A lot of executives have noticed that the workplace is being flooded by a new generation of workers, and they are questioning who will be the winners, and who will be the losers. In reality, Gen-Y is here, and they are already inheriting our businesses, so let’s figure out how to make them winners, or we will all be losers.

By definition, Gen-Y is the generation born between 1977 and 1995 (synonymous with Millennials). There are about 80 million of them, and nearly two-thirds of them are already in the work force with full- or part-time jobs. They will inevitably be taking over after Gen-X from the baby boomers, who are now running most companies, but pushing 60.

Morley Safer of CBS News 60 Minutes fame, has long been the negative voice with his tongue-in-cheek quotes like “They were raised by doting parents who told them they are special, played in little leagues with no winners or losers, or all winners. They are laden with trophies just for participating and they think your business-as-usual ethic is for the birds. And if you persist in that belief, you can take your job and shove it.”

At the other end of this thought spectrum is Jason Ryan Dorsey, who last year published “Y-Size Your Business ,” on how Gen-Y employees can save you money and grow your business. Naturally, he is a member of Gen-Y himself, and he presents an insider’s perspective on how these career starters bring tremendous potential to the workplace.

He argues that the generational disconnect that many employers are experiencing with Gen-Y is pretty standard. Every new generation that enters the workforce causes criticism, frustration, and stress for the generations already employed. I think it’s pretty obvious that he is right.

Although every new generation causes friction and head shaking in the workplace, Ryan points out three factors converging on our current workforce that are extraordinary – factors that are radically raising the stakes for companies to figure out how to best utilize Gen-Y:

• The economic downturn is still affecting the national and global economy. At many companies, employee costs are the largest operational expense. Gen-Y is often the least expensive employee to hire, especially when you factor in benefits. The challenge is knowing how to employ them, and how to manage them.

• Gen-Y’s have a fundamentally different attitude toward work. Gen-Y is the first generation to enter the current workforce without any expectation of lifetime employment. Earning their loyalty means doing things differently, but not necessarily paying more. Gen-Y has to feel a fit, and then they are intensely loyal.

• A four-generational collision is happening in the workplace. For the first time ever, four distinctly different generations are working side by side – Matures (born before 1946), Boomers (1946-1964), Gen X (1965-1976), and Gen-Y. When generations don’t work well together, operational costs go up and effectiveness goes down.

Safer and many others are convinced that the workplace has become a psychological battlefield and Gen-Y has the upper hand, because they are tech savvy, with every gadget imaginable almost becoming an extension of their bodies. They talk, walk, listen, and text – sometimes all at the same time.

I don’t believe it should be viewed as a battlefield, and I’ve written previously about how to productively lead Gen-Y, and how to capitalize on the change they bring to the workplace. In fact, I’m convinced that the current tough economic times will be the reality check that many of them need to balance their idealism, and solidify their work ethic.

You have an opportunity to make an entire generation of 80 million people your competitive advantage early, or just wait until they take it away from you. Why not make it your strategic initiative, and a positive legacy for yourself? I’m accepting the challenge. How about you?

If your startup desperately needs an investor, you may not care if the investor is a so-called “angel” investor, or a venture capitalist (VC). The money is the same color in either case. But I have found that making the right choice at the right time can have a major impact on your long-term success, and the decision process is complex.

The basics are simple. Angels are typically high net-worth individuals, investing their own money, interested more in early or “seed” financing of amounts starting as low as $25K. Venture capitalists are professionals, investing other people’s money from a fund, interested mostly in later rounds, in chunks of money from $2M up. Between these extremes is a large overlap.

But beyond the numbers, there are many factual and subjective issues that you should be aware of before you step into the game. These include the following:

1. Investment control. Angels typically have simpler term sheets, don’t squeeze so hard on valuations, and are more realistic on time-frames. VCs tend to exert more control over the team and assert financial control over the company, its strategy and exit plans. Ultimately a larger VC investment can also narrow exit options.
2. Type of startup. Venture capitalists seek to fund businesses with the potential to be enormous. In addition, most venture capitalists want startups that have clearly defined economies of scale (such as software companies) vs. ones that scale linearly with some factor (such as service companies). Angels are less type-focused.
3. Expected return rate. Most venture capitalists tell you that they look for 30% annual return, or 10 times initial investment in 3-5 years. Another rule of thumb is a target of 50% IRR (a discounted cashflow calculation). Angels will look at lesser opportunities, but both recognize that many ventures fail, meaning the targets are high to improve the average.
4. Total money needed. I already mentioned that if you are looking for a specific raise of less than $2M, you are in angel territory. But it goes further than that. If the total money you’re looking to raise over the life of your company to be cash-flow positive is greater than $3M, or you will likely need money to scale, you need to work the VC territory.
5. Team experience. Successful serial entrepreneurs usually find it easier to raise money from venture capitalists. If you’re a first-time entrepreneur, that doesn’t mean you can’t raise VC money, but you’re going to find it more difficult getting VC traction.
6. Founder network. If you’ve never met a venture capitalist before and none of your colleagues have built companies with VC funds, you probably won’t get VC traction either. In contrast, if your best friend’s father is the CEO of a Fortune 1000 company, you might readily find a valuable set of angels.
7. Value-add. This is the most debated, but most important item. The value-add of both angels and VCs is totally dependent on the individuals involved, but on average VCs are likely to add more value than angels. They focus on specific business areas, have multiple deals running concurrently, understand deal flow, and usually have more current insights, connections, and resources.

Personally, I think it all comes down to the investor fit and the stage of the start-up game you are in. It’s definitely better to have people who have built businesses on your side. If you plan to exit in the near future, it’s important to have investors who have backed high-growth businesses.

For all cases, relationship is the key ingredient to a successful deal. It is very important to be able to communicate with your investors openly and honestly. If they respect and trust you as a person and you respect and trust them, it will be much easier to weather the inevitable storms. It’s easy to take any money that’s green, but in the end it can be more costly than it’s worth.

All too many startups are founded simply on the basis of a new and exciting technology invented by an industrious technologist. This is the origin of the “solution looking for a problem” and “if we build it, they will come” syndromes, which result in surprise and frustration waiting for funding, and waiting for customers that don’t materialize.

The right approach is to start by solving a problem causing real pain to a large number of customers willing to pay real money for a solution. Develop the solution with your technology, and develop a strategy to maximize your impact in the marketplace. I’ve talked about the solution part several times, so this article will focus on the value of a strategy.

Here are five good reasons for setting the strategy early, as summarized by Mark Thompson and Brian Tracy in their new book “Now, Build a Great Business!” They emphasize that before the “What” should come the “Why?” Although their book is written for businesses of all sizes, I believe the principles apply especially to startups as follows:

1. To increase return on equity invested. The first purpose of a strategy is to organize and reallocate your resources to increase return on the amount of money invested in your startup to-date. It is to earn more bottom-line profit-ability than a random walk.
2. To position yourself relative to your competitors. Business strategy allows you to change customer perceptions and responses to your product or service offerings. Don’t simply become a “me too” offering, but work on innovative approaches and changes in customer preferences that may not yet be covered by competitors.
3. To capitalize on strengths and opportunities. You must take advantage of those special team talents and product capabilities that make your startup superior to your competition, and do things that your competition cannot duplicate in the short term.
4. To form a basis for making better decisions. All strategic and business thinking must lead to immediate action to increase sales and profitability potential, relative to your competition. No strategy leads to no decisions or poor decisions.
5. To attract investors and financing. Look at your startup through the eyes of a potential lender or investor, and create a strategy and plans that make your company an attractive place to invest. The startups that typically receive the most dollars in first-time financings are ones that have at least four things going for them:
   • Experience in related fields. Investors highly prize gifted leaders who are business veterans with experience in similar ventures, who can move quickly and effectively.
   • Great business model. Your offering should open new, large markets in ways that are tough for competitors to copy quickly.
   • Scalability. Show that your business can build the necessary products and services rapidly and achieve economies of scale with minimum capital and labor.
   • Intellectual property (IP). Patent protection is no guarantee, but it does improve the chances of building businesses that have a sustainable competitive advantage.

Your business strategy starts with your value proposition and core competency. Most startups that find themselves struggling have a weak value proposition. This is why your value proposition is a critical piece of business strategy.

A successful startup, like chess, requires proper strategy, risk assessment, and effective decision making. Your focus on the end goal will dictate the choices you make, the ability to stave off threats, and lead to your success. Now it’s your move.

One of the first tough decisions that startup founders have to make is how to allocate or split the equity among co-founders. The easy answer of splitting it equally among all co-founders, since there is minimal value at that point, is usually the worst possible answer, and often results in a later startup failure due to an obvious inequity.

Another common “failure to start” situation I see is one where the “idea person” insists that the idea is 90% of the value (and 90% of the equity). In the real world, the “idea” is a very small part of the overall equation. A startup is all about “execution” – meaning the equity should be allocated based on the value that each partner brings to the table in each of these dominant variables:

1. Experience running a startup business. Running a new business starts with building a solid and credible business plan, working the investor funding process, and building an organization from nothing, with minimal resources. Successful Fortune 500 executives need not apply, since most would not have experience with any of these tasks.
2. Domain expertise and connections. If you are recognized as an expert in the business area of your startup, with a good reputation, and you know all the key vendors and customers, your value is huge. Building a product doesn’t get it distributed and sold. Expertise can be marketing, technical, financial, or sales.
3. Pre-existing intellectual property. Ideas are not intellectual property, until they have been converted into patents, trade secrets, trademarks, or copyrights. In many cases, one founder has started earlier and brings an important completed piece of work to the table, and that can have great value.
4. Sacrifice and time commitment. A part-time commitment, while holding down a “real” paying job, is obviously not the same as a full-time executive role, especially if the cash compensation is nonexistent, deferred, or at high risk.
5. Funding. Providing the major funding source for an early-stage startup is a totally different dimension, but it usually trumps all the items above in demanding some equity. For purposes of commitment and business decision making, I always recommend that execution partners retain control of at least 50% of the equity.

An arbitrary, but perhaps rational equity factoring approach would be to assign each of these five items as 20% of the total, and allocate equity based on each partner’s relative contribution to each. For example, if your rich uncle is providing all the initial funding, but has no active business role, it might be smart to offer him a 20% slice of the pie.

Equity allocation is usually the first point in a startup where outside help should be considered (legal counsel, potential investors, startup advisors), as they may be able to provide experience and more importantly, an unbiased view that the entire team can trust.

An important key is NOT to dodge the discussion up front, come to some agreement quickly, and write it down. If you and your potential partners can’t get through this discussion in a timely fashion and come to agreement, then it’s unlikely that your startup can ultimately survive anyway. Startup decisions only get harder later, never easier.

Even still, regardless of the initial equity split, you should seriously consider vesting your founders shares over at least two years. This means they will be meted out month-by-month, and a partner who changes his mind or defects early will not walk away with half the company.

The next big challenge for a multi-partner startup is the allocation of roles. Who will be the CEO, CFO, and CTO? The same variables apply, but here skills and experience are paramount. If you are an inventor and have the key patent in hand, that doesn’t mean you should be CEO. Of course, holding key assets and money always provide leverage to management rights as well as economic rights.

All partners should never forget that their allocated shares are only the beginning, and will be diluted proportionately when outside funding is later required from angels or venture capitalists. Investors will be quick to remind you that a small percentage of something is worth more than 100% of nothing. The same logic applies to splitting equity with co-founders.

If your confidence is low about starting your own business, and you are tempted to “reduce the risk” by signing up for one of the many “work at home” startup offers you see, think again! These offers that you see on every social network and Craigslist are invariably scams.

The problem is getting worse. To stem the tide, the web giant Google late last year launched a legal battle against more than 50 companies that allegedly infringe upon the Google name to promote “work-from-home” scams. Their lawsuit came less than one month after a separate class action complaint was filed against one of these companies for a work-at-home scheme.

My definition of a scam here is any deal that wants some sort of cash payment before you can start “making money”. Typically you need pay a registration fee; or buy a starter kit, training materials or a database of hot leads. Take that as the base warning flag – you should never have to pay money to work!

If you are still tempted to beat the odds, and would like to be convinced that yours is the one-in-a-thousand “real” offers, here are a few more action items you should consider before you commit:

1. Contact the company. Try to find out the company name and contact information. If there is only an email address, they are likely not a legitimate business. Test the contact info. If it’s an 800 phone number, listen to see if the ringing tone changes while you’re waiting to be connected: that’s a giveaway to calls diverted to an overseas base.
2. Ask for an interview. Ask yourself what kind of company would hire someone based on an e-mail, rather than a face-to-face or phone interview. If the company does not require an interview, as a potential employee or contactor you have a right to ask them why. You can also ask them what kind of screening they do for their employees if they do not interview them.
3. Check company location. Is the company overseas, or have no location specified? Beware of companies or individuals overseas who ask you to cash money orders or checks and offer to let you keep a portion – these are always scams.
4. Google name or details. An Internet search could give you revealing information about the company or let you know how their scam operates. It is wise to do an Internet search of a company before you begin to work for them or before you send a payment. An Internet search may show feedback from other people who have been scammed by the company.
5. Check posting frequency. Many scammers use an automated spamming program to post jobs repeatedly and throughout different cities. If you notice a posting that is re-posted every day or multiple times a day, this is usually a telltale sign that the post is a scam.
6. Pay by credit card. This one may sound counter-intuitive, but liability for online credit card purchases is usually limited to $50, if you are dissatisfied and report the transaction. Some credit card issuers will even waive the $50 deductible.

Of course, it goes without saying that you should never provide personal information, like social security number, bank account info, or credit card numbers to anyone to secure a job opportunity. The final test is that when something sounds too good to be true, assume it is a scam.

So even if your confidence is low about running a business, remember that you can actually reduce your risk by doing your own startup, compared to the other “low risk” alternatives on the Internet. Keep your wits about you, and save a friend tomorrow by helping Google clean up the problem today.

A while back, I wrote about the importance of a “sustainable competitive advantage,” and outlined the business plan value and limitations of patents and competitor feature comparisons. But once you start selling products, all of these pale in comparison to your level of customer service.

I agree with John Spence, in his book “Awesomely Simple,” that in a world of nearly limitless product options and highly educated consumers with instant access to price, features, and benefits of almost every product, delivering consistently superior customer service is the only differentiator left for creating loyal and engaged customers.

Here are the top ten suggestions from John and others for how to create a culture of extreme customer focus in your organization:

1. Create a customer service vision. Much like creating a vision statement to direct the organization, you should also create a clear and compelling “customer service vision” that describes the level of service your organization aspires to deliver.
2. Exceed customer expectations. Show a relentless commitment to exceeding, not just meeting, expectations. Customers can’t tell you how to exceed their expectations, but they know it when they see it, they remember, and they tell their friends.
3. Continuous customer service innovation. Many companies have an ongoing product innovation focus, but rarely think about customer service innovations. Define specific innovation objectives and rewards for improving the customer experience.
4. Create superior customer value. Focus on creating superior value for your customers, and they will love you. This means know your competitors, technologies, and alternatives available. Match your offerings to your target customers better than anyone else.
5. Own the “voice of the customer”. The only critic whose opinion counts is the customer. Create strong, trusting relationships with your customers. Solicit feedback, communicate that feedback to the entire organization, and then be sure to take action on the feedback.
6. Be the expert on delivering superior customer service. Find out everything you can about how to deliver great customer service. Steal the best ideas, benchmark against the top performers, and make improving customer service a core competency.
7. Train every employee to be a customer service champion. Empower employees with the tools, training, equipment and support they must have to deliver excellent service consistently. Reward and praise those who deliver, and deal quickly with any employee who does not embrace the service values.
8. Destroy barriers to delivering superior service. Look at all systems, policies, procedures, reports and rules. Wipe out anything that creates roadblocks or frustrations in the effort to delight and amaze the customer. Stupid rules that make it hard for employees to serve superbly can kill your business.
9. Measure, measure, and communicate. Create a clear, specific, well-thought-out and over-communicated program for systematically collecting and communicating the most important customer service delivery measurements to the people who can then act on them. Make it easy for your people to win.
10. Walk the talk. Every level of the organization, starting at the very top, must be a living example of your service strategy. If you do not deliver excellent service to your internal customers—promptly returning phone calls, showing up on time for meetings, and acting professionally—there is no hope that your front-line people will deliver great service.

Sustainable competitive advantage was once based primarily on characteristics such as market power, economies of scale, technology lead, and a broad product line. The advantage today has shifted to companies whose customer focus is superior. As a startup, you have the opportunity to lead. Use it, and don’t lose it.

In addition to the “green” sector, which I outlined a few weeks ago, I see biotech as one of the places where startups can always go for real opportunities. Recession-proof products with innovation continue to come from the biotechnology industry. Plus, it was the top industry attracting VC money in the most recent quarter of 2010, with a total of $944 million.

In its most general sense, biotech is used to refer to any sort of technology that uses biology or other medical technology to accomplish its end. It includes the use of microbes, or life processes, to produce materials and products that are useful to mankind.

Two top-notch analysts in this area, Eric Schmidt and Ross Muken say in Forbes “True innovation and products with a more durable revenue stream are coming from the biotechnology side of the industry,” They argue that biotech drugs treat life-threatening diseases – so recessions barely dent sales growth.

The hot areas of research today are cancer, AIDS, diabetes, heart disease, neurological diseases, immunological diseases, viral infections and tissue regeneration, where there is a high degree of incidence in the population.

Success in these areas will ensure a faster return on investment in R&D and licensing efforts. An alternative is to start a niche company with an orphan drug that, if successful, is protected from competition for several years. There is always money around for the right team and the right plan, and I believe biotech is a good area to start from.

If you are looking for the ideas on top of the list, I recommend you start with one of the following hot areas of biotech. Each one has the potential of annual sales more than $1 billion, which puts it in the new “blockbuster” drugs category:

• Metabolic disorders. “Metabolic syndrome” is the politically correct term for patients who are obese, diabetic, and face increased risk of heart disease. Now that half of the U.S. population is technically obese or overweight, an effective diet pill has become the Holy Grail of drugs.

• Vaccines. With new products to prevent cervical cancer, avian flu, and the common cold, vaccines are back in vogue. There are many other novel vaccines now on the table for development, ready for entrepreneurs who can license and commercialize them.

• Infectious diseases. Now that HIV has been transformed from a death sentence to a chronic disease has turned the infectious-disease-drug market into a multibillion-dollar industry. The next frontier is an effective treatment for Hepatitis C. Current drugs have terrible side effects and only “cure” 50% of patients.

• Lowering blood cholesterol. Drugs in this category are commonly called “statins.” They not only control blood cholesterol, but also stabilize plaque and prevent strokes through anti-inflammatory and other mechanisms. This is a huge need as the population ages.

Another biotech subcategory with opportunity is new medical devices. A friend of mine, a distinguished physician and surgeon, happens to manage a small private investment fund seeking early stage companies with new medical devices that have an established market. If you know a hot new startup in this area, I’m interested.

There’s never been a more exciting time to be a biotech startup. People tell me that “Big Pharma” companies have nearly $100 billion in cash that will keep buyout offers large. There are plenty of Holy Grail areas to focus on. How can you argue with this logic? Now is the time to jump in.

In these tough economic times, more and more people are turning to entrepreneurship as an alternative to traditional employment. I applaud this trend, but caution all of you thinking this direction to approach entrepreneurship with your eyes wide open. It is not for everyone, as the entrepreneur’s path is fraught with challenges.

Many experts have tried to clearly lay out the criteria for success in a way that allows you to judge your own situation and your own temperament, and make a rational decision before starting down this path. One of the best summaries I have seen is a new book by Bill Murphy, Jr., titled “The Intelligent Entrepreneur,” which outlines the ten rules of successful entrepreneurship, as follows:

1. Make the commitment. Entrepreneurship can be learned. But you have to be committed to the process of building your own thing and the act of creating something, rather than just coming up with an idea. It will likely take several ideas, with the learning process of failing on a couple, before you can call yourself a successful entrepreneur.
2. Find a problem, then solve it. Rather than finding a new idea first, try finding a problem first. Problem solvers make successful entrepreneurs. Idea people are dreamers, who often don’t enjoy the hard work of a solution in a specific timeframe to make money.
3. Think big. Thing new. Think again. In other words, make sure your solution will scale up. Professional investors will tell you they look for business plans that can credibly project revenues of at least $20M within five years, or they won’t justify an investment.
4. You can’t do it alone. Have a support team of people you know and trust. An idea person and a problem solver make a great team. Successful entrepreneurs have to work well with people, whether they be partners, investors, employees, suppliers, or customers.
5. You must do it alone. But the dichotomy is that there are things that you have to do alone. “The buck stops here.” You have to be decisive, accept responsibility, and provide the vision. Vision is not a group-think activity. Sometimes decisions have to be made quickly, and with very little hard data, so you need the confidence in your gut.
6. Manage risk. Without risk, there can be no innovation. Not every idea can, or will, be a winner. Fear of failure will kill innovation, but reckless disregard for risk will kill a business. The successful entrepreneur is able to find the balance between these two extremes.
7. Learn to lead. In a startup, the entrepreneur leader has to do two things. First, drive the business creation process, and secondly, inspire all the others. The others include the rest of the team, investors, and customers. That means hands-on leadership and effective communication.
8. Learn to sell. Don’t believe the old myth that “if we build it, they will come.” Selling is a learned skill, and takes effort, just like building a product. Everyone in your startup, especially the entrepreneur, needs to understand sales, and needs to be a salesman.
9. Persist, persevere, prevail. Experts say the prime cause of failure in business is quitting too soon. The successful entrepreneur never gives up, and uses creativity to overcome all obstacles, including personal, financial, and technical ones.
10. Time, not money, is the key resource. Entrepreneurship is a lifestyle, not a job. Be prepared to play the game for life. There are no quick fixes, or quick get-rich solutions. Learn to manage and balance your time; it’s the one thing that belongs to you alone. Great entrepreneurs have a life outside of work, and find time to give back.

Reporter Bill Murphy compiled his book based on three real-life success stories of Harvard graduates, all of whom proved the points by their failures as well as successes. There is no magic here, but I believe these rules can shorten the learning curve and increase the success rate for every budding entrepreneur.