed miserably. One of the things my first trip through Y Combinator did was rip apart my common sense. It was really tough.

Do you need help with your start-up common sense? Here are my suggestions for retraining your brain:

1. Launch your product and talk to customers. Jumping in and launching a product or service is the single best educator. Yes, it's scary, and very often entrepreneurs will choose to do absolutely everything possible to avoid launch. But launching a product as early as possible--even so early that you are thoroughly embarrassed by its quality--helps you start learning what your customers really want much, much earlier.

2. Read up. You not only need to read a few books, you need to make sure you read the right ones. I have six specific books that I recommend every entrepreneur read before he or she gets too deep into launching a start-up: Lucky Or Smart? by Bo Peabody, Getting Real by the guys from 37 signals, The Art of the Start by Guy Kawasaki, The Four Steps to the Epiphany by Steve Blank, Rework also by the guys from 37 signals, and Founders at Work by Jessica Livingston. These books are not only helpful, but they are paradigm shifting. Plus, you can read them quickly and know that you are on the right path. Also helpful: the daily curated articles on Hacker News.

3. Get into an accelerator. Whether it’s Y Combinator or 500 Startups or Tech Stars, accelerators are one of the best ways to get your start-up off on the right foot. Not only will you benefit from the advice, you’ll also feel the pressure of keeping up with your peers.

4. Find a great advisor. The very best advisor you could have is someone who has successfully done what you are trying to do and is only 18 months ahead of you. Not some industry superstar. Not a famously successful entrepreneur. Not an investor. The best pure advisor is a fellow entrepreneur who is just a little bit farther down the road, because this person has only recently gone through the epiphanies that you are currently in search of.

5. Stop taking bad advice. In my opinion, the worst kind of advice is outdated advice. Successful people and big company people are especially prone to outdated advice. What worked at a big company in 1998 probably isn't relevant to your two-person startup in 2013.

The first step to recovery is admitting you have a problem. As a confident, stubborn guy who thinks he’s always right, I can attest that it isn't easy. My advisors ripped apart many of my strongest held beliefs. And I can’t thank them enough.

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Three Keys to Business Success: Focus, Focus, Focus

By Chip Paucek

Entrepreneurs can’t resist shiny new things. The allure is intoxicating.

As an entrepreneur, you’re built to dodge and weave. You’ll stop at nothing to make your vision work. Every opportunity looks easy. Every new idea could be Google.

Which brings me to the old movie, “Poltergeist?” Remember the part where the little stout lady said, “Caroline, do not go into the light. Stop where you are. Turn away from it. Don’t even look at it”? You too should heed her counsel. 

Focus on your core. Resist the light of the shiny new thing. Focus is severely underrated and incredibly hard for entrepreneurs to embrace.

Let me tell you a cautionary tale about being Hooked on Chinese.

Before starting my current company, I was the CEO of Hooked on Phonics. It was an incredible brand with a failing business model: old-school infomercials. I was brought in to remodel it into a consumer products and media business and take the product to retail. 

It was a great idea. It worked. We built Hooked on Math. We built Hooked on Kindergarten. Neither was a pivot. These were simple extensions within our wheelhouse.

Then we built Hooked on Baby, Hooked on the Bible, and Hooked on Chinese. We decided we could build our own stores. We even decided to get back into infomercials. Each shiny light looked better than the one before it.  

As a result, before we could really get our legs and prove the core business, we dove into entirely new markets and distribution systems. Chinese was the beginning of a slippery slope that decreased--rather than increased--shareholder value.

And so it was that I learned (the hard way) the importance of keeping your focus.

At 2U, we build online degree- and credit-bearing programs. Our programs are powered by a proprietary system that enables high-quality content delivery, live classes, white glove support, and high-touch training.

There’s no reason we shouldn’t try it elsewhere, right? It’s pretty clear K-12 could use our help. What about corporate training?

No way. Too many colleges need our help. There are too many great degree programs to offer. And, frankly, growth isn’t a problem.

Two years ago, the U.S. government said, “We’d like you to give us a bid for a 2U system for an agency of ours.” The size of the potential deal gave us pause. My CFO looked like Dr. Evil with his pinky to his mouth.

We said no. It was the right call. Since then, we’ve created a series of great new businesses within our core.

Focus on delivering innovation within your business every day. Sergey Brin can afford to work on a self-driving car and Elon Musk can focus on the hyperloop -- they built Google and PayPal. First, make your business sustainable; then you can wander.

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It Pays to Be 'Liked'

By Walter Daily

I always encourage small business owners to be students of media; take the time to look beyond the obvious and see marketing strategies in your surroundings. Powerful marketing lessons can come from watching a few commercials or hearing a couple of radio ads while heading in for work. The trick, however, is knowing what to look for. 

For today's segment, I'd like to use the riveting business of insurance as a backdrop. Yes, "riveting" is an overstated adjective, however there's an interesting observation behind my cheap humor. 

In my estimation, the world of insurance is actually quite dull (my apologies to those in this sector). The average person does not actually need the services of a responsive claims department on a daily basis. Nor do they spend every waking moment pining for a new way to combine "home, auto and life.” So why are we inundated with these types of ads on a regular basis? The answer is quite simple; it's a highly competitive area and those in this industry are looking for every advantage to establish some daylight between their rivals.

In an effort to maintain an edge, most companies will ride razor-thin margins, match the offerings of competitors and run ads around the clock. Despite all of these things, the race remains tight. What else can one do to break away from the pack?

I’d like to submit that a “warm and fuzzy feeling” has become the secret weapon of choice.

Whether you’re a multibillion-dollar insurer or a small business owner, likability is invaluable in the marketing arena.

Peter Noel Murray PhD, author of Understanding The Rational And Emotional Foundations Of Consumer Behavior, states that "Research conducted by the Advertising Research Foundation concluded that the emotion of “likeability” is the measure most predictive of whether an advertisement will increase a brand’s sales." He also states that, “Advertising research reveals that emotional response to an ad has far greater influence on a consumer’s reported intent to buy a product than does the ad’s content.”

If these finding are true, this knowledge will begin to shed light on the country’s most ubiquitous insurance ads. Think about Flo from Progressive, the Gecko from Geico, and the collegiate humor seen in Farmer’s Insurance ads.

So what’s the lesson for small business? Spend more time on how your marketing affects feelings rather than all of your time on selling points. From now on, the creative process for building an ad should start with these words, “What do I want my audience to feel?”

To a small business owner, this may sound like a whole bunch of nothing, but ask, why would these companies invest hundreds of millions of dollars into emotionally driven ads? The simple answer is, being liked works.  Make this idea work for your enterprise.

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Why Some Entrepreneurs Succeed--and Some Don't

By Jeff Haden

From a rational point of view, starting a business is crazy: The failure rate is high, the emotional toll is high, and the likelihood of having to work extremely hard for potentially little reward is incredibly high.

But every year millions of people take the entrepreneurial plunge, and many succeed. Why do some succeed while others don't?

Here's another in my series where I pick a topic and connect with someone a lot smarter than me. (There's a list of some previous installments at the end of this article.)

This time I've gone straight to the top, to a guy who has spent much of his professional life interviewing, studying, writing about, and celebrating the entrepreneurial spirit: Eric Schurenberg, editor-in-chief of Inc. (And yes, ultimately he's my boss.)

In very broad strokes, why do some entrepreneurs succeed?

In 2003 the economist Amar Bhide wrote "The Origin and Evolution of New Businesses." He looked at founders on the Inc. 500 to determine how they were different from the rest of the people who start businesses.

He found the people who reached that level of success were in many ways no different: They didn't start with a comprehensive business plan, didn't have a deep knowledge of their industry, didn't have a competitive advantage like special access to financing. So he came to two conclusions.

One was that the entrepreneurs who succeed tend to be in a field where tremendous uncertainty exists, so they're rewarded for taking significant risk. That's why technology is such fertile ground: plenty of uncertainty, change takes place at a rapid pace, incumbents often disappear quickly, the barriers to entry are low.

It's easy to start a software company in the basement, but not an automobile company.

Absolutely. Plus the Internet affords tremendous potential for scale. So, again in very broad terms, one set of entrepreneurs surfs the waters where conditions change quickly and they manage to catch a maverick wave--or they wind up becalmed or squashed by a rogue wave.

Tech entrepreneurs certainly gain a lot of attention, but for every tech success there are dozens of successful stories that aren't based on "new."

True. That's why Bhide also noticed the Inc. 500 tended to be overly populated by service companies. The key in service is differentiation, often on a personal level: You might not have a built-in advantage like financing or specialized knowledge, but by dint of your personality and hard work and chutzpah you can still succeed.

You can be like Gary Vaynerchuk and return every single email you receive. Or you can be incredibly outgoing or work impossible hours or give up your firstborn to make that sale--those people can gain an advantage that can translate into success simply by the force of their own personality.

What else have you noticed from analyzing the Inc. 500?

One story nearly every entrepreneur shares is that moment of near death: almost bankrupt, down to the last dollar, credit cards maxed out, house approaching foreclosure... and then a customer shows up. Or they land funding. Those are such incredible stories, but the ones we hear about are ones where the cavalry rides to the rescue in time.

We tend not to hear the stories where the cavalry never shows up, and the entrepreneur licks his or her wounds... and then starts another company.

I've always thought the failure rate should scare more people away, if only because for years it scared me away.

People tend to underestimate the risks of entry and failure, at least on a personal level. There's this famous survey where people were asked about their driving ability and 80 percent said they were above average, even though the respondents were all people who were injured in car accidents.

Entrepreneurs are particularly prone to overconfidence--and they need to be.

I like to call that irrational optimism. To succeed at a high level--in business, in sports, in anything--you have to push aside all the doubts: feelings that you aren't smart enough, dedicated enough, adaptable enough... or that in spite of your best efforts you won't succeed.

Absolutely. What person with a ton of talent and labor value would throw that away to pursue a venture with a low likelihood of success and a high risk of failure, both financially and personally?

From an economist's points of view entrepreneurship is a total conundrum: It shouldn't happen in a world where people make rational decisions to advance their best interest.

Yet entrepreneurs succeed every day--many of them beyond their irrationally optimistic dreams. That's what makes entrepreneurs so fascinating.

So let's talk about failure. Why do many entrepreneurs fail?

In broad strokes, tech companies tend to fail because there's only so much funding to go around. The cost of getting on a customer's radar screen is often high--switching costs are sometimes too high even if your product is better. In essence, many companies fail simply because it's so hard to succeed.

In service businesses there are often no inherent advantages to the customer. We won't switch to another provider unless we're totally blown away by the personality of the entrepreneur.

My theory, based on zero science, is that most entrepreneurs have one skill that brings them to the dance. Your one skill gains you entry, but when you try to grow past a certain level your lack of other skills is a killer. Lots of entrepreneurs I talk to say what got them past that near-death moment was finding a partner with complementary skills.

There are so many institutional and systematic pitfalls when you try to scale past initial success. And don't forget many start-ups end up in that funding no-man's land: too small for venture capital but too big for ever-increasing resource needs.

Managing growth is hard. Ultimately you don't just need a partner who complements your skills. You need a bunch of "partners": a great CFO, a great CTO, any number of great people who bring specialized skills. Without them, growth is often impossible.

I also think a lot of people overestimate their "general" business skills--what works in one industry doesn't necessarily translate to others. People like Norm Brodsky, whose business seems to be business, are somewhat rare.

A good way to interpret Norm's success is to say he has a talent for spotting opportunity and the skills to implement successfully. Take City Storage: He owned a bike messenger service and a customer needed a place to store documents--so he started by storing boxes in his office. Then he used his business acumen to build from there.

What does this year's Inc. 5000 say about entrepreneurial success?

Like in many other years but to a somewhat greater degree, a significant percentage of the2013 Inc. 5000 are B2B service companies: terrific salespeople and plenty of elbow grease. Don't forget B2B success is not necessarily easier but it's different than B2C: Land a couple of big contracts and you have a going business. When you own a sandwich shop you need to attract a ton of customers to survive.

Take the No. 1 company on this year's list, Fuhu.  Fuh's founders embody everything we've discussed. This is the seventh company its president, Robb Fujioka, has started.

Fuhu didn't invent anything totally new: They found a niche by creating an inexpensive Android tablet for children. They rode uncertainty to catch the wave of tablet adoption.

The problem with tech is that you always need a "next."

Fuhu is already working on a number of "nexts," and that's something else successful entrepreneurs have in common: Next is in their DNA.

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9 Musts for Business Success

By Steve Tobak

Companies usually start out with noble intent: An idea, a product, or a culture that its founders hope will be different--the one that stands out among the many. They hope to be the kind of company that others seek to emulate and the most talented people wants to work for.

And while every entrepreneur and business owner knows how important it is to focus on the job at hand, to take one step at a time, somewhere in the back of their minds, they can envision their venture becoming one of the great ones that stands the test of time.

Unfortunately, it doesn't usually turn out that way. What seem like brilliant concepts just don't pan out. Even viral successes often fizzle out in time. The truth is that markets are brutally competitive. We simply can't all win. And we certainly can't all be great.

Which begs that question: What distinguishes the few companies that make it over the long haul from the thousands that don't? What are the actions that entrepreneurs can take early on to set the stage for success down the road?

Here are nine fundamental blueprints for business success. These strategies enable companies to rise above.

Products that consistently provide a superior customer experience. Apple didn't build the first MP3 player, online music site, smartphone, or tablet computer. Amazon wasn't the first online retailer. Trader Joe's wasn't the first specialty grocer. But their products and services consistently delight customers by giving them what they want or need in ways that competitors can't even come close to.

Breakthrough intellectual property that competitors can't design around. We know that Qualcomm makes processors and software for smartphones. But this technology giant quietly built its company on breakthrough patents for CDMA and other core wireless technologies that, today, are used in most of the world's cell phones. It spent many years and big bucks developing its breakthrough technology, bringing it to market, and defending its intellectual property.

Insanely great marketing. You may think that marketing is all about Super Bowl ads and B2B email campaigns, but the kind of marketing that makes or breaks companies is a whole different ballgame. According to venture capitalist and former Intel executive Bill Davidow, "Marketing must invent complete products and drive them to commanding positions in defensible market segments." Indeed, Steve Jobs was a genius at market segmentation, product positioning, masterfully controlling the message, and most importantly, figuring out what people wanted before they even knew it themselves. That's marketing.

Becoming the de facto standard. If you can get customers addicted or locked into your proprietary software, interface, or applications, you can reach critical mass and become a de facto standard. At that point, the cost and pain for customers to switch is prohibitively high. That's how Cisco routers, Texas Instruments DSPs, and of course, Microsoft--Intel PCs became standards.

A unique concept executed so quickly and flawlessly that nobody can catch you. Google probably doesn't have better search algorithms than anyone else, but its unique combination of search and advertising was executed so well that it came to dominate the market and nobody can catch up. Apple did the same thing with iPod and iTunes. The same is true of Starbucks, Skype, Facebook and Twitter.

A self-replicating culture that develops great managers and motivates employees to do great work. It's no coincidence that we find company names like Procter & Gamble, PepsiCo, and IBM on the resumes of hundreds of CEOs. Likewise, it isn't surprising that certain successful companies, from Intuit and Intel to Wegmans and Whole Foods, show up time and again on annual lists of best companies to work for.

A truly trouble-free sales and customer service experience. Some companies manage to consistently rise above the competition by offering customers what they really want most: a relatively care free, easy way to buy what they need that doesn't try their patience or waste their precious time. If you've ever shopped at Zappos, Trader Joe's, or Nordstrom, you know what I'm talking about.

A culture that fosters innovation. Some mistakenly define innovation as invention. It's not. Innovation can also be turning inventions into products people can use. That's a core competency at IBM and 3M, among others. It's almost criminal when companies known for invention never seem to be able to productize them. Xerox PARC is the most famous example--and it's still working to change that reputation.

Flawless operations, supply chain management, logistics. As markets and manufacturing have become more complex, so have supply chains and logistics. It's hard to win on just this capability alone, but when coupled with one of the other categories--consistently superior products, for example--it can amount to an unbeatable combination. That's certainly been the case with Toyota, Samsung, and once upon a time, Sony and Dell.

One more thing. Keep in mind that none of these strategies are popular fads. They're all fundamental and, therefore, resilient. Even as markets change, technology advances, and competitors rise, these fundamental strategies will stand the test of time.

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6 Surprisingly Useful Leadership Lessons from the VMAs

By Selena Cuff

I bet some of you are giving me the side-eye for the title of this article. I ain’t mad at you. But I’m going to go out on a limb and say that I’m not the only one out there "shame watching" mindless TV on occasion. And since I’m a multitasking entrepreneur, I gleaned a few business lessons last weekend when I caught some of the MTV Music Video Awards.

Here are some of the folks who reinforced some valuable business truisms:

Miley Cyrus: Stay on Brand 

Who hasn’t heard about Twerkapalooza by now? Small business owners, it’s okay to push the envelope when it makes sense and is true to your soul. And we all know that innovators are not always well-loved ... until a business idea has already succeeded through the roof, that is! But when you see your consumers actually recoil -- whether through a sudden drop in sales, social media backlash or low attendance at events -- pause long enough to ensure that you’re on mission. If you’ve accidentally veered, humbly get back into alignment.

Robin Thicke: Consider the Company You Keep

Just by performing with Miley Cyrus, Thicke received more than a few raised eyebrows. "Blurred Lines" indeed! The wrong associations can put you in the hot seat when a business partner’s unsavory behavior casts shade on your hard-earned reputation. It’s tough enough to ignore judgment when it's unwarranted, so why keep company that legitimately prompts people to question your decision-making? Entrepreneurs, watch the company you keep.

Justin Timberlake and *NSYNC: Keep Your Fans Happy 

Seems that most people enjoyed JT’s performance but were left wanting more of that *NSYNC reunion. It was sweet to see *NSYNC fans grooving in their seats, which reminded me just how important it is to remember the people who helped you get to where you are! On the flipside, it’s also essential to keep your magnetism and leave your fans wanting more.

Will Smith and Family: Be Authentic

Anyone else catch that hilarious picture of Will Smith’s family seemingly looking appalled at whatever was on stage? Originally, folks thought this was a reaction to Miley Cyrus, but it turns out they were watching Lady Gaga’s performance. Regardless, the public ate the photo up! It underscored that consumers will often shock you by how positively they react to your authentic responses. Ever apologize to an angry customer via social media only to have them become one of your biggest fans? Or shared a horror story in a news article and had an overwhelming number of supportive comments? Being consistently authentic exudes a confidence that can boost your bottom line.

Lil’ Kim: Watch How You Pivot

Ahh, Lil’ Kim. I can’t see her without fondly remembering how much fun we had jamming to her hits during my last years of college. But the "Queen Bee" of today is shockingly different from the rapper I was introduced to all those years ago. Seeing her on the red carpet served as an instant reality check: if you move too far away from your original products, persona or mission, you may be surprised at how deeply fans loved the old version. We all have the right to innovate, grow and change. But when you launch new initiatives, you should also make sure to retain a healthy dose of "If it ain't broke, don't fix it."

Katy Perry: Stay Classy

When the media questioned Katy Perry about her alleged beef with Lady Gaga, she did the classy thing and shared her admiration for Gaga’s work. Even if you actually have tensions with a business contact, rarely does anything good come from sharing that information with others. Beware of anyone who seems overly interested in dishing on issues, and as your mom likely warned you, "If you don’t have anything nice to say, don’t say anything at all!"

The VMAs certainly aren’t the Harvard Business Review, but if you’re going to watch mindless TV, you might as well find a way to actually feed your mind. Did the VMAs unexpectedly give you any business insights?

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5 Money Moves Every Entrepreneur Should Make

By Alex Von Tobel

A lot of entrepreneurs won't admit it, but here's the cold, hard truth: Just because you manage the finances of your own business doesn't mean you're savvy at managing your own money.

In fact, often because entrepreneurs are busy starting up and managing businesses--an inherently risky endeavor--they overlook their own personal financial risks. But you can't afford to do that. Especially when your business introduces a fair amount of uncertainty in your life, your own financial situation should be comparatively less exciting and unpredictable. 

Here, then, are five money moves every entrepreneur should consider.

Get a Game Plan 

First-time founders: If you haven't already, figure out how much money you have (i.e., emergency savings) and how much you have coming in (say, from investments or part-time work). Then, estimate your expenses, both personal and business-related. You want to be clear about what you need in order to get your idea off the ground--and how long you can feasibly bootstrap until you enter the danger zone. I recommend shoring up at least six months' worth of emergency savings for individuals and nine months if you're a parent. If you're paying off debt, see what you can automate to make your life easier and ensure those expenses get paid. 

Take a Money Minute 

Each morning, I like to take what I call a "money minute" and check my account on LearnVest's financial tracker. Mostly I'll do this when I'm just getting into the office and planning my day. I'll simply log in and take a peek at my investments, then check for any erroneous fees, which sometimes happens when I dine out. From there, I'll try to get a sense of my personal spending--have I been eating out too much or overspending on travel? The answer usually keeps me and my husband, who shares my credit card, in line. 

Side note: I've learned to do this for LearnVest too, except rather than view things all at once, I take some time each week to review separate emails and a dashboard which shows how many users signed up each month. As with my personal finances, I try to figure out what we should be doing more or less of and understand why something is happening. I look for patterns, behaviors, and insights to see where we should invest, where we should cut back, and how to plan for next season. 

Know Your Risks 

As an entrepreneur, knowing how your personal finances are connected to your business is crucial because you're so vulnerable. Let's say you take out a credit card for your business expenses. You'll be liable if you default and the card's in your name rather than a corporation. Similarly, if you take out a small business loan, the bank could come after your personal assets. Neither scenario is ideal, so if you're boostrapping, be sure you know your limitations. If you're running your business as an LLC, a limited partnerhip, or a sole proprietorship, your actual accounting of your finances will appear on your tax return, so it could impact your personal finances, not just those of your business. 

Get a Roth IRA 

Saving for retirement is probably not high on your to-do list when you're in the process of staring up--but it should be. A Roth IRA, which grows absolutely tax-free, is one of the best and most flexible vehicles out there for retirement savings (though there are some limitations, depending on income). You can invest in it almost whatever you want--from mutual funds to bonds up to $5,500 in 2013 ($6,500 if you're 50 and older)--and if you're ever in a bind, you can access some of that money without major penalties. Another perk of the Roth IRA? If you've just quit your day job, you can roll a traditional IRA or 401K into it.

Consider Umbrella Coverage 

Let's say a colleague slips and falls at a company party and decides to sue. He threatens to wipe you out financially and shut down your business. With an umbrella or excess liability coverage, you help to protect yourself from big financial threats. This kind of policy goes above and beyond auto and home insurance, which is good since you have more to lose. Think of it as an additional layer of insurance, worth up to $1 million to $2 million. Most umbrella insurance claims are related to car accidents, but they also offer protection for accidents at work. 

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