Wednesday, July 05, 2006

When do you budge?

An entrepreneur believes in certain possibility and pursues it with faith, energy and passion going against many detractors. On the other hand, most of the investors and advisors will criticize many aspects of the business plan to push the entrepreneur to think more pragmatically. In the whole process, the business plan (or business model) evolves and gets refined. This refinement is extremely critical for the startup. Sometimes one has to abandon a highly cherished and long nurtured grand idea to embrace a smaller subset of the original idea so as to be able to survive till next year. [More than 90% of the startups do not survive to see the second year].

I like to categorize this process as convergent (practically feasible) or a divergent path (impractical for a startup).

But how do you know if you are going on a convergent path or a divergent path in a startup?

If you start with an idea of creating or doing something and if it takes, say, X effort to do it according to your initial estimation, you will know you are on the right path if you are able to find other accessory elements (from the ecosystem) by which your effort X actually gets reduced to, say, 0.8X or 0.7X, over a period of time. This shows that you are able to tap into the ecosystem and thus get to market in time using these accessory elements (like reusing components, taking testing services, using off-the-shelf components, buying available software, etc). Sometimes more money has to be pumped in to reduce this effort. You are on a convergent path.

But if you are increasing the effort to, say, 1.3X or 1.5X, to be able to achieve the original idea, then it means you lack the ecosystem. Then you run into the danger of shouldering the responsibility of actually creating the ecosystem. This is not possible out of a startup in Bangalore because it will not have funds for such a grand game. [There are examples of creating ecosystems, like Java, but that is done by people who have lot of muscle power having sustained losses for many years].

Startups have a place in the big scheme of business because they espouse a new technology or new business idea faster and quicker than a giant and implement it 'in time' to actually deliver the goods while utilizing the various aspects of the ecosystem to decrease the cost of the effort. If a startup's business plan starts to bloat by embracing newer methods and implementing newer plans to achieve the original idea, then it's a sure sign that it is going on a divergent path. A divergent path is out of the scope of a startup. [Iridium project which went on a divergent path was still practically feasible, though not pragmatic as a business idea, because it was backed by giants].

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