Most of the entrepreneurs I know realize they have some bad habits, like maybe procrastination or not listening well, so they focus on dropping these. New studies indicate that a more productive approach would be adopting new good habits and behaviors that clearly move your business forward, like good time management and implementing customer recommendations.

These two approaches may sound similar, but actually require different skill sets. For example, learning to stop smoking may leave you with a gap to fill, but finding activities that remove your urge to smoke really gets you where you want to be. I recommend the following six techniques for solidifying good habits from “The Compound Effect,” by successful entrepreneur and writer Darren Hardy:

1. Set yourself up to succeed. Any new habit has to work inside your life and lifestyle. If you want personal healthy think time at a gym, don’t find one that is thirty miles away, because you won’t go. For better time management, tell everyone that you will be closing the door to you office during specific times of the day, and ask for their support.
2. Think addition, not subtraction. Instead of focusing on what you have to “sacrifice,” think of what you can “add in” to improve your business effectiveness. For example, most founders find that adding good customer discussions has a more satisfying payoff than just eliminating expensive marketing consultants.
3. Go for a public display of accountability. Put your commitments of a new good habit, like rewarding good performance, on public display by announcing a recognition event to be held each week in the office. Now you will be motivated to follow through, and the whole team will give you the positive feedback you need to keep it going.
4. Find a success partner. There are few things as powerful as two people locked arm in arm marching toward the same goal. If your bad habit is staying late at the office, link with one or more of your other key executives to retire to the gym at 5 pm sharp three times a week. You will all get out of the office, feel better, and make more decisions.
5. Use both competition and camaraderie. There is nothing like a friendly contest to whet your competitive spirit and immerse yourself in a new habit with a bang. It’s easy in a new business to inject a fun rivalry and a competitive spirit into improving your marketing programs, or improving production cycles.
6. Celebrate each small step of success along the way. All work and no play is a recipe for backsliding. You’ve got to find little rewards to give yourself every week or every day, even something small to acknowledge that you’ve held yourself to a new behavior. Measure results and promise yourself a real pot of gold at the end of the rainbow.

Change is hard. That’s why so many people don’t either give up their bad habits, or adopt new good ones. Successful entrepreneurs are the extra-ordinary ones that make the changes anyway. They just do it, and keep doing it, and the magic of compounding rewards them handsomely.

Another challenge is that your brain is not designed to make you happy. It is programmed to seek out the negative and optimize survival, and is always watching for signs of “lack and attack.” That’s why every entrepreneur spends so much time worrying about failures, lack of customers, and competition. We have to teach our minds to look beyond these, through discipline and being proactive about what we allow in.

But learning and discipline without execution is worthless. In the big picture, the habits you develop and nurture shape your destiny. Little everyday habits will take you either to the life you desire or to disaster by default. Spend more time instilling good ones, and the bad ones will disappear for lack of attention, making you a more savvy and successful entrepreneur.

Most people think innovation is all about ideas, when in fact it is more about delivery, people, and process. Entrepreneurs looking to innovate need to understand the execution challenge if they expect their startup to carve out a profitable niche in the marketplace, and keep innovating to build and maintain a sustainable competitive advantage.

Everyone thinks they know how to make innovation happen, but I can’t find much real research on the subject. At the same time, myths about innovation are commonplace in business. Vijay Govindarajan and Chris Trimble, in their book “The Other Side of Innovation: Solving the Execution Challenge” have done the best recent research I have seen on this subject.

They take you step-by-step through the innovation execution process, in the context the ten most common myths about innovation, which I think makes their approach particularly instructive:

1. Innovation is all about ideas. While it is true that you can’t get started without an idea, the importance of the Big Hunt is vastly overrated. Ideas are only beginnings. Without the necessary focus, discipline, and resources on execution, nothing happens.
2. A great leader never fails at innovation. When in comes to innovation, there is nothing simple about execution. The inherent conflicts between innovation and ongoing operations are simply too fundamental and too powerful for one person to tackle alone.
3. Effective innovation leaders are subversives fighting the system. Effective innovation leaders are not necessarily the biggest risk takers, mavericks, and rebels. The primary virtue of an effective innovation leader is humility. What you want is integration with real world operations, not an undisciplined and chaotic mess.
4. Everyone can be an innovator. Ideation is everyone’s job, as are small improvements in each employee’s direct sphere of responsibility. Yet most team members don’t have the bandwidth or interest to do their existing job, and well as address major innovations.
5. Real innovation happens bottoms-up. Innovation initiatives of any appreciable scale require a formal, intentional resource commitment. That requires the focus and resources from top executives to sustain, even initiate, relevant efforts.
6. Innovation can be embedded inside an established organization. Some forms of innovation can be imbedded, like continuous product improvement, but discontinuous innovation is basically incompatible with ongoing operations.
7. Initiating innovation requires wholesale organizational change. Innovation requires only targeted change. The first principle is to do no harm to existing operations. A common approach that works is to use dedicated teams to structure innovative efforts.
8. Innovation can only happen in skunk works. Innovation should not be isolated from ongoing operations. There must be engagement between the two. Nearly every worthwhile innovation initiative needs to leverage existing assets and capabilities.
9. Innovation is unmanageable chaos. Unfortunately, best practices for generating ideas have almost nothing to do with best practices for moving them forward. Innovation must be closely and carefully managed, during the 99% of the journey that is execution.
10. Only startups can innovate. Luckily for entrepreneurs, many large companies are convinced that they must leave innovation to startups. Yet research suggests that many of the world’s biggest problems can only be solved by large, established corporations.

Everyone agrees that the goal of innovation is positive change, to make someone or something better. Entrepreneurs need it to start, and established companies need it to survive. The front end of innovation, or “ideating” is the energizing and glamorous part. Execution seems like behind-the-scenes dirty work. But without the reality of execution, big ideas go nowhere, even in startups.

To be successful as an entrepreneur, you don’t have to be a fabulous person, but it helps. Some people, and some entrepreneurs, have that something extra, like Simon Cowell is searching for on the X-Factor, that you can’t quite put your finger on. But the entrepreneurs that have “it” seem to be able to effortlessly get team members, investors, and customers to follow them anywhere.

I just finished a book on this subject, “The Essentials of Fabulous,” by Ellen Lubin-Sherman, who has been tracking fabulous people most of her life, as a writer and journalist. She identifies less than a dozen primary qualities for fabulous people in general, and I have honed and tuned these to ten that apply especially to entrepreneurs, in my experience:

1. Be passionate about life, as well as your business. Entrepreneurs who have passion in business, as well as their life, may drive us all batty, but there is never a dull moment. These moments are always being transformed into options to be explored. They make life interesting and an adventure, and everyone loves an adventure.
2. Be delightfully authentic and honest. Authentic entrepreneurs are destined and determined to have fun, as well as move forward in business. They have an unerring confidence that’s inspiring yet attainable. They savor relationships, and are generous with themselves and their smarts, so they attract a savvy following.
3. Be revered for an amazing positive attitude. Rather than cave when things get tough, optimistic entrepreneurs go analytic, looking for pivots that keep their goals in sight. They are disciplined, upbeat thinkers, but they don’t take themselves too seriously, and know how and when to laugh it off. A negative attitude takes everyone down.
4. Be warm and completely accessible. Warmth comes from your smile, and facial expressions that indicate genuine interest. Investors and partners look for entrepreneurs that will look them straight in the eye when speaking, and give their full and undivided attention while you’re speaking. Everyone looks for “rapport talk” rather than “report talk.”
5. Have impeccable manners and flair. Entrepreneurs who are always looking for opportunities to be gracious and considerate are going to be liked, admired, sought after, and trusted. In business, that means staying connected, showing up on time, with no signs of boredom or preoccupation. It’s not always about you, so dress and talk for them.
6. Be competent and confident. Competent people accomplish more in business because they’re driven by a pronounced sense of purpose. They are willing to put themselves on the line, and have confidently done their homework to know what it takes. They are reliably consistent, and unafraid to ask for help.
7. Able to just “get it.” Entrepreneurs who “get it” are emotionally attuned to peers and customers, so that their gut-level instincts become informed judgments that move the business forward. “With-it”-ness takes work, like reading the right blogs every day, challenging yourself to stay abreast of the latest technology, and social media marketing.
8. Have a big bandwidth. Can you talk, with equal engagement and respect, to your company’s CFO and the guy who pumps your gas? Look for opportunities to praise and nurture the people with diversity. Get comfortable out of your circle of interest and expertise. Go for that black belt in networking.
9. Be vivid virtually. Developing a superior virtual presence requires a mastery of several mediums – phone, email, text messaging, as well as handwritten notes – but the payoff is undeniable. But don’t overuse virtual communication to the exclusion of face-to-face time In all cases, don’t forget your sense of aplomb, mastery of tone, and the spell-checker.
10. Build and use a board of advisors. The right board is a group of individuals who may not know one another, but know you, and know your business domain. Plus, they need to be willing to put their brains and their expertise at your disposal as long as you need it. No entrepreneur is an island, so take the initiative to build and use an advisory board.

Paying attention to all these things is how you become a fabulous entrepreneur, with the X-factor. I’m sorry, but there is no magic, and it doesn’t happen overnight. Of course, it will never happen if you don’t start or don’t believe. But it’s worth the effort, unless you have something better to do?

Just because you are an entrepreneur, or work in a startup, you can’t ignore the rules of building and maintaining relationships. Many despise these experiences in corporate environments, and leave for a startup, only to find that they have to be able to navigate a similar minefield there of workplace and business relationships to be successful.

Jan Yager, Ph.D., an author and speaker on this and related subjects, outlines in her latest book “Productive Relationships: 57 Strategies for Building Stronger Business Connections.” From my experience and hers, here are ten top relationship strategies for people in startups:

1. Create a favorable first impression. You only get one chance for a first impression. Don’t miss an opportunity for face-to-face communication, where you can use body language that welcomes relating, estimated at over 50% of all communication. Limit the use of e-mail and texting for early interactions, where you miss the body language.
2. Avoid negative personality types. By recognizing negative personality types, like the control freak, the blameless type, the idea thief, and the entitled, you will have a better chance of not taking his or her behavior personally. Avoid associating with them.
3. Proactively form relationships with positive types. These are the people who will help you to thrive and prosper. They include real mentors, facilitators, visionaries, motivators, and negotiators. Of course, it still pays to keep your eyes open and carry your own weight.
4. Find a way to motivate others to want to get along with you. Understand your own agenda, and figure out the agenda of others, hidden or obvious, to make it a win-win relationship. How can you appeal to others on an emotional level to work together?
5. Reexamine your attitude toward conflict. Some conflict is inevitable. The key is how to deal effectively with it. Recognize points of view, respond to what happened, resolve what needs to be resolved, and reflect on the lessons learned. Then move on.
6. Deal with the “back-off” before it turns antagonistic. Rather than have a confrontation, someone backs off. You can’t make someone want to deal with you, but you can try to increase their motivation to deal with you – like getting together for lunch, or trying to communicate in another way.
7. Benefit from harsh feedback about your work. Receiving criticism is never easy. Try some recovery techniques, like taking a deep breath, give yourself time, and look at the issue from their perspective. Keep your initial response short and sweet and in control.
8. Cope with the “lonely at the top” syndrome. One of the prices that you pay for being a CEO is giving up a lot of the social relationships within the company. There is a line beyond which you cannot go. You cannot compromise what is right for the company just to be liked. Join associations, or rely on your family for support and feedback.
9. Say goodbye, if leaving is the best option. Sometimes it’s better to just move on, rather than endure extended pain. Even if you cannot quit this instant, you can at least start looking for a new job. Be proactive in planning for your next position.
10. Use social networking to improve your work relationships. Savvy workers at all levels are using these sites to develop and strengthen their business relationships as well as to reconnect with previous business connections. Make your own luck by giving and seeking referrals.

Compounding these strategies in today’s startup environment are two divergent concepts: a heightened degree of competitiveness, and a greater emphasis on teamwork. This means you need even more emphasis on effectively engaging others, and learning to deal effectively with potentially negative work relationships.

The startup world of the past, run by a couple of autocrats, no longer works. To succeed in today’s collaborative, customer-driven, networked economy, requires real business relationship efforts by everyone involved. No matter where you are in the spectrum, there is no time like the present to kick it up a notch.

Most startups dream of attracting a celebrity endorsement, and assume that it will take their startup to the stars. There have been some “famous” recent successes in this regard, such as Charlie Sheen using Twitter to promote Internships.com, as well as some failures, including MyFavorites.com using celebrities to promote the books they are reading.

Startups using celebrities is such a hot topic these days that Gary Vaynerchuck, noted author and entrepreneur, has coined a new term “star-ups” for the phenomenon. New books are popping up on the subject of how and when to seek celebrity endorsements, including one I just finished, “Will Work for Shoes,” by Susan J. Ashbrook, who has courted celebrities for twenty years.

She helps you decide if celebrity endorsement is a viable and reasonable alternative for your business, and how do you go about selecting and approaching the right celebrity. Following is a summary of the challenges that Susan and other “experts” have outlined:

1. Finding a match between your offering and a celebrity.That means finding the perfect person for your brand. Their values need to match your brand image, including the perception of quality, educational value, as well as recognition by your target demographic. Be sure the celebrity really believes in your product.If you are selling to young consumers, Miley Cyrus or Justin Bieber may be high on your list. For technology products, even well-recognized investors, such as John Doerr or Ron Conway, are seen as celebrities, and startups supported by these players are automatically elevated to a new level of credibility.
2. Funding the relationship.Celebrity endorsements don’t come cheap. Does your marketing budget allow you to roll out the red carpet to meet celebrity lifestyles, including the investment in appearances, videos, and perks? Big fat advance checks and long-term royalties are often the norm.On the other hand, maybe you can emulate Priceline.com, whose official spokesperson, William Shatner, agreed to do the spots for free in exchange for stock in the company. The arrangement turned out to be quite profitable for Shatner, who has since made approximately $600 million from Priceline.com, despite the dot.com bust.
3. How to find and connect with the celebrity you want. As with all aspects of business relationships, funding, and partners, nothing beats a pre-existing relationship, or at least a warm introduction. Beyond that, the place to start is with publicists, agents, and other handlers. Major groups include Rogers & Cowan, Baker/Winokur/Ryder, and 42West.One of the inside secrets of finding and meeting the right people is working with charities. Celebrities have a passion for giving, and they respect people and companies who share their passion.
4. Potential for celebrities funding you. More and more celebrities are jumping on the entrepreneurship wagon. For example, Ashton Kutcher not only has the most Twitter followers of any “entrepreneur” (8 million), but he has actively invested in several startups. For example, he has helped Foursquare raise over $21 million to date.
5. Make the endorsement part of a bigger campaign. Building a brand and a successful company is a lot bigger than just getting a celebrity endorsement. The endorsement relies on a major marketing campaign to get the message out and setting the context for a successful delivery on the promises implied.
6. Prepare to handle endorsement success. Customers are a fickle bunch. You must be ready with the right array of retail partners, manufacturing, and distribution arrangements before the demand hits. Marketing momentum fades fast in the face of disgruntled potential customers and long waits in line.

Many entrepreneurs and investors assume that the fascination with celebrities is a passing fad, and not worth the effort. But the evidence is just the contrary. With the advent of the high-speed Internet for videos, real-time messaging via Twitter, and everything going mobile via smartphones, I don’t see things changing any time soon. The world now has an insatiable appetite for anything and everything celebrity. Be there if you dare.

When you have been on the startup firing line, you quickly learn that any insight from experts and entrepreneurs who have been there before you can make the difference between failure and success. Yet, many new entrepreneurs brazenly assume they are bulletproof, and march blindly into the fray. The result is that well over 50% of startups fail in the first two years.

I don’t think anyone proclaims to have any silver bullets, but there are common failure threads that appear all too often. There are many books written about failure in startups, and I don’t recommend any of them. I prefer the more positive approach of getting you better prepared up-front, like the new book “It’s Your Biz” by Susan Wilson Solovic.

Susan has years of experience in the small business trenches, and really focuses on what it takes to succeed, with realistic caveats, including an excellent summary of words of wisdom categories that every entrepreneur should review:

1. Don’t chase your tail. As you are building your business, take introspective looks at yourself weekly. How many days have you had lots of activity going on, but at the end of the day, you’ve accomplished nothing to move your business forward? Measure results to make sure you are not chasing your tail, like your favorite puppy dog.
2. Keep moving forward. Never let a day go by in which you haven’t done at least one activity that directly relates to a key business goal. Establish deadlines and milestones for yourself and track your forward progress. Keep you eye on the ball, and don’t be distracted by seemingly attractive options that lead you away from your core business.
3. Listen to your instincts. It’s important to ask and listen to others for advice and guidance, but measure these inputs against your own instincts as well. Blindly following someone else’s strategy doesn’t help as an excuse for failure, and doesn’t help you learn along the way.
4. Manage growth wisely. Overextending yourself and your resources by taking on too much too fast can kill your business. Growing a business is like a marathon, you don’t want your company to be a flash in the pan. Remember, according to Seth Godin, the average overnight success takes six years.
5. Look for collaborative opportunities. In business, it’s tough to survive on an island. Strategic alliances allow you to take on bigger contracts, offer more services, and cover larger geographic territories. In addition, two heads are better than one, so collaborative brainpower is a significant asset.
6. Expect the unexpected. You can’t predict natural disasters, and economic fluctuations. Yet too few entrepreneurs have a current list of business essentials, emergency contacts, or documented backup procedures. Even better, you need a “Plan B” for survival when the unexpected arrives.
7. Learn to manage your stress. The stress of growing your business will take its toll, unless you take care of yourself. Be realistic about what you can expect of yourself and don’t over-commit. Learn to say “no” and really mean it. Schedule some time each week that is just for you, and for your family.

Overall, we all emphasize that you need to keep purpose, promise, and principles as the cornerstones of your business. It’s amazing how many business owners and their teams go through the motions of running their businesses on a day-to-day basis without ever understanding the purpose behind what they’re doing.

Businesses without a purpose don’t have a heart. Or if the principles and values aren’t yours, then it’s not your heart. If it’s not your heart, then you will be making promises to your customers with your fingers crossed. Remember that if you don’t deliver for your customers, they won’t deliver for you. That can make the normal business trenches a deep hole. Read and heed.

Every entrepreneur needs to be honest about their strengths and weaknesses, and realistic about their reasons for choosing the startup route. For any entrepreneur, even the best business opportunities, if entered for the wrong reasons, will likely fail. Some of these reasons seem obvious, so forgive me for restating, but I still hear them too often.

Statistics show that at least 50% of new startups fail within five years, and many of the survivors eventually fail. If you don’t want to be part of these statistics, consider all the alternatives to starting your own business, especially if you have one of the following perspectives:

1. “I’m tired of working hard and being so stressed all the time.” Starting and growing a business is more work and more stress than any employee role should be. Perhaps you need to look carefully at the reasons for your weariness and stress at work. Health and personal problems don’t go away when you start a business.
2. “It’s my hobby anyway, so why not make it my business?” The problem here is that most hobbies cost money rather than make money. Just because you love doing it doesn’t mean anyone will love paying for it.
3. “I’m desperate, since I can’t find a job that suits me.” With the current recession, jobs are indeed hard to find. But don’t forget that businesses are failing at a higher rate as well. Desperate people don’t make good entrepreneurs, and probably don’t have the resources or fortitude to start a business.
4. “My family has always been in business, so it’s in my genes.” Good entrepreneurs do seem to have certain innate qualities, but it’s not clear that these qualities are automatically passed to offspring. If your passions are elsewhere, don’t try running the family business.
5. “I’ve inherited some money and starting a business should be a good investment.” You can’t start a business without capital, but having capital doesn’t mean you can start one. Learning is expensive and risky. It’s less risky to invest your windfall in someone with a proven business record, or put the money in the bank.
6. “I have some extra time, and I need a second income.” Being an entrepreneur is not a part-time job. A business startup is actually a second expense more than a second income. For supplementary income, you would be better served to take a part-time job with an existing company.
7. “I hate having a boss, and just being an employee.” Don’t start a business for a power trip. When you become a business owner, your customers, suppliers, creditors, partners and a lot of other people will become your new “bosses”. These people may be harder to please than your boss at the office today.
8. “All my friends own hot businesses and seem to be doing well.” You shouldn’t believe all the hype, or all the things said in social circles. Definitely don’t jump into trendy businesses you don’t know just to be popular. Even good friends tend to forget talking about the years of hard work and sacrifice, in favor of recent success.
9. “I’d like to be rich, so I’ll start a business.” Starting a business with a dream of riches is certain disappointment. There is no evidence that entrepreneurs make more money, on the average, than other professionals. There is much evidence that the risks of failure are higher on the business owner side.
10. “My primary goal is to contribute something to society.” This is laudable, but more effectively addressed after you have built a successful company, not before. If changing the world is your main motivation and money is not a concern, then do it, without allowing the building of a company to slow you down.

For anyone with entrepreneurial aspirations, I recommend you start by networking with peer business people and organizations before you commit to a startup of your own. Ask questions and do everything you can to make sure you are tackling the right business for the right reasons. Your entrepreneurial life depends on it.

It would be no fun if starting a business was simply plotting a straight line between your idea and success, with no challenges along the way. Zigging and zagging amongst the obstacles is the fun part of being an entrepreneur, and it’s what sets you apart from the average worker who knows exactly what he or she has to do every day to get paid. Relish it, or if it scares you, don’t try it.

That doesn’t mean that starting a business should be a random walk into the unknown. There are certain foundational elements that every entrepreneur must build on to succeed, as well as some critical tools we all need. I found these tried-and-true principles summarized very well in a new book “The Zigzag Principle” by serial entrepreneur Rich Christiansen:

1. Assess your resources. At some point financial capital is usually needed to meet business goals. But it’s not a substitute for the other critical resources, mental capital (domain knowledge, skills, and passions), plus relationship capital (friends and advisors). Money results from mental and relationship capital, not the other way around.
2. Identify your beacon in the fog. Start with a big audacious goal to guide you, so that every once in a while you can hit a smaller goal, to provide a break in the fog and catch sight of the beacon before those next steps into the darkness. Goals need to be written down, measurable, and realistic. Expect your fair share of zigzagging to get there.
3. Create a catalyzing statement. This is a key element of every elevator pitch, with enough specificity and fuel to keep you and everyone around you moving toward the beacon in the fog. This quantified big dream should be a long-term goal that your short-term zigzags are all leading to. Use your values as the foundation.
4. Drive your startup to profitability. A first zig of getting to profitability is important to every business, because being broke and always fighting for funding can cause a lot of pain. More importantly, profitability can drive you to find hidden assets, zag to interim revenue sources, and force you to pace yourself in getting to that final destination.
5. Define processes and add resources. After the initial zigs and zags to get profitable, it is time to formalize and document the processes that worked. Only then can you expand those things that led to your initial success. It also means that it’s time to stop micro-managing, hire some of the right people, and start giving up some control.
6. Scale the business. This is implementing a model that you can replicate, to get your product or service out across the country, and around the world. Scaling models charge by the transaction, or subscriptions, or have digital assets with no cost to reproduce. Switch to a mindset of working “on” your business, rather than “in” your business.
7. Stay within your guardrails. Set up some rules to constrain your zigs and zags to prevent “out of control” situations. Common controls include some spending limits, time commitment limits, financial milestones. These guardrails should be closely aligned with your values. Practice the art of saying “no,” and the discipline of delegating.
8. Develop reward systems. To keep you and your team from burning out, you need to define a simple system of motivators and rewards. Too much reward leads to an entitlement mentality. As you hit each zig, you need to take a break from the intensity, celebrate, and enjoy the fruits of your labor.

The alternatives to planned zigzags are a planned straight line, or a planned random walk. Neither of these are realistic for an entrepreneur seeking success, but I still see them every day, and I see the pain that results. Smart entrepreneurs are nimble and flexile, bootstrap to the maximum degree possible, and pivot for emerging opportunities. Be one.

It’s time for more entrepreneurs to reset their focus, and shift their thinking to completely different ways of doing things. Everyone talks about innovation, but the majority of business plans I see still reflect linear thinking – one more social network with improved usability, one more wind-farm energy generator with a few more blades, or one more dating site with a new dimension of compatibility. Serious changes and great successes don’t come from linear thinking.

In searching for ways to get this message out, I came across a no excuse, no apology, new book by Brian Reich, called “Shift and Reset,” which makes some excellent points on ways to increase the range of change in a person’s thinking, or an organization’s results. Here are some key principles that he espouses and I support:

1. Force and expect change. Everyone knows change is hard and messy, and occasionally painful. But unless we force ourselves to change, innovate, and experiment with different ways of addressing serious issues, we won’t find solutions that are needed. Major innovation won’t happen without real commitment, sacrifice, and hard work.
2. Measure ability and results, not experience. Move to a model where people are measured on their deliverables, not how hard they are working, or how many years of experience they have. For entrepreneurs, this may mean more learning from experiments, and for organizations it may mean dumping a stagnant team to start over.
3. Don’t settle, demand the best. If you want to perform at the highest possible level, you need to hire the best people, who have produced consistent exceptional results. More energy needs to be spent on how the teams are organized and how the individuals work together. Leading an organization or a movement requires skills not taught in school.
4. Launch fast, fail quick, and learn more. Indeed, even the most capable, passionate, and well-supported entrepreneur will succeed only if he or she has a clear plan to follow. But don’t believe that any plan will develop and must remain unchanged throughout the execution process. Plan in your plan for constant change, with learning.
5. The time is now to think bigger. Great new ideas are emerging from the massive and frenetic coordination of people online and through connections. Let’s make sure they aren’t lost or ignored as we head into the future. Now is the time when smaller, yet dedicated groups can communicate and work to bring together disparate ideas.

Reich makes the point that everyone has a role to play in solving major issues, and driving greater innovation. The Internet and social media facilitates cooperation and collaboration, which is what we need to shift our thinking, then reset our goals and ways of attaining them. It’s much easier to challenge everything we know, and turn them on their sides.

Especially for change in serious social issues and infrastructures, it’s now easier to motivate people to care enough and take action. We will never innovate quickly by following the same, old, tired patterns. We need to realize what being connected really means, and makes possible. Now is the time to change.

Innovation begins with knowing your customer, so that’s always the first place to focus. The shift and reset in thinking applies to finding the solution, more than in defining the problem. Linear thinking on the solution can doom a startup or an entrepreneur. A good step in the right direction is to build a team with diverse backgrounds and perspectives.

This helps break linear thinking, and greatly reduces the probability that you’ll solve a problem in the same old way, or just like your competitors. Another approach is to bring in team members from outside your domain to challenge your thinking. You as an entrepreneur can either take the lead to make real change happen, watch it happen, or wonder what happened. You decide.

Once you have a potential investor excited about your team, your product, and your company, the investor will inevitably ask “What is your company’s valuation?” Many entrepreneurs stumble at this point, losing the deal or most of their ownership, by having no answer, saying “make me an offer,” or quoting an exorbitant number.

I’ve written about this before, but it’s a mysterious subject, and I’m always learning more. This time I’ll use a hypothetical health-care web site company named NewCo as an example to illustrate the points.

Two founders have spent $200K of personal and family funds over a one year period to start the company, get a prototype site up and running, and have already generated some “buzz” in the Internet community. The founders now need a $1M Angel investment to do the marketing for a national NewCo rollout, build a team to manage the rollout, and maybe even pay themselves a salary.

How much is NewCo worth to investors at this point (pre-money valuation)? What percentage of NewCo does the investor own after the $1M infusion (post-money ownership percentage)? Well, if the parties agree to a pre-money valuation of $1M, then the post-money investor ownership is 50% (founders give up half interest, and lose control). On the other hand, if the pre-money valuation is $4M, the founders ownership remains at a healthy 80% level.

So what magic can the founders use to justify a $4M valuation (or even the $1M valuation) at this early stage? Here are the components and “rules of thumb” that I recommend to every startup:

1. Place a fair market value on all physical assets (asset approach). This is the most concrete valuation element, usually called the asset approach. New businesses normally have fewer assets, but it pays to look hard and count everything you have. NewCo might be able to pick up an initial $50K valuation on this item.
2. Assign real value to intellectual property. The value of patents and trademarks is not certifiable, especially if you are only at the provisional stage. NewCo has filed a patent on one of their software tool algorithms, which is very positive, and puts them several steps ahead of others who may be venturing into the same area. A “rule of thumb” often used by investors is that each patent filed can justify $1M increase in valuation, so they should claim that here.
3. All principals and employees add value. Assign value to all paid professionals, as their skills, training, and knowledge of your business technology is very valuable. Back in the “heyday of the dot.com startups,” it was not uncommon to see a valuation incremented by $1M or every paid full-time professional programmer, engineer, or designer. NewCo doesn’t have any of these yet.
4. Early customers and contracts in progress add value. Every customer contract and relationship needs to be monetized, even ones still in negotiation. Assign probabilities to active customer sales efforts, just as sales managers do in quantifying a salesman’s forecast. Particularly valuable are recurring revenues, like subscription amounts, that don’t have to be resold every period. This one doesn’t help NewCo just yet.
5. Discounted Cash Flow (DCF) on projections (income approach). In finance, the income approach describes a method of valuing a company using the concepts of the time value of money. The discount rate typically applied to startups may vary anywhere from 30% to 60%, depending on maturity and the level of credibility you can garner for the financial estimates. NewCo is projecting revenues of $25M in five years, even with a 40% discount rate, the NPV or current valuation comes out to about $3M.
6. Discretionary earnings multiple (earnings multiple approach). If you are still losing money, skip ahead to the cost approach. Otherwise, multiply earnings before interest, taxes, depreciation and amortization (EBITDA) by some multiple. A target multiple can be taken from industry average tables, or derived from scoring key factors of the business. If you have no better info, use 5x as the multiple.
7. Calculate replacement cost for key assets (cost approach). The cost approach attempts to measure the net value of the business today by calculating how much it could cost for a new effort to replace key assets. Since NewCo has developed 10 online tools and a fabulous web site over the past year, how much would it cost another company to create similar quality tools and web interfaces with a conventional software team? $500K might be a low estimate.
8. Look at the size of the market, and the growth projections for your sector. The bigger the market, and the higher the growth projections are from analysts, the more your startup is worth. For this to be a premium factor for you, your target market should be at least $500 million in potential sales if the company is asset-light, and $1 billion if it requires plenty of property, plants and equipment. Let’s not take any credit here for NewCo.
9. Assess the number of direct competitors and barriers to entry. Competitive market forces also can have a large impact on what valuation this company will garner from investors. If you can show a big lead on competitors, you should claim the “first mover” advantage. In the investment community, this premium factor is called “goodwill” (also applied for a premium management team, few competitors, high barriers to entry, etc.). Goodwill can easily account for a couple of million in valuation. For NewCo, the market is not new, but the management team is new, so I wouldn’t argue for much goodwill.
10. Find “comparables” who have received financing (market approach). Another popular method to establish valuation for any company is to search for similar companies that have recently received funding. This is often called the market approach, and is similar to the common real estate appraisal concept that values your house for sale by comparing it to similar homes recently sold in your area.

Remember that all the components, except the last, are cumulative. Even if a given investor excludes some of the components from consideration in your case, your credibility will be bolstered by the fact that you understand his interests as well as yours. In any case, the analysis will prepare you for the heavy negotiation to follow.

Precision is not the issue here – the task for the entrepreneur is to build a company that is worth at least $50M before thinking about an exit — no investor wants to spend more than five minutes arguing the fine points of the last valuation dollar.

So what is a reasonable valuation for a company like NewCo? My advice for early-stage companies like this one is to target their valuation somewhere between $1.5M and $5M, justified from the elements above. A lower number suggests that the founders are giving away the company, while a much higher number may suggest hubris or lack of reality on the part of the owners.

Of course, we have all read about the “new” company with $100M valuation, but I haven’t met one yet.

What sparks paradigm-shifting innovation in any business? It’s a special mix of entrepreneur and company, regular in every respect except for having the courage and foresight to make an idea happen that was supposed to be impossible. As an entrepreneur in a startup, how do you know if you have this potential, and what are the steps to get from an innovation to a revolution?

The first step is to meditate on the examples set by others, like Steve Jobs of Apple, Jeff Bezos of Amazon, or Thomas Edison with the electric light. There are many others, like the one I just finished about Ratan Tata bringing out the Nano car in 2009 in India for less than $2,500. The book is called “Nanovation,” by Kevin & Jackie Freiberg.

These authors have studied many such examples, and summarize my own perspective on the characteristics of entrepreneurs they call “nanovators,” that produce true, life-changing innovations, which they call nanovations:

1. Get wired for nanovation. We all agree that innovation is an adventure into the unknown. If you want people to follow, you need to be able to convince them of three things: (1) your mission is worth supporting, (2) you have the competence to build a critical mass, and (3) you have integrity to look out for their best interests along the way.
2. Lead the revolution. Nanovators have more than the vision; they have the drive to lead, and the focus to stay on target. They are wired to win. Organizations don’t produce game-changing innovations; people do. They allow a leap of faith in their own ideas, as well as in the ideas and capabilities of their team.
3. Build a culture of innovation. You need a culture where restlessness is tolerated, curiosity is encouraged, passion is inspired, creativity is expected, and people are always talking about what’s next. Ultimately, the mind-set changes so significantly that innovation is natural, and no one is conscious of it.
4. Question the unquestionable. Outsiders ask a lot of questions because they don’t presume to know why something is done a certain way. Make your insiders think like outsiders. Provocative questions like “What if?”, “Why not?”, or “So what?” can help to get everyone outside the box.
5. Look beyond customer imagination. First-of-a-kind products empower customers to do things they didn’t even know they wanted to do, and now can’t live without them. The computer mouse, Tivo, and Teflon are examples. Listen to customers, but remember that they can’t always tell you what they don’t know.
6. Go to the intersection of trends. Nanovators pay close attention to the early warning signs that precede major cultural, societal, and market shifts. Where most people see an isolated trend, nanovators connect the dots by relating one trend to several others. They focus on next practices, versus best practices.
7. Solve a problem that matters. The key here is to resist the temptation to pay more attention to the technology solution than the problem. Some people create brilliant solutions to non-existent problems, like maybe Segway and satellite phones. These solutions may be nice to have, but won’t ignite a revolution to get there.
8. Risk more, fail faster, and bounce back stronger. When you pursue a creative idea that takes you beyond, fear tempts you to make compromises. If you can push through this fear and doubt, or bounce back intelligently from initial setbacks, you often arrive at something that has truly never been seen before.

Jeffrey Immelt of General Electric argues that the next big thing, like the Nano, could well be from “reverse innovation,” where instead of industrialized nations adapting their products for emerging markets, innovation in emerging markets will bring new paradigms to home markets. In any case, the future is defined by what we put off until tomorrow, so don’t wait too long to get started.

The Hype Cycle was a concept put forward by Gartner, Inc. back in 1995 meant to apply to technology product evolution and acceptance. As I was reading about it recently, it occurred to me that the concept relates directly to how investors see startup opportunities and potential success as well, at least those with technology in their offerings.

For those of you unfamiliar with the concept, the Gartner Hype Cycle characterizes the over-enthusiasm or “hype” and subsequent disappointment that typically occurs with the introduction of new technologies. Hype curves then show how and when technologies move beyond the hype, offer practical benefits and become widely accepted. A hype cycle in Gartner’s interpretation always comprises five phases:

1. Technology trigger. The first phase of a hype cycle is the technology trigger or breakthrough, product launch or other event that generates significant press and interest. This is the “truly disruptive technology” that startups often claim.
2. Peak of inflated expectations. In the next phase, a frenzy of publicity typically generates over-enthusiasm and unrealistic expectations. There may be some successful applications and startups using the technology, but there are typically more failures.
3. Trough of disillusionment. Technologies and related startups enter the trough of disillusionment because they fail to meet expectations and quickly become unfashionable. Consequently, the press usually abandons the topic.
4. Slope of enlightenment. Although the press may have stopped covering the technology, some businesses continue through the slope of enlightenment and experiment to understand the benefits and practical application of the technology.
5. Plateau of productivity. A technology reaches the plateau of productivity as the benefits of it become widely demonstrated and accepted. The technology becomes increasingly stable and evolves in second and third generations. Startups can now truly define a problem, and position their solution for rapid growth. Investors love this stage.

For the latest info, Gartner recently released their Hype Cycle Special Report for 2011, detailing some of the biggest trends in technology this year. This report evaluates the maturity of more than 1,900 technologies and trends in 89 areas. New this year are application services and outsourcing, cloud application infrastructure services, cloud security, privacy and smart cities. It’s definitely worth a look.

According to the report, private cloud computing, NFC and Internet TV are at the moment overvalued. While, in the field of social media, social monitoring and activity streams as well as shopping communities, have moved into the Peak of Inflated Expectations. Other newly featured high-impact trends include big data, and natural language question answering. Disillusionment, on the other hand arises in the case of augmented reality.

There have been numerous criticisms of the hype cycle, one of which is that it is not a cycle, and that all technologies don’t really have the same outcome. Another criticism is that the shape of the line has not altered or accelerated in ten years, even though all the evidence suggests that the half-life of new technologies is getting shorter, and the number of competing technologies is increasing.

So, of course you have the option of ignoring hype cycle predictions, and pushing forward with your latest technology startup. Just don’t be surprised if you get investor pushback while early in the cycle, and be prepared with counter arguments. Great startups always beat the hype.

The first question most people seem to ask when contemplating a new startup is where they will get the money. That’s certainly a valid question, but all the money in the world won’t make your business a success if you hate what you are doing, and you aren’t prepared to do the job. I suggest that there are several other questions even more important than the money one.

The best way to assure the success of your startup is to do something you love, as opposed to something that will make you a lot of money. Of course, all these things and many more are critical, so it’s important that you keep your priorities straight. Here are the right questions to ask yourself, in the right order, before asking others about money:

• Do you understand and aspire to entrepreneur lifestyle? Being a startup founder is not a job, but a lifestyle, like getting married versus staying single. In fact, it’s more like being single, since founders usually have no one to lean on, no one to make decisions for them, no one to blame, and no vision to follow but their own.

• Do you have a passion for your idea and business opportunity? There is no joy in starting a business, if you can’t stand the people, business climate, or the day-to-day responsibilities of the job. Some people relate to service businesses, while others are more comfortable with manufacturing or construction.

• What type of business startup best fits your mentality? Beyond the traditional new product or service model, you can always buy an existing business, purchase a franchise, join a multi-level marketing (MLM) company, or simply go out on your own as a consultant. Each of these has their unique challenges and payback. Ask around.

• What level of experience and training do you have for this business? Be wary of stepping into an unknown business area, just because it looks easy or promises a big return. The real secrets of any business are not in textbooks, and you can’t believe everything you read on the Internet. Experience is the best teacher.

• Do you have real self-confidence and self-discipline? Starting a business is hard work and will require sacrifices. You will be operating independently, making all the decisions, and shouldering all the responsibility. Will you be able to persevere and build your new venture into a success?

• Do you have a viable plan? If you haven’t yet written down a business plan, you probably have no idea how much money you really need, or even if the opportunity is real. I believe the process of writing the plan is more valuable than the result, because it forces you to think through all the elements, and make sure they fit together and fit you.

• How much money do you really need? From your plan, calculate the absolute minimum amount you need to make your plan work, and then buffer it by 50%. Consider the non-cash alternatives, like offering equity instead of cash and bartering for services. Fundraising is extremely difficult, which is why most entrepreneurs do bootstrapping.

If you have made it this far, it’s fair to now start asking people where and when you can find the money you need (if any). Professionals will tell you that the sequence is friends and family first, angel investors second, and only then venture capital. Each of these has a cost in time an effort.

The process for all of these is networking (not email blasts or cold-calling investors). Start with the local Chamber of Commerce, industry associations, or investor seminars. Just attending doesn’t work. Use your entrepreneurial spirit to start some exchanges and relationships that can lead to your next step.

Starting a business is a marathon, so do your preparation and training before you ask for that bottle of water. Finding money is tough, but it’s not the hardest part. The hardest part is to do it all while enjoying the journey. Get busy, and have fun.

We can all dream about what it takes to make our startup a success. From recent survey feedback, it seems evident that the urban legends leading to success are wrong. The average entrepreneur is not the one who dumped a promising career, sketched his idea on the back of a napkin, and accepted millions from an investor to make billions of his own.

I was just perusing a more realistic report from the Kauffman Foundation for Entrepreneurship, titled “Making of a Successful Entrepreneur.” They surveyed 549 successful company founders across a variety of industries, and gathered their views on success and failure factors. Many are predictable, all were interesting, and a few even surprised me:

1. Stick with the business area you know. We all have a tendency to think that the grass is greener on the other side of the fence, but 96% of these founders ranked prior work experience in their business area as an extremely important or important success factor.
2. It’s the learning; not success or failure, that makes the difference. Successful founders try and try again. 88% attributed their success to prior successes; 78% attributed success to prior failures.
3. The management team is critical. In looking back on their success, 82% of the founders attributed their success to strength of the management team (not the idea, business plan, or money). No surprise here.
4. A little luck never hurts. Surprisingly, a full 73% said that good fortune was an important factor in their success. 22% even ranked this as extremely important. Perhaps we can discount this a bit for humility, but there is nothing like being in the right place at the right time.
5. Don’t discount the value of your network. Professional networks were deemed important in the success of 73% of the founders. 62% of the respondents felt the same way about their personal networks.
6. Dropping out of school is not recommended. 95% of these founders had earned Bachelor’s degrees and 47% had more advanced degrees. 70% said their university education was important, so only a few said skip it. Born to be an entrepreneur may not be enough today.
7. First-timers usually fund their own venture. Venture capital and private/angel investments play a relatively small role in the startups of first-time entrepreneurs. 70% said they had to use personal savings as a main source for their first business.
8. Advice from investors is not worth much. Of the entrepreneurs who received advice from their company’s investors, only 36% ranked it as important, and 38% said it was not important at all. Surprisingly, even in venture-backed businesses, 32% said it was only slightly important. It sounds like founders want to make their own mistakes.
9. Willingness to take a big risk. When asked what may prevent others from starting their own business, the highest ranked factor by 98% was lack of willingness or ability to take risks. Founders clearly found entrepreneurship to be a risky endeavor.
10. Huge time and effort commitment. Along the same lines as the previous item, 93% felt from their own experience that the work and time challenges were a major barrier (no support for the part-time, work from home, get rich quick crowd).

Hopefully, by understanding what entrepreneurs think and believe, we can foster more successes, fewer failures, and better guidance, to those of you who haven’t taken the big step yet. If you are already committed, take heed of the advice of those who have been there and done that. People who don’t learn from other’s experience pay a high price just to get to the starting point.

There is so much written these days about how to attract investors that most entrepreneurs “assume” they need funding, and don’t even consider a plan for “bootstrapping,” or self-financing their startup. Yet, according to many sources, over 90 percent of all businesses are started and grown with no equity financing, and many others would have been better off without it.

According to a new book, “Small Business, Big Vision,” by self-made entrepreneurs Adam and Matthew Toren, it’s really a question of need versus want. We all want to have our vision realized sooner rather than later, but it can be a big mistake to bring in investors rather than patiently building your business at a slow, steady pace (organic growth).

In fact, most of the rich entrepreneurs you know actively turned away early equity proposals. Too many founders are convinced they “need” equity financing, for the wrong reasons, as outlined in the book and supplemented with a bit of my own experience:

• Need employees and professional services. Of course, every company needs these, in due time. In today’s Internet world, enterprising entrepreneurs have found that they can find out and do almost anything they need, from incorporating the company to filing patents, without expensive consultants, or the cost to hiring and firing employees.
• Need expensive resources up front. Many people think that having a proper office and equipment somehow legitimizes their business, but unless your business requires a storefront, everything else can be done in someone’s home office, or a local coffee shop, on used or borrowed equipment. Consider all the alternatives, like lease versus buy.
• Need to spread the risk. Some entrepreneurs seem to get solace and implied prestige from convincing friends, Angels, and venture capitalists to put money into their endeavor. If nothing else, these make good excuses for failure – no freedom, wrong guidance, etc.

On the other hand, there are clearly situations where your needs call for investors. Even in these cases, all other options should be explored first:

• Sales are strong – too strong. If you are not able to keep up with demand due to lack of funds for production, and your company is too young for banks to be interested, you will find that investors love these odds, and are quick to go for a chunk of the action.
• Your company has outgrown you. Some entrepreneurs are quick with creative ideas, and even excellent at managing the chaos of initial implementation. That’s not the same as instilling discipline in a larger organization, where most the challenge is people.
• You need a prototype. When you have invented a new technology, you need expensive models and testing, including samples for potential customers. If you don’t have the personal funds to make these happen, investors might be your only option.
• You need specialized equipment. If your solution depends on high-tech chips, injection molding, or medical devices, and you can’t get financing from suppliers, giving up a portion of the company to investors is a rational approach.
• General startup expenses are beyond your means. Investors are not interested in covering overhead, unless they are convinced that you have already put all your “skin in the game” (not just sweat equity), and have real contributions from friends and family.

When deciding whether and how an investor can help you, remember that finding outside investors requires a huge amount of time and work, perhaps impacting your rollout more than working with alternate approaches and slower growth. Perhaps you really need an advisor rather than an investor.

Even under the best of circumstances, working with an investor requires give and take. More likely, you now have a new boss – which may be counter to why you chose the entrepreneur route in the first place. Maybe that’s why bootstrapped startups are the norm, rather than externally funded ones. You alone get to make the big decisions on your big vision.

Many entrepreneurs forget that their success is more about helping other people than about personally becoming famous, or overcoming the odds and getting rich. A successful business has to satisfy customers with a strong team, by helping them solve problems, save money, or experience more pleasure. That means more focus on helping others achieve their goals.

How and why this is true was brought home to me in a new book, “It’s Not About You: A Little Story About What Matters Most in Business,” by Bob Burg and John David Mann. This is a fictional story about how an aggressive young M&A executive comes to realize that his aggressive style is actually making it harder to reach his goals.

He concludes that there are five leadership elements that include him, but are not always about him, that lead to success. These are lessons that every entrepreneur should take to heart:

1. Hold the vision. Many entrepreneurs are able to come up with a vision, but far fewer are able to hold on to it through thick and thin, and communicate it effectively and continuously to their team and their customers. Keep your eyes on where the company is going, especially when nobody else does. Watch your use of personal pronouns.
2. Build your people. Give people on your team the means, authority, and the motivation to do the job, you will be surprised at the value delivered. Make sure that the essence of your influence is pull, not push. See people for who they are, realize what they can be, and help to take them there.
3. Walk the talk and do the work. Most startups begin their life as “one-person shows” that over time evolve to teams of people, interacting with customers and vendors. By virtue of the growing workload and stress, too many entrepreneurs isolate themselves from the hands-on as the team builds. Don’t forget to be a mentor as well as a leader.<
4. Stand for something. What you have to give, you offer least of all through what you say, and in greatest part through who you are. Competence and character are most important, and visible to everyone. I believe in the old saying: “If you don’t stand for something, you’ll fall for anything.”
5. Share the mantle of leadership. The best way to increase your influence is to give it away. Don’t get stuck thinking that you are the deal. Let others lead in their own area of expertise, and your power will be expanded many-fold.

As early-stage entrepreneurs, it’s natural for you to focus on you – what you’re doing, what you want, and what you need. As the business evolves, you must expand your focus beyond yourself to motivating the team and delivering value to customers. At that stage, you are still important, but it’s not about you any more.

One mistake many entrepreneurs make, especially with online businesses, is a fundamental misunderstanding of how interesting they need to appear to others. Yes, you are a fascinating person. You know how to bootstrap a business, build it from nothing, and burn sweat-equity for long hours to push your dreams to reality. Your business brand needs to quickly supersede you.

Online businesses have removed the convenience of geographic connections. Today, remote relationships are far more important. The best way to turn someone into your devoted fan is to go out of your way to make them feel important. Put yourself first by putting others first as well. It really isn’t about how great you are but how you make others great.

What have you done for your team and your customers lately? How did you make your product manager shine in the last meeting? Being an entrepreneurial success is not about grabbing information and power, it’s about helping others succeed.

What happened to Generation X? They are generally defined as anyone born between 1965 and 1980, sandwiched between 80 million Baby Boomers and 78 million Gen-Y (Millennials). Gen-X has just 46 million members, but they continue to lead the way and set the standards in the startup world.

Gen-X is the group that will bridge the two larger generations of Boomers and Gen-Y. I guess the bridge isn’t as exciting as what has happened on one side or what might happen on the other, so they are often referred to as the “forgotten” generation, or the lost child demographic.

A book I spotted a while back, which humorously characterizes the issues, is titled “X Saves the World: How Generation X Got the Shaft but Can Still Keep Everything from Sucking ”, by Jeff Gordinier, 42. He has a big generational chip on his shoulder, and his tongue-in-cheek rhetoric is inspiring age-based debates in offices across the country.

What are the legacies that Gen-Y inherited from Gen-X? Aren’t Gen-X creations like YouTube and MySpace largely responsible for Gen-Y narcissism? Didn’t punk rock begat Rock Band? Gordinier says in his book “We’ve created all these great websites that now Millennials waste their lives on.”

In fact, one could argue that Gen-X actually created the Internet. The Internet then gave each person the ability to voice their own ideas and concerns, leading to new levels of group collaboration. Here are some additional characteristics often associated with Gen-X:

• Individualistic. Gen-X came of age in an era of two-income families, rising divorce rates and a faltering economy. Because they were the first “latch-key” children, Gen-X is independent, resourceful and self-sufficient. In the workplace, Gen-X values real responsibility and freedom.
• Technologically adept. The shift from a manufacturing economy to a service economy occurred during their watch. They were the first generation to grow up with PDAs, cellphones, e-mail, laptops, Blackberrys, and technology woven into their lives.
• Flexible. Many Gen-X’ers lived through tough economic times in the 1980s and saw their workaholic parents lose hard-earned positions. Thus, Gen-X is less committed to one employer. They adapt well to change and are tolerant of alternative lifestyles.
• Value work/life balance. Unlike previous generations, members of Gen-X work to live rather than live to work. They appreciate fun in the workplace and espouse a work hard/play hard mentality. Gen-X managers now sometimes incorporate games and humor into team work activities.

Gen-X is rife with entrepreneurs. In fact, they will likely make or break our country’s ability to transition to the new social Internet society. They have drive and independence. And they have a lot they can teach both the boomers and Gen-Y.

In fact, they currently make up 42% of the American workforce, compared to 32% Boomers (because some have already retired) and 26% Gen-Y (the rest are still at home or in school).

This generation felt the freedom to go into business for themselves, such as the many dot-com companies that emerged during the 90s. They were not as concerned with security, often returning to their parents’ home after experiencing college and work for the first time.

For at least the next few years, Gen-X will be the major facilitators of change. They are now or will be soon running your company. Indeed, in these times we really can’t afford to forget this particular group. Show your respect today.

I see more and more entrepreneurs who seem to have everything going for them – vision, motivation, passion, even a good business plan, product, and money, and yet they can’t close customers. Maybe it’s time to look harder at the mantra of a new breed of gurus and successful entrepreneurs, including Steve Blank and Eric Ries, called “nail it then scale it” (NISI).

You can review all the specifics of this approach in a new book by Nathan Furr and Paul Ahlstrom, appropriately titled “Nail It then Scale It: The Entrepreneur’s Guide to Creating and Managing Breakthrough Innovation,” but I will net it out here. I found their five phases of the process to be compelling, based on my own years of experience mentoring startups:

1. Nail the pain. Great businesses begin with a customer problem that has a big and monetizable pain point. Avoid the three big mistakes, of guessing but not testing the pain (on real customers), selecting a low customer pain (solution is only nice to have), or selecting a narrow customer pain (small number of customers willing or able to pay).
2. Nail the solution. Neither breakthrough technology nor maximum features will assure that “if we build it, they will come.” In fact, NISI recommends starting with the minimum focused set of features and technology that will drive a customer purchase. Success demands testing the solution early and quickly in the market, then iterating to get it right.
3. Nail the go-to-market strategy. In parallel with nailing the solution, you need an in-depth understanding of your target customer’s buying process, the job they are trying to get done, the market infrastructure, and a stable of serious pilot customers. Do real tests with real pricing to see if customers will pay you, without being pushed.
4. Nail the business model. Leverage your customer conversations to predict and validate your business model. For example, when you think about distribution channels, revenue streams, or the relationship with the customer, ask customers what they expect. Don’t forget a viable financial model of costs, margins, customer acquisition, and break-even.
5. Scale it. Don’t attempt to scale it until you have a proven repeatable business model that predictably generates revenue. Only then is it time to focus on the get-big-fast strategy, and the transformation of three key areas from startup to a managed growth company. These areas include market, process, and team transitions.

These pragmatics and points of focus can effectively counter three core myths which trap too many enterprising and capable entrepreneurs today:

• Hero myth: Why believing in your product leads to failure. All too often, founders fall in love with their products or technology, ignore negative feedback from customers, and spend years building a product based on a vision that no one else shares.

• Process myth: Why building a product leads to failure. Conventional wisdom is that after a great idea, the next steps are raise some money, build a product, then go sell the product. This doesn’t work when attacking unknown problems with untested solutions.

• Money myth: Why having too much money leads to failure. The old saying that “it takes money to make money” isn’t so simple. Money allows entrepreneurs to execute a flawed business plan far too long, rather than stay focused on the market and adapt.

At the heart of it, to be a successful entrepreneur you have to be totally customer centric, and learn to change and adapt as fast as the market. The pace of change in the marketplace is escalating, so entrepreneurs have to improve their ability to deal with change.

At the same time, more entrepreneurs are jumping into the fray, and less money is available from investors. It’s time for a new startup model. In my view, savvy “super angel” investors such as Mike Maples, Jr., and leading incubators such as Y Combinator, are already on this one. How far behind is your startup?

Behind most great startup success stories is a long list of mistakes! Unfortunately, for every success story you see, there is an even longer list of failure stories with mistakes that you don’t see. But rather than dwell on the failures, I’ve tried to extract from them a list of practical action items that will improve your survival probability.

Every startup mentor has his favorite list of basic strategies to avoid pitfalls, and I’m no exception. If my experience and insights can save just one founder from the stress, lost time, and lost money associated with a startup misstep, then I’m a happy man. I offer these pragmatic recommendations:

• Buffer your funding requirements. Consider both the money you need before funding, and the size of investor funding requests. You should buffer the first by 50%, and the second by 25%. You will be amazed at how many items you forgot to cover, and how fast the cash disappears. Severe cash flow problems may not be recoverable.

• Adapt your strategy monthly. Assume your initial strategy will be wrong. Most startups I know have “refined” their target market several times during their rollout. So be alert and be flexible. Watch out for the unknown, such as an economic recession you hadn’t counted on, or a new competitor with deep pockets.

• Reign-in expenses. The most important task of a startup CEO is to review every expense with a miserly hand BEFORE the money flows out. Do not delegate this task! Barter services and use equity to get things done for minimum cash. Make every effort to do things “in house”, rather than rely on outside services, accountants, and law firms.

• Create intellectual property. Start early by registering your company, and reserving the name as your website domain name. Reserve the same names on the leading social networks and blogs. The patent process is far from perfect, but it’s a huge step ahead of no proprietary content. Also don’t forget trademarks and copyrights.

• Make marketing and sales a priority. Every new startup needs to fight the urge to get the product out, and then start selling it. Do it in parallel, or the other way around, to keep from building the wrong thing. It takes leverage, effort and money to get in the public eye and stay there. Budget for it in time and dollars.

• Find and use top-notch advisors. One or two “experts” (largely unpaid) who have “been there and done that” can head off many mistakes and suggest a calm recovery plan for the ones you make. Resist the ego urge to “go it alone” or to convince yourself that you are smarter than your competitors.

• Temper theory with reality. There is no substitute for domain experience. No matter how well-educated you are, and how certain you are that you understand all the nuances of a business area, it is a good idea to work in a similar business for a few months to get a feel for the market and observe the unwritten rules before taking the plunge. This is especially true for students tackling their first venture.

• Manage your time. It takes practice and effort to focus on the most important things first. In business, “most important” means time to market, customer service, low cost, and beating your competitors. It also means knowing when to delegate, when to rest, and reserving time for effective communication with your team.

A final recommendation, which is really the most important one, is not to even start any business without an overriding passion, confidence, and commitment to it. These alone will play the largest part in defining your success along the way. Apply the recommendations outlined here, define your own rules and goals, and you will be well on the way to creating a successful and profitable business.