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Is crowdfunding the new tech bubble? Or just a good old-fashioned junk bond?

Originally published on April 10, 2015 as a Guest Column in The Globe and Mail: http://www.theglobeandmail.com/report-on-business/small-business/sb-digital/innovation/is-crowdfunding-the-new-tech-bubble-or-just-a-good-old-fashioned-junk-bond/article23823686/

Despite the headline, I’m a proponent of crowdfunding and believe it can bring innovative ideas to market. Fundamentally, I feel that new forms of financing provide additional access to much-needed capital and bring healthy competition to the lender market, benefits that all entrepreneurs and inventors can appreciate.

So why the negative headline? It’s not meant to be sensational. I have real worries about the mania that seems to strike the markets with every shiny new opportunity. Some would call it systemic greed. Others may be more forgiving, and call it the cost of innovation. Whichever camp you choose, it’ impossible to deny that there’s extreme pressure on everyone in business to return continuous, increasing profits to shareholders – whether the shareholders are ourselves, our families or the public markets.

Crowdfunding, of course, is the rapidly growing practice of funding creative projects or startup ventures by raising small amounts of money from a large number of people, usually via specialty websites like Kickstarter and Indiegogo. Maybe the early days of crowdfunding were the best, when early adopters and other hipsters invested in new projects to receive finished products, T-shirts and other promotional, non-financial “perks.” But that’s the past, not the future.

My fears started to heighten at a recent panel discussion I attended on the emergence of equity crowdfunding – the practice of “mass” funding of opportunities in return for equity. One panelist urged the quick adoption of this new financing frontier because he didn’t want Canadian businesses and investors to fall behind or lose out on this incredible opportunity.

While the parallels are not exact, this rhetoric struck me as reminiscent of the rise of junk bonds, the 1999 Tech Bubble, and yes, the subprime mortgage scandals that drove us into the Great Recession, the economic slough from which many individuals, companies and countries are still just emerging.

I want to remind would-be investors that, on average, about 80 per cent of business startups fail. Even successful companies have a success rate of about 15 per cent on new product ideas. More often than not, new business initiatives just don’t work out the way that we want them to.

If you’re taking fun money from your cookie jar to support a cause you believe in or a new product you love, then crowdfunding provides you a new way to back your convictions that has never existed before. But you should understand the odds.

As securities regulators approve equity crowdfunding – probably by restricting how much investors can invest per year, and how much companies can raise – it seems likely that today’s low-stakes “pin money” culture is going to change. Investors, by definition, want a return on their money. If crowdfunding truly expands beyond the hobbyist market, it will only be because a consistent percentage of issuers actually create incredible value for their shareholders. But how likely is that to happen?

You can say this for “old-school” backers. The professionals, whether they’re banks, venture capitalists or experienced angel investors, push you to truly understand and articulate your project and its potential market. They pressure you to justify the risk and return involved. Without that initial and ongoing demand for due diligence, crowdfunding will likely create a less disciplined marketplace in which success becomes even harder to attain, and failures increase in number.

On the other side of the deal, if you are successful in seeking capital, understand that you will now have to report to “the many.” You’re the custodian of the hopes and dreams and expectations of people whose motivations you don’t know. You have an obligation to keep them in the loop – and can only hope to keep them happy.

Never underestimate the impact of the mob, the Web or social media on your company and its reputation if something goes wrong. Face-to-face funding may have been harder to get, but that was not necessarily a bad thing – for you or the markets.

Bottom-line: Crowdfunding is an exciting new wrinkle in innovation funding. But it won’t change the rules of the marketplace: investors expect value for their money. Nothing comes free. The more expectations you create, the more your crowds will expect you to deliver.

I am a huge proponent of new financing mechanisms, including crowdfunding. I simply don’t believe in the tooth fairy.

I do believe in the notion of ‘buyer beware, seller take care.’ With a little more common sense, and less frenzy, I believe crowdfunding will help to bring a lot of remarkable innovation to market. Without that discipline, I fear we’ll see a speedy series of failures, losses and resentment that will burst crowdfunding’s balloon faster than you can say “count me in”.

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You don’t have to be creative to be a brilliant innovator

Originally published on February 13, 2015 as a Guest Column in The Globe and Mail: http://www.theglobeandmail.com/report-on-business/small-business/sb-managing/leadership/you-dont-have-to-be-creative-to-be-a-brilliant-innovator/article22914969/

I take pride in the fact that I’ve never had a creative idea in my life.

You might think that’s an odd thing to be proud of, especially for an innovation advocate. But it’s just good sense.

Why am I so candid about admitting this apparent shortcoming? Because I see far too many business leaders who shy away from introducing initiatives simply because they think they have to be creative to be an innovator. It’s simply not true.

Creativity is defined as ‘thinking of new ideas.’ Innovation is the translation of new ideas into a market-ready product, process or service. Nowhere in the definition of innovation does it say that you need to be the one who is doing the ‘thinking.’ I recommend something far simpler and much cheaper: listening.

I rediscovered the importance of the lost art after reading an article by Dianne Schilling. She says that listening has become “a rare gift — the gift of time. It helps build relationships, solve problems, ensure understanding, resolve conflicts, and improve accuracy. At work, effective listening means fewer errors and less wasted time.”

Another benefit of listening is that it can provide you with the raw material of innovation: ideas. By listening to your customers and to prospects you meet in formal presentations, tradeshows and industry functions, you’ll hear the best ideas possible: those expressed by people with pressing challenges and the money to fix them. By asking a few questions and actively listening, you’re learn about their problems and unmet needs. Once you truly understand the details of their challenges you’re halfway to solving them – and that’s what innovation is all about.

After mastering the art of listening, there’s one more tool to adopt so as to really master the innovation field: empathy. This isn’t just about feeling someone else’s pain. It’s about sharing that pain, and ultimately finding ways to take it away.

As Ms. Schilling notes: “To experience empathy, you have to put yourself in the other person’s place and allow yourself to feel what it is like to be her at that moment.”

What’s your motivation? Sales, of course. The better you become at understanding your customers’ challenges and frustrations, the more effective you will be at innovating solutions for them. And isn’t that what customers pay you for?

Understanding people’s real problems and needs requires special talent or effort. In Daniel Pink’s book To Sell is Human, he discusses a California high school teacher named Larry Ferlazzo, who uses a research tactic called attunement. “It’s about leading with my ears instead of my mouth,” says Ferlazzo. “It means trying to elicit from people what their goals are for themselves, and having the flexibility to frame what we do in that context.”

As entrepreneurs and business leaders, we can use listening skills and empathy to drive teams or entire organizations to continuously produce new products or services. This is where my strengths and those of many other business leaders, come in. We turn thoughts into action. We may not be especially creative, but we know how to mobilize a team and apply resources to get things done.

Some of the world’s most successful products derive more from listening than from blank-canvas creativity.

Consider the smartphone. The first mobile phones were big and clunky and did just one thing – send and receive phone calls. Making them smaller wasn’t creative genius, but the product of vigilant, ongoing improvement. Mobile phone makers didn’t invent clocks or cameras, but they saw an opportunity and incorporated both into mobile phone handsets. When was the last time you saw a teenager wearing a watch or carrying a camera? Another smart person listened to teens and realized they don’t do much talking on their phones. The innovative solutions were instant messaging and texting, Twitter and Instagram. Presto, a simple product designed for talking has morphed into a ubiquitous appliance that allows people to stay in touch with each other without talking.

I would argue that creativity had little to do with this evolution. Mobile phone innovation owes its success to the people who listened to the marketplace and understood enough to say, “If we add a clock and a camera and a keyboard, everyone will buy this.”

Listening carefully is the soul of innovation and the reason I take some pride in not being creative. I’m good at listening to customers, empathizing with their problems and project-managing a solution. They don’t pay me to make stuff up.

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Add to Your Network: 5 Best Business Contacts

by Independent journalist and editorial consultant, Elaine Pofeldt. Originally published on The American Express Open Forum on February, 1, 2012.

business-networkingEven if your marketing budget is  tight, there’s plenty you can do to build your business. Networking is one of the most cost-effective ways to win new business. Often, it won’t cost you a dime, but to reap the rewards, you have to weave it into your daily business activities.

Here are five types of contacts to make in the coming months.

1. Smart people in other industries

People in other industries can alert you to best practices that you can bring to your own arena.

“It’s about exchanging information,” says Ken Tencer, CEO of Spyder Works, a branding and innovation firm in Toronto and New York. He is co-author of The 90% Rule, which looks at how to evaluate and effectively act on business opportunities.

How do you find the right people to add to your brain trust? Ask yourself who to exchange information with that would benefit yourself and your business, says Tencer. Don’t know many professionals outside of your field? Join a high-level networking group, such as Vistage, that puts you in the same room with CEOs from unrelated industries.

“It really opens your mind,” Tencer says. “It gives you feedback on what you could be doing differently, by learning from best practices in other areas.”

2. Amplifiers

To spread your company’s message, get to know like-minded industry thought leaders, journalists and social media users with a significant following. These people will help you reach their audiences, says Tencer.

You don’t have to meet such contacts face-to-face to build a strong working relationship. One good way to meet amplifiers, says Tencer, is by offering useful information based on your professional knowledge. Post to social networks such as LinkedIn.

3. New prospects in growing industries

A good 44 percent of small business owners expect economic volatility to make it harder to reach their business goals for 2012, according to the Guardian Life Small Business Research Institute.

You may lose some sales to clients who are in bad financial shape in today’s economy, but you can compensate. Add new customers who are in thriving industries.

It’s not likely to happen by accident.

“If you want to be in health care, make it a point to do some homework,” says Andrea Nierenberg, author of Nonstop Networking. She is president of The Nierenberg Group, an executive training, recruiting and consulting firm in New York.

Identify key players in the market you want to reach, and make a plan for contacting them, perhaps through a site like LinkedIn or with introductions from professional contacts.

4. Savvy suppliers

When you buy products and services, take the time to ask your suppliers about what they’re seeing in the marketplace. Consider inviting one or two to your office this year to make a brief presentation.

“They can definitely tell you about trends they have seen in your industry and in parallel industries,” says Tencer. Suppliers who do business internationally can offer a particularly comprehensive perspective.

5. Friends of friends

Forget the old taboo against mixing business with pleasure. Your social circle, from lunch mates at the office to high school friends, can be a great source of referrals. This works as long as they are familiar enough with the quality of your work to recommend you confidently to their contacts.

How do you foster unsought referrals? Be a recurring source of help to others in your personal, professional and volunteer networks. When you pass along a job lead or make introductions to a potential client, says Nierenberg, others will naturally want to reciprocate.

If you’ve lost touch with a friend, Nierenberg suggests that you set up a Google alert with that person’s name. News clippings and blog posts that pop up may give you conversation starters to use in an e-mail. Of course, if a buddy makes a valuable connection, you’ll want to take them to lunch or send a small gift.

“The better the relationships you have with people, the more likely they are to make introductions for you,” says Nierenberg.

Elaine Pofeldt is an independent journalist specializing in entrepreneurship. Her work has appeared in TheAtlantic.com, BNET, Crain’s New York Business, CBS Moneywatch, Good Housekeeping, Inc., Working Mother and many other publications. A former senior editor of Fortune Small Business magazine and editor of its website, she does editorial consulting for online and print publications.

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