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.

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Evaluating Competition

Prajakt Raut discusses how you can evaluate your competition and chart out your unique selling point.

What should you think about before starting a new venture (especially an e-commerce venture).

But when you are starting a new venture, you need to assess various risks. I have listed some below, but each business and each person’s circumstances will throw up different aspects that you would need to consider.

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Concept risk: Is the value proposition relevant for the intended target audience? (To assess this, you first need to clearly articulate what your value proposition is. ‘What you do’ is NOT the value proposition. What the users/buyers will get out of what you do is the value proposition. Check with your intended target audience if they feel that this is meaningful for them. If it is not, then evaluate if you need to adjust your value proposition (and therefore sometimes your product/service/concept itself) or you need to check if the value proposition is relevant to a different set of audiences (perhaps different age or income bracket or in a different geography or people  in different circumstances than originally intended).

Revenue streams, business model and business case: You have to evaluate if your revenue streams and business model makes a business case that makes the venture worth your while. This is a critical process  in your entrepreneurial journey and you need to take a realistic view of the costs and potential revenues.

In e-commerce businesses, you often have a disproportionately higher spend in acquiring the customer and you make monies on that customer only after a number of repeat purchases (or visits if the customer is not going to pay for services and you have alternate ways of making money – e.g. advertising or referrals)

Operational aspects: Evaluate the challenges around procurement, warehousing, logistics, etc. that you will have to deal with, and evaluate whether it is practical for you to overcome those challenges given your resources and circumstances.

People resources: Hiring people in startups is a challenge. You need to have some thoughts on how you are going to assemble your core team and your initial employees. Evaluate whether you will have some of the important functions in-house or outsource or use existing platforms (e.g. technology)

Marketing and customer acquisition costs: Quite often entrepreneurs do not spend enough time to understand the dynamics of customer acquisition. Especially in e-commerce ventures, you need to be able to get a clear sense of what activities you would do, how much they would cost and what conversions you could expect…. and therefore how much it will cost you to acquire customers.

And remember, the cost of customer acquisition is NOT just the cost of marketing. But the cost of all the direct resources that are involved in the marketing process + cost of marketing itself + a portion of cost of the central office and operations.

Understand the ‘unit economics’ and Capital required: While the ‘business as a whole may not be profitable’ for a while due to the overheads of managing the operations (and that is perfectly OK in most cases), you need to evaluate if your per unit economics are healthy. Are you going to make money on each sale. And how much will you make. And therefore, how many units do you need to sell to cover the cost of operations. And how much time will it take for you to ramp up to that scale. Is that possible? And is it possible within your given resources?

E.g. if your ‘central office’ costs (founders salaries, salaries of central office staff, rent, electricity, etc.) is USD 10,000 per month (using simplistic assumptions for easy of discussion). And your revenue per unit (product or service) is USD 20. And your gross margin is 40%. In this case, you are making USD 8 on each order.

Assume that your cost of customer acquisition was USD 50, and that each customer is likely to buy 4 times in a year (when you assume your numbers, make sure you have it validated with some research or understanding of the market… and is not a random number that is assumed based on your own expectations on how the market will behave), in which case your cost of customer acquisition itself is going to be recovered when the customer buys 6 – 7 times from you.

Now, given your view of the numbers you could ramp up this business to, you need to work out whether the USD 8 that you make from each order is sufficient to sustain you through your initial phase when the costs of USD 10,000 will be there every month + you will have to invest in marketing. (In many cases, the low ticket size of the product/service makes the business unviable. If you are going to make a few dollars from each customer, you need a LOT of customers to make the business case meaningful.).

Evaluate how much money you are going to require to startup. In estimating capital required, I urge you to overestimate costs and underestimate revenues. Do not let your enthusiasm guide your excel sheets. Do not assume that you wil multi-task and therefore save costs. (Even if that is possible for you, it cannot be sustained as you scale up when you need to move from ‘doing’ to ‘managing’). Also, many entrepreneurs make the mistake of assuming that they are smarter than others and therefore would be able to do it for a lesser investment than others before them have attempted (and even if that is true, keep that as a buffer rather than assuming that your smartness will be THE reason for you to do it better, faster, cheaper than others).

When you have a view of what kind of capital is required, evaluate different funding options. (Many entrepreneurs make the mistake of assuming that VCs are the first choice of funding for startups. And that need not be so. Understand what parameters VCs use for evaluating deals they invest in. See if you are ready for VC funding. Most likely, you may not be. In which case evaluate alternate ways of funding – boot strapping, family & friends round, advances from customers, debt, etc.).

 

 

What do you prove in pilot phase?

At the pilot phase, or a concept test phase, it is critical to define very clear what is going to be tested and what the parameters of measurement would be. Many of the parameters could be qualitative as there may not be enough data to do a quantitative analysis. But identifying what and how it is going to be measured is critical.

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

  • The concept – the power of the idea itself: One of the key things to evaluate in the pilot phase is whether the idea or concept has appeal among the target audience. While research is one way of gauging customer/consumer acceptance of the concept, customers or consumers actually buying/using is a stronger demonstration of the appeal of the concept e.g. for an e-commerce venture selling real gold & diamonds jewellery online, the pilot phase may want to check if customers actually buy jewellery online
  • The business model: Even if the concept rocks, how good and practical the business is will make or break the business case. In many cases, it may not be possible to check the business model in its entirety in the pilot phase. But at least it would give some indicators. E.g. for a company creating advertising platforms on college campuses, the pilot phase may check on whether the revenue split between the company and the colleges is being accepted as they had anticipated or are colleges asking for more or are they not allowing advertising on the campus. Also, things around the business model could be tested in this phase e.g. ‘How long does it take to close a sale? Who decides the pricing – the college, the advertiser or the company?’
  • The assumptions: How good your business case is and how close to reality it is will be entirely dependent on the quality of your assumptions. One of the critical things to test at pilot phase are the assumptions. e.g. For an e-commerce company, the assumptions around conversions from clicks, cost of customer acquisition, average ticket size, repeat purchase rates, etc. are critical factors to be tested.
  • Understanding operational challenges: Actually implementing on the ground highlights some challenges that you would not have anticipated in your planning. These learnings are critical as they help plan resources, processes and infrastructure that would be required to manage the operations. 
  • Testing processes and operational capabilities: As the startup scales up, the dependence on processes will increase. Else scaling up will either not be possible, or will be inefficient. A pilot phase is a good time to draw some basic processes and observe the operations to understand what these basic processes should evolve to.