Mentors: Unrealized Weapon of an Young Entrepreneur

You need a good idea. Startup cash can make a real difference. Business experience and savvy also help, of course. But to take advantage of the most powerful weapon an entrepreneur can have, find a mentor.

A good mentor helps you think through a business idea, suggests ways to generate that startup capital and provides the experience and savvy you’re missing. You’ll get praise when you deserve it and a heads-up when trouble comes -- probably long before you would have noticed it yourself.

My grandfather who owned a memorabilia and antique shop in Vancouver, British Columbia, was a natural entrepreneur. He helped my brother Matthew and me launch our first successful venture: selling toy airplanes at a local festival when we were just seven and eight years old. With his help, we developed just the right marketing strategy -- putting on a show with the planes that created excitement and a "wow" impact. We sold out of planes in just two hours.

Our first mentor was someone whom we trusted and who cared about our success. He had the knowledge and skills to keep us focused, and he knew a small early success would spur us on to more entrepreneurial attempts. Looking back, I realize he really engineered our first foray into business to build our confidence and help us understand what it’s like to work for ourselves. Even now, nearly 30 years later, Matthew and I find ourselves remembering his advice when we’re planning or making decisions.

Although few entrepreneurs are fortunate enough to have a keen mentor in the family, it is possible to find one or two. Here are eight tips to getting the right mentor -- or group of mentors -- for you:

Determine your needs. Keeping in mind that your mentoring needs will shift as you start and build your business, take the time to determine exactly what kind of mentor you want now. Are you having trouble with the numbers, understanding your market or operations? Are you ready to ramp up production or still playing with concepts? Build a wish list for your mentor -- laying out what skills and support you need to get to the next step.

Take time to network. Networking isn't just important for finding customers. It’s also vital for finding a mentor. Who do you want helping you? Someone who sits in an office and thinks connecting with the business community means reading a couple of magazines a month? No, you want someone who’s out there, knows the market and can point you in the right direction.

Listen more, talk less. Given your youthful enthusiasm for entrepreneurship, it may be hard to stay silent. But to find a mentor, you need to listen -- a lot. Pay attention and you‘ll be able to separate the smart potential mentors from those who just use all the right words.

Be "mentorable." If you come off as someone who knows everything -- or thinks you do -- many people will back away. If you want to learn, be willing to consider ideas that may not match your expectations or opinions. Above all, don’t fall victim to your own hype. Your business may or may not have serious problems, but another viewpoint will help you sort things out.

Remain flexible. You may have mentors who stay with you over the long haul, but you will also benefit from people who provide just an afternoon of insightful ideas. If you are fortunate enough to get time with someone who is rarely available, absorb all you can and take notes. Your mentor may be skilled only in one specific area, but that’s okay. All help is good help.

Don't overlook nontraditional mentors. Some mentors may help you without their knowledge through books, seminars, speeches, videos on Ted, TV programs and the internet. My brother and I always looked to Richard Branson as one of our mentors. We don’t have to meet him in person to appreciate all he provides to entrepreneurs and others all over the world.

Thank your mentors. When people help you, intentionally or unintentionally, let them know. Mentors are not in it for the money; they just want to help others grow. Think about what you can do to let them know how much you appreciate them and their help.

Pay it forward. You may never be able to pay your mentors back, but you can recognize what they’ve done for you by becoming a mentor to others. That's one reason we started YoungEntrepreneur.com: to support those who share our dreams and goals.

10 Habits of Effective Startup Mentors

1. Always start by defining the fundamental idea behind a product or service:

What is the problem they are solving?

Who is the customer?

How they are solving the problem or meeting the need?

Make it as clear as possible, 1 sentence max.

2. Prioritize the startup’s biggest risks

You want teams to priorize their biggest 2 or 3 risks and the assumptions for each. The key is making sure the team is looking across all aspects of the business:

What is the business model? (Who pays for the product, how, and do they have money?)

What is the market size? Are their expectations of market size realistic?

Who is their competition and why are they better?

What are their guesses for customer acquisition?

Are their any technical risks to creating the solution?

3. Get practical on the tactics to empirically mitigate risks

For the identified “biggest risks”, drill into the specific tactics they will use to empirically validate a way to mitigate these risks. Ask yourself:

Will those tactics deliver useful data to validate or invalidate assumptions?

Can the tactics be streamlined in any way?

Can you come up with any other test-tactics that would benefit their process?

4. Use your network to find them potential customers

Think about how you can facilitate their tactics — this is especially important when the team needs to get to an unusual type of customer. Can you make an introduction and get them on the phone with someone? Are you friends with someone who could? External people often are happy to help.

5. Challenge, play devil’s advocate, and poke holes in arguments

Don’t shy away from tough questions. Force the team to stress-test their assumptions and stretch their thinking.

6. Let the team come to its own conclusions

Never put things forth as an answer or fait accompli. Do not hesitate to point out risks, competitors or precedents you have seen before, but make the team come to a conclusion themselves after reviewing their learning.

7. Less mentorship may be better

Rove around but be careful how you interrupt teams. You can often quickly tell if a team is struggling or busily productive with just a couple questions. If the former, let them execute. If they seem to be struggling, or haven’t gotten out of the building enough, then be more forceful.

8. Don’t spoon feed, keep feedback crisp

The teams have a lot to do in a short period of time, so manage your interaction so that it remains high-impact and efficient. Don’t be afraid to politely but firmly cut someone off who wants to spend a lot of time explaining their great solution and all the features.

You want to keep the team moving. Sometimes it makes sense to speak to team members individually or in smaller groups so that they can divide and conquer. Prioritize and break up your own mentoring as needed — you do not need to be comprehensive in one sitting.

9. Collaborate with other mentors

If you are feeling stuck, or want help coming up with more efficient tactics, don’t hesitate to pull in another mentor. No one has all the answers, and sometimes it can be really tricky to decide what advice to give. However, if you pull in another mentor, brief them first yourself and don’t make the team do the entire download process again.

Common instances when you might want a second opinion:

When a team struggles with a pivot/leap

When a team is internally conflicted on priorities

When your gut tells you that their tactics will be low-return, but you don’t have better ones coming to mind

10. Be a mentor, not a CEO

Remember that you are a mentor, not a team lead. Participants go through Lean Startup Machine as much for the process as anything. Reading about “lean startup” is fine and good, but this stuff only sinks in when you actually start to put the ideas into real practice. They might need to be pushed to get out of their comfort zone, but teach them to fish — don’t give them the fish.

Three financial resolutions that can benefit your business

Ringing in the new year with a few resolutions? As you make plans to eat more healthfully and finally run that 5K, it might also be a good time to set some business goals. While the best resolutions will vary from business to business, here are three key promises most companies should keep.

1. Tune into 2011.
Don't just close your books and kiss 2011 goodbye. If you hit speed bumps or found new opportunities over the last 12 months, that may be an indication of where your company should turn its attention now, says Michael Carney, founder of MWC Accounting in Chicago. Did you struggle with cash flow management? Find a new area for growth? Study the actions that led to such occurrences and see if you can avoid or duplicate them to make your business stronger.

2. Look for savings.
Sticking with the status quo can cost you: January is the best time to trim budgetary fat, says Richard Stone, a principal in the Valhalla, N.Y., office of national accounting firm MBAF-ERE CPAs. Find better rates on insurance, telephone service, supplies and other business expenses. Cancel unused service contracts or subscriptions. It's a tough market out there for refinancing, but interest rates are low, Carney adds. Investigate refinancing real estate or other loans.

3. Find your replacement.
Succession planning is an area that is "widely overlooked by small-business owners," Stone says. The new year provides a great opportunity to address the next generation of your business, regardless of when you plan to retire officially. Once you identify a successor, Stone says, you can craft a plan to transfer business ownership incrementally. That way, you afford yourself the greatest flexibility and tax advantages.

Startup Mentor is a place for all the Startups to find their virtual mentors. The forum is dedicated to giving ideas to the aspiring entrepreneurs and the first generation entrepreneurs. If you fee that you can contribute to the community of entrepreneurs by providing your articles, opinions, analysis and case studies, please send an email to startupmentor@gmail.com

Raising Money From Informal Investors

No matter who you're raising capital from and no matter whether you're raising money in the form of debt or equity funding, you'll be faced with the prospect of financing agreements that are written to favor the investor over the entrepreneur. Over the years, the agreements used by more informal investors have come to mirror the investor-friendly agreements used by venture capital firms. So it's critical, especially during the startup stage when your negotiating leverage with investors is often weak, to know the difference between what is tolerable and what is intolerable when it comes to structuring a financing deal.

Your guiding principle should be this: Look into your crystal ball and choose your first investor carefully. Don't agree to terms that will limit or restrict your ability down the road to grow your company or attract additional investors. When raising money from angel investors or relatives and friends, the terms negotiated by your first investor in a financing round tend to be the terms that last for the entire round. Similarly, the terms you agree to in your first round set the stage for later rounds. And giving away too much could come back to hurt you or your business.

So here are a few tips about what to look out for to get a deal that works for you:

Don't give pro-rata rights to your first investors. If your first investor (or his or her attorney) negotiates pro-rata rights (which means the investor is given the right to maintain ownership in the company through future investment rounds), all the investors in the round are likely to also want those rights.even if most wouldn't have otherwise requested them. Although anti-dilution provisions are in the interest of early investors, they're off-putting to later investors. So you'll need to balance the needs of your early investors to protect their stake in the company with how attractive your company will appear to later institutional investors.

Avoid giving too many people the right to be overly involved. The follow-the-leader mentality described above gets particularly problematic when you give up control of the business and require investor consent for business decisions. If you're not careful, you may find yourself in the tedious and time-consuming position of needing signatures from all or most of your shareholders to make future financing decisions or management choices--all because you gave these rights to your first investor. Similarly, some investors will want detailed reports on a weekly, monthly or quarterly basis. Agree to this only when it seems necessary. Spending a lot of time preparing and mailing reports, and requesting and collecting signatures, is probably not the best use of your time.

Beware of any limits placed on management compensation. In the past few years, angel investor groups have started to "over reach" by adding clauses to financing agreements that limit the salaries of senior management. While this type of restriction might make sense for businesses running out of money or ones in which the board of directors is too cozy with senior management, entrepreneurs should be wary about agreeing to such limits. Arbitrary limits on how much you can pay your top employees means you'll be limiting your ability to attract the best people at the time you need them most. What you might do instead is to agree to set up a compensation committee for your new business and review salaries as part of a total budget.

Request a cure period. To protect themselves, investors may want you agree to covenants and representations about your company that might be difficult for an under-funded startup to swallow. These can include representations about every legal agreement your business has ever entered into, and guarantees that your business is compliant with all laws, licenses and regulations in every state. Most agreements will indicate that you are in default of the agreement if you violate any of its provisions.

Agreeing to such sweeping provisions is often difficult for honest entrepreneurs. One way to deal with this is to ensure that you have a "cure period" in your financing agreements. You should negotiate a cure period of two to four weeks to allow yourself time to remedy your errors. This cushion will give you the time you need to find a solution or a "white knight" investor if you're ever vulnerable.

Restrict your share restrictions. Historically, friends, family and angel investors wouldn't request adding restrictions on the sale of shares owned by the founders or management team. These restrictions were typically added during venture capital rounds of financing in which retaining the founders and management team are critical to making the deal work.

However, I've noticed that angel investor groups have started to insist on these restrictions even during early rounds. While it's unlikely that founders' shares have much street value during the early rounds and it's unlikely that anyone will want to buy them, it's still not a good idea to agree to such restrictions. If you know that you plan to raise additional capital, having unrestricted shares is often one of your only bargaining chips with future investors.

When raising money from any type of investor, it's a good idea to speak to your attorney about whether he or she is seeing an investor-friendly or entrepreneur-friendly capital market. If it's not friendly, then be patient--recent experience shows that the tide will always turn.

Startup Mentor is a place for all the Startups to find their virtual mentors. The forum is dedicated to giving ideas to the aspiring entrepreneurs and the first generation entrepreneurs. If you fee that you can contribute to the community of entrepreneurs by providing your articles, opinions, analysis and case studies, please send an email to startupmentor@gmail.com

Raising Money From Informal Investors

No matter who you're raising capital from and no matter whether you're raising money in the form of debt or equity funding, you'll be faced with the prospect of financing agreements that are written to favor the investor over the entrepreneur. Over the years, the agreements used by more informal investors have come to mirror the investor-friendly agreements used by venture capital firms. So it's critical, especially during the startup stage when your negotiating leverage with investors is often weak, to know the difference between what is tolerable and what is intolerable when it comes to structuring a financing deal.

Your guiding principle should be this: Look into your crystal ball and choose your first investor carefully. Don't agree to terms that will limit or restrict your ability down the road to grow your company or attract additional investors. When raising money from angel investors or relatives and friends, the terms negotiated by your first investor in a financing round tend to be the terms that last for the entire round. Similarly, the terms you agree to in your first round set the stage for later rounds. And giving away too much could come back to hurt you or your business.

So here are a few tips about what to look out for to get a deal that works for you:

Don't give pro-rata rights to your first investors. If your first investor (or his or her attorney) negotiates pro-rata rights (which means the investor is given the right to maintain ownership in the company through future investment rounds), all the investors in the round are likely to also want those rights.even if most wouldn't have otherwise requested them. Although anti-dilution provisions are in the interest of early investors, they're off-putting to later investors. So you'll need to balance the needs of your early investors to protect their stake in the company with how attractive your company will appear to later institutional investors.

Avoid giving too many people the right to be overly involved. The follow-the-leader mentality described above gets particularly problematic when you give up control of the business and require investor consent for business decisions. If you're not careful, you may find yourself in the tedious and time-consuming position of needing signatures from all or most of your shareholders to make future financing decisions or management choices--all because you gave these rights to your first investor. Similarly, some investors will want detailed reports on a weekly, monthly or quarterly basis. Agree to this only when it seems necessary. Spending a lot of time preparing and mailing reports, and requesting and collecting signatures, is probably not the best use of your time.

Beware of any limits placed on management compensation. In the past few years, angel investor groups have started to "over reach" by adding clauses to financing agreements that limit the salaries of senior management. While this type of restriction might make sense for businesses running out of money or ones in which the board of directors is too cozy with senior management, entrepreneurs should be wary about agreeing to such limits. Arbitrary limits on how much you can pay your top employees means you'll be limiting your ability to attract the best people at the time you need them most. What you might do instead is to agree to set up a compensation committee for your new business and review salaries as part of a total budget.

Request a cure period. To protect themselves, investors may want you agree to covenants and representations about your company that might be difficult for an under-funded startup to swallow. These can include representations about every legal agreement your business has ever entered into, and guarantees that your business is compliant with all laws, licenses and regulations in every state. Most agreements will indicate that you are in default of the agreement if you violate any of its provisions.

Agreeing to such sweeping provisions is often difficult for honest entrepreneurs. One way to deal with this is to ensure that you have a "cure period" in your financing agreements. You should negotiate a cure period of two to four weeks to allow yourself time to remedy your errors. This cushion will give you the time you need to find a solution or a "white knight" investor if you're ever vulnerable.

Restrict your share restrictions. Historically, friends, family and angel investors wouldn't request adding restrictions on the sale of shares owned by the founders or management team. These restrictions were typically added during venture capital rounds of financing in which retaining the founders and management team are critical to making the deal work.

However, I've noticed that angel investor groups have started to insist on these restrictions even during early rounds. While it's unlikely that founders' shares have much street value during the early rounds and it's unlikely that anyone will want to buy them, it's still not a good idea to agree to such restrictions. If you know that you plan to raise additional capital, having unrestricted shares is often one of your only bargaining chips with future investors.

When raising money from any type of investor, it's a good idea to speak to your attorney about whether he or she is seeing an investor-friendly or entrepreneur-friendly capital market. If it's not friendly, then be patient--recent experience shows that the tide will always turn.

Startup Mentor is a place for all the Startups to find their virtual mentors. The forum is dedicated to giving ideas to the aspiring entrepreneurs and the first generation entrepreneurs. If you fee that you can contribute to the community of entrepreneurs by providing your articles, opinions, analysis and case studies, please send an email to startupmentor@gmail.com