What do you do when someone who was helping you in your startup in an advisory role asks for 10% in equity as compensation?

Entrepreneurs should define the model of engagement with an advisor very carefully BEFORE starting the engagement, so that expectations are set right at the beginning.

10% equity for an advisor role is simply excessive. Not just in the generally accepted model of ‘advisors’ (i.e. where an experienced individual guides the company with his/her perspectives and insights), but it is excessive even if the individual was providing advisor services as a commercial model, with clearly defined outcomes. Continue reading “What do you do when someone who was helping you in your startup in an advisory role asks for 10% in equity as compensation?”

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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 Post – Team, the most important ingredient in a startup

Ask any investor or successful entrepreneur, and they will reiterate that the most important factor in a start-up is the quality of its founding team. A team is more important than the idea or the size of the market or the technology or the business case, or indeed any other factor that investors will review to check the investment-worthiness of a venture.

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Even if  – the product is great; the technology is cutting-edge; the market is large and the company has a strong chance to be a dominant player in that large market – investors will hesitate to invest in the venture if they do not get the confidence that the founding team can deliver in the market.

What investors seek is a team that is passionate about the subject, is enthusiastic about the opportunity, has a good grasp on the dynamics of ‘business’ and not just the product/service, and who can demonstrate commitment to fight it out in the market.

While it is good to have experience in the domain, that is not a must, as that will exclude a number of bright people who either do not have work experience or are from a different domain than the concept they are pursuing. However, what is important is that even without experience in the sector, the team should have studied the sector enough to understand it very well. In fact, that is also why passion and interest in the sector is critical, because that makes it easier for a person to study the sector well.

Continue reading “Guest Post – Team, the most important ingredient in a startup”

Importance of an advisory board

Creating a strong advisory board is one practical way of filling in the competencies gap that a startup may have.

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Most startups are resource-starved and hence not in a position to employ people for the various skill sets required for building the business. This often means that the entrepreneurs end up doing the thinking on the most critical aspects about the business EVEN IF THEY ARE NOT THE EXPERTS ON THAT PARTICULAR SUBJECT OR AREA OF ACTIVITY. E.g. a team of two founders with experience in technology and marketing respectively would also ATTEMPT to think on their own, perhaps with some amount of research and talking to experts, about areas like production, procurement, logistics, supply-chain, customer support, etc. Each of these is a specialized area and would require someone with years of experience to provide a perspective on the opportunities and challenges.

This is obviously not going to work in most cases. Think of it this way… If you were starting a cardiac care hospital, and because you are a startup and cannot afford a good surgeon, would you go ahead and operate on a patient if you were not a cardiac surgeon? Well, you won’t because that would be a dangerous thing to do!!! Exactly for the same reason, like cardiac surgery requires a surgeon with specialized expertise, different aspects of a business like supply chain, marketing, sales, technology, etc. should be ideally thought through by some folks with some experience in those areas.

Creating an advisory board allows the founders to get the brain-power, guidance and insights from senior function/domain experts, without having to actually hire senior resources to handle those functions. E.g. a startup may require some serious help on the supply-chain or sourcing side, which the founding team may lack. In such a scenario, getting someone with 15 – 20 years experience in the domain and skill-set as an advisory board member would work well for the startup.

This is a tool that is not used effectively in India, though you would observe many startups in places like Silicon Valley and Israel – the hotbeds of entrepreneurial activity – having strong advisory boards which help them think through their businesses.

 

Why would someone accept to be on the advisory board of a startup? Well, this is where the ability of the founders to sell the vision of the company comes in handy. Of course, you should have a large, aspirational vision to begin with. No one is going to be excited with someone trying to build a company which does not even aspire to be a market leader.

If you have a large vision and if you aspire for your company to have a large impact on that industry, and if you communicate that with passion, the right people would often consider being on the advisory board. If you come across as THE team which can do it well, many of the people you approach for an advisory board position would not want to take the risk of turning you down as they may regret later in case you become super successful. Because if you become super successful, they would like to have the bragging rights to say that they were an advisor to your company.

Of course, it is good to compensate the advisory board members with some equity as you are not likely to have the resources to remunerate them monetarily.