Marketing Your Small Business (How to Make the Phone Ring)

My first significant startup experience was in the mortgage business. The timing was great – 2002. I had a lot of confidence in my ability to think well, structure the operations efficiently, and motivate people. Some of that confidence was well-placed, some was a bit over the confidence-delusion divide. But, I think we (I had a great partner) had enough stuff (knowledge, experience, timing, whatever) to do well in that business at that time.

Naively, what we did not spend any time on was differentiating ourselves from our competition. And this hurt us. It hurt us a lot and for many years. We just assumed that, since our particular housing market was huge and rates were great, it would be easy to open up shop and take our slice of the pie. Unfortunately, that’s not generally how business works in 21st century America. Business is very competitive and, absent significant barriers to entry, you can almost always count on more supply (competition) than demand. Your expected “share of the pie” will probably not be enough for you to keep the lights on. We needed a way to separate ourselves from our competition and stand out to prospective customers in a crowded marketplace.

 You could spend a lifetime reading about marketing and branding and still not touch the surface of all that is out there. The two concepts that have come to mean the most to me for understanding small/medium business marketing are 1. positioning and 2. the importance of a unique selling proposition, or USP.

 To be clear, I am talking here about making the phone ring—actually generating sales. Mega corporations like Nike and Coke can spend a gazillion dollars on branding – well designed ads that don’t communicate much other than to keep reinforcing our collective beliefs about their A+ brands. But, smaller companies need to use their advertising dollars to generate immediate business. In other words, their marketing needs to spur action from prospects.

“Branding” is a long-term proposition with less direct, tangible results. Branding should not be ignored, but it should not be the primary driver of a small or medium-sized business’ advertising efforts. The primary driver of marketing for businesses with fixed advertising budgets should be to generate responses – emails, phone calls, visits into the store, etc. and those responses need to turn into sales (although actually converting leads is a topic for another post).

 Positioning as a concept was first introduced by Jack Trout. He and Al Ries wrote the book on the idea in 1981: Positioning: The Battle for Your Mind. Positioning is about finding an open space in the mind of your target customers, a way to differentiate how customers think about your company vs. the competition. Consumers are overwhelmed with options for products to buy and services to use and they only have a little space in their brains for remembering and managing the different competing companies. So, you need to find a space in their brains that is not already occupied.

 The challenge is that those minds have little spare capacity. A consumer can remember, on average, the primary marketing position of three to five companies per product or service category.

For example, when it comes to cars, most consumers all hold a few standard positions in their mind:

  • Safety- Volvo
  • Engineering- BMW or Mercedes
  • Reliability- Toyota or Honda

Cars are a crowded field and those obvious positions are already well-covered. If you want to enter that market, you will need something else, some other way to hook your offering to an open slot in the consumer’s mind.

If you don’t find a solid, open position you’re in danger of being an Oldsmobile.

When General Motors put that model to rest after 100 years, who knows what it stood for? It was big, it was mid-sized; it was for our parents, it was for youth; it was a value, it was luxury. GM was all over the place with its positioning for the Olds and it ended up owning no mind space in most consumers’ minds. Positioning is hard work. The position needs to be available and it needs to be one that will resonate in the market. Remember, most consumers will only hold in their minds three to five positions per product/service category.

 A position does not have to be a benefit of your offering. It does not have to be a thing or attribute consumers want in a product or service. For example, Harley Davidson is commonly known among motorcycle riders as the brand for macho outlaws. Virginia Slims is the cigarette for women. An old but classic example is 7Up, which made serious waves by positioning itself as the “Uncola”. None of these three positions is a benefit of the particular product offered, however the positions work because they are easily remembered by consumers.

That’s the key to positioning – it is focused on the mind of the consumer, not the essence of the offering.

 While you can use a unique selling proposition (USP) as a marketing position, the concepts are a bit different. USPs are directly focused on the product or service offering. What makes it different? USPs are generally benefits to consumers. Why will they choose your offering over another?

Price is a common USP (it’s also a good example of a USP that can double as a marketing position). Southwest Airlines is the low-fare airline. Another example – years ago, Domino’s Pizza took over the market with their “30-minutes or less delivery, or it’s free” USP.

Fast delivery is a strong benefit, which makes it a strong USP. It turns out that it’s also a sure fire way to ensure your delivery people speed and drive recklessly, leading to lawsuits, so take a deep breath before picking up that discarded USP. But, from the standpoint of making the phone ring, it sure did that.

 To summarize, whereas positioning is focused on the consumer’s mind, USPs are focused on the product or service itself.

The concepts can overlap, but they are different and you should understand both. To read more about positioning, I recommend the book I mentioned earlier –Positioning: The Battle for Your Mind (Trout and Ries, 1981). To learn more about crafting the elements of a good USP (although I am not actually certain the book uses that term), read Jump Start Your Business Brain (Hall and Peters, 2010). Both books will help you learn to make the phone ring more often.

11 Sayings that Will Immediately Kill Your Startup Pitch

I have heard some awful startup pitches. Generally, they are awful ideas. Sometimes other things ruin a fundraising pitch. Once in a while, a startup founder will freeze during a startup pitch. That’s just tough and my heart goes out to that founder. A few years back a founder farted while pitching his startup to me. My heart didn’t go out for that one.

If things like this happen when you are pitching your startup, you should excuse yourself to use the bathroom and just leave. I am kidding, of course. Finish the meeting, but you may as well try out your most aggressive material because you aren’t ever cashing that investor’s check.

Pitching your startup to venture capitalists and angel investors is an art. Most people, myself included, are not natural pitch artists. I will later post about the art of the startup pitch – crafting a compelling story and creating interest and demand from startup investors. That takes study and practice. Some founders never get great at it. Fortunately, it is not critical for landing startup capital. You do not need to be an expert startup pitch person.

Don’t get me wrong, being a talented startup pitch artist helps. However, it is not necessary. Most venture capitalists and angel investors are wise enough to know true leadership and authenticity when they see it. Leadership and authenticity don’t require a silver tongue. In fact, if you have read Good to Great by Jim Collins, you are familiar with the term level 5 leadership The Misguided Mix-Up OF Celebrity and Leadership. Level 5 leaders have a unique mix of humility and determination, and they defy the stereotype of the handsome, well-spoken, oozing with confidence celebrity CEO.

So, as a startup founder, you don’t need to be perfect. You do not need to know everything. With a solid idea, great team and the right mix of confidence and coachability, you don’t have to be the world’s best performer when the lights are on.

But, do not make the mistake of saying any of these 11 things. Venture capitalists and angel investors are forgiving, but uttering certain statements and responses in your startup pitch meeting make you look like an amateur or just give out the wrong impression. Whenever you say something during a startup pitch that investors hear over and over, you appear trite. Trite is never good. Simply take these sayings out of your game and you will greatly increase your chances of landing startup capital.

1. “If we get just 1% of the market …”

Why stop there? If you get just 10% of the market, it’s even better. 20% and you’ll go public. 50% and you’ll be the richest company in the world. These are all percentages you pulled out of thin air. Yes, 1% sounds like nothing to the average person. That’s the idea, I suppose. To make it sound so easy. But you are talking to professional investors. Venture capitalists and angel investors realize that getting one customer, your first, takes work. Show them how you are going to do that. You are not entitled to any share of any market. Instead, get granular and explain in your startup pitch how you will acquire customers cost-effectively. That is what matters in startup world.

Relatedly, your pro forma financials must show your growth from the “ground up.” That means you show how you put your marketing dollars to work. How many dollars do you spend? Where do you spend them? What is the cost to get a prospect to respond? To convert? What is a customer’s lifetime value? Churn rate? Yes, all venture capitalists and angel investors know these numbers are SWAG – sophisticated wild ass guesses. But, this exercise still has value. In all the many assumptions, investors can spot ones that are ethereal and adjust accordingly. The final number may still be a guesstimate, but at least it is an informed one, not a broad, unsupported wish that some percentage of the market flocks to your startup for no defensible reason.

2. “The assumptions we used in the model are very conservative. We’d much rather exceed them, than revise them.”

Next. There is nothing wrong with these statements IF they were true and IF no one else said them. But, everyone says these words when pitching for startup capital and they are hardly ever true. Generally speaking, you never want to say something in your startup pitch that almost everyone other startup founder says, especially if it’s something that startup investors naturally question. Either say nothing or say some variation of, “I am sure everyone tells you they were conservative when building their model. I get that. Building a model is hard and assumptions are just that – assumptions, speculation about an unknown future. We tried very hard to come up with ones that we can defend, and think you’ll agree they are reasonable.”

3. “First, before I make my startup pitch, let’s sign the NDA.”

Venture capitalists don’t sign non-disclosure agreements. They hear hundreds, sometimes thousands, of pitches a year. They don’t want to manage stacks of NDAs, run everything through legal, and worry about a portfolio company doing something remotely similar to what you are doing. Venture capitalists won’t sign your non-disclosure agreement, so don’t ask. It makes it look like you don’t know how things work. I put out a video on this topic – Should You Ask a Venture Capitalist to Sign a Non-Disclosure Agreement?. You can ask your lawyer to ask the venture capitalists or angel investors to sign an NDA and let him get shot down. Of course, then the investors will realize you do not know how to select a startup lawyer. So, scratch that idea.

Instead, just get over it. Your startup idea is not the most amazing thing the venture capitalist ever heard. And, no venture capitalist is sitting around just hoping to get a great idea, so they can stop living the perfect life and go slog away for 100 hours a week and very little pay for years. Besides very, very, very few startup ideas are that incredible anyway.

The focus in today’s startup market is, as it should be, on execution. It is very unlikely that someone is going to steal your startup idea and in the off chance it happens, most markets support multiple players and good teams can find other things to do. But, most importantly, the golden rule says “he who has the gold, makes the rules.” Venture capitalist don’t need to sign NDAs. So, they don’t. And, you should not ask.

4. “Everyone I talk to says this is amazing.”

All startup investors care about is proof. Proof isn’t your friends praising your idea. Or your lawyers and accountants doing the same. Really? The people you pay love your idea? Wow, what are the chances? Paid professionals are generally not interested in giving you hard feedback, even if they are good at analyzing ideas (a big “IF”). They don’t want to shoot your holes in your startup idea. They know you’d rather work with someone who loves your startup business idea. Yes, you may think you want honest feedback, but most people prefer to feel good and want a bunch of champions of their idea around them. Bring investors concrete evidence from people that aren’t on your vendor payroll and people who didn’t stand up in your wedding. Venture capitalists and angel investors want to see investors and customers open their wallets to your startup.

5. “This is naturally viral” / “This sells itself.”

I can argue that nothing sells itself, although I actually think there is the occasional product that merits one of these statements. That does not mean you should ever make this statement. No startup founder should ever utter these words in a startup pitch. But I hear them a lot when I sit in the angel investor seat.

By “the occasional product,” I meant one in approximately 699,442 ideas. The odds that your startup has that idea = very low. The odds that you think you have that idea = very high. The odds that the venture capitalist or angel investor that you’re pitching believes your startup has that idea = zero. Don’t ever say anything like this. Show why it’s true.

6. “We are the next [insert any amazing company here].”

I was having coffee recently with my friend, Marc Nathan. He founded T-Squared Agency (www.tsquaredagency.com) here in Austin. T-Squared is an advisory firm that helps startups with connections and fundraising. Marc is brilliant and super helpful. Plus, he has heard A LOT of pitches in his career. He reminded me of this gaffe. I am not talking about analogizing to another company – “We are the Uber of the house cleaning industry.” I don’t mind that personally, although it’s a little overused and I know it rubs some startup investors the wrong way. So, do that if it feels right. But, do not ever say your startup is the next Apple/Facebook/Airbnb. You startup is not that. Not yet, at least. Don’t be so presumptuous as to compare your unfunded, pre-revenue startup to Facebook, a $300 billion company.

7. “We are waiting to do that until we get funding.”

There are things you want to do for your startup that must wait until you get more money. Those things are called your “use of funds.” It is fine to say you are waiting to do those things until you get funding. But, because you ought to have explained your use of funds to the investors, this question doesn’t typically come up with respect to those items. It comes up with respect to other items that can be done today and should have been done today.

For example, most venture capitalists want their startup portfolio companies to be Delaware corporations. Don’t approach venture capitalists as an Illinois LLC. Some investors won’t care. But, most venture capitalists will. I often talk to entrepreneurs who say, “why can’t I just wait and change all that at closing of the round once the venture capitalist?” Good question and, believe me, I know it’s a pain to spend money and make changes in anticipation of an investment that is not guaranteed. I get it. But, whenever anything feels uncertain or half-baked, it hurts you. Saying, “we are waiting to get funding (a term sheet) to change to a Delaware corporation” sounds like you aren’t 100% confident in getting funding.

On a purely emotional level, it doesn’t feel good to the venture capitalist. A good analogy is in residential real estate. Home owners with stained carpet and chipped paint walls often tell their real estate agent to offer the buyer a paint and carpet budget. Problem solved, right? Wrong. When most prospective buyers walk in to the house and it doesn’t look and feel great, they’re gone. Humans buy emotionally. Do everything you can to look like you are fully-prepared for your pitch meeting and make the “buying” process feel good to the investor when you are making a startup pitch.

8. “Our startup has no competition.”

Really? None? This is exceedingly rarely. One context in which it’s true is when you have a terrible idea that solves no real problem, so you also have no customer interest. I shouldn’t have to tell you not to lead with that fact when delivering a startup pitch to potential investors.

Otherwise, you almost always have competition. Maybe no one is doing exactly what you are doing, but there are companies doing something to address the same customer pain point / benefit. When Uber first launched, direct competitor Lyft didn’t exist. But, cabs were still competition. Airbnb competes with hotels and motels. Venture capitalists want to be sure you understand your market. If you brush by obvious competition, even if that competition is quite different from your startup, you appear ignorant or disingenuous.

By the way, competition is not an awful thing. If you truly, truly have no competition AND your startup is a great idea, that means you have to create the entire market and convince customers they even need your solution at all. This will scare the bejesus out of 95% of the venture capitalists you pitch. If you are absolutely certain it is an accurate statement, I’ll give you permission to say, “there is no else offering what we offer, but company XYZ and company ABC address the same market / problem, etc. Here is why customers will choose us.”

9. “Here are the other investors we are talking to …”

Venture capitalists may probe for who else you are talking to, but you don’t have to, and should not, answer directly. Be careful not to seem dodgy or pretentious. Instead simply say, “We are in talks with a few / two / three other strong investors who lead deals and are progressing toward a close.”

10. “Please hold your questions until the end of my presentation.”

Alright, I have never actually heard anyone say this, but I see founders try desperately to stick with and get through their rehearsed pitch presentations. Let it go. Questions from investors during your startup pitch are a great sign. They show engagement. If you can answer a question simply and there is a little pause, showing your answer was sufficient, get back to the presentation. Otherwise, let the meeting become a conversation. Venture capitalists and angel investors are smart people who look at lots of deals. Their feedback is valuable and it shows some level of interest. The only time you can defer answering a question is if you are going to address it on the next slide. You may feel like it’s your meeting, but it is theirs. If later there is a pause in the conversation, casually pick back up with your presentation – “one thing I wanted to be sure to highlight is …”

11. “We are almost out of money” / “We need to close quickly.”

Desperation rarely helps when pitching or selling. Later on during due diligence, the investors will realize you are running low on cash. That’s fine. I am not suggesting hiding it. But, never lead with anything that looks desperate. It is an absolute deal killer.

Don’t worry about perfection during a startup pitch. Don’t worry about having every answer to every question. Venture capitalists and angel investors don’t expect founders to know everything.

Be confident, but coachable. Tone down the hyperbole and avoid these mistakes and you will be in great shape.

If It’s Such a Great Idea, Why Isn’t It Already Being Done?

You’ve got this great startup idea and you are sharing it and getting feedback but then someone asks “If it’s such a good idea, why isn’t someone else already doing it?” You pause. Makes sense. It’s a great idea. There must be some problem, some hurdle you can’t overcome. Is this REALLY a great startup idea? Will it make a great business? If it really were such a great idea, surely someone would already be doing this, right?

Wrong. At least, oftentimes wrong. It’s always tempting to think all the great startup ideas are taken or that they should be. But, that’s simply not the case.

Think About All the Amazing Ideas from the Last 100 Years

Charles H. Duell, the Commissioner of the US patent office in 1899, is said to have stated “everything that can be invented has been invented.” Obviously, there were some interesting inventions yet to come, including the automobile, airplane, Internet, Sunday Night Football …

There is so much more to come. What all future, yet-to-be created ideas and inventions have in common is that no one is doing them today. When the automobile was invented, there wasn’t one. Before the Internet, there was no Internet. Great ideas make great startups and there are plenty of them out there still.

Everyone Else is Busy With Other Ideas

There are plenty of great startup ideas that aren’t already being done. Do you know anyone sitting around with piles of money and a broad skill set, just waiting for an idea? No. People are busy. They’re busy focusing on their current businesses and ideas. Even when great ideas occur to them, most people and businesses are already overwhelmed with what’s on their plate. So, great startup ideas get passed by all the time.

The question, “why isn’t someone else already doing it” is useful. It’s useful to look at whether or not there is possibly something you are missing. But, do NOT let it stop you from pushing forward.

Maybe there is a regulation or law preventing your startup business idea, etc. But if it’s just not being done then don’t get sidetracked by the fact that no one else is doing it.

A Great Joke About 2 Economists

So is this true? Is that how entrepreneurs base their decision on whether a business idea is good or not? This reminds me of a joke I heard years ago about 2 economists walking across campus, one spots a $20 bill and bends down to pick it up and the other one grabs him and says “don’t bother, if it was really a $20 bill someone would have picked it up already.” The point is that is how economists think and that is how we are trained in school to think.

So when you come up with a new startup idea or something exciting that can change the world, maybe it’s not even a business, it’s a solution to a vexing societal problem, it may turn out to be really your best idea and the fact that no one else is doing it should not matter. And the fact is the majority of the time the reason someone has not already launched your great business idea is they are already busy doing other things.

But is it fair to ask the question, why isn’t someone else doing it? Yes it is ok to ask but only to ask yourself “have I really missed something critical?”

That’s exactly how every great idea starts! Just remember when you find that idea, to fine tune it and make it clear and focused.

The Lean StartUp Method | Minimally Viable Products

There’s a great book that was written 2011 that really changed the conversation in respect to startups and the way they should go to market.

The book was written by Eric Ries and is called

“The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Business,”

It’s a great book but kind of long so I am going to simplify it and give you a very quick summary.   The key take away is if you are launching a startup particularly if you are making a piece of technology such as software and your not really sure if the market wants what you are building. Obviously you think it is a great idea and that there will be a market for it.

Don’t spend 3 years behind closed doors making it perfect, giving it every bell and whistle you think it should have. No. What you need to do is go to market as quickly as possible.

What is MVP? Or Minimally Viable Product comes out of the lead startup. In other words, get the minimally viable product or the basic thing to into the market that can prove what you are offering can solve the customers problem or fulfill a need.

Hear what the customers have to say. Listen to Feedback. Iterate. Change. And then get the product back out. That’s the idea. A great idea. The sooner you can get market feedback and actual people using your product the better.

Thinking of an Idea for a New Startup: Focus on One Niche

There’s a great show on CNBC and it’s called “The Profit” Marcus Lemonis will go out and buy failing or struggling businesses and help turn them around. One of my favorite episodes is when he goes to a silk screen printing shop and the entrepreneur of this company has a huge facility which houses not only the printing company in there but he also owns and is trying to run a basketball court, batting cage, coffee shop, pizzeria all for the use of his customers.

In the entrepreneur’s mind he has this vision that once his customers come in for printing, they will want to have coffee or something to eat or bat a few balls or shoot some hoops. This is a recipe for disaster.

When you are thinking up ideas for a startup business you need to focus on one thing only. Focus on one business only. When you try to be all things to all people you run the danger of becoming nothing for anyone. Less is More could not be more true when it comes to being a successful business owner.

Some of the best business focus quotes come from Steve Jobs. Steve Jobs instilled in his company the need to stay focused on doing only what you do best. “It’s easy to add … it’s hard to stay focused,” he said. “And so the hardest decisions we make are all the things not to work on.”

Steve Jobs once said “People think focus means saying ‘yes’ to the thing you’ve got to focus on. But that’s not what it means at all. It means saying ‘no’ to the hundred other good ideas that there are. You have to pick carefully.”

You will find the most successful entrepreneurs start one business….maybe 2 at the most. This business focus strategy is followed by some of the most successful businesses in the world.

Should You Ask A Venture Capitalist To Sign a NDA?

You can’t wait to share your startup idea with investors. So, should you ask a venture capitalist to sign a non-disclosure agreement (NDA)?

Non-disclosure agreements are also called confidentiality agreements and they say that the person with whom you share your idea won’t tell it to anyone else. Seems fair, right?

But, most venture capitalists do not sign non-disclosure agreements. They don’t need to. They have so many deals to look at and most entrepreneurs don’t try to get them to sign non-disclosure agreements (maybe at one point they did but now startup founders know better than to ask). Venture capitalists do not want to manage all that paperwork – negotiate the terms and keep track of all the confidentiality agreements. Plus, they do not want to take the chance that some entrepreneur sues them. They look at lots of deals and they also don’t want to be prohibited from investing in any certain types of companies or ideas.

If you are a venture capitalist and invest in a company that does something similar to a company you looked at and did not invest, but for which you signed a non-disclosure agreement, even if you never do anything wrong at all, the entrepreneur in whom you did not invest may bring a lawsuit. These things happen. It is hard always to know if someone did something wrong or it just has the appearance of possible wrong doing.

Angel investors are a little more inclined to sign non-disclosure agreements, but most angel investors who invest for a living will not sign them either.

There is a prevailing school of thought in startup world that ideas don’t matter. People and execution are the keys to startup success. By and large, I agree with this thinking. Still, there are some great ideas out there and it helps to have one. But, it doesn’t help to never share it with anyone.

So, be careful with whom you share your startup idea if it really is the next big thing (it’s not lost on me that most entrepreneurs think their startup idea is the next big thing even though it often isn’t). Research the venture capitalist. Look at their reputation. Don’t bring your amazing idea to them if they have a portfolio company (a company they funded) that is in exactly the same space/market and they have a board seat on that company.

You can also put your startup pitch deck online and take it down at a later point in time (if the venture capitalist passes). This is not a perfect way to control the flow of your information, but it’s one approach. Check out pitchxo.com. I say in my video explanation of this topic not to give venture capitalists things in physical form, but you are better off giving them a physical pitch deck than an electronic one (unless it’s online and can be pulled down later — that’s the best approach).

Ultimately, some VCs may want you to send your startup pitch deck as an attachment to an email. That’s the least effective way to protect your pitch deck from being sent to the wrong people. But, that’s probably not why the venture capitalist wants it that way. It’s more likely because she likes to review pitch decks that way and not online. That’s a business decision and, personally, I’d lean toward sending them whatever they want in whatever way they want.

Could someone steal your idea? Yes, of course. But, the much bigger risk is the right person/people never hear your idea and it doesn’t go anywhere. Take precautions, but don’t be crazy about it. Trust the process and chase the money!

For my advice about startup success, check out www.thestartupshepherd.com.

Brett A. Cenkus is The Startup Shepherd™. He has 20+ years of experience in business finance, business law and entrepreneurship. Brett believes that numbers and logic are awesome tools, but understanding human nature and emotions is the first step to business success.

The Cenkus Law Firm provides services related to mergers & acquisitions, general business issues and startups, including founders’ agreements and fundraising. Brett also consults with entrepreneurs and invests his own capital as an angel investor.

From 2010-2013 he served as Chief Legal Counsel of a publicly-trade international oilfield services company. From 2001 to 2006 he and a partner founded and built Paragon Residential Mortgage. Paragon was sold to Bridge Investments in 2006.

Brett holds a Juris Doctorate from Harvard Law School and a Bachelor of Arts degree in Economics from Messiah College in Grantham, Pennsylvania.

Brett lives in Austin with his wife, Cathryn, and daughter, Elle. He enjoys reading, running, classic movies, great food and wine and NFL football.

You can also reach me at:

https://www.linkedin.com/in/brettcenkus

Home


http://www.cenkuslaw.com

ss ep 1 with lower third

 

6 Easy Ways to Raise Entrepreneurial Kids

The Value of Finding Passion in Business

The last thing the world needs is more cold capitalists. However, capitalism is a powerful force for change. In a world that is increasingly in need of solutions to pressing challenges from global warming to water shortage, equipping our children to understand how to execute an idea and bring solutions to market is critical.

And, regardless of where you fall on the “college matters vs. college is so 2010” scale, you must admit the world of higher education is changing. A bachelor’s degree is no longer a ticket to a comfortable life, which is fine because it is no longer a requirement either. Case in point: The Thiel Fellowship, which awards $100,000 to kids who drop out or skip college to launch a business. It’d be unheard of even 20 years ago to see prominent entrepreneurs encouraging young people to skip school. Bill Gates dropped out of Harvard, but he didn’t create scholarships to encourage other kids to do the same thing. Now, there is a growing sentiment that learning about life by being in the trenches running a startup is a great way to learn self-reliance, grit and tenacity in an increasingly chaotic global economy.

So, whether you are hoping to light an entrepreneurial spark in your child for the first time or you have already seen a spark from some sort of business show, book or entrepreneurial story (think Shark Tank or Elon Musk), here are a few thoughts for how to encourage your child to learn, and perhaps one day become passionate, about business and entrepreneurship. These tips apply to kids age 8-18.

My Love for Business Started as a Teenager

Being an entrepreneur is part of who I am, and has been since I was a kid. When I was 13, I rearranged my room so it resembled an office, created a little ticker tape and then posted the closing Dow Jones Industrial Average every night. I was also that kid who would go around the neighborhood knocking on doors and selling greeting cards, vegetables—whatever. I was always fascinated with business.

My parents, brother and sister appreciated my childhood business ventures and innate interest in the subject matter. But, my brother and sister didn’t share my passion. Yes, they wanted to make extra money, although they didn’t want to spend afternoons reading Business Week (I can attest the magazine has gotten infinitely more readable in recent years!).

As far as I can remember, I was hard-wired to love business. It fit with my innate curiosity about how the world works and how you get things accomplished in it. But, how do you cultivate an interest in business or startups for your kids if they are not entrepreneurial-minded right away? This is something really close to my heart, as a new father who is thinking about the future of his children and the lessons I would like to impart to them.

Turning the Dream of Being an Entrepreneur into Reality

When I was 15, I wanted to start a business selling baseball cards. I asked my mom how to do that—how to actually start a business as a kid (heck, I wanted to understand how anyone started a business, teenager or adult). Do you need a license? Do I just ask permission of someone? She didn’t know. The public library didn’t have any good, practical books on the subject and I don’t think there were any entrepreneurial programs or business camps for kids. So, that baseball card business never got going.

The same could be said for hundreds of millions of business ideas generated every day all across the United States. Studies show that nearly 50% of Americans dream of running their own business, but the percentage of Americans that actually do it is less than 25% of the ones that want to – something closer to 12 percent. What explains the disconnect between entrepreneurial dreams and the realization of those dreams? Of course, money, time and other career prospects may delay any novel business idea. Many people are so invested in their corporate world careers or living on paycheck to paycheck that investing time or money in a new venture is simply out of the question. But, for many other people, they simply do not know where to get started. The whole process seems so daunting. They don’t know where to start or who to call first.

This guide offers six steps to help close that disconnect between idea and realization starting from an early age with children interested or who could be interested in becoming entrepreneurs, coming out of their comfort zones and developing critical leadership, business and finance skills. Studies show that young entrepreneurs tend to have more success later in life based on the skills learned at an early age.

Helping your children start a new business—whether it is a lemon stand or a simple video game app—can be an incredibly rewarding experience for you as the parent and for your children. Out of the many lessons the shared entrepreneurial experience will teach your children, two of the most important ones are that success comes from hard work and that they can approach life with an entrepreneurial mindset. Another important lesson is that ideas for businesses are easy; what’s hard is following through and executing that idea.

Cultivating an interest in startups, business and entrepreneurship sooner rather than later with you children is best. That’s where the following six tactics come into play. By following these steps, you can lay the groundwork that will help your children, tweens and teenagers foster an interest in entrepreneurship.

1 – Keep things concrete

 Business concepts can get really abstract in a short amount of time, which can make them difficult to understand, not just for children but also adults. So, keep discussions about business concepts grounded in reality. When you are walking your kids through the grocery store, pick up a Pringles can and ask them how they think it gets to the store. A similar experience for Mike Piper, a CPA and author of the blog ObliviousInvestor.com, sparked his interest in investing at an early age.

On family vacations to Disney World, for example, explain how Disney makes it money and why it is so successful. In addition to buying your children their favorite toys for Christmas, consider also purchasing a share of stock in the company that manufactures or distributes the toy. Make sure that company pays dividends, though. Then, print out physical stock certificates and give them to your children. Let them see their dividends grow by the next Christmas. Underlying all these examples is the goal of demonstrating in a tangible, real world way how business works.

2 – Create a piggy bank or open a savings and checking account for your entrepreneur-in-training

 One of the hardest things small business owners struggle with is managing finances. It is a shame public school does not offer tangible lessons on personal and business finances. You can help fill that gap for your children by creating a piggy bank or opening a checking and savings account for them and depositing their “wages” (i.e., their allowances—if that is something your family considers important) in their bank accounts. Note that allowances paid for completion of chores or high grades and not just freely given without being earned have shown to be of the greatest value for instilling a strong work ethic in children.

For younger children, a piggy bank or something similar might be more appropriate than a Bank of America checking and savings account, but feel free to start where you are comfortable. Give them a wallet and let them pay for smaller items they want—candy, toys or something similar—whenever you go to the store. The idea here is to make younger children aware of personal finances on a very rudimentary level.

For tweens and teenagers, once you have opened the bank accounts, consider giving them debit cards and complete access to the bank accounts. Then, allow them to use the money for certain investments. For example, they could spend it on snacks or movies with their friends, or they could invest in a project of their own or extracurricular activity of their choice. In sum, let your children earn allowances and have access to that money. They will learn from an early age the value of a dollar and how to spend wisely.

3 – Foster long-term thinking about finances by encouraging saving

Planning for the long term is something every business owner must do, yet very little about the lives of our children factors in the long term. It is not always clear to our kids how, for example, a positive grade in this class might lead to better performance in high school and on standardized tests. As parents, we’re always thinking about the long term, but we have to avoid the temptation to overburden our kids with such notions. Instead, encourage your children to save money for future goals like buying a new toy or investing in their business plan. In this way, your children learn from an earlier age that to achieve X goal, they have to have Y resources on hand, which can only be accomplished by investing in themselves. And, that’s really what saving is all about—investing in themselves. By encouraging goal-focused thinking and saving now for future endeavors, you can help your children—whether they are younger than 10 years old, in their tweens or teenagers—become better entrepreneurs.

4 – Encourage creative brainstorming and keep an open-mind

From my experience, ideas are a dime a dozen. What really matters is activating those ideas, so they are realized as successful businesses or entrepreneurial projects. However, you must start with the idea. So, encourage your kids to come up with business ideas. Talk to them about things their friends might like to own or buy—even if that is alternative snacks to whatever is offered at school. Have them write down their business ideas in an “idea journal”—a centralized repository of all their creative ideas and concepts. An idea doesn’t even have to be business-related to belong in the journal. Studies show that keeping an idea journal can help your children process and communicate complex concepts more effectively.

Don’t worry if the ideas aren’t clear money makers. Ideas for launching nonprofits or solving challenges in the world in some other manner should be fair game – encourage your children to look at the world and ask, “what if?”

It is important for you as the parent to let your children come up with ideas without regard for whether they are “good” or “bad ideas.” In the ideation process, there is no such thing as a good or bad idea. The process is about generating ideas, discussing them and then determining which ones to pursue. Ask your child what business they would start as a kid. Ask your child why they’d start that business.

When your children have developed a cluster of business ideas, sit down with them to walk through the business ideas. Talk about which ideas interest your child the most. And, most importantly, keep an open mind. PayPal probably seemed like a crazy idea at one point, but you don’t want to stifle the creative expressions. Encourage creativity and exploration when exploring business ideas with your kids.

At the same time, be willing to steer when necessary. If your child comes up with an idea similar to an existing business you know about or that clearly has huge impediments to executing successfully, perhaps an internship or day spent shadowing someone working in that business might be helpful.

5 – Leverage technology

We live in an incredible era for business entrepreneurs with the latest startup idea. Never before have the steps from idea generation to deployment drawn so close together, and nowhere is that truer than in the digital space. If your child or teenager comes up with a fantastic product, app or other business idea in their idea journal, encourage them to pursue it. Their business idea may lead directly to them becoming the next big child or teen entrepreneur.

That sometimes means teaching them the skills they need to realize their dream. A great example of this is a then 9-year-old Moziah “Mo” Bridges, who wanted to create better bow ties for children. After learning how to sew from his grandmother, he began selling his bow ties on Etsy and before long became the CEO of Mo’s Bows, a Memphis-based, family-run business. Such success at such an early age is inspiring, although it started with a problem that Mo experienced and tried to solve. He learned the business skills to do so and then leveraged the existing technology—Etsy—to turn his solution into a profit-making entrepreneurial venture. Learn more about Mo’s incredible journey here.

6 – Prioritize learning the skills to success and avoid the temptation to work hourly jobs solely for the money

 If your family has the resources, avoid letting your children constantly work hourly jobs just to make an extra buck here or there. Summers, weekends and breaks from school are valuable time for your young entrepreneurs to be investing in themselves and learning about business. While everyone agrees, it is important to learn to work hard—and working in retail or restaurants can be keys to teach that lesson—the opportunity cost for such minimum-wage jobs can be very high. Instead, consider letting your children intern with a startup in a field where they have demonstrated an interest. In this manner, they can pick up priceless lessons in a practical environment directly related to their interests.

A great example of this is Nick D’Aloisio, who received backing from Horizon Ventures at only 15 years old after he created an app that automatically summarized news articles. Yahoo acquired the company for $30 million in March 2013. Now, that’s an amazing entrepreneurial journey for a teenager!

When asked what advice he would give other young entrepreneurs, Nick told Kim Lachance Shandrow of Entrepreneur magazine, “There are so many resources available online that the primary goal of someone wanting to succeed should be to teach themselves all the necessary skills, e.g., programming, business development, design, marketing, etc. Be fearless and don’t be afraid of failure. There is no better way to learn than through trial-and-error.”

The lesson from Nick’s experience is this: encourage your children to learn the practical skills necessary for starting their own business. This lesson is at the core of raising entrepreneurs.

Final Thoughts

There are more steps you should take as a parent interested in cultivating an entrepreneurial mindset and spirit in your children, although it is important to incorporate these six basic steps into whatever plan you create. Creating an idea is easy, but following through and realizing that idea is the hard part.

I urge you, no matter how badly you want to raise entrepreneurs, to not push too hard. If you see a spark of entrepreneurial spirit in your son or daughter, provide some direction and encouragement. Pushing too hard early on will generally have the wrong result. Children are naturally bent to resist their parents a bit – they’re becoming mature individuals. That’s okay. Encourage and give plenty of support to your business and entrepreneurial-minded children, but don’t pressure them.

I hope you found these steps helpful. And, if you ever want any additional advice, check out the Resources & Articles page on this website or feel free to reach out to me, The Startup Shepherd. As a parent who wants to pass on his interest in startups to his children, I am here and happy to provide guidance.

For more about me and my entrepreneurial endeavors, check out this section of my website.

 

Should You Have An Investor Sign an NDA?

You can’t wait to share your startup idea with investors. So, should you ask a venture capitalist to sign a non-disclosure agreement (NDA)? No.

Non-disclosure agreements are also called confidentiality agreements and they say that the person with whom you share your idea won’t tell it to anyone else. Seems fair, right?

But, most venture capitalists do not sign non-disclosure agreements. They don’t need to. They have so many deals to look at and most entrepreneurs don’t try to get them to sign non-disclosure agreements (maybe at one point they did but now startup founders know better than to ask). Venture capitalists do not want to manage all that paperwork – negotiate the terms and keep track of all the confidentiality agreements. Plus, they do not want to take the chance that some entrepreneur sues them. They look at lots of deals and they also don’t want to be prohibited from investing in any certain types of companies or ideas.

If you are a venture capitalist and invest in a company that does something similar to a company you looked at and did not invest, but for which you signed a non-disclosure agreement, even if you never do anything wrong at all, the entrepreneur in whom you did not invest may bring a lawsuit. These things happen. It is hard to know if someone did something wrong or it just has the appearance of possible wrong doing.

Angel investors are a little more inclined to sign non-disclosure agreements, but most angel investors who invest for a living will not sign them either.

There is a prevailing school of thought in startup world that ideas don’t matter. People and execution are the keys to startup success. By and large, I agree with this thinking. Still, there are some great ideas out there and it helps to have one. But, it doesn’t help to never share it with anyone.

So, be careful with whom you share your startup idea if it really is the next big thing (it’s not lost on me that most entrepreneurs think their startup idea is the next big thing even though it often isn’t). Research the venture capitalist. Look at their reputation. Don’t bring your amazing idea to them if they have a portfolio company (a company they funded) that is in exactly the same space/market and they have a board seat on that company.

You can also put your startup pitch deck online and take it down at a later point in time (if the venture capitalist passes). This is not a perfect way to control the flow of your information, but it’s one approach. Check out pitchxo.com. I say in my video explanation of this topic not to give venture capitalists things in physical form, but you are better off giving them a physical pitch deck than an electronic one (unless it’s online and can be pulled down later — that’s the best approach).

Ultimately, some VCs may want you to send your startup pitch deck as an attachment to an email. That’s the least effective way to protect your pitch deck from being sent to the wrong people. But, that’s probably not why the venture capitalist wants it that way. It’s more likely because she likes to review pitch decks that way and not online. That’s a business decision and, personally, I’d lean toward sending them whatever they want in whatever way they want.

Could someone steal your idea? Yes, of course. But, the much bigger risk is the right person/people never hear your idea and it doesn’t go anywhere. Take precautions, but don’t be crazy about it. Trust the process and chase the money!

What is a Non-Disclosure Agreement and What Are They Used For?

Non-Disclosure Agreements, or NDA for short, are documents that companies use to protect their confidential information. So if my company has some proprietary or confidential info and I want to share it with you, maybe we are thinking of starting a venture together, I may ask you to sign an NDA.

In that agreement you say you will only use the information for the purpose we agreed to. In this case, looking into going into a venture together. You will not use the information for your own commercial advantage and you will not share the information with others.

Sometimes, they’re limited by time. Sometimes, there are other provisions in them, like a non-circumvent which says “you won’t go around me and try to do business with my customer.” That’s provision is in a brokerage context.

The main crux of an NDA is what I told you about. I’m giving you some confidential info so don’t use it for your own advantage. Many startups want to protect their idea with an NDA before pitching to an investor. Check out my video on whether or not you should ask a venture capitalist to sign a non-disclosure agreement.