Three Common Decision-Traps

Making decisions is your most critical job as a leader. The more high-stakes a decision is, the more likely you are to get stuck. Here's how to avoid three of the most common traps:

• Anchoring. Many people give disproportionate weight to the first information they receive. Be sure to pursue other lines of thinking, even if the first one seems right.
• Status quo. Change can be unsettling and it's easy to favor alternatives that keep things the same. Ask yourself if the status quo truly serves your objectives and downplay the urge to stay in your current state.
• Confirming evidence. If you find that new information continually validates your existing point of view, ask a respected colleague to argue against your perspective. Also try to avoid working with people who always agree with you.

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

Three Common Decision-Traps

Making decisions is your most critical job as a leader. The more high-stakes a decision is, the more likely you are to get stuck. Here's how to avoid three of the most common traps:

• Anchoring. Many people give disproportionate weight to the first information they receive. Be sure to pursue other lines of thinking, even if the first one seems right.
• Status quo. Change can be unsettling and it's easy to favor alternatives that keep things the same. Ask yourself if the status quo truly serves your objectives and downplay the urge to stay in your current state.
• Confirming evidence. If you find that new information continually validates your existing point of view, ask a respected colleague to argue against your perspective. Also try to avoid working with people who always agree with you.

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

12 Commandments for Closing a Sale

Like any game there are rules to selling, especially when it comes to closing a sale. To ensure sales success in your business, whether you're a startup or an established entrepreneur, here are a dozen of my best commandments for sealing the deal.

1. Remain seated. The saying goes, present the product, service or idea on your feet, but always negotiate from your seat. Even if your prospect stands up, remain seated. Going from a seating position to standing up suggests something has changed and allows your prospect to exit and end the negotiations.

2. Always present a proposal in writing. People do not believe what they hear, they believe what they see. Always have a contract available and a writing pad. Anything offered or points of value that are included should be written down to show buyers what they get when they make a decision with you.

3. Communicate clearly. No one will trust a person who cannot communicate clearly and confidently. I practiced using recorders and video for years and then played them back to ensure my communication was coming across the way I intended.

4. Make eye contact. This is a discipline instilled only through practice, and you can perfect it by recording yourself. If you want to be believed, it is vital to make eye contact with your prospect. It suggests interest in them and confidence in yourself, your products, your services, and in what you are proposing.

5. Always carry a pen. I remember once I was closing a deal, and I reached for my pen in my jacket but it was gone. The prospect took this as sign that he shouldn't sign—and didn't. I was devastated, and now I refuse to go anywhere without my sword in hand. All agreements require signatures and that requires ink. Keep a pen available at all times. In fact, always have a back-up pen, too.

6. Use humor. Any humor that can make people feel good, inspired or hopeful is always appropriate during the close. Everyone loves a good story, and people are more likely to make decisions when they are less serious. You will close more deals if you can get your client to lighten up and laugh.

7. Ask one more time. Figuring out another way to circle back and reposition negotiations after being told "no" ultimately will make you a great closer. It is not rude to persist; it is the sign of success and prosperity. Because I continue to ask in another way for a "yes" after being told "no" does not mean I did not listen. It only means I am more sold on my view than I am the other's view.

8. Stay with the buyer. Each time you leave the customer to check on something, it creates doubt and uncertainty in their mind. It can create undue antagonism in the negotiations, lower perceived value, and extend the closing time. But keep in mind, this does not mean there is not an appropriate time to leave a buyer and use an authority for a close, as this can be very powerful as long as it is not overused

9. Always treat prospects like buyers. Regardless of the circumstances: no money, no budget, not the decision maker -- always treat the buyer like he is a buyer. I always survey the prospect for signs that demonstrate they have bought in the past. The watch, the shirt, the suit, the necklace, the car they drove, the house they live in, the credit card they use, and others. All are evidence that this prospect has actually demonstrated the ability and history of closing. I always tell myself, "Every buyer is a buyer. Treat them as a buyer and they will turn into a buyer."

10. Stay confident. I always maintain that we can come to an agreement, no matter what I am told by the buyer or those around me. The saying goes: "Where there is a will, there is a way." This mindset of knowing you will reach an agreement requires you to eliminate all negativity from your environment as though it were a disease that kills, and be assured, it does.

11. Be positive. No matter how the buyer responds, keep it light and maintain a can-do attitude throughout the negotiations. When you go negative due to the buyer being negative there is only one outcome and it's not good. Negativity always succumbs to positivity.

12. Always smile. This is not just about your attitude, but also your physical manifestation. For the next week, practice smiling with everyone in every situation you encounter. Do this until you are able to argue with a smile, disagree with a smile, negotiate, overcome objections and close with a smile. Have you ever noticed that very successful people are smiling all the time? It is not because they are successful that they are smiling, it's how they got successful. This is a million dollar tip: Smile.

12 Commandments for Closing a Sale

Like any game there are rules to selling, especially when it comes to closing a sale. To ensure sales success in your business, whether you're a startup or an established entrepreneur, here are a dozen of my best commandments for sealing the deal.

1. Remain seated. The saying goes, present the product, service or idea on your feet, but always negotiate from your seat. Even if your prospect stands up, remain seated. Going from a seating position to standing up suggests something has changed and allows your prospect to exit and end the negotiations.

2. Always present a proposal in writing. People do not believe what they hear, they believe what they see. Always have a contract available and a writing pad. Anything offered or points of value that are included should be written down to show buyers what they get when they make a decision with you.

3. Communicate clearly. No one will trust a person who cannot communicate clearly and confidently. I practiced using recorders and video for years and then played them back to ensure my communication was coming across the way I intended.

4. Make eye contact. This is a discipline instilled only through practice, and you can perfect it by recording yourself. If you want to be believed, it is vital to make eye contact with your prospect. It suggests interest in them and confidence in yourself, your products, your services, and in what you are proposing.

5. Always carry a pen. I remember once I was closing a deal, and I reached for my pen in my jacket but it was gone. The prospect took this as sign that he shouldn't sign—and didn't. I was devastated, and now I refuse to go anywhere without my sword in hand. All agreements require signatures and that requires ink. Keep a pen available at all times. In fact, always have a back-up pen, too.

6. Use humor. Any humor that can make people feel good, inspired or hopeful is always appropriate during the close. Everyone loves a good story, and people are more likely to make decisions when they are less serious. You will close more deals if you can get your client to lighten up and laugh.

7. Ask one more time. Figuring out another way to circle back and reposition negotiations after being told "no" ultimately will make you a great closer. It is not rude to persist; it is the sign of success and prosperity. Because I continue to ask in another way for a "yes" after being told "no" does not mean I did not listen. It only means I am more sold on my view than I am the other's view.

8. Stay with the buyer. Each time you leave the customer to check on something, it creates doubt and uncertainty in their mind. It can create undue antagonism in the negotiations, lower perceived value, and extend the closing time. But keep in mind, this does not mean there is not an appropriate time to leave a buyer and use an authority for a close, as this can be very powerful as long as it is not overused

9. Always treat prospects like buyers. Regardless of the circumstances: no money, no budget, not the decision maker -- always treat the buyer like he is a buyer. I always survey the prospect for signs that demonstrate they have bought in the past. The watch, the shirt, the suit, the necklace, the car they drove, the house they live in, the credit card they use, and others. All are evidence that this prospect has actually demonstrated the ability and history of closing. I always tell myself, "Every buyer is a buyer. Treat them as a buyer and they will turn into a buyer."

10. Stay confident. I always maintain that we can come to an agreement, no matter what I am told by the buyer or those around me. The saying goes: "Where there is a will, there is a way." This mindset of knowing you will reach an agreement requires you to eliminate all negativity from your environment as though it were a disease that kills, and be assured, it does.

11. Be positive. No matter how the buyer responds, keep it light and maintain a can-do attitude throughout the negotiations. When you go negative due to the buyer being negative there is only one outcome and it's not good. Negativity always succumbs to positivity.

12. Always smile. This is not just about your attitude, but also your physical manifestation. For the next week, practice smiling with everyone in every situation you encounter. Do this until you are able to argue with a smile, disagree with a smile, negotiate, overcome objections and close with a smile. Have you ever noticed that very successful people are smiling all the time? It is not because they are successful that they are smiling, it's how they got successful. This is a million dollar tip: Smile.

What Wise Leaders Always Follow

Smart leaders make New Year resolutions and set quarterly milestones, charting progress against ambitious plans and goals. Wise leaders, however, take a different approach: they root themselves in a noble purpose, align it with a compelling vision, and then take action — not just for that year, but for the rest of their lives. That noble purpose becomes a North Star, giving direction when the path ahead is hazy, humility when arrogance announces false victory, and inspiration when the outlook seems bleak.

In India, we call the north star "Dhruv Tara" — or "Dhruv Star." According to the story, Dhruv was a prince transformed into the ever-fixed star as a reward for his perseverance. But the idea of a guiding star can be found in many different religious and cultural traditions. North Star is a concept (pdf) that I have been using in my teaching and coaching for over 20 years to represent our highest personal aspiration — especially when it's connected with a noble purpose. (Those of you familiar with Bill George's "True North" concept may notice some overlap.)

One of the best examples of a wise leader is Dr. Govindappa Venkataswamy (also known as "Dr. V"), an ophthalmologist with crippled fingers who started the Aravind Eye Care System in 1976 — with no business plan, money or resources. Aravind now sees 2.7 million patients every year, and even more impressively, treats the majority of them for free. Aravind has become a business example of compassion, as well as proof that wise leaders can radically change the world by following their North Star. The case study written about Aravind has been required reading for all Harvard Business School students for over a decade.

We have a choice in creating the life that we desire. With our judgment, choices, actions we take, we change the course of our future and steer our destiny, moment by moment. Wisdom is not about focusing on the future, but rather about acting in the present, aligned with our North Star.

North Stars align our energy, emotions, and actions in the service of our vision. Though it is not always simple to find one's North Star, once it appears, its guidance helps simplify one's choices. As paradoxical as it may seem, wise leaders are, first and foremost, wise followers. Once they become clear about their North Star, it becomes their calling, and they serve that calling willingly, happily, and infectiously.

So what was Dr. V's North Star? He dreamed a seemingly impossible dream: to eliminate needless blindness by providing appropriate, compassionate, high-quality eye care for all. Along with his siblings and their families, many of whom he had guided into medicine, he started his simple 11-bed clinic with three revolutionary guiding principles:

• Turn no one away, regardless of whether they can pay or not
• Give everyone the same high quality of care
• Don't depend on any outside sources for funding

These constraints, despite coming from a deep conviction in his own values, seemed to destine him for limited impact.

Instead, Dr. V changed the face of eye care on the planet, and he did it by owning the entire problem — providing community outreach, eye care, training, eye banks, research and the production of inexpensive but high-quality eye care supplies. He realized that if he wanted to eradicate curable blindness from the world, he had to start thinking not only about his organization, but also about training others. Conventional wisdom would be to guard your secret sauce, but Aravind did the exact opposite. By giving away all its secrets, Aravind has trained approximately 15% of all ophthalmologists in India and thousands more from over 69 countries. The work of this one man is said to have touched 40% of eye care patients in the developing world to date.

I've had the opportunity to meet Dr. V and work with Aravind over the past several years. I am deeply touched, moved and inspired by the revolution he set in motion and sheer impact of his contributions on the world. How did Dr. V come up with his North Star? Was he a wise person to begin with? Can you and I do something that can have a significant impact like Dr. V?

To my mind, Dr. V was not born wise — he became wise because of his decisions and actions. Here is an extract from Infinite Vision: How Aravind Became the World's Greatest Business Case for Compassion by Pavithra Mehta and Suchitra Shenoy (a special note: Read this book!):

To Dr. V, the cultivation of empathy, the effort toward equanimity and self-awareness, the stepping back from ego, and the attempts to align with a clear-sighted, inherent wisdom are all part of his larger aspiration to be a perfect instrument.

His story provides tremendous inspiration and guidance for those looking to follow their North Star. His story also flouts many conventional rules of business. Wise leadership does not fit the strict patterns of smart analysis, but instead taps into an intuitive part of who you are at the core, unearthing counterintuitive principles:

• Compassion doesn't have to come at the cost of efficiency — it can actually drive systems and operational excellence. You don't have to separate Corporate Social Responsibility (CSR) goals and project goals. You can make CSR the strategy or even the end goal for your business growth.
• If you truly focus on service, resources do organize themselves — if your main interest is in solving a problem, then there's no question that cooperation beats competition. Businesses should focus on the customer, not on profit or business model.
• When individuals (and especially leaders) stay rooted in inner transformation —being true to one's calling, paying attention to one's values and being aware of one's emotions and actions — it fundamentally alters the way in which organizations develop. Leaders aligned with their own North Star inspire their teams to do the same, not simply by words but by the power of their example.

In order to identify and then follow your own North Star, you have to ask powerful questions of yourself. Those questions will yield new insights for you and help you find inspiration in the most unthinkable places. For Dr. V, inspiration struck when he learned about McDonald's. Due to his experience as a government doctor with rural camps, he knew that he had to develop highly efficient, scalable, repeatable processes to treat the masses that came. In McDonald's, he saw that throughout the world McDonald's franchises had similar quality meals for low prices. "If McDonald's can do it for hamburgers, why can't we do it for eye care?" And sure enough, he developed systems that allow Aravind surgeons to do more than five times the number of cataract surgeries done by the average Indian doctor (and ten times that of an average US physician).

Following your North Star can also lead to quixotic decisions. When intraocular lenses (IOLs) came on the scene in the West in the early 1990s, global health professionals called it a luxury that developing countries could ill-afford. Dr. V saw the value of IOLs and literally manufactured a revolution. At a time when India was far from being the hotbed for technology outsourcing that it is today, Aravind started manufacturing these IOLs at world-class quality, driving the global price down from $150 to $10. Aravind now makes 7% of all IOLs in the world.

I hope Dr. V's story brings you closer to your own North Star. The key to making 2012 a special year is to first find our North Star, our noble purpose, and then to execute on it as if it is the only thing that matters — because it is. Wise leadership comes from identifying our own North Star, then using the light to enable others to find their own.

What is your North Star? And how can you be the perfect instrument of a higher calling? Share it with us here.

Prasad Kaipa is a senior fellow in center for leadership, innovation and change at the Indian School of Business, Hyderabad and is an advisor and coach to senior executives through his consulting company Kaipa Group. He is co-authoring a book on wise leadership for Jossey Bass.

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