Monday, January 21, 2008

What is your primary objective as a startup?

In my conversations with many entrepreneurs during the events at and, I have observed few things that I want to discuss here.

Should startups get disappointed if they do not get invested?

One top name investment banker once told me, ‘you are not an exception (referring to our state of not getting funded by a VC). Instead, you are the norm’. He added, ‘Silicon Valley (and few other areas, such as Boston) is in fact an exception. Most of the business in the world, Vietnam, Brazil, Russia, etc, start this way.’

I keep telling myself that ‘nobody will come to your aid. You are on your own. If there is no ecosystem, then create one. Don’t complain.’

There’s nothing romantic about running a startup. It is filled with many hard choices, misgivings, struggles, which you may or may not like. But as long as you are enjoying what you are doing, keep doing it.

While you are out there, struggling with the realities that are somehow so different from what people write about entrepreneurship and startups, please ask yourself the following questions.

As a founder, what is the number one objective for you right now?

1. Is it making the product and proving the technology?

2. Is it making the revenues to somehow survive?

3. Is it making your startup attractive to get funding by a VC?

4. Is it making a company that has a viable business?

I ask these questions because there is a danger that you may get caught up in the day-to-day struggle to miss out on the big picture.

These are my learnings as a startup IN INDIA. I stress on ‘in India’, because we are NOT Silicon Valley. And no matter what people, analysts or the media says, we are not one, and we are not going to become one right away (but the hope remains).

1. Is it making the product and proving the technology?

There is a chance that you may start believing that making the product (that you set out to build) is the ultimate objective. You start thinking, all you have to do is make this product, and everything else will fall in place.

Not always.

What if the product you set out to build takes five years, and by then the market is gone? What if the product you make costs you $2000 to make, but the customer is ready to pay only $200 to buy it? What if the technology that you think is so hot, is not something the world wants?

I see a great danger when you make this option – ‘making the product and proving the technology’ the primary objective. When you hit crossroads, you will not know what to do. [I agree that this is ONE OF the major objectives but it SHOULD NOT be the primary objective.]

As a startup, one of the essential and inherent strengths is your flexibility. You are flexible to change your business plan at any time, and that too quite quickly without incurring major losses. This flexibility should not be confused with shifting focus. With changing market situations, customer interactions, and other events that happen in the world, you should mould your business plan, and if needed abandon the original plan to quickly embrace another one while being consistent with the original intent.

Example, if your dream is to connect everyone on the planet with internet and phone connectivity, you may give up one technology to embrace another one, abandon one model of selling to embrace another, without diluting the original vision.

2. Is it making the revenues to somehow survive?

It’s very easy to make revenues. Think about it. You can become a coolie in a train station and earn money. It’s so easy to make money, if you are willing to work. You have to ask yourself, ‘is that how you want to make money in this startup?’

Not really.

If all you want is to make revenues, there are many quicker and easier ways. While going through the journey, you will go through many patches that are quite grueling, taxing you with many problems, financial and emotional. Many new avenues may come up which promise you quicker and easier money. Would you take up those new opportunities to get those much-needed revenues? Would you do it just because someone is paying you to do something else (which is not your original intent)?

You have to be clear on what you set out to do. That will help you in making decisions when alternative avenues arise. Some people think that you should do anything to make money – because you are in the ‘business of business’. I strongly differ with such views. What will take you far on the long and torturous path of entrepreneurship is your commitment to the original lofty goals that you set out on. Few others may have a different opinion on this – but I strongly believe that you should carry through your convictions before settling down on anything alternative. That way, your team will stick with you; some of those angel investors and VCs who have been watching you will come forward; that way your potential customers who are waiting for your product will have more confidence in you to trial your product.

[I am talking about perseverance, not stubbornness. Will write on that in future]

3. Is it making your startup attractive to get funding by a VC?

Would you run after certain milestones just to please a potential VC to get a funding? Would you get on board an executive who in your opinion adds no value to your company but would please a potential investor? Would you run after markets that you do not find suitable for your company just to please potential investors?

Not really.

This is the worst objective to have. You should achieve milestones for other important reasons than just to please a potential investor or VC. While you continue on your journey, you need to create value for the company, and for that you start achieving certain milestones. Those milestones are vital for you, your team and your company. They should not be specially designed to suit the likes and dislikes of your potential VCs or investors. They may have told you that they would invest in you if you achieve certain milestones. But what if you put all your energies in that direction only to find they no long show interest in your company? Is that milestone really on the path of your intended journey or was it introduced just to please a potential VC?

Your investor is a shareholder who will walk with you in your journey. He is a companion – sometimes a painful one – which is good because he will guide you to go in the direction that makes sense to all of you. However, his investment is not your goal or your destination.

You go with an investor and take his money when you reach an agreement on how you want to take this company forward. If you don’t agree, then you part ways as gentlemen do and still keep in touch. But you should be clear on what you want to achieve as a company and business before you start saying, ‘Yes’ to everything a potential investor wants.

[But once you are married to each other, you are both stakeholders in the company and hence you confer with your investors on what strategy you want to embrace. And once decided, whether you like it or not, you stick to it.]

4. Is it making a company that has a viable business?

While your vision is something grander and loftier, such as positively influencing every person on the planet, you should strive to create a full-fledged organization that makes a viable business. This must be your primary objective during the startup stage. As long as you know where you are going, and why you are going, and keep checking if you are going in the right direction, you will most probably make the right decisions.

You should try to create a viable business organization- it’s like a flotilla of aircraft carrier and surrounding warships, with planes, helicopters, etc, which makes it a self-contained armed force on the move. It has a mission and a goal- that are quite often loftier and bigger than any individual or single person’s dream or ambition. That mission and vision has to be permeated to all of your team members so everyone knows why we are going through these rough seas for months and years with no land in sight.

You need to put energies to hold the team together as a close-knit organization, keep the dream live, giving the team its much-needed small milestones to celebrate, adding value continuously to make yourself attractive for investments that come as fuel, courting customers and working closely with them to generate much-needed revenues, slowly growing making long strides in short periods, but at all times, trying to create that full-fledged company that is creating a viable business with a potential to scale and take on bigger markets, all the while keeping your eyes fixed on that vision to positively influence every person on the planet.

As long as you are clear in your priorities, you will take the right decisions when you hit crossroads, unflinchingly, without any trace of doubt.


Changing landscape

I am observing a major change happening in the last two years. I see that more and more people are getting onto the bandwagon of entrepreneurship, especially the young and first-generation entrepreneurs, and I see this as a good sign.

Is it because I have started to notice them or is it really the phenomenon sweeping across the nation [of course, confined to few cities only]? MoMo, Barcamp, and, all started in the last two years. These events have created a forum and platform for many young techies to meet and exchange ideas, and in some cases, collaborate. The new entrepreneurs are getting to know the realities. They are getting to know the hardships, and yet the passion amongst them is only increasing. The number of startups is proliferating in India. The quality of the ideas is improving. There is a stronger sense of commitments from the teams, and many Indians are leaving their secure jobs, which is a good sign. [I do believe that we need many more. This is not enough.]

Even NASSCOM, the official spokesman of services industry in India, is lending its hand to promote product startups, with dedicated funds on the way.

Missing Angels

What is missing is the angel investors and their ability to take risks. I don’t believe the existing network of angels in India is effective. They have to do it differently, with different set of rules that are more applicable to Indian context. Many startups need angel investment – because they do not qualify for VC investments in the seed stage. And most VCs are still not equipped to handle seed and early stage. They will continue to invest in growth stage.

The founders should go back to their families and friends and pitch to them to get the initial capital. What they need is a little guidance on how to structure a deal with such friends and family investors. When there is nobody to invest, what do you do? Investing Other People Money (OPM) is not an option. You put all your money first. And then you go to those people who trust you and they happen to be friends and family. Pitch to them, and take investments, build your product, get that initial traction, and then may be, may be, you will get invested by those who do not know you, otherwise, go to the revenue stage working closely with some confidant customers. You can’t keep hoping that institutional investors would invest in you. There is a good probability they won’t.

Government could do something

My only wish to the government of India is – please make roads wider please. These cities are choking us. I don’t want to see ex-entrepreneurs who have made it big leave these cities forever. They form an extremely important element of the ecosystem. and

I was at (in Chennai) on Friday. Vijay Anand asked me to speak on the topic “Startups: The Worst Case Scenario”. He wanted me to tell the entrepreneurs how ‘unromantic’ a journey of a startup can be. I had to address some of those myths and induce some dose of reality to wanna-be entrepreneurs. I realized that there were many entrepreneurs in the audience who had gone through the same journey and have the same experiences and observations about entrepreneurship as I did. I guess, what I am being asked to do is – ‘be the bad guy, spill the guts!’

I had to rush back to Bangalore that night because we showcased our product next day at (Bangalore). Being a strong proponent of developing the ecosystem here in Bangalore, I couldn’t miss this event.

Vijay Anand and his has already attracted lot of attention in entrepreneurial world with a strong focus on India. intends to become one of the catalysts in promoting the much-missed ecosystem in India and Vijay is doing a tremendous job.

While the first three events were held in Chennai, Vijay wants to move this event around to other cities in India and even explore the neighboring countries around India. Bangalore, which according to me, is one of the best places for a technology startup with well-developed ecosystem (only in comparison to other cities of India) just could not sit idle. It had to spring its own event. And I believe the more the merrier. We have a long way to go before we can say ‘We have too many such events’., which is organized by volunteers of Bangalore (which is the hallmark of Bangalore), spearheaded by Kallol, Aditya, Keshav, Arpit, et al has held its first session (along with an ACM event) at IISc, Bangalore.

There are some finer differences between the two events, and I am quite sure they serve their purposes.

The things I liked about The demos have become a serious affair drawing great attention. Also, the fact that nobody knows who got selected to demo makes it an interesting exercise. I like the short presentations they have. Vijay keeps the ecosystem together. He does not forget the old participants and he engages them and contributes to keep building the ecosystem.

The best thing about is that it was held in Bangalore. It was high time. With such a great ecosystem, it had to happen sometime. I don’t think any city in India can beat Bangalore in terms of quality of its participants, panelists, etc. Though this event coincided with other major events, still drew the bigwigs of the industry. The panelists were experienced and are veterans of the industry. The atmosphere was electric as ever. The VC networking session in the evening was excellent. That’s what entrepreneurs want. Organizers ensured the media met those who demonstrated their products.

It was unfortunate that both events took place on the same dates. I wish it had happened differently. But I realize that the organizers of both events had their constraints, on when they can organize, and they could not change their dates. I look forward to next set of events where they do not coincide and where we will have much closer interactions and sharing of notes between the organizers.