From Forbes, written by:  Mark Zwilling

The “valley of death” is a common term in the startup world, referring to the difficulty of covering the negative cash flow in the early stages of a startup, before their new product or service is bringing in revenue from real customers. I often get asked about the real alternatives to bridge this valley, and there are some good ones I will outline here.
According to a Gompers and Lerner study, the challenge is very real, with 90% of new ventures that don’t attract investors failing within the first three years. The problem is that professional investors (Angels and Venture Capital) want a proven business model before they invest, ready to scale, rather than the more risky research and development efforts.

My first advice for new entrepreneurs is to pick a domain that doesn’t have the sky-high up-front development costs, like online web sites and smart phone apps. Leave the world of new computer chips and new drugs to the big companies, and people with deep pockets. For the rest of us, the following suggestions will help you survive the valley of death:

1.  Accumulate some resources before you start.

It always reduces risk to plan your business first. That includes estimating the money required to get to the revenue stage, and saving money to cover costs before you jump off the cliff. Self-funding or bootstrapping is still the most common and safest approach for startups

2.  Keep your day job until revenue starts to flow.

A common alternative is to work on your startup on nights and weekends, surviving the valley of death via another job, or the support of a working spouse. Of course, we all realize that this approach will take longer, and could jeopardize both roles if not managed effectively. Set expectations accordingly.

3.  Solicit funds from friends and family.

After bootstrapping, friends and family are the most common funding sources for early-stage startups. As a rule of thumb, it is a required step  anyway, since outside investors will not normally consider providing any funding until they see “skin in the game” from inside.

4.  Use crowd funding.

The hottest new way of funding startups is to use online sites, like Kickstarter, to request donations, pre-order, get a reward, or even give equity (coming soon). If your offering is exciting enough, you may get millions in small amounts from other people on the Internet to help you fly high over the valley of death.

5.  Apply for contests and business grants.

This source is a major focus these days, due to government initiatives to incent research and development on alternative energy and other technologies. The positives are that you give up no equity, and these apply to the early startup stages, but they do take time and much effort to win.

6.  Get a loan or line-of-credit.

This is only a viable alternative if you have personal assets or a home you are willing to commit as collateral to back the loan or credit card. In general, banks won’t give you a loan until the business is cash-flow positive, no matter what the future potential. Nevertheless, it’s an option that doesn’t cost you equity.

7.  Join a startup incubator.

A startup incubator is a company, university, or other organization which provides resources for equity to nurture young companies, helping them to survive and grow during the startup period when they are most vulnerable. These resources often include a cash investment, as well as office space, and consulting.

8.  Barter your services for their services.

Bartering technically means exchanging goods or services as a substitute for money. An example would be getting free office space by agreeing to be the property manager for the owner. Exchanging your services for services is possible with legal counsel, accountants, engineers, and even sales people.

9. Joint venture with distributor or beneficiary.

A related or strategically interested company may see the value of your product as complementary to theirs, and be willing to advance funding very early, which can be repaid when you develop your revenue stream later. Consider licensing your product or intellectual property, and “white labeling.

10. Commit to a major customer.

Find a customer who would benefit greatly from getting your product first, and be willing to advance you the cost of development, based on their experience with you in the past. The advantage to the customer is that he will have enough control to make sure it meets his requirements, and will get dedicated support.

The good news is that the cost for new startups is at an all-time low. In the early days (20 years ago), most new e-commerce sites cost a million dollars to set up. Now the price is closer to $100, if you are willing to do the work yourself. Software apps that once required a 10-person team can now be done with the Lean Development methodology by two people in a couple of months.
The bad news is that the valley’s depth before real revenue, considering the high costs of marketing, manufacturing, and sales, can still add up to $500K, on up to $1 million or more, before you will be attractive to Angel investors or venture capital.
In reality, the financing valley of death tests the commitment, determination, and problem solving ability of every entrepreneur. It’s the time when you create tremendous value out of nothing. It’s what separates the true entrepreneurs from the wannabes. Yet, in many ways, this starting period is the most satisfying time you will ever have as an entrepreneur. Are you ready to start?

The Journey of the Startup

]]> http://www.michaelburcham.com/journal/10-ways-startups-survive-the-valley-of-death/feed/ 0 http://www.michaelburcham.com/journal/secrets-of-greatness/ http://www.michaelburcham.com/journal/secrets-of-greatness/#comments Fri, 08 Feb 2013 23:06:25 +0000 Michael Burcham http://www.michaelburcham.com/journal/?p=776

None of us become great without hard work. It’s nice to believe that if you find the field where you’re naturally gifted, you’ll be great from day one, but it just doesn’t happen. There’s no evidence of high-level performance without experience or practice.

Reinforcing that no-free-lunch finding is vast evidence that even the most accomplished people need around ten years of hard work before becoming world-class, a pattern so well established researchers call it the ten-year rule.

And as John Horn of the University of Southern California and Hiromi Masunaga of California State University observe, “The ten-year rule represents a very rough estimate, and most researchers regard it as a minimum, not an average.” In many fields (music, literature) elite performers need 20 or 30 years’ experience before hitting their zenith.

So greatness isn’t handed to anyone; it requires a lot of hard work. Yet that isn’t enough, since many people work hard for decades without approaching greatness or even getting significantly better. What’s missing?

For most people, work is hard enough without pushing even harder. Those extra steps are so difficult and painful they almost never get done. That’s the way it must be. If great performance were easy, it wouldn’t be rare. Which leads to possibly the deepest question about greatness. While experts understand an enormous amount about the behavior that produces great performance, they understand very little about where that behavior comes from.

The authors of one study conclude, “We still do not know which factors encourage individuals to engage in deliberate practice.” Or as University of Michigan business school professor Noel Tichy puts it after 30 years of working with managers, “Some people are much more motivated than others, and that’s the existential question I cannot answer – why.”

The critical reality is that we are not hostage to some naturally granted level of talent. We can make ourselves what we will. Strangely, that idea is not popular. People hate abandoning the notion that they would coast to fame and riches if they found their talent. But that view is tragically constraining, because when they hit life’s inevitable bumps in the road, they conclude that they just aren’t gifted and give up.

Maybe we can’t expect most people to achieve greatness. It’s just too demanding. But the striking, liberating news is that greatness isn’t reserved for a preordained few. It is available to you and to everyone.

You say you want to start a company, but do you really think you have what it takes? You may be a detail-oriented geek or a visionary, a hyper-active multi-tasker or an obsessive, and have an equal chance of success. But there are certain character quirks that entrepreneurship simply demands. After building startups myself and investing in many others over the past 20 years, I hold these four traits to be non-negotiable.

1. You must be up for an adventure. Starting a company or investing or joining a startup is like embarking on a four-week backpacking journey with enough food for one week. You don’t know where you or your company will be a year out; you don’t know how many people will be with you. You have to be comfortable with uncertainty. You should a clear vision on the end point, but the journey is very unknown.

Look back at the times in your career when the future has been uncertain. Were those the times that you thrived? Were you the irrationally positive person in the room? Were you the one firing up the team when everying seemed bleak? If you were not, let me say this: You at least have to be smart (and honest!) about your shortcomings, then hire someone who can do that for you.

As an investor, I prefer to see an entrepreneur who can do a little bit of everything without stressing when things fall outside his or her comfort zone. But I also recognize that a crack team of founders can be just as effective (if not more effective) than a one-man show.

2. You have to be patient. Success will not happen overnight. This may be hard to believe if you’re constantly reading tech blogs, in which it seems to be gospel that billion-dollar valuations come to everyone who shows up. But the fact is, the companies that have endured took years to build. Starbucks opened in 1971, and eight years later they still had only operated a handful of stores. Spotify has been around since 2008. Amazon took 9 years to turn a profit.

You need to understand that the problems truly worth solving, the big industry problems, will not be wrapped up neatly in a year or two. It may take decades, and you will almost definitely have to make many adjustments to your initial vision. You’ll have to persevere through unfavorable conditions. But if you don’t easily discourage, you will always have a better chance of succeeding.

3. You can’t be a perfectionist. This is not a business where you will be able to spend all of your time and energy fixing one problem.  Good entrepreneurs can find a way to jump into the fray and start implementing ideas and solutions, even if they don’t have all the answers. You have to be comfortable covering a wide territory, with knowing a little bit about a lot of things, rather than a great deal about one thing. Compromise is essential for survival. If you can easily check off all the risk factors when looking at a problem, it’s probably not a problem worth solving. So embrace the messiness. You’re going to learn more about what your battle plan should look like, and what challenges you need to expect, as you go along.

4. You have to be your company’s best sales person.  Finally, it’s essential to remember that you must be, at your core, a great salesperson. You need to be able to sell your vision to potential partners, investors, and customers. If you can’t successfully do this, you’ll have a tough time getting very far. You’re going to be the first person to introduce the world to your product, and first impressions are important. Everyone wants to hear about your passion from you. Learn the most common questions and reservations that people will have. They’ll want to know why what you’re doing is valuable. Cut out the jargon and speak to the heart of the matter. Start at the core, and then fill in the details. You have to hook them with the big picture before they can appreciate the nuances.

You wouldn’t be reading this if you didn’t have great faith and excitement in your idea. But you don’t have a real business until you can enkindle that faith and excitement in others.

http://www.inc.com/mehdi-maghsoodnia/what-to-expect-when-you-start-up.html

WASHINGTON — The Obama administration will soon take on a new role as the sponsor of at least two nationwide health insurance plans to be operated under contract with the federal government and offered to consumers in every state.

These multistate plans were included in President Obama’s health care law as a substitute for a pure government-run health insurance program — the public option sought by many liberal Democrats and reviled by Republicans. Supporters of the national plans say they will increase competition in state health insurance markets, many of which are dominated by a handful of companies.

The national plans will compete directly with other private insurers and may have some significant advantages, including a federal seal of approval. Premiums and benefits for the multistate insurance plans will be negotiated by the United States Office of Personnel Management, the agency that arranges health benefits for federal employees.

Walton J. Francis, the author of a consumer guide to health plans for federal employees, said the personnel agency had been “extraordinarily successful” in managing that program, which has more than 200 health plans, including about 20 offered nationwide. The personnel agency has earned high marks for its ability to secure good terms for federal workers through negotiation rather than heavy-handed regulation of insurers.

John J. O’Brien, the director of health care and insurance at the agency, said the new plans would be offered to individuals and small employers through the insurance exchanges being set up in every state under the 2010 health care law.

No one knows how many people will sign up for the government-sponsored plans. In preparing cost estimates, the Obama administration told insurers to assume that each national plan would have 750,000 people enrolled in the first year.

Under the Affordable Care Act, at least one of the nationwide plans must be offered by a nonprofit entity. Insurance experts see an obvious candidate for that role: the Government Employees Health Association, a nonprofit group that covers more than 900,000 federal employees, retirees and dependents, making it the second-largest plan for federal workers, after the Blue Cross and Blue Shield program.

The association, with headquarters near Kansas City, Mo., was founded in 1937 to help railway mail clerks with their medical expenses, and it generally receives high scores in surveys of consumer satisfaction.

Richard G. Miles, the association’s president, expressed interest in offering a multistate plan to the general public through insurance exchanges, but said no decision had been made.

“Our expertise in the Federal Employees Health Benefits Program would be useful in the private marketplace,” Mr. Miles said in an interview. “But we are concerned about the underwriting risk in providing insurance to an unknown group of customers.”

To be eligible to participate in the multistate program, insurers must be licensed in every state. The Government Employees Health Association recently bought a company that has the licenses it would need.

The new health care law stipulates that at least one of the multistate plans must provide insurance without coverage of abortion services. If a plan does cover abortions, it must establish separate accounts, one with money for abortion and one for all other medical services.

National insurance plans will be subject to regulation by the federal government, state insurance commissioners and state insurance exchanges. That mix could cause confusion for some consumers who have questions or complaints about their coverage.

The federal standards will pre-empt state rules in at least one respect: the national health plans will automatically be eligible to compete against other private insurers in the new exchanges, regardless of whether they have been certified as meeting the standards of those exchanges.

The administration has promised to “work cooperatively with states.” But it is unclear whether the government-sponsored plans will have to comply with all state laws and consumer protection standards; whether they will have to comply with state benefit mandates; and whether they will have to pay state fees and taxes levied on other insurers to finance exchange operations.

The National Association of Insurance Commissioners, which represents state regulators, expressed alarm at the prospect of a double standard.

“It is absolutely essential that multistate plans compete on a level playing field with other qualified health plans, which are subject to state insurance law,” the association said in a letter to the Office of Personnel Management.

Consumer groups expressed similar concerns. The national insurance plans and other carriers must be subject to identical standards, they say, or consumers cannot make valid comparisons.

“Multistate plans have real potential benefits for consumers,” said Ronald F. Pollack, the executive director of Families USA, a liberal-leaning consumer group. “But there is also potential trouble if the multistate plans are exempted from some consumer protection standards.”

Robert E. Moffit, a senior fellow at the conservative Heritage Foundation, said he worried that “the nationwide health plans, operating under terms and conditions set by the federal government, will become the robust public option that liberals always wanted.”

Insurers are pleading with the Office of Personnel Management to provide more detailed guidance.

“We are concerned that O.P.M. has not yet released rules specifying the requirements for the multistate plan,” said Jay A. Warmuth, a lawyer at UnitedHealth Group, one of the nation’s largest insurers.

Rules for the new program have been under review by the White House for three months, and officials said they would be issued soon.

A Video Message from One of My Students: Mia Cole

Mia was a student of mine at Vanderbilt.  Such an incredibly talented young lady.  It was such an honor to have the opportunity to be a part of her journey as she discovers her own vocation:  that place where the heart’s deep gladness meets the world’s great needs.

By Scott Gottlieb

SAN FRANCISCO — Seventeen leading universities in the U.S. and abroad will start offering free cyber courses through the online education platform Coursera, the company said Wednesday.

The announcement by Mountain View-based Coursera underscores the rapid expansion of so-called MOOCs, or massive open online courses, that are reshaping the higher education landscape.

The new Coursera partners include Brown, Columbia, Emory, Vanderbilt and Wesleyan universities, as well as Berklee College of Music and Mount Sinai School of Medicine.

The foreign universities added are Hebrew University of Jerusalem, University of British Columbia, University of London, University of Melbourne, and Hong Kong University of Science and Technology, Coursera said.

The new additions include five public institutions: Ohio State University, the University of Florida, University of Pittsburgh, University of Maryland and University of California, Irvine.

“As boundaries and limitations begin to disappear in the world of higher education, Coursera is clearly an up-and-coming player on the global stage and we look forward to partnering with them,” University of Florida President Bernie Machen said in a statement.

EdX, a competing online platform founded by Harvard University and the Massachusetts Institute of Technology, announced this month that it will start giving students the option of taking proctored final exams, which will allow them to earn independently validated certificates to show potential employers or educational institutions.

In a report issued last week, Moody’s Investors Service said the growth of the online courses could help participating universities generate new revenue, increase brand recognition and become more efficient.

However, the Moody’s authors warned that such courses, which can reach an unlimited number of students worldwide, could hurt for-profit education companies and less selective nonprofit colleges that could see reduced student demand.

The future of business education is all about critical thinking and creating. It’s nimbleness that we need to be able to create in our students. It’s not so much about how to manage, but how to create. And those skills are largely absent in most MBA graduate education.

All leaders, even in Fortune 500 companies, need to develop an entrepreneurial mindset. It’s about using entrepreneurship as a method coupled with an international focus that will be the critical success factor for future business leaders. The goal is taking entrepreneurship to the world. Entrepreneurship is a driver for social and economic change.

Thinking about getting an MBA?  Then you better know why. And the reason for getting an MBA needs to be your own. Perhaps you want to broaden your knowledge or deepen your finance skills – or maybe find out if entrepreneurship is for you. Whatever your goal, an MBA is a very expensive experience. If you don’t know why you’re there, then you probably shouldn’t be.  And saying that the job market is terrible and an MBA will help me get a job – wrong!

The best students I have view their MBA tactically: a step on the way to a specific destination they’re determined to reach. They pick their classes strategically. They aren’t afraid to argue – because they know they need to stretch themselves. They are following their own agenda and plan, not some school’s vanilla plan created mostly by folks who never have (nor never will) successfully run a business.

My view on grades?  You’re not there for the grades: you’re there for the learning. Not for the external validation that you can pass someone’s test – but your internal, personal development. Apart from not flunking out, you shouldn’t be there for the grades. (And by the way, I have never known an employer ask about your MBA grades.)

Are these students high-maintenance? Most all the time!  But I love them for that. I admire their determination and focus and I take them very seriously. If they can apply that kind of critical thinking to their careers, they stand a far better chance of applying it to their businesses.

So at the risk of annoying every other business school professor out there, here’s my advice: to get your money’s worth from your MBA, know why you’re there, pursue your goal ruthlessly and with total focus. Forget about grades and bend the program to meet your needs.