Think carefully before you answer. Because, this question is not about distinguishing good entrepreneurs from the bad ones. It’s also not about who among them has a Midas touch and who doesn’t.
Think carefully before you answer. Because, this question is not about distinguishing good entrepreneurs from the bad ones. It’s also not about who among them has a Midas touch and who doesn’t.
I have often heard senior professionals tell entrepreneurs that they wish they had the guts to leave their jobs and startup on their own. But I have yet to hear an entrepreneur, irrespective of whether their venture is doing well or struggling, tell any professional,
I wish I had your job.
The reason is easy to understand. Entrepreneurs start ventures largely in their areas of interest or passion or competence. It’s always a great feeling when your work is also what you love to do. A job may or may not provide that option. Entrepreneurship does.
But just doing what you are passionate about is not the only reason why entrepreneurs are generally more excited about their work. In some cases, rare though, you may get to do what you really are passionate about in a job too. The big difference however is that while in a job you are living either someone else’s dream or a company’s objectives, in your own startup, you are driving your own vision, goals, dreams and aspirations. Every small step in an entrepreneurial journey feels like an accomplishment and gives you the satisfaction of having reached a new milestone.
In the context of startups, metrics are parameters used for quantitative assessment of performance and progress of a venture. If goals are about where to go and strategy is about how to go there, metrics are about tracking progress of your journey.
Startup phase is about discovering what works and what does not. Scale up phase is about replicating what worked. For companies, especially startups and early-stage companies, metrics help founders identify what is working and what is not.
Importance of metrics for startups
They are important because in your entrepreneurial journey, you don’t want to discover at a very late stage that you progressed well, but in a different direction; or were going in the right direction, but at a different pace than estimated.
The journey of a startup is about making certain assumptions about what will happen once you launch your product or service in the market, and doing several experiments to ascertain if those assumptions are valid, and what is working and what is not working around the assumptions.
For example, If you assume that 1.5 per cent of all registered customers will buy, you first need to track if that is indeed the case in the market. And whatever the outcome i.e. whether 0.5 per cent registered users buy or 3 per cent users buy, what you need to know are the reasons for the outcomes so that you can avoid what did not work and replicate what works.
Success of a startup is NOT in executing a plan well, but in adjusting plans efficiently, appropriately and effectively, in order to go in the direction the venture was intended to. Metrics provide early warning signs – whether good or bad. It helps you adjust your plans based on quantifiable data on what impacts the outcome. Metrics help you make better-informed decisions in making adjustments in your plan.
Some myths about metrics – It’s not always about improving your metrics
1) Performance does not improve with scale. For example:
2014 was a defining year for the Indian startup ecosystem. Compared to the rest of the decade, a number of significant events and activities had changed the very nature of the startup world. Companies like Flipkart,Snapdeal, PayTm, Zomato, etc had redefined ‘scale’ and investors had started placing big bets on them. These companies darted ahead of the pack, to not just dominate their markets, but to grow it too. Of course, they were helped by a conducive environment – mobile phones, internet connectivity etc – but they also built infrastructure, people and processes that could handle a different order of scale than what they themselves could have imagined a few years ago. These startups demonstrated the potential and the competence to build world-scale companies and created new goalposts for entrepreneurs to aspire for.
As a result of e-commerce, a number of enabling technology and service companies started becoming more meaningful. Analytics, online engagement platforms, delivery companies etc found a much larger market to address their business case, and therefore their investment-worthiness became stronger. What remains to be seen is how effectively the e-commerce industry will retain customers once the discounting era is over and customers have to buy on the fundamental value proposition of e-commerce i.e. ease of access and choice. We may see some changed market dynamics at that stage, and the transition phase may throw up some new, unexpected leaders.
(My response below, to the above question on Quora)
Failure has many dimensions in the context of a startup and the founder of the startup.
For example: Failure could mean that you have not been able to achieve the numbers (revenues, or customers/users). However, it can still be a fairly profitable business at a lower scale than what you had estimated. If you have raised capital from investors, they may see a venture that does not scale as a failure. The founder may not.
Likewise, failure could mean that while the concept was good, the team was not able to execute well, or they ran out of money because they were not able to raise capital. In this case, the startup SHOULD NOT have failed, but it did not work out because of inexperience or lack of execution capabilities.
So, when people generalise that 8 out of 10 startups fail, it generally means that 8 out of 10 startups are not able to go to the scale or in the direction they assumed it would. It MAY or MAY NOT be a failure for the founders.
Also, it is important to recognize that very few startups fail because their product was bad. They usually flounder because of issues on areas like execution, processes, capital, etc. I have seen many, many founders start off without even talking to potential customers. This is usually a recipe for a disaster as your own views may or may not hold good in the market.
My belief is that while the number of unsuccessful attempts are quite high from among the ones that started off, the percentage of failures comes down significantly among those who had put good thought into their concept and business around the concept BEFORE starting off.
If your question was out of fear of failure, I would urge you to think again. Plan your venture well, understand the market and then take the leap of faith. Check the LinkedIn status of failed entrepreneurs. They either get started again (and investors like to back them) or they get good jobs (corporates like failed entrepreneurs because of the enterprising spirit and the learnings they bring with them). So, while your venture may not succeed, you are unlikely to fail if you pursue the path of entrepreneurship.
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.
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.
Startup Next, the global and top pre-accelerator program – backed by the likes of Techstars, Google for Entrepreneurs, Global Accelerator Network and Startup Weekend – is coming to New Delhi !
The Startup Next program is designed for startups who plan to apply to accelerators or are pitching to investors for funding.
Startup Next is an intense mentorship program consisting of weekly sessions (one session in a week lasting three hours) for five weeks. The program has a structured curriculum and in-depth engagement with one-on-one mentoring, designed to help startups build the foundation of scalable ventures.
On August 14th, 2014 iSPIRT, the industry enabler that is creating a vibrant eco-system for promoting, encouraging, supporting and enabling product companies out of India, organised a very useful online discussion on the concept of bootstrapping. Titled ‘Bootstrapping – Boon or Bane’, the discussion explored various facets of bootstrapping, including its relevance, benefits, limitations, and challenges.
Sharad Sharma, founder of iSPIRT kicked off the conversation with a very incisive observation that the startup community, largely driven by the media, tends to celebrate and showcase startups only when they receive angel or institutional funding. How true is that!!! There are a number of very successful and modestly successful startups, many of who are deserving of the praise and showcase, but they get reported about only when they close an investment round. (I am not sure if the media is to blame entirely. I suspect companies too reach out to media only after they have received an investment round, perhaps because they believe that funding makes the ‘story saleable’ for the media.).
I often get asked this question: “I have an idea. But I just don’t know what to do next. How do I start implementing it?”
It is not unusual to get stuck with the idea without knowing how to take it forward. Often the fear of having to manage operations, finances and staff is what stops people from getting started on their idea.
Having an idea is a good starting point. The first thing to do is to let that idea rest for a few days. Think about it every day. But don’t act on it. Think through all the positives AND all the negatives. Think of how great it can be. And also think about what could go wrong and how worse can it get. You will start seeing different aspects about the idea. Not all will be good. And that’s OK.
Many people have ideas for a business. Almost everyone thinks of some idea at some point in his or her lives. But only a few individuals actually take the first steps to convert those ideas into a business.
To be an entrepreneur, one has to have the conviction and belief in the idea that one is pursuing. Unless you have that conviction, you are unlikely to take the first step required to convert that idea from a ‘thought in your head’ to a ‘venture in the real world’.
Once you have a thought or an idea about something that can become a good business venture, you have to think hard about the potential of that concept, assess the merits and challenges, and once you feel convinced enough, you have to be able to take that leap of faith to go and implement that idea in the marketplace.
Many aspiring entrepreneurs tend to test and research, and retest and re-research their idea or concept and depend only on the research findings to pursue or drop that idea. Often, research cannot give you the answer to whether an idea will work or not. Sometimes, entrepreneurs have to take that leap of faith and that gut-feel to make a concept work. Entrepreneurs however, should NOT be blind risk takers. Successful entrepreneurs understand the risks and take necessary steps to overcome those risks and challenges. Planning well is what helps them deal with the risks and challenges better. Others who give up often do not think hard enough about addressing those challenges. They get scared of the challenges because they do not think of solutions.
Entrepreneurship requires entrepreneurs to pursue their vision often in the face skepticism and negative feedback on their ideas and plans from many individuals. Often these individuals who are skeptical of the plans are well meaning and may give an honest feedback based on their own assessment of the risk-reward dynamics of that idea. But mostly, entrepreneurs are able to spot opportunities where others see problems.
Entrepreneurs see opportunities before others see them. Entrepreneurs catch the wave on the up…. That’s why successful companies often have the ‘first-mover advantage’. Others, who follow or are me-too copycats to successful first-mover concepts, often have a much harder road to success, if they do succeed. Entrepreneurial thinking and aptitude is about seeing the ‘signals’ where others see ‘noise’.
The ability to take that leap of faith AFTER assessing the potential and understanding the risks allows entrepreneurs to be confident and optimistic about the opportunity and potential of an idea. Optimism and confidence create positivity and enthusiasm, which infects others around them. It helps entrepreneurs build teams, get early adopters, and often, helps them get investments from investors. (It is not without reason that entrepreneurs who are successful are good presenters and can tell their story with conviction and passion.)
Go ahead. Think hard about the opportunity around that idea and what you need to do to make it work. Seek mentoring. Get guidance from those who have more experience in operationalizing a business venture. Plan well. Execute efficiently. Be confident.
You will never fail. Either you will win or you will learn. And this learning will help you prepare even better for the next journey of your life. Go ahead. Take that leap of faith in your idea.
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.
Also, I strongly believe that an entrepreneur must have the courage to face failure and challenges.
Well, there are some lessons that I have learnt in my journey…. and as an entrepreneurship evangelist, have had the opportunity to observe many startups start up, and fail. Here are some observations:
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.
Enterprises have to be built around a concept that has a meaningful value proposition to your potential customers and around which you can build a strong, sustainable business model. Entrepreneurs tend to overlook the challenges when they are driven either by a desire to be an entrepreneur or when a concept stokes their interest.
Often, entrepreneurs assume that a business plan is to be written only when you seek venture capital or debt. However, a business plan is nothing but your plan for your business and in order to manage your enterprise you need to be able to create a document using some framework that helps you think through the steps you need to take in your entrepreneurial journey.
Don’t focus on the excel sheet. Focus on the business model. A 5-year excel sheet projection is just that – an excel sheet exercise – a set of assumptions. It is neither a reflection of the potential nor a reflection of your ability to meet that milestone. However, an excel sheet exercise provides you a reference point to consider different possibilities of scale and help you plan the intermediate steps in reaching those milestones. I.e. it is not important to detail the calculation for a Rs.98.74 cr revenue by 2012 as it is important to be able to state “We believe we can be around a Rs.75 cr to a Rs.100 cr. enterprise by the 3rd year of operation and here is how we plan to go towards those milestones”.
It is ideal to gain experience about building and managing businesses before you create your own enterprise. Most successful entrepreneurs have built businesses after gaining significant experience across functions in different organizations. Though often celebrated, entrepreneurial successes of people with no prior work experience are a rarity.
One of the most common observations of investors, both domestic and foreign, is that entrepreneurs in India are afraid of thinking big. They tend to think it is prudent to be very conservative in your projections, especially if you have no past record to prove your scaling-up capabilities. However, unless you are creating a life-style concept, it will be important to provide a true picture of the potential and your aspirations, especially if you are seeking venture capital. Of course, the aspiration to scale has to be based on a validated assessment of the potential and backed by a strong, sustainable plan to deliver on that potential.
Your ability to scale should be restricted only by your aspiration and not by capital. In today’s environment, it is far easier to raise early-stage capital than ever before. If your concept is right, if the market potential is large and if you have the capacity and capabilities to deliver on that potential, you will find the capital to fund your dream.
On the other hand, if a number of investors reject your proposal, it should be a signal for you to consider what aspects of the model seem to worry investors – relevance of value proposition, market potential, business model or your ability to deliver on the potential. Once you have identified the issue or issues, you need to revisit that in your plan and see what changes you may want to make in order to address any flaws in your plan.
Just because you do not get funded does not mean it is a bad idea or your plan is wrong. Often, especially with new concept, it is difficult for investors to take a bold step. It is therefore also important for you to find investors who have a strong belief in the domain that you wish to be in and convince them about your ability to deliver on that potential. If you still do not get funded and do believe it is a concept worth fighting for, you need to find innovative ways of building a proof of concept.
Importantly, don’t be a lone ranger. Connect with other entrepreneurs. Seek guidance. Ask those ahead in the entrepreneurial journey to share their experiences. Organizations like TiE and NEN offer excellent opportunities to network and seek mentoring from accomplished and successful entrepreneurs.
To end, I would like to clarity that entrepreneurship to my mind is not just about starting or owning an enterprise. It is about an entrepreneurial spirit that inspires individuals to take ownership of an assignment of area of responsibility. It does not matter whether it is in your own enterprise or whether in an organization where you work or whether the organization is a commercial enterprise or a not-for-profit entity. Do well in whatever you choose to do. Do it diligently, honestly, ethically and with enthusiasm and commitment. And THINK BIG.
As the advertisement of a spirits brand says ‘Its your life, make it large’.
Similarly, launch when you know you have all the competencies and the resources required to run the business. I.e. when you have worked out your business plan, evaluated the business case, spoken to customers and are convinced that the value proposition makes sense to them, when you have tested the product, when you have understood the dynamics of marketing & sales, when you have evaluated the cost of acquiring customers, when you have identified – and some what validated – all the assumptions that you have used in your business plan…. that is the time when you are ready to launch. And of course, you need to ensure that you have the required capital to sustain the business till you either (a) hope to become self-sustaining of (b) when you hope to raise external capital – whether as a loan from banks/family/friends or as risk capital from angel investments/ VC/family & friends.
HOWEVER… despite all this, and even after you are ready, you will have to evaluate what is the best time to launch. E.g. if you are selling something to schools which they will use in their classrooms, launching in the middle of a school term may not be prudent.