8
Jul

What Is Greenwashing?

What Is Greenwashing?
By Carlyann Edwards,

You’ve probably heard of whitewashing, defined as the glossing over or covering up of scandalous information through a biased presentation of facts. But greenwashing isn’t as well known. It occurs when a company or organization spends more time and money claiming to be “green” through advertising and marketing than actually implementing business practices that minimize environmental impact. Environmentalist Jay Westerveld coined the term in 1986 in a critical essay inspired by the irony of the “save the towel” movement in hotels.
Origins of greenwashing

The idea of greenwashing emerged in a period when most consumers received their news from television, radio and print media, and didn’t have the luxury of fact-checking in the way we do today. In the mid-1980s, oil company Chevron commissioned a series of expensive television and print ads to broadcast its environmental dedication. But while the infamous The People Do campaign ran, Chevron was violating the Clean Air Act, Clean Water Act and spilling oil into wildlife refuges.

Chevron was far from the only corporation making outrageous claims. In 1991, chemical company DuPont announced its double-hulled oil tankers with ads featuring marine animals prancing in chorus to Beethoven’s “Ode to Joy”. It turned out the company was the largest corporate polluter in the U.S. that year.

Greenwashing has changed over the last 20 years, but it’s certainly still around. As the world increasingly embraces the pursuit of greener practices, corporate actors face an influx of litigation surrounding misleading environmental claims.

In February of 2017, Walmart paid $1 million to settle greenwashing claims that alleged the nation’s largest retailer sold plastics that were misleadingly touted as environmentally responsible. California state law bans the sale of plastics labeled as “compostable” or “biodegradable,” as environmental officials have determined such claims are misleading without disclaimers about how quickly the product will biodegrade in landfill.

Even the water industry tries to overrepresent its greenness. How many plastic bottles have you seen with colorful images of rugged mountains, pristine lakes and flourishing wildlife printed on their labels? Arrowhead promotes its Eco-Slim cap and Eco-Shape bottle while claiming, “Mother Nature is our muse.”

“The core theme has stayed the same,” said Philip Beere, founder of sustainability content marketing company g Communications. “The No. 1 violation is embellishing the benefit of the product or service.”

Beere said he believes greenwashing is rarely caused by malicious plots to deceive, but is more frequently the result of overenthusiasm, and it’s easy to see why marketers are enthusiastic. Sixty-six percent of consumers would spend more on a product if it comes from a sustainable brand, according to Nielsen’s Global Corporate Sustainability Report, a figure that jumps to 72 percent among millennials.
Brainwash or Greenwash?

With the belief that consumer demand for sustainability is the frontier of our transition to a greener, fairer and smarter global economy, Futerra’s 2015 Selling Sustainability Report offers 10 basic rules for avoiding greenwashing.

Fluffy language: Words or terms with no clear meaning (e.g., “eco-friendly”)
Green products vs. dirty company: Efficient light bulbs made in a factory that pollutes rivers
Suggestive pictures: Images that indicate an (unjustified) green impression (e.g., flowers blooming from exhaust pipes)
Irrelevant claims: Emphasizing one tiny green attribute when everything else is un-green
Best in class: Declaring you are slightly greener than the rest, even if the rest are pretty terrible
Just not credible: “Eco-friendly” cigarettes, anyone? “Greening” a dangerous product doesn’t make it safe.
Gobbledygook: Jargon and information that only a scientist could check or understand
Imaginary friends: A label that looks like a third-party endorsement … except it’s made up
No proof: It could be right, but where’s the evidence?
Outright lying: Totally fabricated claims or data

There are plenty of wonderful companies telling their environmental stories to the world, and even some who aren’t that should be. The incidence of “pure greenwash,” purposeful untruths or impacts of products, is not that prominent. However, there’s a lot out there that gets close. Beere describes the buzzwords commonly used to greenwash as a “slippery slope” and advises any company ready to go down it to invest in educating their marketers.

“Eco-friendly,” “organic,” “natural” and “green” are just some examples of the widely used labels that can be confusing and misleading to consumers. If you’re ready to slap some grass on your logo, be transparent with customers about your company’s practices and have information readily available to back it up.

One example of transparency is activist outdoor clothing retailer Patagonia. Unlike most companies, Patagonia doesn’t sugarcoat its use of chemicals or the fact that it leaves a footprint. The company’s sustainability mission is described as a “struggle to become a responsible company.”

“We can’t pose Patagonia as the model of a responsible company,” the website reads. “We don’t do everything a responsible company can do, nor does anyone else we know. But we can tell you how we came to realize our environmental and social responsibilities, and then began to act on them.”

Do your best to tell your sustainability story and avoid greenwashing. After all, we all know how costly a trip to the cleaners can be.

22
Nov

6 Steps to a Successful Product Launch

6 Steps to a Successful Product Launch

Facebook Wants to Help Make Your App Super Smart

Sponsor Provided Content

Facebook Wants to Help Make Your App Super Smart

With Facebook Analytics for Apps, the company offers an all-in-one tool for developers to develop their products and grow their businesses.
6 Steps to a Successful Product Launch

A successful launch begins with great timing. You might feel a sense of urgency to introduce your service, but rushing could spell disaster. When necessary, temporarily postponing your launch can mean the difference between failure and glowing reviews.

Many entrepreneurs launch their products too early to appease stringent timelines, beat out a competitor or coordinate with a holiday. When my company was young, I asked myself two questions that can help you develop an appropriate launch timeline.

“Does my product do what it’s meant to do?” Assess whether your product fills the need you’re attempting to address. If your product falls short, it may be wise to invest more time in development.

Second, “Do I have a well-equipped team in place?” Evaluate the support mechanism behind your product. Ask, “Do I have my marketing materials, packaging and back-end systems in order?” and “Have I developed a plan for gathering metrics and feedback?”

If you answer “no” to any of those questions, it’s OK to delay your launch. Releasing product teasers periodically can be an effective way to build anticipation. Avoid publicly tying yourself to a specific date unless you’re certain you can hit it.

Once you identify your timeline, follow these six steps to successfully launch your new product:

1. Test thoroughly before your launch.

Testing can help you verify that your product, company and audience are ready for your launch. Gary Erickson, owner and co-chief visionary officer of Clif Bar & Company, tested recipes for months before he settled on the first flavors for his energy bars. Remember, though, that perfect is the enemy of good. An early launch of a minimum viable product can help you get better data on what your customers actually want.

2. Invigorate your team.

As you move toward the release of your product, your staff will have to adjust to new processes, which can be difficult. Maintain momentum throughout product development, and give your team members the time and resources they need to familiarize themselves with the new product and its customer support protocols. Set attainable goals so your staff can experience small wins that build motivation.

3. Prepare for an increase in sales.

A new service can bring a sudden spike in sales. To avoid failure, you must ensure that your team is prepared for the increase in volume and complexity of work. Make sure you fill all necessary positions and educate team members on the vocabulary, processes and features of the new product.

4. Remember your core business.

Shifting your gaze to an exciting new product is only natural, but remember not to neglect your existing business. Strike a balance between giving the new product life and sustaining your established enterprise.

5. Establish metrics as you go.

Set relevant goals, and regularly measure how well your service meets those goals. In extreme cases, don’t be afraid to scrap your product if it isn’t performing. Remember the principle of sunk costs: Just because you’ve already invested time and resources into developing a product doesn’t mean you should keep trying to sell it. If profitability becomes uncertain, it’s hindering your company’s growth.

6. Gather feedback after your launch.

Analyze customer feedback, then determine what changes you need to make to enhance your product. The University of Oregon, for example, conducted studies to improve the in-stadium experience. One improvement was the addition of 150 flat-screen HD monitors along the stadium concourse. Fans can now watch the game when they’re away from their seats.

While there’s never a guarantee that a new product will be successful in the marketplace, properly preparing for and timing your launch can make your debut — and your product — more memorable.

22
Nov

How to Launch a Product That Sells

How to Launch a Product That Sells

How to Launch a Product That Sells

There’s nothing more depressing than launching a new product or service and seeing it tank in the marketplace. That happened to Pat Flynn, the host of the successful podcast Smart Passive Income, when he launched an ill-fated software venture a few years ago. While many of his other business lines flourished, his tech foray ended up costing him $15,000 — a painful lesson.

“In the past, you’d build a business, shout it from the rooftops, and say, ‘Buy my thing!’” he says. “But if they didn’t buy the thing, you’d wonder, was the problem with the thing itself? Or the way it was talked about? Or the night you were on the roof?” You’d never exactly know why something worked or didn’t, and you certainly couldn’t predict in advance what would succeed. But that’s all changed with the focus in recent years on product testing and validation, fueled by Tim Ferriss’ The 4-Hour Workweek and Eric Ries’ The Lean Startup.

Now Flynn has launched his own book aimed at helping entrepreneurs avoid common product development pitfalls, Will It Fly? How to Test Your Next Business Idea So You Don’t Waste Your Time and Money, in which he shares his own successes and foibles, and provides concrete advice about how to launch smarter.

To ensure your new product or service will succeed, says Flynn, you need to validate whether your audience wants it and also whether you’re the right person to do it, or what Flynn refers to as the “idea-to-self fit.” Before investing a lot of time in an idea, he says, you need to determine “how it plays a role in what you want to do in life, and how it complements your trajectory and what you’re good at. Many of us latch onto the first idea we have, and we go with it because it’s low-hanging fruit, but it’s not necessarily the best one to pick.”

He recommends asking yourself, “What would make you say, ‘Life couldn’t get any better – it’s perfect?’” This involves mapping out your five-year priorities not just for work, but also family, finances, and health. Says Flynn, “This helps me easily make decisions that might otherwise be hard. I could make a lot more money if I were doing different things, but why do it if it doesn’t fit into the plan I have for five years from now?”

He also suggests looking in detail at your previous jobs and listing out the specifics of “what you liked and disliked about them, because now you can see what patterns there are, and you can make sure your new idea doesn’t work against” your clearly established preferences.

Finally, he asks readers to imagine themselves pitching to the Shark Tank judges and answering the question “What’s unique about you, and what are your unfair advantages?” Knowing these key elements will enable you to be sure the idea is right for you. But that’s only half the battle, of course – now it’s time to test whether other people will value it, as well.

As Flynn describes it, determining product-to-market fit looks like this: “You get in front of your audience, hyper-target them, and get them to raise their hand and say, ‘Yeah, I have this problem.’ Then, you talk to them and are honest with them: ‘I’m looking to potentially solve [your problem] with this idea, but I don’t have it built yet. I need to know for sure if people are interested in this. If I get 10 people to pre-order, we’ll greenlight it. You’ll get a discounted price and will be able to influence it because you’ll be here when I create it.’”

In other words, before producing the product and then trying to sell it, you approach your audience and start a conversation to see if the idea interests them. If yes, you ask them to pay in advance (the only real way to tell if they mean it) and, in exchange for their trust, give them a lower price than others will subsequently have access to, plus the opportunity to weigh in as you create the product to ensure it meets their needs as closely as possible. Even if you don’t already have your own audience, Flynn discusses several other ways to reach potential customers in the validation process, such as using online forums, social media platforms, or guest posting for colleagues with an audience similar to the one you’re seeking.

Launching a new product or service can be expensive. Nothing is certain, but following the steps Flynn lays out – determining whether the product is a fit for you personally, and then whether it matches your audience’s needs – will save any entrepreneur time, money, and heartache.

22
Nov

3 Ways Launching a Startup Is as Tough as Playing for the NFL

3 Ways Launching a Startup Is as Tough as Playing for the NFL

3 Ways Launching a Startup Is as Tough as Playing for the NFL

This column is part of a series formed from a partnership between Entrepreneur and NFL Players Inc. Click here to see the other columns.

In my former job as an NFL linebacker, my closest (non-football playing) friends would roll their eyes when I referred to ‘work.’ I was an easy target:

“You play a game for a living.”

“You get months off of work every year.”

Both true, but I also worked in a job where almost half the employees got fired every year (80+ down to 53) and you got fined thousands of dollars for being even one minute late to a meeting.

I was fined twice in my eight-year NFL career. One fine was for being late to an 8:00 a.m. special teams meeting. I awoke that morning to a car that wouldn’t start. I tried to reach at least four people in the building, including (then head coach) Lovie Smith, to explain my dilemma. Finally, my linebacker coach drove to my house, picked me up, and did his best Fast and the Furious imitation to get me there by…8:01.

I was one minute late. The cost? $1,500!

So what does all this have to do with my current job?

Well, a lot actually. I co-founded Overdog over two years ago. My first foray as a startup founder has made me realize that the jump from NFL player to startup entrepreneur isn’t so bizarre.

“How?” you might ask. Hear me out.

Beating the odds.

Of the 100,000 high school football seniors every year, about 215, or 0.2% will ever make an NFL roster. Starting a business is also highly selective as the odds of failure continue to rise each year. While cost to launch your BIG idea has fallen to almost nothing, the chances of a new business becoming the next Microsoft, Facebook or – ahem – Overdog are as fleeting as the chances your nephew will one day suit up for the Dallas Cowboys.

Dog eat dog.

In the NFL, there are no guarantees. Players joke that it actually stands for “Not For Long.” Even coaches use the cliché, “play every play like it’s your last.” A more useful suggestion would be to save every paycheck like it’s your last.

In a start-up, the pressures are the same. Unless your startup is making money, or you can convince an investor that it will make money soon, then your days are numbered. I can’t think of two better examples of a career where success is so crucial to job security. Sink or swim. Produce or perish.

Singular focus.

Everything you do as an NFL player targets one goal — winning on Sunday. Perform, and reap the rewards.  Such a singular focus is rare.

Similarly, startups have a huge advantage over their larger counterparts when it comes to focus. In a startup, its all about outputs. What did you accomplish today that makes your company better? With a few notable exceptions, larger companies tend to focus more on inputs, like hours logged or meetings attended. Real-world companies would be so much more efficient if they had the tools to evaluate talent like the world of sports.

Think Moneyball for General Motors.

That’s what startups have right. There’s nowhere to hide in our team of nine at Overdog. If you can’t add value, you won’t be around long.

I’d argue that the entrepreneur convincing his parents he’s not unemployed and the pro athlete trying to justify his deep tissue massage as “work” actually aren’t so different. In both worlds, you live and die with each triumph and every failure. Passion is prerequisite. If you aren’t passionate about your work, you won’t be good at it, at least not for very long. Lastly, in both cases, you get a chance to make a living doing what you love.

22
Nov

5 Things You Must Do to Successfully Launch a Business

5 Things You Must Do to Successfully Launch a Business

This story appears in the October 2014 issue of Entrepreneur. Subscribe »

The effort required to launch a new venture can seem daunting. Of course, specifics vary based on the type of business you’re establishing; manufacturers face unique challenges, as do retailers and consulting firms. But once you have your concept and your finances in line, there are some basics that are universal.

We talked with business owners, consultants and professors to boil down the bare necessities of getting a startup off the ground into a handful of manageable steps. Apply these fundamentals to your own industry, and you’ll be ready to tackle the specifics of creating your successful business.

1. Validate your idea.

Einas Ibrahim, founder of Talem Advisory, a New York City startup consultancy, says the biggest mistake she sees new entrepreneurs make is starting to work on a business idea before confirming that there is market demand. If your startup aims to sell a widget the world has never seen, make sure the world, in fact, needs your widget. Perhaps it doesn’t exist yet because no one needs it. If it is needed, then make sure the world is willing to pay for it.

“Don’t work on the business until you’ve validated the idea,” Ibrahim says. “Make sure there’s a market. Make sure it’s what the customer wants. Sometimes the entrepreneur’s vision doesn’t align properly with what customers want.”

Market research proves especially critical for startups with big dreams. If you’re aiming to become a billion-dollar business, take steps to ensure that the market can satisfy your aspirations.

“Entrepreneurs find this out after they start talking to investors,” Ibrahim says. “The idea might be sound, but it might be too small to become fundable by a professional investor, or by angels or venture capitalists. If the whole market is less than $500 million, it’s not going to be worthwhile for a venture capitalist to fund you.”

2. Shore up your plan and budget.

Even the best business plans go awry. Successful startups will expect the unexpected–and have an answer ready for it.

“Have a plan for how the business will be run,” says Leonard Green, founder and chairman of The Green Group, a New Jersey-based accounting, consulting and tax firm, and entrepreneurship professor at Babson College. “It’s a form of making decisions before you have to make decisions.”

Those decisions should range from your startup’s mission to its business structure (LLC, sole proprietorship, S Corporation) and compensation policy.

When budgeting startup cash needs, assume your business will generate zero revenue for the first year, Green says. “Many times when you have sales, you don’t have collections for a few months,” he adds. “You still have to cover rent, utilities, inventory, salaries and promotion.”

Laying the foundation

Image credit: Jesse Dittmar

3. Build the right team.

Perhaps the most critical step in the evolution of your startup is assembling a team that works well together and can deliver the goods. “Many good entrepreneurs are by nature connectors of people, so they have strong networks, which puts them at an immediate advantage,” notes Mark Coopersmith, a longtime tech entrepreneur and senior fellow at the University of California, Berkeley’s Haas School of Business.

Your teammates need to share your ideas about how the business should be run. “The crucial element here is that entrepreneurship is a team sport,” Cooper-smith says. “Build the team early, and build it around shared values. Because if you bring on employees and partners and you agree upon common values, you can use those values to come to decisions.”

Coopersmith invokes the late Peter Drucker, the management guru who 60 years ago wrote that corporations have only two core functions: marketing and innovation. In other words, businesses exist to build and sell product. “I would ensure my team comprises those two skill sets,” he says.

Additionally, you need a team that’s pragmatic and able to work together when times get tough. Sit down with critical team members and plan for all contingencies. “What happens if your partner becomes disabled? Sick? Divorced?” Green asks. “Or suddenly the business does poorly, and now we have to go to a bank? You’ve got to decide those things beforehand, so that it’s not you or me, but it’s us.”

4. Establish a support system.

The entrepreneur’s journey can seem like a solitary quest. But before you embark on such a voyage, you need to make sure your loved ones have your back. In fact, it’s essential to your emotional health–and to the health of your company.

“I always say it takes a village to raise a startup,” says Margaux Guerard, co-founder and CMO of Memi, a firm touting wearable technology designed for women. “As an entrepreneur, you just can’t do this alone. You need the mental and emotional support of your friends and family to help you weather the storm.”

Guerard left her job as director of marketing at Diane von Furstenberg to start Memi with her business partner, Leslie Pierson, in 2012. Her first entrepreneurial venture has been an around-the-clock whirlwind–exciting, frustrating, rewarding and upsetting, sometimes all in the same day. She relies on her loved ones to help keep her on track.

“I see myself as being the cheerleader for the company,” Guerard says. “When everyone is saying ‘no,’ I’m putting my pompoms on and saying ‘yes, yes, yes’ at the top of my lungs. When I’m feeling frustrated and sad and beat up, some days I need help doing that. Who do I count on? My family, my friends, my husband.”

5. Respond to feedback and refine your model.

When Bayard Winthrop conceived his notion to manufacture an American-made hoodie, he outfitted hundreds of potential customers in prototypes and asked them what they thought. How did the fabric feel? Was it too rough? Too soft? Too clingy?

Without soliciting such detailed feedback from your most likely customers, says Winthrop, founder and president of San Francisco-based American Giant, you’ll never know if your idea is a good one. “We did everything from putting imagery up on the website to making 100 sweatshirts and getting them into people’s hands,” he says.

American Giant, which launched in 2012, has been credited with rethinking every inch of the ubiquitous hoodie. Before the company launched, Winthrop asked customers their thoughts about all aspects of the garment: the cuffs, the fit, the hood, even the zipper. The fabric alone took six months to fine-tune.

“In our particular, narrow world of sweatshirts, getting that right is like cooking a great meal,” Winthrop says. “That required getting it onto backs and asking people what they would pay for it.”

Feedback led physician Mitesh Patel, co-founder of Docphin, to tweak his technology. He designed his platform to help healthcare professionals get fast access to research articles published in medical journals. The emphasis was on fast.

But the site’s initial registration process proved cumbersome, leading many frustrated users to log off. Docphin scaled back, asked fewer questions of first-time users and reduced the average sign-up time to two minutes. Users returned in droves. Today Docphin serves 500 hospitals nationwide.

“For us,” Patel says, “it was all about finding out what is the value of the end user, and how can you get them to achieve that value as quickly as possible. What we found was the real value was speed.”

For startup entrepreneurs, the need to constantly tinker with the business never ends. “You have always got to be thinking about how you can tweak whatever you have to make it even better,” says David Rush, co-founder and CEO of Earshot, a Chicago-based company that helps businesses acquire new customers through social media. Rush’s initial venture was an app called Evzdrop that allowed strangers in the same location to communicate with one another. Customers told Rush they wanted to be able to access more widely used social networks. Seeing a better business opportunity, he pivoted, and in October 2013, Evzdrop became Earshot.

“You have to be acutely aware of what the data are telling you and what you are able to learn about either your competitive landscape or the market you’re trying to serve or the problems you’re trying to solve,” Rush says. “It’s a continuous product. You’re never satisfied.”

22
Nov

Should You Go East Or West for Your Venture Capital?

Should You Go East Or West for Your Venture Capital?

Reader Resource

Get the working capital your business needs–learn more about Entrepreneur Lending, powered by CAN Capital »

If you’ve built a startup to the point where it could use a venture-capital investment, how do you pick between an East or West Coast VC firm?

You might think the whole premise is wrong – what difference does it make? Money is money, right? Based on my experience investing in startups, listening to hundreds of business plan presentations, interviewing more than 200 entrepreneurs and dozens of venture capitalists, the answer is that there are big differences between East and West Coast VCs.

To pick the right ones – and a blend is certainly possible – you must understand how VCs will perceive your startup and how they differ. Moreover, if you make the wrong choice, you risk suffering the ultimate indignity for an entrepreneur: selling your company and seeing a disproportionate share of the proceeds go to your VCs rather than to you and your key executives.

Read on if you want to understand liquidity preferences – one of the better-kept secrets of the VC industry — that could lead to that unpleasant outcome. East and West Coast VCs take a different approach to liquidity preferences and it is critical that you understand them before you take capital from them.

But before explaining this, let’s examine the basics of your East vs. West decision in sequential order.

1. Find the fit with the industry and your stage of growth. VCs generally like to invest in companies headquartered nearby – but they make exceptions. If you are on the West Coast, odds are better that you will get financing from local VCs.

What’s interesting is that if your startup operates from the East Coast, it may be worth getting West Coast VCs to participate in financing you because – as we’ll see later – they are often willing to put a much higher valuation on your startup, meaning you get to keep more of your stake.

But the West Coast VCs prefer not to invest in the earliest rounds of financing – for example, to pay for building your prototype and getting your first customer. Conversely, they are very anxious to invest in your startup if they see great growth potential, like you and your executive team, and have recently lost out on a big capital gain that one of their VC rivals captured by investing in one of your competitors.

2. Pick VC partners who fit your style. When you choose a VC, you are not picking a firm as much as you are the individual partner from the VC firm who will serve on your startup’s board of directors. While there are exceptions, West Coast VCs are more intuitive about their decisions while East Coast ones are more analytical. Go with VCs whose approach matches yours.

If you seek to raise capital from an East Coast VC, be prepared to answer specific questions: How big is the addressable market? How fast is it growing? What specific product features will you offer that will convince customers to buy from you instead of competitors? What evidence do you have to back up these claims?

West Coast VCs are more laid back. If they see something in your startup that reminds them of their previous successes, they will bet on you. They know that it was impossible to predict how successful Facebook or Google would be when VCs bet on them. But if they like your market, your startup’s ability to penetrate it, and your team’s ability to execute, they know they will make a big return by investing.

Finally, VCs from both coasts are known to bring in former investment bankers as partners. Such bankers are good at helping you to sell your business to another company or to manage an initial public offering, but they do not know much about how to grow a startup to the point where it can realize such an exit. If you need growth advice, don’t invite a former investment banker on to your board.

3. Negotiate your best deal. Unless you are a VC or a lawyer who works with them, you probably have not heard of participating preferred – an innocuous sounding term that should strike fear into an entrepreneur’s heart. Virtually all East Coast VCs demand participating preferred, while West Coast VCs are more flexible.

Participating preferred is an investment deal term that makes sure that the VC gets most of the value of your startup when it’s sold – especially if you sell it for a lower-than-expected price. Generally, participating preferred means that when your startup is sold, the VC gets its money in its totality before anyone gets any money out, and then participates up to an agreed-upon multiple (say, 3x) of its investment, together with everyone else.

Consider this example. A VC with a 3X participating preferred invests $50 million in your startup for a 60% stake. Your startup is sold for $100 million and you would expect that the VC would get $60 million of that – leaving the other $40 million for you and your executive team (basically, all the Common shareholders – which include the team).

But the VC gets more. It gets $50 million of the proceeds and $30 million more – which is 60% of the remaining $50 million. That gives the VC $80 million — 80% of the proceeds, leaving you and your team with a mere $20 million.

There are other scenarios that could make the outcome even worse for you – and it will only work out fairly for you if the exit value is so high that the VC ends up being better off by foregoing the participating preferred rights.

What can you do about it? If you invest in the first round of financing, you can set terms so that you only get 1x preferred, giving you the right to get only one times your money back before the other investors get a piece of the pie. You are more likely to get this on the West Coast because participating preferred is less common there.

And if you are an East Coast company, you ought to create a competitive bidding process among West Coast Vcs. This will give you a valuation that could be twice as high as it would be if you went solely to an East Coast VC.

And you could ask the West coast VCs for a “clean term sheet” – meaning that it accepts a 1X preferred instead of a 3X participating preferred one – and gives your startup a higher valuation which means that it gets a smaller share of your company’s equity than it would at a lower valuation.

These three steps should lead you to the best coast’s VC for your startup.

22
Nov

Getting Your Small Business to Scale Like a Tech Startup

Getting Your Small Business to Scale Like a Tech Startup

Getting Your Small Business to Scale Like a Tech Startup

In the world of entrepreneurs, it seems the ecosystem of small businesses and startups are converging more than ever.

As the founders of tech startup Bolstr — an investment marketplace focused on small businesses — we’ve spoken with hundreds of small-business owners about their challenges and growth plans.

Having experienced firsthand how many small-business owners think about growth vs. their tech brethren, we often noticed a dichotomy in approach.  Historically most small businesses strived simply to be great local businesses, while tech startups strived to become national and global operations. This belief seems to be changing.

More and more, we’re seeing innovative local businesses being launched in the consumer, retail and manufacturing space with the goal of becoming the next Chipotle, Gatorade or big-name specialty retailer. They want to scale and scale fast — a goal that is standard within the world of tech startups.

While there is no magic formula for success, we do believe these tips will help set the course — anchored by one fundamental truth: Growth is deliberate.

Adapt a lean-startup methodology. To become a national brand you’ll need to master the art of failing quickly. This means conducting cost-effective tests rapidly before making any big investments and deliberately learning from the failures along the way.

If you want to launch a new flavor or product category for your granola company, don’t immediately buy inventory for every location. Survey existing customers and offer a thoughtful incentive for their reply. Also test it first in your best and worst selling store and leverage sales data to drive your decisions.

Let your customers dictate how much you invest in the initiative, learn from their feedback and double down on the product categories they like. This allows you to fail quickly if the results weren’t what you expected and avoid the devastating outcome of over investing in an unproven product.

If you haven’t read The Lean Startup by Eric Ries, pick it up ASAP. Regardless of stage or industry any business can learn a lot from his thinking.

Measure everything. In our experience, small-business founders often make decisions based upon “gut,” whereas tech startups scour for data points to drive their decision-making process.

Making data-informed decisions on a regular basis is critical to achieve scale. Doing quick tests and learning to fail quickly does not matter unless you measure everything along the way. You have to learn from your customers and quickly adapt your model in real time.

For consumer or retail businesses this means paying close attention to your product specific sales data even down to the locational level. This is just one of several important factors which require measurement. For more information, check out Melinda Emerson’s post on five things every business should measure.

Many business owners don’t know this but most retailers like Whole Foods, Target or even small, local chains keep close track of numerous metrics relating to every product’s performance. Ask for this data and analyze it. If there’s a sales discrepancy across stores, visit the store. Look closely at any reason which could explain the difference — whether its product placement, culture of the sales staff or customer demographics of the location.

Raise growth capital. Many consumer businesses tend to look at organic growth as their only option. And rightly so. Access to bank financing has been non-existent, and equity capital from angel investors can be extremely expensive. (We’ve seen early-stage companies give up between 50 and 60 percent ownership.)

It’s no surprise that brick-and-mortar small businesses view growth capital so much differently than their tech counterpart, who aggressively pursue venture capital from day one.

That said, to rapidly scale month over month and year over year you’ll need extra dry powder to invest in equipment, marketing, talent, new locations and your best selling products. It’s time to start making growth capital a priority and to think like a tech startup.

22
Nov

Do Pivots Matter? Yes, in Almost Every Case.

Do Pivots Matter? Yes, in Almost Every Case.

In late 2013, Cowboy Ventures did an analysis of U.S.-based tech companies started in the last 10 years that are now valued at $1 billion. They found 39 of these companies, which they called the “Unicorn Club.”

The article summarized 10 key lessons from the Unicorn Club. Surprisingly, one of the “learnings” said that, “…the ‘big pivot’ after starting with a different initial product is an outlier. Nearly 90 percent of companies are working on their original product vision. The four ‘pivots’ after a different initial product were all in consumer companies (Groupon, Instagram, Pinterest and Fab).”

One of my students sent me the article and asked, “What does this mean?” Good question.

Since the pivot is one of the core concepts of the Lean Startup, I was puzzled. Could I be wrong? Is it possible pivots really don’t matter if you want to be a Unicorn?

Short answer — almost all the Unicorns pivoted. The authors of the article didn’t understand what a pivot was.

A pivot is a fundamental insight of the Lean Startup. It says on day one, all you have in your new venture is a series of untested hypothesis. Therefore you need to get outside of your building and rapidly test all your assumptions. The odds are that one or more of your hypotheses will be wrong. When you discover your error, rather than firing executives and/or creating a crisis, you simply change the hypotheses.

What was lacking in the article was a clear definition of a pivot. A pivot is not just changing the product. A pivot can change any of nine different things in your business model. A pivot may mean you changed your customer segment, your channel, revenue model/pricing, resources, activities, costs, partners, customer acquisition — lots of other things than just the product.

A pivot is a substantive change to one or more of the 9 business model canvas components.

OK, but what is a business model?

Think of a business model as a drawing that shows all the flows between the different parts of your company’s strategy. Unlike an organization chart, which is a diagram of how job positions and functions of a company are related, a business model diagrams how a company makes money — without having to go into the complex details of all its strategy, processes, units, rules, hierarchies, workflows and systems.

Alexander Osterwalder’s business model canvas puts all the complicated strategies of your business in one simple diagram. Each of the nine boxes in the canvas specifies details of your company’s strategy. (The business model canvas is one of the three components of the Lean Startup. See the HBR article here.)

Do Pivots Matter? Yes, in Almost Every Case.

So to answer my student’s question, I pointed out that the author of the article had too narrow a definition of what a pivot meant. If you went back and analyzed how many Unicorns pivoted on any of the nine business model components, you’d likely find that the majority did so.

Do Pivots Matter? Yes, in Almost Every Case.

Take a look at the Unicorn Club and think about the changes in customer segments, revenue, pricing and channels all those companies have made since they began: Facebook, LinkedIn — new customer segments; Meraki — new revenue models and customer segments; Yelp — product pivot. Now you understand the power of the pivot.

Lessons Learned:

  • A pivot is not just when you change the product
  • A pivot is a substantive change to one or more of the nine business model canvas components
  • Almost all startups pivot on some part of their business model after founding
  • Startups focused on just product pivots will limited their strategic choices — it’s like bringing a knife to a gunfight
22
Nov

5 Life Lessons That Will Help You Make Fewer Mistakes

5 Life Lessons That Will Help You Make Fewer Mistakes

5 Life Lessons That Will Help You Make Fewer Mistakes

I don’t necessarily consider making mistakes a bad thing, because I’ve learned so much more from them than my successes. If you own up to the mistakes you make and do your best to learn from them, they can be helpful, actually. I like to think of them as necessary evils.

That having been said, who doesn’t want to make fewer of them? Consider employing these five tips to make fewer mistakes:

1. Follow your gut. Over the years, I’ve learned to trust my instincts, because they’re almost always right. If something doesn’t feel or look right, there’s probably a reason. Do due diligence and look into whatever is concerning you. You know more than you think you do. If it walks like a duck and looks like a duck — it’s probably a duck.

2. Let time be on your side. Hasty decision-making has been the cause of most of my mistakes. This is especially true when it comes to negotiations. If the party you are negotiating with wants you to make a quick decision — for whatever reason — let that serve as a warning. Making good decisions takes time. There will always be seemingly “good” reasons for urgency. I don’t buy it. Good decision-making requires perspective, and perspective comes with time. Most decisions can wait.

3. Don’t waste your time on the wrong people. Trying to convince businesses to do something they aren’t currently doing has been a source of angst my entire career. I’ve been selling my inventions for a long time. Over the years, I’ve learned that if I’m selling a variation of an apple, I had better find someone who is buying apples. I’ve spent too much time showing my ideas to people in different industries. The truth is that most people aren’t willing to take a chance on something outside their comfort zone. It’s too hard of a sell — even if you have a great idea.

4. Realize that some things aren’t meant to be, no matter how much you want them. I’m less of a fighter than I used to be, and that’s a good thing. In the past, when something didn’t go my way, I would focus on working harder. I thought that sheer willpower alone was enough. I know now that it’s not. I’m more accepting these days. Nine out of 10 times, I’m pleased when I let things go. When I look back, I realize things worked out for the best — perhaps better! If you push too hard, all the time, you’ll end up regretting it. Of course, there’s a fine line between pushing too hard and giving up too easily. It takes time to navigate.

5. Pick up the phone. Miscommunication happens all too easily over email! If you’re ever in doubt, pick up the phone. Email is a very efficient and convenient form of communication. But because it’s so impersonal, your words and intent may be misinterpreted. First, always strive to be as clear as possible, even when you’re in a hurry, and remember to read what you’ve written before you send it. If you sense that a potential conflict may be brewing, pick up the phone and talk it out. It’s worth the minor inconvenience. Many problems can be avoided this way. Relationships are built through dynamic conversations. So make the effort to pick up the phone, and even better, meet the people you are corresponding with in person.

A mistake is really only a mistake if you continue to make it. You’re missing out on an opportunity to be and do better if you don’t analyze yours.

22
Nov

17 Absentminded Mistakes That Will Cost Your Business Big Time

17 Absentminded Mistakes That Will Cost Your Business Big Time

Distracted by daily tasks and critical goals, most entrepreneurs let a lot of seemingly unimportant issues slip through the cracks.

Business owners often make the mistake of overlooking small changes and tweaks that they could make that would do wonders for their bottom line.

These are among the silliest things entrepreneurs do that negatively affect their business:

1. Accepting too much responsibility. The much praised “can do” attitude is more limiting than it sounds. Business owners who insist that they can do it themselves unintentionally neglect the efficiencies that come with delegating tasks to others, including outsourcing. Leaders lacking skills in certain areas should accept their role as being responsible for recruiting smart candidates who will excel in their roles and lighten the leaders’ workload.

2. Assuming debt. Debt financing is a viable option for businesses that are unwilling to give up equity, but loans from banks and investors can be hard to come by and can cost more than they’re worth to a company. If a firm expects to grow 10 percent  in the next year, it will be hard to justify taking on a loan that accumulates 15 percent annual interest. Credit cards, with up to a 21.99 percent annual percentage rate are an even clumsier way to finance a company.

3. Being unresponsive. As of January, 58 percent of American adults have a smartphone according to the Pew Research Center. Businesses that generate a lot of leads, revenue and sales online are leaving a ton of money on the table if their sites are not mobile optimized. Few customers have enough patience to pinch, zoom or finger drag to read or see anything on a website.

4. Communicating the wrong thing. Entrepreneurs have the job of ensuring everyone on the team is on the same page. Though it is tedious to be careful with words, clarify points and overcommunicate; communication failures easily create new issues and damage morale. It is better to err on the side of caution than allow someone to misinterpret meaning.

5. Counting research as a productive activity. Reading about startups, management, marketing or programming is a waste of time if an entrepreneur doesn’t put that knowledge to use. I’m all for personal enrichment. That being said, I’m also a firm believer that if people can’t turn information into action and create value, they haven’t done anything productive.

6. Failing to encourage action. Every page on a company’s website should serve a purpose. It is very altruistic for a business to create content that informs consumers about the industry or teaches them something new, but opportunity is lost without a meaningful call to action on every page.

7. Forgetting about site performance. A fancy site is nice, but no one will ever see it if it takes minutes to fully load. Digital audiences are impatient and will not hesitate to bounce, finding their way out of a website’s proverbial door.

8. Forgoing vacations. An executive’s relationship to work is toxic if he or she feel unable to stay away from the computer for a full work week, let alone a few hours. The feeling of constant anxiety is all too familiar to many business owners. Stress and burnout are serious issues. What’s being ignored is that the costs of running on a tank that’s half full are significantly higher for the leader and the business than expensing a five-day resort getaway in Aruba.

9. Limiting your social media reach. Although it is harder than ever for companies to have their messages heard as a result of algorithm changes by search engines and competing marketing campaigns, users can do some of the work. Adding obvious social share buttons make it a no-brainer for any site visitor to “like,” tweet or pin a company’s awesome content.

10. Loosely tying up loose ends. A change to a business leader’s contact information can be as painless as an Uber ride without surge pricing, but it is a nightmare for acquaintances, customers and friends who find it nearly impossible to reach the person. Though it is a common practice to alert one’s contacts about a new address, email or phone number, consider having forwarding services for an extended time. One never knows when someone from a former life may ping with the next six-figure deal.

11. Making decisions without data. Without using performance metrics, making the same mistakes over and over again is easy. Use analytics to identify fundamental problems with the business such as a leak in the sales-conversion funnel or a high customer-attrition rate.

12. Mismanaging supplier relations. Neglecting to inform suppliers about slow months when they expected a steady stream of orders can quickly put a business on their less-preferred client list. This, done over several months, may eventually cause them to fire a company and label it as an unreliable partner. Earn their trust by being upfront and honest to cement the foundation for a viable long-term relationship.

13. Missing a marketing moment. It’s a miserable user experience when users click on a link that reaches an unimaginative 404 page. Optimize the error pages for the company’s website in a way that makes users giggle at the hiccup rather than shake their head in disappointment. Lack inspiration? These are among the best 404 pages on the internet.

14. Paying too much to receive payments. Credit card processing is expensive. Most merchants are at the mercy of firms that charge 2.9 percent plus 30 cents a transaction. Cheaper alternatives worth adopting exist, such as LevelUp, which charges businesses 1.95 percent, or Freshbooks, which partners with PayPal to charge a 50-cent flat fee for online payments.

15. Selling features, not solutions. Customers have a slew of problems, yet a company’s products and services won’t mean anything to them unless the benefits are spelled out. Features only tell part of the story while most customers really only want to hear the spoiler, which is how a particular offering can help them in their current situation.

16. Skimping on scale. It is easy to scoff at the idea of spending hundreds of dollars each month for something as basic as web hosting. Although a current plan offers the best value at $19 per month, a company owner might wish he or she had upgraded months ago if the website crashes. It’s possible to lose more in sales during a site outage than it costs to upgrade to premium web hosting.

17. Taking SEO for granted. For many websites, search still drives about 40 percent of overall traffic. Optimizing the company’s content for search engines isn’t rocket science, and while it has become an advanced skill for many marketers, most entrepreneurs simply need a basic understanding of SEO to reap the benefits.

As a business owner, what numbskull mistakes have you made that cost you more than monthly office rent?