Social media and smart phone adoption is driving the growth, says BCG. They are also predicting, perhaps with just a hint of hyperbole, that businesses will be “fundamentally transformed” over the next five years. Maybe.

However, their suggestion that companies create a digital balance sheet is a good one, in a time when one negative customer experience can lead to millions of negative tweets. For years, consultants have been called upon from time to time to put a dollar value on brand equity. Now, that will probably have to be broken out into digital brand equity, even if it begins as a simple summing of likes versus not-likes, or positive versus negative tweets.

BCG’s report, called “Digital Manifesto: How Companies and Countries Can Win in the Digital Economy,” speaks to the movement of passive consumer engagement to participatory engagement. As developing countries come online, the skip straight to social media services. 90 percent of users in Argentina, Brazil, Indonesia and Mexico are using social media. BCG says that $1.3 trillion worth of goods was researched online before purchase, across the G-20.

“No company or country can afford to ignore this development. Every business needs to go digital,” said David Dean, a coauthor of the report and a senior partner at BCG. Indeed.

Written by David, Internet Marketing Strategist for Consultiq.

Even seasoned serial entrepreneurs wait an average of 21 months before they obtain first-round funding compared to 37 months for first-time founders, the authors said. The paper provides a number of other useful comparative measures against which entrepreneurs may judge their performance.

While the paper did not indicate when the clock began to run on these funding timeframes, it’s clear that waits shy of two years to over three years are longer than many of the expectations I typically hear today from founders in my consulting practice, or that I heard when I was a founder in my own startup. They also contradict the “word on the street” voiced by many around Silicon Valley.

The stark reality of VC funding availability underscores the importance for founders in obtaining adequate early seed funding to sustain their venture’s operations until the venture matures sufficiently to gain VC investment support. On the flip side of that observation, it also means that getting to revenue and profit is a cornerstone attribute, and remaining in “development paralysis” to create the perfect product vehicle only delays the moment when VC funding will be forthcoming.

Despite these facts, many founders dawdle over their alpha and beta products’ features, nuances, and non-essential elements, trying to get them exactly right before finding customers, putting their product in front of them, and asking them to pay to buy it. What’s better: a venture with the perfect product that ran out of money before it obtained traction, or one with a minimally viable product that attracted paying customers and obtained the VC funding needed for product perfection and rapid growth?

Kicking off a startup is hard enough when the founders do everything right. It’s downright challenging when one chooses to ignore the history of others and charts one’s own path against track records typical of those found in the middle of the bell-shaped curve.

Robert Dolezal, CEO–Consultiq

Unanticipated events, challenges, and their consequences roil our everyday lives. Yet we are inexplicably blind to real threats to our ventures and livelihoods. In last week’s news headlines, we learn that Eastman Kodak, once a Fortune 10 market leader, fully anticipated the impact of digital imaging on its core business 20 or so years before the threat came to pass, yet failed to respond and adapt with meaningful change. It just filed for bankruptcy protection. Why?

A core reason is the inability to hear the market through the cone of silence and positive affirmation we managers erect in our leadership team, advisors, and company cultures. As founders of early startups frequently realize too late, the blind 500-lb. gorilla that is ignoring our market can suddenly surprise us with an overwhelming rifle-shot focused on our opportunity. Conversely, we fail to see, hear and anticipate what the consumers’ fickle tastes now want, what our key competitors are doing to thwart our expectations, or how business conditions have changed since we first hatched our ideas. We are too deep in our code, too busy crafting the perfect elevator pitch, too oblivious to early customer feedback, too blind to pivot when we desperately need to do so.

Looking over the horizon is an acquired skill. It’s not reading tea leaves, gazing at crystals, or reading the Tarot. It’s a never-ending quest to listen to and evaluate the views of those outside your inner circle, spanning wide ranges of expertise, skillsets, and subject areas tangental to your core interests. If you have your head down working in network infrastructure, you may be surprised to learn about developments in intellectual property or nano science that will rock your boat. If you have a shallow network, it’s a cinch that you’ll only be able to predict within a narrow window of perspective.

So what advice can I share? Take advantage of those panel discussions, meetups, networking events, beer-and-bull…. sessions—they’re held nearly every night of the week somewhere close to where you work, live, or commute. They are mainly low-cost, and they’re extremely valuable even if you only make a single new contact or hear a lone piece of information that fits into your picture. In many cases, you’ll gain several. And don’t limit your participation to groups in your narrow focus area. Take advantage of the opportunity to intersect your focus with other elements of the marketplace and triangulate to see possible paths the future might take. Then test your hypotheses by asking your network what they think. Build strengths on strengths.

Sure, you may be trying to finish your beta and pulling 18-hour days-nights. Or, you may be watching your run rate converge with your bank account hitting zero and trying desperately to raise a new round. How can you take time away from those things to rub elbows in a noisy bar or meeting room with a bunch of people interested in something you know nothing about? Well, ignore the advice at your own peril.

Whatever you are doing, look up, look out, and listen. There’s no need to be blindsided roadkill. You have a wide circle of advisors to expand your ability to see your possible futures from your single pair of eyes to their many. Ask.

Bob Dolezal—Consultiq’s CEO and strategy expert

In the past two years, venture capital funds invested US$24 billion more than they raised in new funding. In 2010 alone, they invested $26 billion against raises of $14 billion, nearly a 2X deficit. Contrast this with IPO statistics: in 2011, approximately 50 VC-backed firms went public compared to 75 in 2010—and 2010 was not a peak year for VC-backed IPOs. CALPers, host of the California state employees retirement megafund, has cut back its allocation to VCs from 8% of its alternative pool of funds to 1% it will make available for VC investment. What’s going on?

A recent Wall Street Journal article (Some Venture Funds Hit ‘Pause’ on Big Deals) quotes super-Angel Mark Andreessen as saying he has “taken a step back” from high valuation deals and is now turning his focus to those where “pricing is still under control.” How do you say, “repeat of the bubble,”—at least among those of us old enough to have lived through it?

Putting a bet on the table has become a high stakes game at the same time as lots of young startups have stars in their eyes after seeing Reid Hoffman cash out big on LinkedIn and licking their chops over estimated valuations for high profile names like Facebook. There’s just one problem: as more and more startups are reaching the critical A-round and expansion B- or C-round funding stages, investors are looking at their prospects for making above-T-bill returns from high-risk venture capital investments, shaking their heads, and putting their money in other investment categories (or holding it in cash reserves to await a clearer economic picture).

This portends a wind-down is in the offing, and some solid performers may hit a stone wall just when they need to accelerate their growth with cash infusions. As for the weak ones? Uh-oh.

Word to the wise: if you are presently in the game with a venture, take steps now to line up your rounds and reduce your run rate or otherwise polish your margins. Delay new initiatives, defer those that are non-essential, and find non-cash paths to continue operations through the funding drought.

Batten down the hatches, sailors. It’s looking like those easy voyages to high-valuation funding are being postponed and a maelstrom of stormy times are in the offing for those with ventures underway.

But what happens when those ideas are cast in stone and fundable? Experts at the National Venture Capital Association conducted a survey in conjunction with Dow Jones & Co., and found that almost 75% of U.S. startups plan to raise a traditional A round or a mid-size angel debt round in the coming year. Unfortunately, they will be asking for critical growth funds just as VCs experience a severe capital shortage.

The survey reports that 69% of VCs expect their investments to stay the same or decline next year, not grow. That’s a 21% increase from a similar survey last year. Add to that sobering statistic the fact that VC firm numbers are in double digit decline, from 1,312 in 2000 to 844 last year. Their numbers dropped nearly 5% in the past 12 months.

Last month’s SVASE-East Bay Series focused on what categories are expected to be hot for VCs–medical, hardware, and non-traditional (read: not high tech software or eCommerce) startups headed the list.

What does this mean to startups on the verge of an A-Round quest? Hard to say. We also heard that good ideas that proved out were not seeing a cloud of competitors emerge around their premise, as was often the case in earlier years. So a startup with that elusive “traction”—customers, revenue, and (gasp!) profit margin—may well find their way to growth and expansion funding. Those with less to show may be forced to close their doors, and that’s not good for our now-famous innovation economy.

Set aside the Gantt charts, scrums, and to-do lists for an hour each week, close your eyes, and visualize your customer, using your product. How does it enhance their life or workplace…what does it mean to them…how does it change their world? How does the way they use your product look? How do they feel as they use it? Is there a smile at the corners of their eyes, or a furrow in the middle of their forehead? Then open your eyes and look at your product through their eyes, touch it with their hands, and hear it through their ears. I promise you, you’ll have a revelation every single time you put your customer avatar on and let it play in the field of your product.

All of this comes from watching the stumbling answers I receive to seeing someone’s demo and asking the simple question, “How do your customers feel about it?”

It’s truly remarkable how many times they pause, look confused, then start again to describe their product’s wonderful features, how masterfully the code executes, and how everyone in the room loves the way it works. They’ve solved its problems, not a customer’s problems. And, sorrowfully, sometimes they haven’t even made a down payment on the problem they set out to solve in the first place.

Perspective is like gold dust–it easily blows away in the wind to be lost forever. It’s even more like falling down a steep mountain, an endless slide without a sudden stop at the end. Once you’re at the bottom, you have to slog endlessly and toil to get back up to where the air is clear and you can see again. Yet, make your customer your sherpa guide, and you’ll be surprised how easy it is to take your eyes out and see with theirs. Your customer is never wrong, no matter how much they ignore, abuse,  or disdain your software baby.

They’ll choose the wrong menu item every time, punch every incorrect button, be endlessly distracted by something you didn’t expect, and will come up with mistake after mistake to confound your program’s logic and tie your UI in knots. Once in awhile, they’ll even crack a smile as something only you knew about makes a connection with their real world. Because that’s what it’s all about—your customers’ real world, not your lab petri-dish culture of self-amplifying feedback loops.

I once worked in a shop that put a artist’s rendition of our customer on every desk. I looked long and hard at that face over a period of many months. It’s remarkable how often that picture mocked my progress and tore up my carefully contrived assumptions. Today, I don’t need the picture to see that face—or the faces of other customers for other products. They are deep in my head, looking over my shoulder, tapping me on the elbow for recognition and input, straightening out my path.

Where’s your customer? Are you building your users and their world into your products, or are they just afterthoughts?

Take last week, for instance. I spoke to a founder with a product in the marketplace—yes, and dogs eating dog food—who understood that his customers wanted more from his product. He was systematically testing concepts and getting customer feedback on improving his product, an interactive-design, tool-driven service. He understood that his resources were too limited to employ a scattered approach, and he was well on his way to improving his product and determining the optimum price point his customers would pay through a program of careful customer testing and surveying. That was heart-warming for me to see. He had his head in the right place to get a successful venture that will grow and become profitable.

Still, he benefited from hearing me repeat how investors view risk in a young startup. Eventually, he asked a question than any startup advisor constantly hears—”How much “traction” or “revenue” is enough for investors?” I had to explain that the answer to that question is always, “It depends;” not something that he or any other founder wants to hear. So here’s my explanation:

A conceptual startup is 100% risk to an investor–it has no product, no customers, no team, etc. At the other end of the curve is the mature startup about to cash out through an IPO or other exit. Nearly all of the risk is known, and that risk which remains unknown is quantifiable. Investors know what they are buying, in short. In between, it’s no-man’s land. At any point, the venture has some quantifiable and some unknown risk. Investors first try to figure out the level of unknown risk. If it’s too high, they pass. If some has been quantified and made predictable, they move forward to learn more and make a judgment call on whether the investment is right for them. OK so far?

Here’s the deal: Over hundreds of assessments, nearly every startup fails this simple test if it doesn’t have a product in the public marketplace—the only exceptions are for strong teams with a superstar founder and a track record of personal history with the investors. Most fail the test if they haven’t started charging for their product or service and had some customers buying it at that (or any) price. By contrast, the odds start shifting toward making the investors’ grade when the product’s cost is known, its revenue is known, and enough customers are buying to predict a trend towards break-even and profitability. By the time the venture is making profit, it has an even better chance of attracting an investor. And those odds improve again when growth accelerates. At each of these points, some additional risk has moved from unknown to quantifiable and become more predictable.

Yet, for some reason, I see far more teams concentrating all of their energy on fund-raising in the impossible-to-fund stages than I ever see of ventures with leaders focused on getting their product to market or selling it to customers. I call it the impossible equation—no matter how much time, energy and resources you expend, nothing makes your venture fundable until the risk is quantifiable and predictable. Diverting your attention from hitting those critical benchmarks just means that the startup is more likely to fail and its founders (and often, their friends and families) will be hurt before the team realizes that they missed the boat.

Give it some thought. If you were an investor, and you had a field of potential places to put your bets down, what would you be using as your criteria? Hot idea or growing revenue? Enthusiastic, smart team or strong net margin on each item sold? Wish list or customer applause? Competitors trying to enter your space and take market share, or stealth and silence? Founders, it’s your venture, your vision, and your execution to choose. Make your milestones count.

Large advertisers with large campaign purses to spend also face frustration in their social media spend but will take advantage of fire-sale pricing that stems from small thinking built into many social media startups from their inception.

The first thoughts a founder should have after they conceive their venture’s basic product or service should be, “How will I get my customers to pay for it and what’s the margin for us on each sale.” It should not be, “How can I get lots of customers to use my product or service for free?”

While it’s not quite a given in the real world, you can usually give stuff away for free and get lots of people to take the offer. When they have to pay any amount for those products or services, they become much more choosy. As the price gets increasingly steep, they become choosier yet. Conversion—the direct marketing term for “converting someone with interest into someone who buys”—is the name of this game—turning triers into buyers. That, and margin on each new customer, so the company doesn’t go broke while it builds a paying customer base.

Facebook seems to have confused its open-to-all, free audience-building offer with its paying-advertising customer offer. While it took in US$ 1.6 billion in the first half of 2011—double the prior year—most of that revenue came from small advertisers, not the big guys (says ComScore). A Wall Street Journal article on November 2, 2011 recounts a Ford Motor Company campaign that spent US$ 95 million advertising its Focus model in traditional media, but less than 5% of the presumably much smaller total online ad budget on Facebook. In part, Ford’s Scott Kelly said that their small Facebook ad buy stopped entirely after the Facebook ads caught fire and went viral. Ford spent the remainder of its online budget on non-Facebook ads to keep the viral fires burning.

Moral: Facebook is penalizing itself for being highly effective with consumers and for its advertisers  by not structuring their offerings to large companies in ways that maximize Facebook’s revenue and profit. All of the consumer traction in the world—and Facebook can fairly claim that distinction for now—won’t pay stockholders dividends if a venture doesn’t build profit into their model from the get-go.

Consider it an object lesson if your startup venture is building traffic and you expect to talk about revenue and profit later.

Our conversation settled on how she could regain the momentum of winning a major early-venture contest, and I suggested the value of exploring customer partnerships as an alternative to venture funding.

Proposing strategic investments with one’s top customers or customer prospects isn’t everyone’s cup of tea nor is it very sexy, but it has the advantage of having all of the cards on the table face up for both sides. That’s rarely the case for other early investment options.

As a veteran of business development and joint ventures between numerous Fortune 500 companies, I pointed out that the benefits a strategic partner/customer expects go well beyond amount invested and ROI expectations. Partners are usually seeking long-term solutions and innovative competitive opportunities outside of their areas of expertise, along with long-term preferences and a side bet of potential upside, all while keeping their balance sheets clean. The investment of money is not completely incidental—and they certainly weigh the downside potential as well—but there are often mitigating reasons to partner up with a young, emerging player that has the power to disrupt their industry.

Is strategic partnership an avenue your venture should explore to fund and accelerate your growth?

It’s always time to reevaluate your strategies—markets quickly factor in disruptive behavior and performance returns to the mean—fancy talk for “strategies stop working over time.”

McKinsey and Company points out that continual testing of your strategies is an important part of market leadership. The financial crisis, regulation, or a score of other outside factors—as well as those inside your own venture—may be working to make your strategies obsolete.

One key test is, “Will my strategy beat the market in my space?” Your answer yesterday may not be the same as tomorrow. Have new competitors emerged? Have old customers adopted new approaches? Has technology advanced? All are questions to consider.

For more ways to test your venture’s strategies against some tough questions everyone should ask themselves, see http://www.mckinseyquarterly.com/home.aspx, a valuable resource, or contact Consultiq’s strategic consultants for a free introductory conversation.