My answer to the question on Quora: “I’m a high school junior. What kinds of activities can I engage myself in to prove myself in youth entrepreneurship?”

If you are a student – either in school or college – and if you are clear that you want to become an entrepreneur some day, below are some suggestions that you may find useful:

  • Volunteer in the sponsorships committee at college events. The process of approaching people and companies for sponsorships will teach you a thing or two about selling and convincing people. It makes you comfortable with pitching.
  • If you have the chance, intern in a role that requires you to sell. Anything. A sales role helps you understand how difficult it is to sell something, and helps you calibrate your assumptions when you start your own venture. A sales role also helps you become comfortable with failure and rejection. This will help you become more persistent and resilient in your own venture.
  • Restrict your lifestyle to a very low cash requirement. Even if you do take up a job after college, try to restrict your lifestyle as that will give you much more flexibility to bootstrap and start something that you wish to pursue.
  • Be observant. Even when you volunteer or intern or take up a job, observe how different aspects of a business are managed. Some of these things will teach you how to do things, and some will teach you how not to do certain things.

Overall, whether you want to start something of your own, or want to take up a job, be entrepreneurial in your approach. Being entrepreneurial means being driven by something that excites you, thinking through all aspects of executing that idea, being responsible and committed to making it a success. And overall taking ownership of that concept.

Wish you all the best. Go win. In whatever you choose to do.

How corporates can find innovation and disruptive ideas by engaging with the startup eco-system

There is a lot of innovation happening outside of company R&D labs. In startups. And the only way companies can get early access to that innovation is if they engage with startups meaningfully.

Engaging with the startups eco-system can give corporates to get early access to innovation in several aspects of their business – from disruptive products to disruptive solutions in marketing, finance, supply chain, operations and indeed any aspect of business.

Meaningfully designed startup engagement programs can also help companies attract talent, and enhance their brand appeal with the younger generation of entrepreneurially minded, innovation driven, consumers.

Often large companies feel that startup engagement programs will be complicated for them to design, and challenging to implement. But there are several easy-to-do models in which large companies can initiate their interactions with startups, and gradually deepen the engagement. Some of the models of engagement will be simpler to decide on and implement, while some may need deep thinking, and some may even need board level approvals to execute.
Continue reading “How corporates can find innovation and disruptive ideas by engaging with the startup eco-system”

What makes a good mentor-mentee relationship

A good mentor-mentee relationship can be game-changing for a startup, and therefore it is important that both – mentor and mentee – understand how they can make the engagement meaningful, productive, rewarding and fulfilling.

A good mentor can make significant contribution in not just the success of a startup, but also in the personal and professional growth of an entrepreneur. And therefore, I advise entrepreneurs to not give the tag of a ‘mentor’ loosely to anyone whose advice you seek regularly.

Mentoring is way beyond business advice and expertise sharing, and hence entrepreneurs and experts should be very, very careful when initiating a mentor-mentee relationship.

Who is a good mentor for your venture? Continue reading “What makes a good mentor-mentee relationship”

Starting your entrepreneurial journey – some food for thought

In my view, easier availability of early-stage capital than ever before, public celebration & adulation of entrepreneurial heroes, a well-deserved respect for entrepreneurism and also society’s willingness to accept failures in entrepreneurial ventures make it easier for younger people to consider entrepreneurship as a career.

I share below some observations that will hopefully provide some food for thought before you embark on your entrepreneurial journey.

A great idea of concept is not the same thing as a great business. Once you identify a concept that has a meaningful value proposition to your potential customers, you have to think of how you can build a strong, sustainable business around that concept. Think hard about concepts like revenue streams, business model, go-to-market strategy, resource requirements, etc. Continue reading “Starting your entrepreneurial journey – some food for thought”

Guest Article – Do good leaders make good managers?

A lot has been written in the industry about leadership traits and whether it maps to good management skills or not.

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In my perspective, leadership and good management are two different skills and an organisation needs both of them. Also, it is very rare to find both the characteristics in the same person and it is imperative for CEO’s to realise this.

The quintessential trait of a leader is to ‘make sense of it all’ in this highly unstructured and dynamic world. Leaders get a good handle on what is happening, and how it will/may transition the industry (or society at large) in the next couple of years.

Leaders don’t believe in status quo and know that change is the only constant in life. What sets them apart is the courage and self-confidence with which they embrace change. While most of us prefer to sit on the fence and see changes happen and try our best to protect our turf from them, leaders actually make changes happen and drive them in the direction they believe is best for organisation (or mankind at large).

Driving Change

So what does it take to drive change or to shape the future of an industry? It starts from having a vision. A vision of where do you want to be in next few years, as an individual, organization, society or mankind itself. While each of us has plans for our future, our vision rarely goes beyond the immediate self and family. A leader’s vision typically starts from the other end, i.e. industry or society in general. A leader wants to see the desired change at a much larger level and his only goal is to make that change happen.

Continue reading “Guest Article – Do good leaders make good managers?”

All successful startups are great examples of learning from failures.

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Ask any investor who has engaged with 100s of companies, and they will tell you that the plans they begin with, are almost always never the exact plans that they eventually build their successful businesses on.

Failure is not a negative in the ‘Startup scenario.’ It merely means that some of the assumptions did not hold true in the marketplace, and hence we dumped it and we did something else. In that sense, the earlier conceived model failed, and we pivoted to a different concept;  product;  value proposition; customer segment; price-point; marketing plan;  business model; sales plan; team or whatever it is that failed.

I therefore advice entrepreneurs to not fall in love with ideas but to fall in love with a problem. When you look at ‘owning the problem’ to solve, you can think of many different ways of solving it and try what seems to be the most suitable way, given your circumstances and the market. Then it doesn’t matter if a few ideas don’t work and you eventually have to try a different approach to solve the problem. Since the goal was defined as ‘solving the problem’, it is still a victory even if a few initial ideas fail.

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Why do investors & experienced entrepreneurs advice startups to focus on ONE THING?

Because 99 out of 100 folks who try to do more than one thing fail. 

images(For those who do not know the relevance of this picture in this post, click here to read the story of Arjun and the fish eye). 

Focus helps startups concentrate their efforts and resources on doing one thing well. Even if that does not work, because of the focus and attention, they are able to smell the failure earlier, and can then plan the pivot and refocus.

If you do more than one thing, your resources and bandwidth is shared. Your efforts do not carry the same weight that a focused effort can. And, in the midst of the chaos you tend to ignore (or miss) the signals that things are not going as you intended them to.

Should I worry about my product/service being copied by a bigger company?

That a concept/product/service can get copied is a real risk. You cannot wish it away by assuming that your passion and enthusiasm will help you win the war. You have to manage that risk well.
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There are two ways of dealing with the risk of getting copied or someone else doing something similar.

1) Patenting 
If your idea patentable, go ahead and protect it. As you will know, many large companies create a forest of patents around their core product patent. Hence, when you do a patent search you will also know if your concept is infringing on someone else’s patent. And if it is not, go ahead and protect yourself by patenting your product.

2) Build a value proposition that helps you win
As a startup, you have several advantages over a larger company. The ability to be nimble and respond quicker. The ability to devote much more attention to that client than a larger company possible can (the larger company can thrown more professionals at the client… but that cannot match the passion & commitment of a founder).

Other way to differentiate, and thereby create a preference even if there is competition, are pricing, brand personality, service levels, business models, etc.

Remember, in most markets, especially if the opportunity is large, there are likely to be many others who will take a shot at that market.

Go ahead. Be confident. But not over confident. Plan well. Plan thoroughly. Implement well. Be patient. Be creative (in everything expect in legal and accounting). Go win.

How is “proof of concept” different from “minimum viable product”?

test-concept‘Proof of concept’ and ‘Minimum Viable Product’ are two very different things.

When testing the proof of concept, you could be testing not just the product itself but also a few other assumptions about the business around that product. I.e. Product testing is just one of the aspects that could be tested during a proof of concept test phase. Within this, a MVP is an early version of the product, finished enough to get a few early customers to try the product and give you some useful feedback which can be incorporated into the final product.

Below are a few things that are tested in a concept test stage/pilot phase:

  1. The concept – the power of the idea itself: Do the consumers/customers see the value proposition in what you offer?
  2. The business model: A business model is about ‘who will pay how much and to whom’. Each element of this should be tested in the pilot phase. i.e. are the consumers/customers seeing the value proposition as you meant it to be, how much are they willing to pay – is there price sensitivity, and if so, how much.
  3. The assumptions for your business case: As mentioned above, list all the possible assumptions you have made in your business plan and see if there is a way to validate those in your pilot. In a pilot, some of the operational outcomes may NOT be as per your plan. However, it is expected that in the initial phase your operations will be inefficient and that cost and operational efficiencies will improve as your business matures.
  4. Understanding operational challenges: Entrepreneurs often tend to underestimate the operational complexities and challenges of managing a business. While startups often manage operations with a limited number of people who are stretching themselves beyond practical limits, it is often not sustainable in the long run. A long-term business case cannot be made on the basis of the enthusiasm and give-it-all commitment of the founding team. A business case has to be based on what is practical and sustainable with an average set of people managing your larger teams.
  5. Testing processes and operational capabilities: Processes help organizations scale up. Processes are nothing but just a set of guidelines on managing activity and handling situations. Processes are usually centrally planned and locally implemented. Processes. They reduce the dependence of individual brilliance, and instill a discipline that results in operational efficiencies and consistency of experience. It also allows individuals to be clear on how a certain activity/situation is to be handled. The quality of processes can make or break an organization. Not only should processes be implemented, but they should also be measured and evaluated periodically to ensure that inefficiencies and redundancies are eliminated. In a startup, it is critical to define some processes, but yet be flexible to adjust processes quickly as soon as you see some processes becoming bottlenecks or inefficient. It is therefore important for startups to test these in the pilot phase.

What should an undergraduate aim to get out of a VC internship?

(This post was my answer to a question on Quora)

Think of a VC firm as an observatory. A role in a VC firm gives you a vantage position to observe what works and what does not, and what real-world dynamics impact success and failures of businesses. Interacting with successful as well as struggling entrepreneurs provides you an opportunity to learn from other people’s experiences. Of course, being in a VC firm gives you an opportunity to understand what kind of businesses investors invest in, and more importantly, why. 

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All these opportunities give you a well-rounded view that is made up of different experiences and different perspectives.

Of course, one could argue that you could get this well-rounded view also by working in a consulting company. The difference however is that in a consulting company the discussions are largely about strategy and plans. In a VC firm, apart from strategy, it is also a lot about gut feel, individual insights & beliefs, AND MOST IMPORTANTLY, also about the most crucial factor for the success of a business – the on-ground implementation. 

Most businesses fail not because the idea was not good. They fail because the founders made incorrect assumptions and/or were not able implement well in the marketplace. 

Being at a VC firm can be a huge learning experience. 

I must however also add that i have seen very, very, very few young professionals working in VC firms make appropriate use of this awesome opportunity. Most often they do not recognize the power of learning from other people’s experiences and tend to be clinical in their approach to challenges and opportunities. In the real world, entrepreneurs tend to celebrate successes and introspect on failures. Unfortunately I have rarely seen employees at VC firms spend time to introspect on failures. They just move on. They tend to spend a lot of time on analyzing why a particular model/concept/team was successful… and that is useful too. But is is much more useful and helpful for the future to understand why something did not work.

Wrong assumptions kill more startups than bad products.

This is a summary of my talk at the Startup Weekend Next pre-accelerator program on the topic: Why customer discovery is critical to a venture

(For the purpose of this article I am using the word customer very broadly – for this article by customers I mean all entities that will either use, or pay for or influence the purchase of your product or service).

Wrong assumptions kill more companies than bad products.

Continue reading “Wrong assumptions kill more startups than bad products.”

My Notes from TC/1

I spent this weekend (15th and 16th of March 2014) at the first conference organized for creative entrepreneurs by The Coalition. Great initiative, awesome experience.  Check out www.thecoalition.in.

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Here’s a para from their website about what this initiative is about. The Coalition is a new platform to support creative entrepreneurs in India. Whether it’s music, film, design, fashion, arts, creative technology or something completely radical, The Coalition gets young creative thinkers together with the people, skills and money that can turn their passion into successful businesses – and connects them to the resources that can help their business grow.

Continue reading “My Notes from TC/1”

Summary of my workshop at TC/1

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This was a workshop at conducted for Startup Weekend at The Coalition on 15th March 2014. Here’s a summary of what we covered:

  1. Different stages of the venture are fundamentally different – the entrepreneur has to change roles from the DOER to a MANAGER to a LEADER
  2. A good product is not the same as a good business – you have to design a business around a good product or service
  3. Personal readiness and organizational readiness are important – Check the presentation for my 10×10 scorecard on personal and organizational readiness
  4. Delegation is difficult – but critical – If you do not delegate, you will become the bottleneck
  5. Hire Rockstars – An entrepreneur’s role is to attract and retain good people – Spend 30% of your time on HR – hire people smarter than yourself
  6. Have a business plan that outlines what you want to do and how you will do it
  7. Clearly identify and align with your motivations – ensure that all founders are aligned on the goals and vision and direction
  8. Redefining your business opens new possibilities – don’t describe your business by the product or service that you currently offer – define it as the problem you solve – check notes in my presentation 
  9. Visualize your goals, milestones and activities – first define them clearly
  10. Identify key stakeholders and have a plan to engage them

How do you choose a name for your startup?

Decide on the name for your startup very, very thoughtfully. Give it as much importance as a parent would give to naming a child. YOU will have to live with that name for life… even if the startup fails and shuts down.

Ideally, a name should give your intended users/customers a clear idea of what you do. e.g. ‘Page on makemytrip.com‘. It should be easy to pronounce for all people across geographies and it should, as best as you can research, mean the right thing in all languages.
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Ideally, it should be short, and should sound nice.
More importantly, the domain should be available. If not, trying to create a ‘compromise url’ (e.g. abc-info.co) is not very useful.
The sound should be relevant to your audience. E.g. if it is an enterprise solution, it should sound very professional and solid. If it is a fun thing for teenagers, it should sound fun.
Likewise, the logo design for that name should also reflect the personality that is relevant for the intended audience.

How do you do keep an employee motivated and happy while delegating tasks to him/her that don’t fit his/her line of goals?

This was my response to a question on Quora.

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In a startup, when you hire, hire people who are willing to go beyond their call of duty. You need people who are likely to do a bit of heavy lifting, and lend a hand in areas that are outside of their scope of defined responsibilities.

It is up to the management to also encourage people, motivate them and make them feel part of the larger goal. This means that the more transparency there is, the more opinion seeking there is, the more sharing of good and tough news, is the more likely that an employee will be willing to take on tasks that are not in the line of goals. Continue reading “How do you do keep an employee motivated and happy while delegating tasks to him/her that don’t fit his/her line of goals?”

What’s the appropriate way to terminate an advisor relationship that isn’t adding value?

This was my response to a question on Quora.

The person had provided this additional information: We do 24 month vests and are about a year in with someone who just isn’t adding much value. We don’t want to burn the bridge but feel it necessary to unwind the relationship. Other than simply picking up the phone to let this person know, what other steps do we need to take to do this properly?

My response

Different people will have different styles, and different personality types will deal with these situations very differently.

My style is to have an honest conversation. State your expectations, highlight where the delivery has not been as expected, assess if the reasons were within the individual’s control, and provide an opportunity for the person to respond. And ask the person what you think is a fair way forward.

In most cases, if you present a fair assessment of how things are going, the person may himself/herself offer to step aside. Of course, if the person is not agreeable to stepping side, then you need to do what is in the best interest of the company.

Of course, it is also possible (and often that is also the case) that the company itself was not able to leverage the advise and inputs of the mentor/advisor. And that is also a reality that needs to be dealt with. If that situation is unlike to change, even then having an honest conversation and saying “I don’t think we are geared to make full use of all the good advise you give us. We are just too bogged down with other priorities, which I understand you may or may not agree with. But for now, we have decided to focus on those. How do you suggest we move forward. Can we disengage for a bit and see if there is merit in reengaging when we are in a better position to benefit from your wise advice?”.

(And of course, the shares vested till then should be given to the advisor).

What are the most common reasons for startups to fail?

In my observation startups fail because of any one, or a combination of some of the factors below:

  • Poor implementation (usually due to poor planning of operational aspects of converting the idea into a business on the ground)
  • Assumptions on costs, adoption rates, revenues, operational efficienc, etc. prove to be wrong
  • Value proposition not as meaningful to users as hoped by the founders
  • Founder disagreements
  • Company running out of money… or founders unable to sustain low take home for much longer than they had estimated
  • Failure to get funding or follow-on funding
  • Poor product-market fit
  • Poor product / service (though I have rarely seen companies die because the product or service was bad)
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More often than not, it is either because of poor quality implementation or because the team’s assumptions on costs and revenues and other factors were inaccurate, which meant that they either run of out money a lot quicker, or the business case becomes weaker and as a result they run out of energy, enthusiasm… and eventually capital to sustain the operations.
I therefore always recommend to teams to overestimate on costs and underestimate on revenues in their excel sheets. When working on your excel sheets, try to work out the worst case scenarios (as those may turn out to be true as well) and build your foundation to deal with the worst case scenarios too. Think of what your response and plan is going to be in different scenarios – the very optimistic, optimal as well as the very worst case. Either of these scenarios could play out, and if you are not adequately prepared for any one of them, the end result will be a disaster. (Even if you have planned for sub-optimal scenario, and the in-market response is phenomenal, unless you are able to quickly adjust your plans and create resources, infrastructure, processes and people to deal with the growth, the business will flounder).
Entrepreneurs tend to be unrealistically optimistic on their own and their team’s implementation capabilities and often tend to understaff and underestimate the time and costs required to make the business work. (At least that’s my observation from the Indian startup eco-system). And that’s why I recommend to startups to talk to a lot of people. Advisors, mentors, investors, customers, other entrepreneurs… anyone with a more experienced perspective on that subject. Get a realistic view of how things work and what challenges you are likely to face as you start implementing your concept in the market.

Why Weak Decision-Making Is Dangerous For Business, But Is Difficult To Spot

Leadership is not the same as good management.

Corporate leadership is usually seen in the context of ‘managing’ the journey of a company in a defined direction.

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Efficient management of people, resources and environment may help the company progress smoothly on course in an agreed direction. However, the success or failure of the company, or whether the company is able to fully leverage the market opportunity is often dependent on the leader’s ability to make tough decisions, sometimes involving making a choice between progressing in the agreed direction, or changing the direction.

Leadership is about leading i.e. setting the direction and ensuring that the troops are aligned to move in that direction, and encouraging them to move in that direction.

Use the analogy of an army in the past, marching on to conquer new geographies and it is easier to visualize what a leader’s role is. Leadership involves the ability to see far in the horizon; imagine what the land beyond the mountains looks like based on assessing the current environment; and then chart the most optimal route; stock up on the necessary supplies; communicate the plan to your troops; create smaller manageable groups and identify people among them to lead those contingents. Then before the onset of the journey, the leader’s role is to give a rousing speech to motivate the troops, and as you move along in the defined direction create the mechanism to review if the progress is happening at the right pace and in the right direction.

Sometimes, the journey may be more difficult than imagined and the leader may have to reassess the plan. Often, when you reach the top of the mountain you may realize, that the vision of what lay ahead was different than what it actually is.

It is during such times that good leaders make tough decisions, while weak leaders keep ambling along on the same plan hoping that somehow things will change for the better. This is the crucial difference between definite leadership and the mere ability to manage the march in the agreed direction. This is the difference between good managers and great leaders.

If managing change is tough, deciding to change is tougher

Changing direction is a tough call as it may require the company to realign its direction and resources. It requires conviction, confidence, the ability to convince others that the changed strategy or direction is a good decision and then the ability to reorganize the resources and people in the new direction. Of course, it calls for a vision that can assess what the outcome of a new direction could be. And it certainly calls for courage to give up what was debated and decided previously as a good direction, and embark on a new journey or a new direction. It also calls for emotional maturity, as suggesting a new direction may often mean debating against the very decisions/directions that you earlier fought your way for. Even if it is in the best interest of the organization, it is a difficult decision as it involves a whole lot more effort, not the least to convince the rest of the team to realign their views and plans.

To be able to pull off such a tough change in plan requires a leader with great competence and one who enjoys respect from the rest of the army.

The impact of indecisiveness or lack of foresight and vision is not measurable under normal measurement trackers, and hence managements need to debate at board meetings, on whether the direction needs adjustment.

When a leader guides the company and manages people & resources well in an agreed direction, it is visible as a ‘success’ because there were milestones identified and measurement criteria defined, and it is easy to ‘see’ that the company is progressing well. Or if the leader is not driving the progress well, that is easy to spot for the same reasons.

However, since the outcomes of an alternate direction are in the ‘unknown’ zone, absence of push in that direction is not visible.

Great leaders introspect. They assess the environment, and the factors that led them to take the original decision. They are not afraid of thinking of alternatives.

Apple may not have been relevant if Steve Jobs had not decided that Apple is NOT a computer manufacturer and bet on music players and mobile devices as the new direction. It took great leadership to change the Indian Tobacco Company into ITC, a multi-category brand, including hospitality – something that was not at all related to the business they were originally in. It took great leadership to reimagine Titan from a watch brand to a fashion accessory brand.

Great leaders take bold, difficult decisions. All decisions are not necessarily right. Because, a decision is nothing but choosing from amongst the various options available, all of which would have different outcomes in the future. All scenarios of possible outcomes are based on assumptions. And hence, it is dependent on the leader’s conviction on these assumptions and outcomes that will set the direction and pace for the company. And success will depend ultimately not on whether the decision was right, as any of these decisions could have been right, but on whether the leader was able to align the team, resources, products and processes to the decision.

This article was originally published in NextBigWhat on February 3, 2014 (Read here).

Does traction trump revenue (in the short-term)?

Naval Ravikant‘s definition of traction is: ‘Quantitative evidence of market demand.’

Traction,  in my view, is not just about users. It is about users using your product at the price-point that you eventually want them to buy at. Everything else is about users taking advantage of an ‘offer’ with no guarantees that ‘usage during offer’ will translate into ‘traction’.

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But the answer to the question above is that it depends on a variety of factors.

If you are in a business where there is precedence of the revenue model, business model, price-points, etc. working well for others, then there will be less tolerance to, you not having adequate revenues with whatever traction you have.

However, if you are in a category where getting to a reasonable scale to use that as a competitive advantage, then focusing on tactics to get traction, even if that means at the cost of revenues, could be acceptable to some.

What do investors want to know when a startup retires a product?

(This post was my response to a question on Quora: “Dear Investor, …” How should the rest of the email go? Required elements? Bonus points for…? Tone? How different is it from the communications to the press and to customers?)

Hopefully, you will not break the news via e-mail. If that’s the case, the relationship is most likely broken and therefore the e-mail would have in it all that you need to communicate, to keep your side of the story simple and straight.

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Continue reading “What do investors want to know when a startup retires a product?”

What does being an already successful one-time entrepreneur do to your chances of being successful again?

Any entrepreneurial journey, even the most successful one, is not a straight line up. There are always ups and downs in that journey.

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The experience of having built a successful venture exposes you to many of the challenges that one can face in an entrepreneurial journey. It teaches you to keep your assumptions practical. It helps you understand what it takes to make a sale. It give you the wisdom to keep costs low. It teaches you that there will be ups and downs, and it teaches you to be resilient and teaches one that perseverance can pay.

Continue reading “What does being an already successful one-time entrepreneur do to your chances of being successful again?”

Is it okay to be a leader in a niche segment?

Targeting a niche segment almost always seems like a winning strategy. There is always a temptation to carve out a niche when a category matures or seems to be growing well.

However, just because you have identified a good niche does NOT mean that it makes a good business case, no matter how sharply defined that niche is.

Often entrepreneurs make the mistake of getting excited about playing in a niche, and assuming that they can be leaders in that niche simply because they are super-focused ONLY on that segment. The truth however is that just because you focus on a niche does not mean that others who service broader segments are not at least as good as you, at servicing that niche as well.

Focusing on a niche makes sense only if that niche represents a fairly large market. Also, if servicing the niche helps you build competencies which can be leveraged across a broader segment, there is really no merit in building a ‘business case’ around that niche. Although, you could have multiple brands targeting different niche segments, with the common competencies deployed across all the segments.

Testing processes during the pilot phase

Processes help organizations scale up. Processes are nothing but just a set of guidelines for managing activity and handling situations.

Processes are usually centrally planned and locally implemented. They reduce dependence on individual brilliance, and instill a discipline that results in operational efficiencies and consistency of experience. They also allow individuals to be clear on how a certain activity/situation is to be handled.

The quality of processes can make or break an organization. Not only should processes be implemented, but they should also be measured and evaluated periodically to ensure that inefficiencies and redundancies are eliminated.

In a startup, it is critical to define some processes, yet be flexible enough to adjust them,as soon as you see some processes becoming bottlenecks or inefficient.

During a pilot phase, the startup could test multiple processes and then decide which ones seem to be working better and adopt them for the organization. However, what is important is the focus on establishing processes BEFORE the company needs the processes to scale up. The pilot phase allows processes to be tested, as some of them are bound to fail. The smaller scale of a pilot allows the outcome of failed processes to be handled or damage to be contained quickly. But it does require closer monitoring and planning.

Nett: Be process-oriented during the pilot-phase too. But be nimble and flexible, and be ready to make quick adjustments.

Should aspiring entrepreneurs work for a start-up or a large company before starting up on their own?

I think it is a good idea for aspiring entrepreneurs to get some experience of working with a startup as well as some experience of working in a large company.

Here’s why: Working with a startup and working with a large company offer very different learnings and experiences for an aspiring entrepreneur.

For example, working in a startup helps an aspiring entrepreneur understand – how to make things work in a resource constrained environment; how to hire people when you are not a known brand; how to be flexible and nimble, etc. Working in a startup also helps aspiring entrepreneurs understand  -how business models evolve; how a gradual ramp-up is implemented; how a business plan has to be adjusted; how quickly things can change… and how assumptions are tested and hence, adjustments made in goals, strategy and implementation plans.

On the other hand, working in a large company helps aspiring entrepreneurs learn about  – the power of processes and systems; the challenges of working at scale; the way to handle HR issues when there are multiple layers in an organization when, (unlike a startup), you don’t know your colleagues by name. Working in a large company also teaches aspiring entrepreneurs about business focus, being goal & objective oriented and about increasing profitability.

In effect, both environments – large company and startups – offer experiences that are varied and very useful when you yourself will start your own venture.

Why are most people scared of trying entrepreneurship as a career option?

I believe everyone can be an entrepreneur. Just that not everyone’s personal circumstance are conducive for them to take entrepreneurship as a career option at all times. Sometimes, personal situations, including financial, physical, emotional, may need the person to be in a job. And that’s perfectly OK too.

Often career professionals switch to become entrepreneurs. And that’s OK too.

My view is that ANYONE can be an entrepreneur at anytime they feel they are ready. That desire to be an entrepreneur is heightened when they stare at an opportunity in an area they are passionate about. Most people however give up that opportunity… and do not take the plunge into entrepreneurship even if the opportunity is staring at them. And often that’s because they are not sure if they are ready for entrepreneurship. The fear is about failure. But the cause of that fear is often that they are not certain that they understand enough about different aspects of business to be successful. (Professionals usually have more of this fear than say student entrepreneurs. Perhaps because professionals may have experienced the complexities of business, which students may not have had an opportunity to.).

My advice therefore is that it is good to educate yourself about and experience different aspects of business. It is good to ‘prepare’ yourself for running a business if such an opportunity presents itself. Even if you do not want to start something of your own, an entrepreneurial mindset and orientation and understanding of business as a whole will be a great asset even in your job. Whatever that job may be.

An entrepreneurial journey will have failures on its way. And that’s OK. If you do not fail in the beginning of the journey, you will face challenges at some other stage of the entrepreneurial journey. There is no reason to fear failure or challenges. You just have to be well-prepared to estimate the challenges and to deal with them as and when they happen.

How important is it for an entrepreneur to be passionate about the domain?

In the context of entrepreneurship, passion is not about ‘This is my hobby” kind of passion. It is about “I am excited enough about the domain to consider committing my current life in building a business around it. I like doing what is involved in doing the business, around this concept”.

Passion or rather deep interest is important because every business will go through its challenges. If an entrepreneur is not passionate about a particular domain, and its potential to create wealth through a venture in that domain, investors are vary that the person may give up at the first signs of serious challenges.

On the other hand, someone who is committed to a domain because of an underlying passion/interest is more likely to survive the rough times.

What should a non-technical co-founder offer, to attract a good technical co-founder?

Essentially, when encouraging a techie to give up a well-paying job, you will have to convince him/her that they have a better chance of creating wealth as your business partner than as an employee.

Logically, what techies will be seeking from non-technical co-founders are the aspects of business that they may not have an interest in, or may not have the experience or competence in. E.g. understanding of domain, understanding of fundamentals of business, sales skills, operations management competence, etc.

To convince techies to join as co-founders, non-technical founders should be able to convince the techie that he/she has what it takes to create value  & wealth for the team.

Even in startups which are heavily dependent on technology or technology platforms, just technical competence is not sufficient for the startup to become a strong ‘business’. 

Start-ups with well-rounded teams that bring complementary skills to the table are likely to have a a better chance at success.  E.g. a techie + a business person + a marketing/sales person would be considered a fairly well-rounded team.

Working from home

Start-ups in India, even now, continue to find it difficult to attract good talent. Primarily because of risks associated with a start-up. More importantly, the initial team in any start-up has to be very differently motivated and driven in order to ensure that the start-up gains stability and gets into a position to scale-up. To ensure that, entrepreneurs have to be extremely choosy in the quality of talent they engage as first team mates.

After observing a number of start-ups, we realized that past professional successes of a person were no guarantee that the person would be able to deliver the same in a start-up. Self-motivation, proactivity, ability to embrace shifting strategies, ability and willingness to multi-task, the desire to participate in more than the immediate task, getting kicks out of participating in shaping the foundation of a company, etc. are critical qualities that early team mates in a company should have.

In many ways, even if by default and not by design, we realized the benefits of not making an early stage company top-heavy. It allowed us to leverage the wisdom of our investors and mentors, take quick decisions and implement it through the enthusiasm of the young team with limited experience and therefore limited inhibitions towards deviation from previously discussed approaches or tasks outlined.

However, it was also important for us to have high-quality talent with deep experience in specific areas where those qualities mattered. It would have been quite difficult to employ people who met the criteria to leave a well-established company and work for a start-up. (And even if we convinced someone to consider working for us, we certainly did not want to play the “we will pay more than what you currently get” game.). It is for this reason that we decided to try an alternate approach.

In a place like Gurgaon (or indeed Delhi NCR), there are several women who after a number of years as a successful professional have taken a break for various reasons – child and ‘husband moved to Gurgaon so I gave up my job and moved too’ situations being the top reasons. Many of these professionals are keen to engage in an assignment that allows them to contribute with their skills and experiences but in an environment which gives them time for family or other priorities that they may have set for themselves.

We decided to focus on such high-quality talent to participate in our early-stage team on ‘flexible terms’ and work-out-of-home options.  We realized that this approach opens up the talent pool beyond what is traditionally possible. More importantly, it gets you talent,driven not by monetary compensation, but by the excitement of what you are doing and the interest in participating in what they believe to be a potentially exciting business. Also, because of the advantages and flexibility it offers to professionals, their commitment to the task is self motivated.

In fact, so successful has this model been for us that we are now actively seeking professionals who prefer to work out of home. So, should you know someone who can participate in our story, do let them know that we always have room for people who can contribute and add value.

Innovation in the context of a startup

Often entrepreneurs confuse innovation with differentiation. We often get plans where the entrepreneurs think of their innovation as ‘something more or different’ that they are doing which others are not. That to my mind is not innovation.

INNOVATION

In my view, innovation is when you either create something new (a product or service) or do something that  that makes an existing product, service or process faster and/or better and/or cheaper.

Also, innovation is understood or at least widely perceived to be only about a product or service. But, innovation can be in any aspect of the business. It could be innovation in pricing, packaging, business model, marketing, positioning, resource utilization, etc.

Some examples to illustrate the point

  • EMI or Equated Monthly Installments is a pricing innovation that made high-ticket items accessible to many who could not afford to pay the price upfront.
  • Outsourcing non-core processes to locations where it could be done cheaper was a business model innovation – BPO
  • Software companies like TCS offering enterprise class software to small & medium enterprises wherein they pay a small fee every month instead of a one-time payment for the software  – a business model innovation.
  • The packaging that Paper Boat uses in India for their non-alcoholic beverages is a packaging innovation… it stands out in the category.
  • An online platform for art, provides art and art prints on a subscription model… which allows people to have many different art pieces at their homes without owning any… that is a business model innovation.
  • Shampoo in sachets – single use packs – is a packaging innovation
  • A startup offering free auto-rickshaw rides outside their biggest competitor’s annual event  – a marketing innovation
  • At one of the largest smart card and chip makers in India, they use a quick manual intervention to put a colour tag as per groups over 100,000+ hand-filled forms that they get everyday from their telecom customers for whom they manufacture SIM cards. Their competitors use sophisticated and expensive software which slows the process and is practically useless for dealing with the scale and speed in which they have to operate. This is a process innovation.

Innovation is not a one-time activity… it is not a quest for that ONE thing. It is a process, a way of approaching things that should be a part of the DNA of a company.

While most organization can be good at process or business model innovation, it is much harder to create or invent something new. And that’s why we need to encourage and reinforce a mindset of innovation with a clean slate as a starting point, rather than looking at how you can make improvements over something that is already existing.

How then, does one create an atmosphere of innovation in the organization?

  • Well, to begin with, you have to declare, announce and reinforce, to the entire team, that innovation IS the culture in the organization
  • You have to celebrate innovation AND experiments – with awards, rewards and ceremonies…. This is important, as it not only incentivizes teams and individuals to innovate, but it also reinforces the innovation culture
  • Create matrices to measure innovation
  • Allow people to experiment and allow them to fail… do not applaud them only when they succeed, but applaud every well-planned experiment they undertake and every well-thought idea they put on the table
  • Once you have figured out an innovative concept/product etc, implement it… demonstrate that you are serious about and committed to the concept.


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Why is innovation important for startups?

Innovation is especially important for startups. New concepts – products and services – help establish a unique value proposition. It creates intrigue and induces trials.

Also, innovation almost always makes it possible to make your products and services accessible to a larger audience. Innovation increases access. (Process and scale innovation allows telecom companies to offer one of the lowest cost telecom services in the world. Healthcare companies like Aravind Eye Hospital and Narayana Hridalays conduct surgeries at a fraction of the cost of other hospitals because of their process innovation.)

Innovation often reduces the cost of delivering the product or service that it gives the company a pricing advantage, which allows it to target bigger markets, which in turn allow it to get more investor interest and sometimes better valuation. Good, well-thought through innovation almost always makes it easier for the company to get funded… because it increases the chances of success of the product or service.

A culture of innovation also helps startups attract quality talent. Because people love places where they have the freedom to experiment.

And lastly, innovating is fun. It gets energy into the team. And often the process of ideating throws up new interesting possibilities.

How do you do team appraisals in a startup?

The way of assessing a person’s value to a team is quite different in a startup than in a post-startup stage company. 

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In a startup, having absolutely the right people in the initial stages is critical. Because a startup will always be starved for resources, there is just no room for laggards or those who do not fit in with the vision and approach of the rest of the founding team. (And by founding team, I do not mean just the founders, but also initial team members, most or some of them will be with some sort of ESOP’s package).

In a startup, founders have to take adequate and more care to ensure that the person is just right for the ‘Organization’.. not just for the role. Here’s why…

In a startup, there is uncertainty about various aspects, including the product sometimes… but most certainly there is uncertainty about pricing, target customers, value proposition/positioning, target markets, business model, etc. Hence, there is no point in hiring just for a very tightly defined role. Ideally, find people who are willing to adjust to the requirements of the startup. Hence, suggestion number 1: Hire for attitude and willingness to adapt, with passion & commitment to the cause/concept/domain.

A person who is passionate, dynamic and a team player will eventually slip into a role that will be most required of him/her to deliver on. I have known people who thought they would do sales in startups, eventually fit beautifully into managing operations.

When you are doing ‘appraisals’ of the founding team, the best way to do it is to do it through regular, honest, transparent and candid conversations. There is no point in doing a numbers-based evaluation in a startup. Instead, assess if the person is enjoying the environment, assess if he/she is contributing to the startup in some way or the other (in some cases, there may not be much for the person to deliver on at the current stage.. .e.g. if you had hired a sales person but if the product development is delayed by a quarter or two, what does the person do?).

As long as the person is contributing to the team in some way, the person should be considered a valuable resource. E.g. in some cases, the person may be needed just because he/she gets a business perspective or even because he/she keeps the spirits high in the office or because he/she brings to the table the maturity that helps sort out issues between squabbling teams.

A good way to do an appraisal is to share the broad vision with the team, clearly identify milestones, define roles and then have a monday morning meeting where each person speaks for 2-3 minutes about what is happening on his/her goals and milestones. (Remember, in most startups the milestones will NOT be met as planned… but as long as the direction and pace is ok, milestones should not be a serious concern).

In the Monday morning meeting, discuss where things are not going well.. identify weak spots… and then get the entire team to support the person/team to overcome challenges.

If the situation does not improve and if the person is incapable of handling that role, but if he/she is attitudinally right, give him/her another role.. discuss with others. and see how you can ‘fit’ the person in.. do it ONLY if the person is attitudinally right and can be a contributor in someway at some later stage. Hunger to learn, inquisitiveness, passion, commitment are things that you should assess.

What do you do if all you have is an idea? You are unlikely to get funded… so, how does one get started?

Getting funding for a plain idea is going to be virtually impossible. Ideas are a dime a dozen, but unless you are able to convert that idea into a product/service… even a MVP, and unless you are able to have a plan on how you plan to scale that up, investors are unlikely to be interested.

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How then, does a young, first time entrepreneur (perhaps without or very limited work experience) with an idea, get going? Here are some things that you can consider:

  • Find some co-founders – 1 or 2 others who you can take along in your journey. Try selling your idea to potential co-founders. (Remember, an entrepreneur has to sell, sell, sell… not just to customers.. but he/she has to have the passion, conviction and the ability to sell the concept to others too.). When you look for potential co-founders, seek complementary skills… if you are not a techie find techie co-founders… someone who can build a MVP.
  • Study the market –  Speak to potential users every day… Understand what they will like about your product… See how you can further solidify your concept and make it even more powerful. Listen and be open to what potential users tell you about competition and WHY THEY WILL NOT USE YOUR PRODUCT. When customers tell you why they do not want a product, it gives you deep insights on what could go wrong in your business.
  • Join an accelerator and participate in hackathons where you can get the MVP done
  • If you are convinced that this is likely to be a good ‘business case’, then try and raise a bit of money through a friends & family round…. raise ONLY AS MUCH AS YOU NEED TO BUILD A MVP. E.g. if you need Rs.10 lacs… then perhaps you can raise it by getting Rs.50 thousand each from 20 people. Or Rs.25,000 each from 40 people.

All the best. Plan well. Do well.

How can an entrepreneur can master the art of execution?

(This was my answer to a question on Quora)

Execution or good quality implementation of a concept in the marketplace is not something that you can learn in books. It is something that will have to be done on the ground in the marketplace.

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The key to good execution is to first be able to have a very, very clear and comprehensive view on what all needs to be done. I ask my startups to ‘see the film in their mind’ … to visualise every activity, every process.

When you visualise it and see it as a film playing in your mind, you will be able to get a clear view of the complexities that will be involved in managing that process. It will give you clues on the resources, infrastructure, processes and people that will be required to implement that well. And as you estimate the infrastructure, people and resources well, the better the quality of the execution will be if you have a process that is planned well and has built into it the tools for feedback, measurement, analytics, tracking and adjustment.

Let me illustrate with an example. : If your startup is selling something to schools, then don’t just make assumptions that “my sales person will be able to convert 3 schools in a month”. Even if that is an accurate assessment, how you arrive at that number is critical in panning the operations so that the on-ground execution is flawless because it was designed practically.

In this example, I would imagine the following scenarios:

  • So, schools are closed for holidays say 2-3 months in a year (in some schools while the students are off, the staff may be available during some vacations too).
  • I would imagine that one sales person will spend 1-2 hours in each school, including waiting time outside the procurement person’s office or the principal’s office.
  • Hence, I would imagine that at best the sales person can meet no more than 2-3 schools a day… assuming that he goes on a sales call 5 days a week, then the sales person could meet 10-15 visits a week, and therefore about 40 – 60 visits a month
  • Assuming that the success rate to proceed to next level of discussions is 10%, the sales person is likely to have 4-6 hot leads in a month.
  • Even if the principal likes your solution, he/she is usually not the decision maker… and you may need to meet a committee (i.e. if you miss this month’s committee meeting, it may be a month before you get an audience)
  • If the committee approves it, then the cost negotiations may be done again by the chairman/owner or someone representing the chairman/owner. And for this negotiation, the sales person may need to also take along someone more senior in the company.
  • If it takes 4-5 meetings to convince different layers of decision makers, given the difficulty in getting meeting times coordinated, this may be a 1 – 3 month long process, depending on how much the client is interested in the solution.
  • Given all of this, in the initial period, the sales person may be able to close barely one client in the initial months till such time where more hot leads are getting added…. and at that stage the company may need a two-tiered sales process – one to generate leads and the other to follow-up on and close hot leads
  • In this situation, apart from the sales person planning his target customers, the startup may need someone in the office to collect a database, perhaps it may be more efficient for someone in the office to centrally call up different schools and set up meetings for the sales persons, the startup will need someone to do the sales report collation activity….. and certainly someone to track leads so that follow-ups with warm and hot leads are happening regularly.

Startups falter in execution primarily because the fail to assess the complexities that are involved in rolling out their concept in the market place. There is an enthusiasm that makes entrepreneurs believe a more rosier outcome than that is likely to be the case. They assume more efficiencies in people, they estimate that they can stretch their infrastructure more than others can, they believe that they are smarter than others and hence can do it with limited resources… and because they are fighting different wars everyday, they usually tend to ignore processes. As a result many startups end up delivering on ‘current situations’ without planning processes for scale and growth.

At the startup stage there may be no processes or some loose processes, which eventually will have to get firmed up. However as the team grows the absence of processes creates inefficiencies and chaos as each team or person attempts to manage their part of the operations in a manner that they feel appropriate. Even with the most honest intentions, such chaos cannot be good for the company.

When you company is growing is almost always the wrong time to plan for growth. You have to plan for growth to the next level when you are at a level below. Else, you will always be in the operational challenge of managing operations instead of driving growth.

Suggestions: Once the initial challenges are out of the way, the CEO has to focus on creating the processes. It has to be someone’s key responsibility area.

Also, as the startup grows, the founders have to switch roles from doers to managers. Their focus has to change from managing the day-to-day tasks to hiring the right persons to do the job. Often startups fail to do this and therefore are unable to manage the growth. They either then stagnate or become inefficient and whither away.

Suggestions: Keep looking for good people. Plan for growth before you reach the growth phase. Let go. Delegate.

What is the right revenue estimate?

Well, there is obviously no right or wrong revenue estimate. It is often a reflection of the vision and aspiration of the entrepreneurs

However, among the many mistakes that many entrepreneurs make while estimating revenue, the two top ones clearly are:

  1. Estimating too little
  2. Estimating too much

Here’s an oversimplification of how you could think about the revenue targets that you aim for. Obviously, this is an oversimplification but it does give you a good view of what you could potentially aim for.

The hypothesis of this oversimplification is that investors like to back potential market leaders. If so, assuming the market potential for the concept you are pursuing is around INR 1000 cr., and given that in most categories the market leaders will have anywhere between 25 – 40% market share, it will be good for you to at least aim to be a Rs.250 – Rs.300 cr. company in a reasonable time frame.

This at least gives you a good shot at being among the top 3-4 players in that category.

On the other hand, if in a market with a potential of Rs.1000 cr revenue, your startup aims to have a revenue of Rs.50 cr in the next 4-5 years, you are most likely to be a marginal player and hence will not be exciting for investors.

Do also remember that in some categories there is a ‘winner takes all’ scenario. E-commerce in some categories, especially in generic / multi-category retail, is a one-horse-game in many markets.

What are some important questions to ask, in a focus group research for evaluating an idea?

(This was my answer to a question on Quora)

In a focus group, for evaluating the potential of an idea, your goal should be to test all the assumptions that you have for your venture. Apart from the concept itself, there will be several assumptions on the ‘business’ around that idea that you will need to validate (e.g. pricing, availability, brand personality, etc.)

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Here are a few things that come to mind, that you could consider testing (of course the more you share your idea, the more specific our answers can be).
  1. How deeply does the consumer/customer feel about  the problem that your idea is solving : The more pressing the problem, the more relevant your idea is likely to be for consumers.
  2. The concept – the power of the idea itself: Do the consumers/customers see the value proposition in what you offer?
  3. Do people like the way your idea delivers the solution: I.e. does the product work for the consumers/customers as you had expected it to?
  4. Look for insights: Listen to what people are telling you about the problem that your idea is solving. See if your product does a good job or a great job at delivering the solution. See if the response is a ‘nice’ or a ‘wow’ as these subtle differences will determine factors like conversion rates, adoption rates, usage patterns, etc.
  5. The business model: A business model is about ‘who will pay how much and to whom’. Each element of this should be tested in the concept test. i.e. are the consumers/customers seeing the value proposition as you meant it to be, how much are they willing to pay – is there price sensitivity, and if so, how much. (In the case of fremium products, this may not be relevant.)
Concept tests help you validate your assumptions with qualitative inputs from the conversations with relevant groups. (You have to be super careful to ensure that your group selection is accurate. Else you may get an inaccurate reading. E.g. if a particular profile of respondents do not respond well to the concept, should you try the concept with another segment –  is a call that you may need to take depending on what you are doing.)
But when you want to quantify the concept and potential, you will have to rely on a broader quantitative research that covers a larger sample that is representative of the audience you eventually intend to address.

Should entrepreneurs start with a goal in mind or should they just go with the flow, responding to events that happen to them?

(This was my response to the above question on Quora)

SettingGoals

 

 

 

 

 

 

There has to be a goal around which the resources, strategies and plans should be aligned. Of course, because you have a goal and a plan does not mean that everything will go according to the plan. That’s where responding to in-market realities comes in. And that’s why you need a goal and a plan to achieve that goal. 

The plans and the milestones in that plan are your markers which allow you to assess your strategies as well as the goals and help you make adjustments in your plans as you go forward.

HR processes and documentation for startups

Processes take away the subjectivity in decision-making. And since HR is about dealing with people, subjectivity can be a dangerous thing.

Most startups make the mistake of thinking that they will handle the HR activity on a case-to-case basis in the initial stages, and implement the processes when they are ready to scale.However, when you are growing, there is never enough time to plan, test, implement, rework and finalize processes.

The ideal time to build any processes, even for HR, is when starting up. Processes need not be complex and multi-layered. A process is nothing but a well-thought of way to deal with any situation or activity.

Some of the processes, and therefore the documentation related to the processes, which a startup should define at the beginning of the journey are as follows:

  • Interviewing and evaluation: Working out a process which allows you to interview people with a well-defined objective and evaluation criteria is critical. It also helps provide a template for valuating the candidates, and helps narrow down the choices.
  • Compensation package: A well-designed compensation package not only reflects a professional approach, but also helps employees feel good about their offer. In fact, a well-designed compensation package can also lead to cost savings for the startup. Consult specialists like PlugHR for a startup consulting package.
  • On-boarding an employee: On-boarding an employee is the process of welcoming a new employee into your company. Especially for the first few employees, it is important for you to have a one-on-one on-boarding program. Define a process covering the following
    • A welcome talk/presentation that outlines the vision and aspirations of the company – help the employee feel great about the decision to join
    • Explain the processes that may be relevant, including the areas in which processes that are yet to evolve
    • Present their business cards, and a nicely drafted welcome note
    • Ask if they have any queries and questions
    • Give them clear KRAs and directions on what they are expected to do and what they will be evaluated on
    • Finally, introduce them to the rest of the team highlighting some of their key strengths
  • Performance measurement: This is directly related to the process of setting clear KRAs or Key Responsibility Areas. The performance measurement system should be directly linked to the compensation review mechanism.
  • Feedback and regular interactions: Set a process for regular ‘all-hands-on-deck’ meetings where the founders should share the process, or lack of it, every month. If the progress is not as per plan, this forum should be used to explain how you are planning to adjust the plan so that the company is back on track. This should also be the forum for getting people’s feedback.
  • Exit interviews: One critical aspect that is ignored in most startups is a formal exit interview. When a person is leaving a startup, asking the reasons for the decision can be very informative and instructive in understanding the gaps between perceived expectations and perceived reality. This can be useful in either – the founders setting things right if there were any gaps, or in communicating the expectations right, in case the gaps were perceived rather than real.

Failure is a part of the entrepreneurial journey

The general rule is that out of 100 new ventures, perhaps 50-60 will shut down by year 2, may be 20-30 will survive with their heads above water or at a lower scale than the aspiration was. May be 8 – 10 will be reasonably successful and may be 1 or 2 of these 100 startups will be ‘very’ successful.

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Just because a venture is not successful or shuts down does not mean that the entrepreneur has failed. It just means that this particular venture did not succeed. Simple.

Of course, aspire for success. But remember, there is no shame in having tried and not succeeding.Like everyone will advice you not to let success go to your head, remember to not let failure deter you.

Understand and evaluate your appetite for risks. Not just financial risks, but opportunity costs as well. Evaluate what the upside of success is and measure it against the risks. See if it makes sense.

More importantly, DO NOT start up on the basis on just your enthusiasm. Validate the concept with your potential customers/consumers, seek mentors who can guide you, seek advice and guidance in building a good business pan and see if the concept has a good business case.

Remember, entrepreneurs are NOT people who take unnecessary or unplanned risks. Good entrepreneurs make efforts to evaluate all the risks associated with a venture and take necessary steps to mitigate the risks.

Yet, you can fail. And it is all right. Plan for how you will deal with failure too. Failing or shutting down is not the end of your professional or your entrepreneurial journey. It just means that there could be a diversion from the originally intended path.

“I have a good business idea but am very confused how and where to start up?”

This post is my answer to a question on Quora

The idea/concept and the business around that idea are two different things. 

It appears to me that you have an idea that you are excited about. And that’s a good starting point. Now, it is important to think about how that idea translates into a product/service, how do you get users/customers, who is your user, who is your customer i.e. who pays, how much do they pay, how much money will you make out of what they pay i.e. what is your margin, what are the costs… and as a result of all this thinking through, you will get a sense of whether this makes sense for you commercially.

Once you have done that, start thinking in details about all the cost structures, the time gap between when your expenses start and when your revenues start coming in, and the gap between your costs and your WORST CASE estimates on revenues. That will give you an indication of the kind of monies you may require to get your concept into the market.

Then think of what the relevant funding sources for this concept are at this stage (and VCs are NOT the only option… often it could be alternates like getting advances from customers or a family & friends round, or a small loan from a bank, or plain bootstrapping).

Start talking to customers and other stakeholders – distributors, intermediaries, influencers, other founders (to get their perspective on your plans), media folks, vendors, etc. Conversations with different folks give you diverse perspectives on the BUSINESS dynamics around your concept.

Parallely, start thinking very, very hard about how you are going to implement it… for the first few quarters you should have a week-by-week plan on what the milestones and goals should be, and how you will go about meeting those. i.e. it is not very useful to say “we will have 5000 registered users by end of month 1″… it is important to nail it down to “To get 5000 customers registered by end of month 1, we will have to reach 500,000 potential users. We aim to do this by online marketing in Gurgaon area, and through posters in housing complexes.” (In fact, in your operating plan, it will be important to nail down the specific housing complexes that you will be approaching to get your posters on their notice boards). When you start planning to this granularity, you will notice that a lot of things become more apparent e.g. how many visits will you have to make to a housing colony before the poster gets on their wall, who will put it up, how much will it cost, how will you monitors, etc.

As you immerse yourself into the operational aspects, you will start understanding the complexity and the multi-dimensional aspect of business that founders need to think deeply about. And this is the fun and the challenging part, which gives entrepreneurs the adrenaline rush – in understanding the challenges, the clarity that one keeps on getting as you immerse yourself more into the domain, the tweaks that you make in your plan as you learn… and the decisions that you have to make based on whatever data you have.

As you start seeing the various dots that need to be connected, you start realizing that this is much bigger than what you had originally thought it to be… and that is fun. (Well, often scary too… but in a nice, ‘keeps you awake at night but gets you raring to start your day’ type of scary way.

Keep walking.

Ensuring Customer Delight

When a brand meets customer expectations, it is ensuring customer satisfaction. However, when customers get value or benefits beyond what they had expected, the brand has ensured customer ‘delight’. Common sense suggests that a delighted customer would be more loyal to your brand than a satisfied customer.

Customer delight, in most cases, is not about better product performance. Consumers have a certain degree of functional expectation from a brand and, in most cases, the brand is likely to deliver a level of performance pretty close to that expected by the customer. This is precisely the reason why functional parameters have ceased to be meaningful differentiators for customers to choose one brand over the other.

So what is customer delight all about? How does a brand ensure customer delight?

Customer Delight is about demonstrating and providing a set of tangible and intangible benefits beyond the functional features, a combination of which provides value beyond what the customer had expected to receive from the brand. E.g. quality of customer service, quality of customer support staff, design differentiators of the brand [e.g. Apple], etc.

It is important to recognize that customer delight is a moving target. It is not a fixed benchmark to be achieved. As competition intensifies and responds, the power of some benefits to act as differentiators gets diluted or erased. Brands therefore have to constantly monitor customer satisfaction and delight levels in relation to competitive offerings and then create more and innovative value propositions for customers to continue to feel delighted.

Often entrepreneurs take the easy route of providing higher value through lower price. However, not only is there no guarantee of it being a sustainable advantage (because it is replicable by other players too) but it also strips the brand of much needed profitability to create and sustain alternate benefits.

Consumers don’t necessarily look for ‘low price’. They look for ‘high value’. Apart from a sensible price point, customers look at brand imagery, service and other intangible parameters for selecting amongst brands. For a brand that seeks to provide ever increasing service levels and standards, competing on price will seriously limit its ability to invest in technology and resources to provide the desired service levels.

Starting or running a company? Here’s my list of skill sets you MUST have…

Here’s my list
  • Passion about a concept
  • A willingness and ability to commit to building a business around that passion, including willingness to ride out the rough patches
  • Ability to plan well and take decisions – strategy is about making a choice to focus on one thing from among the many choices available
  • Ability to articulate your vision and plans and convince others to join you in the journey – here, others could be investors, co-founders, early employees, early customers, vendors, etc.
  • Ability to learn quickly – being street-smart, being nimble about adjusting the strategy and plan based on what the in-market experiences tell you
  • Being flexible and willing to change from original plans – plans don’t work out as planned – they do give you a direction but you have to make changes and adjustments as you implement
  • Being structured with your thoughts and plans – being process oriented, though processes may not exist or will be flexible at the early stages
  • Being ‘aware’, if not an expert, about the economics of business & finances
  • Being a smart and enthusiastic sales person
  • Being brave, coupled with the ability to take failures in your stride – failure is a part of many an entrepreneurial journey – failure just means that the rewards and success is delayed and somewhat farther away than originally planned or expected
  • Leadership: Being able to lead a team, and having the confidence of hiring people smarter than yourself is the sign of a good entrepreneur
  • Ethics, value-system, sense of fairness and  responsibility are important, as with any other profession

Will be happy to receive your thoughts on skills important for entrepreneurs. Do write to me at prajakt.raut@gmail.com

What is the important distinction between listening to what focus groups say and watching what your customers do?

Listening to focus groups is like watching a recipe being demonstrated on a TV show. Watching customers is tasting the food so you know what went into it. (When you watch a cooking show on TV, you usually try to do exactly how they tell you to. However, if you were to taste the food, then you will make the adjustments according to what you know your guests / family will prefer).

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In my view, while focus groups and other forms of qualitative and quantitative research are perhaps relevant for larger organizations who are looking at directional inputs, for startups and early-stage companies, it is important for the founders to be immersed in the user/customer’s life to understand the things that even they may not be able to articulate.

Startups usually redefine a market or sector. They usually think (or should think) of things that will do things differently than currently being done. Hence, users/consumers may or may not have a good handle on the subject as they would not have the vision of the future that the entrepreneur has painted for himself/herself.

Research is good to validate hypothesis and assumptions. e.g. to check what you think is a need gap or pain point that is really true for users/customers. Not to find if they need or want the stuff you intend to put out.

Should startups fire under-performing employees? If yes, how?

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Irrespective of the reasons, asking an employee to leave is always a tough call, and almost always a stressful situation for all individuals involved.

Because it is tough to get people to work for a startup in the first place, often entrepreneurs hesitate to fire an employee even if he/she is a misfit in the organization. Also, they worry about the impact it will have on the other employees. And these are valid concerns.

People management is a critical role that entrepreneurs have to learn play, and play well. Founders should budget about a third of their time in people management, including thinking about the right team structure; roles & responsibilities; finding the right talent; interviewing; onboarding; engaging and nurturing the people in the organization.

When hiring a person for a startup, founders have to make sure that prospective team members understand the challenges and the dynamics of working in a startup. Often people who have not worked in startups have no idea about how different it is to work in a startup versus working in established companies.

In a startup, as the team is figuring out what works and what does not, often adjustments will be made in many different aspects of the business – on the business model; product/service; pricing; customer segments; markets; positioning, etc. To someone who does not understand that this is the way most startups figure out their ‘model’, it will appear as if the entrepreneurs are not focused or not clear or are a confused lot. This leads to frustration and discomfort for an employee who was not prepared for constant changes in the business. When hiring people for startups, entrepreneurs should make efforts to explain these dynamics.

They should also clarify that the startup is likely to be lean, resource starved and cannot be expected to be ‘a smaller version of a large company.’ A startup is fundamentally different from an established or larger organization.

But despite all this, there will be situations when entrepreneurs need to take the tough call of asking someone to leave.

Do remember however, that for startups, where the right model is yet to be discovered, it is important to hire people for their attitude and drive rather than for their competence on a particular aspect. Hire people with passion and enthusiasm. Hire people who are responsible and self-driven. If they are not, then even their competence for the role is not going to be effective in a startup.

When should an employee be asked to leave?

My view is that if an employee is a misfit for a startup, entrepreneurs should talk to the person at the earliest, see if there is a way of improving the situation, give the attempt appropriate time, assess the results and if the situation does not improve, then ask the person to move on at the earliest. You have to do it sensitively but swiftly. And very clearly, objectively and without hesitation.

There are three broad reasons why a person should be asked to leave:

  • Non-competence or lack of interest in the role
  • Value system, personality or culture misfit
  • Ethical issues or dishonesty

In a large team, a few non-performers do no make too much of a difference. However, in a startup, there are likely to be only one or two people driving any key function, and an under performer in small teams impacts the overall performance of the organization.

Also, tolerance of under performers by the management also has an adverse impact on other employees.

Hence, entrepreneurs have to be clear and swift about asking the person to leave in case you assess that the relationship is not working out.

Of course, if there are integrity issues, cheating, misappropriation of funds, or any other ethical issues, the person should be fired there and then.

Yes, there will also be situations when startups need to ask people to go (and sometimes ask good people to go) because the business can no longer afford them. These are tougher to handle. But in the interest of the others and the business, often entrepreneurs need to do this as well.

How should the firing process be handled?

An entrepreneur’s first priority should be to retain an employee that has been hired after ensuring that he is a good match for the organization.

As an entrepreneur, it is important to assess why an underperformer is not able to deliver, make attempts to address the core reasons, have a clear talk with the person, assist the person in overcoming the challenges and basically do everything you can to make the engagement work out well.

If after all this, it is still not working out entrepreneurs should be swift in asking the person to leave.

Below are some suggestions on how firing a person can be handled:

  • First, talk to all other key employees and explain to them the reasons for your views, ask for their thoughts and help them accept this as a collective decision taken in the best interest of the organization
  • Have a frank and transparent talk with the person being asked to leave – state the reasons clearly, explain that this is an objective call, explain why this is important for the organization
  • If possible, give adequate notice period to ensure that the person can find another job (of course, this should not apply in case of ethical & integrity issues or dishonesty)
  • Handle the announcement responsibly and with respect to the person. Often it is best to make a joint announcement (entrepreneur and the person leaving) to the rest of the team, saying that the person has decided to move on to pursue other opportunities.
  • There will be some skepticism within the team, there will be doubts on whether the business is in trouble or whether the organization has a ‘hire & fire’ culture.  Address these concerns one on one. Proactively. Speak to each employee if possible.

Of course, it is also important to do an exit interview with the employee to take feedback on the team, the leadership, the company, culture, etc. Often employees who are leaving can provide excellent and valuable insights to entrepreneurs.

Net: Firing someone is tough. But if it needs to be done, it should be done.

 

Do tech investors care about profits?

This post was in response to a Question on Quora: I always hear that tech investors care about user counts not profits, but I always read that investors care about profitability. Which is it?

Think about it this way… 

An investor can invest money in different kinds of assets… stocks, debt, real-estate, commodities, bonds, etc. Each asset class has a different risk-reward profile. Some are low-risk, low-return investments and some, like stocks, are high-risk, high-return assets. Usually investors invest in different asset classes so that they have a diversified risk-return portfolio. And the goal is to have a balance so that their net returns, over a period of time, are meaningful.

Within this, investing in startups (especially concept or just beyond concept stage startups) is most often the highest risk investment. Therefore, investors who invest in startups look not for nominal returns (e.g. like they would get in fixed deposits) but exponential returns – often 10x + return on the capital invested. I.e. if they invest USD 1mn in a startup, their expectation would NOT be to get a dividend of 15-20% per year, but to increase the value of that investment to say USD 10 million in 4-5 years time.

Why is that: Because of the high-risk nature of the startup investing business, if an investor invests in 10 startups, 6-7 of them will shut down in the first 2-3 years… that means that the investor will lose all invested capital in those. Of the remaining e, may be 1 or 2 will barely return capital if they survive. Therefore, if the investor has to be profitable on his/her investments in startups, the one successful company has to make up for the losses on the other startups AND deliver a profit. Hence, while a 10x return on ONE investment will look like a lot, if at all they get it, the overall portfolio will still make only a decent return… if all all.

Overall, mature investors will have a diversified portfolio so that over a different cycles they have a decent return.

Now, coming to your question on whether investors care about profits. The answer is ‘of course yes’. But investors are keen on the path to profitability and the scaling up of the venture, as only when the FUTURE profitability of the venture is high will the valuation of the venture be high. Hence, investor funded companies will often make a trade off between immediate profitability and scaling up.

In this approach too, there are different kinds of ventures. One example are ventures that need to be profitable at a ‘unit or transaction level’ but may not be at a customer level on the initial transactions e.g. an e-commerce venture that could make a 30$ profit on a USD 100 transaction that a customer makes, but it may have cost the company USD 300 to acquire that customer… and hence, the customer will become profitable only after 10 transactions. So, while the initial phase does look loss making, the view that we need to take is about ‘the lifetime value of a customer’. I.e. if the customer were to buy 4 times a year from the company, and if the customer were to be with the company for 10 years, the company will could make make about USD 1200 from the customer over that 10 year period. (in this case, from the investors point of view, building a large base of customers, even if they are not profitable in each transaction, will be more valuable than doing a small base of customer whom you acquire at very low cost).

Similarly there are other types of ventures…e.g. a community where there is no transaction happening, but the monetization of the community will happen only after a period of time and when there are enough numbers for the monetization to happen (e.g. though advertising, etc.). In this case, while immediate profitability is not the objective, long term business case certainly is important.

 

How do you decide who becomes the CEO from among the founders?

Well, there is no real logic that can be applied in addressing this question, but a person who understands the dynamics of business better, is good at sales, good at operations management and can be the face of the company to the outside world is a better choice and in the best interest of all, including other co-founders.

Of course, the person who is designated CEO should have what it takes to be a leader, and have the aptitude, the passion and the desire to steer the company in the direction agreed by everyone.

A co-founder who becomes the CEO needs to understand that he/she is NOT the boss who can have special privileges… and that he / she is merely the chief executive who has the responsibility to making critical decisions and making sure that the company is on track to meet/beat targets.

In a startup, a CEO should take up the ADDITIONAL responsibility as a CEO along with an area of the startups business that he/she should take ownership of. E.g. the CEO may take up the responsibility of handling the sales function or operations management or driving the technology piece, etc. But the responsibility of being the CEO is over and above that functional responsibility.

It is also important to designate one person as the CEO from among the founders, as the rest of the team as well as external stake-holders (investors, vendors, partners, etc.) need to know where the buck stops and who would be the decision maker when one needs to be made.

In most cases though, especially when a few friends get together to start a company, who will be the CEO is a tough decision. In such cases, it is best to have a healthy debate within the team and select a CEO. (Some startups, when faced with the task of deciding who the CEO should be have followed the strategy that the founder who will get to be the CEO will give 1% of his/her equity to the other founders i.e. if there are 4 founders, the equity structure will be 22% for the founder who becomes the CEO and 26% each for the other co-founder.

While it is a difficult question, often leading to stress among the team, it is critical to address that and take a decision. Especially if the startup is going to seek VC funding, there will have to be one CEO who is leading the team.

 

How do you do market research for a startup?

  • Talk to customers. Lots of them. Ask them about the need, the concept, the value proposition, the pricing, ease of use, etc.
  • Talk to potential investors – ask them about business case, interest in such concepts, etc.
  •  Talk to experienced entrepreneurs – ask them about challenges, watch outs, learnings from their experiences, etc.
  •  Talk to potential employees – ask them if they would join, if yes what would be a meaningful compensation (salary, equity or salary + equity)
  •  Talk to a couple of lawyers – they often can give you interesting insights about challenges or watch outs
  •  Talk to some accelerators/incubators/mentors – ask them if your plans look practical, is your assumptions look plausible

In short… talk to anyone whose perspective on the concept or the business around the concept will help you make a better informed decision 

Is it advisable to proceed if there’s already a venture based on a similar idea that you have?

Well, as with most aspects of entrepreneurship, there isn’t one right answer to your question.

 

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Whether it is worth starting another venture in an area that already has other players will depend on a number of aspects about the environment that you are going to operate in. I have tried to outline a few thoughts, but there will be many, many more aspects that others will have a perspective on.

Size and nature of the market opportunity
Is the market large enough to support multiple players? Is the nature of the industry predominantly fragmented (e.g. restaurants – many can co-exist) or is the industry dominated by a few large brands (e.g. e-commerce).

Do you have experience or competence that makes you particularly suitable to lead a venture in that space
Even in a market with some established brand leaders, it may be possible for an entrepreneur with deep industry experience to create a successful brand. E.g. in a crowded space of organizing/aggregating healthcare in India, someone with deep healthcare industry experience with an existing network and understanding of the challenges and opportunities can create a very successful venture, even if the existing players are dominant in the market. In fact, because of the person’s understanding of the industry’s challenges and opportunities, and BECAUSE there are a few large brands whose market share the venture can snap at, it may be an easier task for this experienced entrepreneur to consider a venture in that space.

Doing it differently
Even with existing players in the market, it is possible to create a distinct identity for the brand. Either on a service differentiator (same product, better service) or on a concept/value proposition differentiator (same concept, differently positioned) or a price differentiator (lower price/higher value or even higher price/premium positioning) or targeting a different target audience (younger or older or different income bracket, etc.) even a brand personality differentiator.

How satisfied are customers with existing options
If there is a serious level of dissatisfaction among customers/consumers, and complacency among established players, there will be good opportunities for newer ventures to capture that market.

Where do you do it?
Let me illustrate with an example. In India, there are 100s of companies that have attempted to do ERP for doctors or Clinic Management Systems (CMS). Almost everyone failed. Most attempted these in either Delhi NCR or Mumbai and a few in Bangalore and Hyderabad. Clinics in these cities are fed up with startups coming to them to be beta customers and are unlikely to entertain them as most past experiences have been a waste of time – either the product was bad or the startup shut shop.

However, there is a large untapped market in tier 2 cities across India where no one has approached those clinics with a CMS. If you target that market, despite it being a product already available, you could have an opportunity.

Question on Quora: Why do most of the Indian entrepreneurs fail to come up with new ideas?

(This post was my response to a question on Quora in August 2013)

In my view there are two main reasons for paucity of new ideas in India (though I see a big, big change in the past couple of years and am seeing a lot of new and innovative concepts being presented and attempt).

The entrepreneurship eco-system needs time to mature: Organized entrepreneurship in India is is a fairly recent phenomenon. Only in the past 10 – 15 years have young professionals and students started thinking of entrepreneurship as a career option (before that it was usually people from established business families that got into business.).

Entrepreneurship needs an enabling environment to flourish – availability of early stage capital, infrastructure that allows startup to start up more efficiently, a society that is respectful of failures (as many startups will fail), customers who figure out a way of buying from startups, employees who aspire to work for startups,  and  government policies that support new ventures (For example, the time it takes to start a startup and shut down a startup is inordinately long in India. Making it easier to shut down a failed startup will make it possible for more people to attempt more concepts.)

Availability of capital is an important factor that impacts entrepreneurship, and entrepreneurial ambitions. The angel investor community, and other forms of capital that support concept stage startups has started getting organized in India only in the past 7-8 years. As more angel investors start understanding the game, they will be willing to take bets on higher risk concepts rather than the safer, risk-free ones. This take time as investors, naturally so, experiment with investing in what they consider safer ventures before investing in newer concepts where the market opportunity may not be obvious, or where the risk-reward ratio is of a different magnitude.

Availability of low hanging fruits: There are many opportunities in India to fix what is currently broken (healthcare, education, etc.) and to replicate concepts that have already been proven elsewhere. Entrepreneurs are grabbing these opportunities and perhaps rightly so.

However, at these existing ideas dry up, and as more people venture into entrepreneurship they will start exploring newer ideas and concepts.

Again, this takes time. But it is happening. Anyone who has been active in the startups space (and I have been) will see that aspiring entrepreneurs are exploring very innovative and new ideas. In fact, the percentage of concepts that were a replica of what has worked in the West has reduced significantly. (Its been a while since I saw a pitch presentation on “LinkedIn (or whatever else) for India”.

How can I secure my product ideas from being copied ?

(This article is my answer to a post on Quora)

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Ideas mean nothing. There are three components of any business i.e. what are you going to do (concept), how are you going to do this (implementation plan) and how will you make money on this (revenue streams and business model).

In these three, the implementation plan or the ‘how’ part is the most critical aspect. Unless you have a good implementation plan, AND a team that can execute that plan well, ideas are worthless.
You may have the most appropriate strategy, but if you cannot roll that out in the market, then its not going to be very useful.
Your idea is just the ‘what’ part of the puzzle. Yes, a good idea can be a great asset. But I am going to argue that a good idea is not a necessary condition, and certainly not a sufficient for a business to be successful. In fact, there are enough examples of successful businesses who have taken an ordinary idea and implemented it well. (Here is a great article from Mahesh Murthy that outlines the important of great execution – RedBus.in: How is Redbus.in innovative?.).
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