Bangalore- Startup City

For many months now some of us have believed that Bangalore is the most favored place for startups. Of course, we didn’t have any data to back it. When Vijay Anand of Proto.in, a good friend who spends most of his energies in promoting startup ecosystem in India contested that Bangalore may not the best destination for startups, I had a different opinion on it. 

Some of us who have started out in Bangalore have a bias for Bangalore and that may have clouded our assumption that Bangalore is more suited for startups. Then, may be not! We now have some data coming from the recent TATA NEN exercise.

How can startups get right engineers?

Few initiatives like Pluggd.in, Proto.in, Headstart.in, NEN, are doing a wonderful job in educating engineering institutions in India to get exposed to the startups of India. They are taking initiatives to bring startups to the campuses so that interested students can be recruited by them. 

While talking to one of the very energetic campaigners at NEN, I started giving my opinion on how and what they should be doing. I am penning down the points from that talk. 

Startups are too busy and are not in a position to go to a campus for recruiting candidates. First, they don’t have time and they don’t have people who can spend a day on recruitments. Second, they don’t have money to travel to the campuses if they are in far off cities. Third, they will never get the kind of guys they want at the salary they are willing to give. 

Instead, as a startup, I would like to receive a document which lists all the master’s and PhD students in an institute that has a small picture of the candidate, their contact details, and a 10 line biography, highlighting their project, their interest, area, and other technical and performance information. I can then choose the candidates that are of interest to me, call them up or send them an e-mail. NEN can also create a separate list of those candidates showing interest in working for a startup so that I don’t have to bother spending time telling the candidate what it takes to work in a startup. 

Crisis or Opportunity?

The Wall Street as we know it doesn’t exist. This could be the onset of worst financial crisis in the last fifty years. The alarms are being sounded. It’s going to be gloomy ahead. ‘Brace yourself for the worst storm ever’. ‘It’s going to be another Great Depression’, and so on. Indians would love to believe it is going to affect them exactly the way it is affecting Americans. Flat world, isn’t it? We have believed in that myth far too long not to believe it now. 

The news pours in from every quarter. It’s impossible to get away from it – every newspaper, every magazine, and every news report suggests the same. There will an economic slowdown. There will be layoffs. Startups need to conserve cash. Already cautious VCs of India become more cautious now.

I am supposed to be gloomy too. I am supposed to make negative statements too. I am supposed to say that, ‘Yeah! It’s going to be hard; it’s going to be tough; it’s going to be bleak!’

Yet, I don’t say that. I am a startup, remember. I am already in the deepest shit-hole possible. I am used to surviving in a very hostile environment. I conserve cash like nobody else’s business. I starve and yet put on a smile. I am used to it. (It’s been four years like that. I better be used to it.)

Unlike the pundits out there, I am not pessimistic.

Assembly Line manufacturing from Ford

I took these notes down while watching a show on History Channel.

Henry Ford created the concept of assembly line manufacturing. The original components arrived onto a single line platform to make a complete car at the end of the line. This was a revolutionary way of manufacturing introduced to increase productivity on an unprecedented scale. However, the monotonous nature of the job took a toll on the workers. Henry Ford compensated for it by increasing the wages, setting a standard for America giving $5 an hour and introducing 8 hours a day. Eventually, the workers at his factory were richer than average Americans where they could actually afford the cars they assembled. Here are some highlights:

• One car was produced every 10 seconds.

• It took only 4 days to assemble a car from raw materials to the finished product.

• Henry Ford became the first “self made” billionaire of the mankind.

• Most other industries quickly adopted his assembly line manufacturing.

• During his time, USA produced 40% of manufactured output in the world.

• During WWII, the 32 million car American industry shifted to making war equipment.

• The assembly line production allowed women and African-Americans to enter jobs spurring hate crimes.

• During WWII, USA produced 90,000 bombers, quarter million tanks and jeeps- faster and cheaper than any other country in the world.

• At the end of WWII, USA productivity was 8 times that of Japan.

• However, Ford’s assembly line manufacturing had some deficiencies. Switching from Model T to Model A required one-quarter billion US dollars. Meanwhile, GM was able to make changes faster because they had smaller assembly lines.

Assembly Line work takes a toll at Ford

• There was emphasis on Quantity over Quality.

• Extreme fatigue for Workers.

• Mechanization went too far, human element was missing.

• Toyota introduced lean production. Eventually, Japan made more cars than USA.

Embraced by Toyota

• 1950, EG Toyota spent 3 months at Rouge Complex (Detroit). Henry Ford shared his assembly line technique with everyone. At that time, Toyota was doing 1000 cars a month. Ford was making 1000 cars a day.

• Toyota created lean manufacturing allowing workers to define their job giving scope for creativity. Every worker became an inspector. Productivity actually increased.

• Toyota expected its workers to be motivated, skilled and innovative – they developed their unique style called Kai Zan.

Notions in India on Startups

There is a prevailing notion in Indian startups that the minute you get heavily invested by a VC, you are successful. The fact that some VC has deemed your business worthy of investing is a good enough reason to feel that you are successful as a business.

Now, that you are invested, you feel a bit special. Since you are no longer scouting for money like other entrepreneurs you think you are now a serious company. That feeling is good enough to put a stop to all that hanging around with other pauper entrepreneurs. That also means putting a stop to attending the Barcamps, MoMo, Headstart events, etc.

I attended a NASSCOM event on products and innovations. In one of the panels showcasing successful product startups, they also invited social networking and other dotcoms. I was sitting there wondering – what is the common element in all these startups? Some of them were not innovative and some were not even making products. Why are they considered successful? The only thing that was common was that they all got funding recently by some big name VC in the order of few millions.

The fact that you got invested is a good enough reason to believe you are already successful. Even the VCs, the media and observers will believe that.

So what happens once you get invested?

There is another prevailing notion that once you get invested, somehow all your financial problems are solved. The new startups which get heavily invested start looking for a swanky office with nice carpets, interiors, woodwork, cabins and cubes. They go back to getting cushy salaries with luxurious perks. Overnight, you are no longer a poor boy. In fact, it’s like getting married to the only daughter of the Sultan of Brunei. You travel luxury class, stay at five star hotels, get into all kinds of forums, wear suits, and rub shoulders with biggies. You can now go about thinking about that new apartment, that new swanky car, and that investment into real estate that you have kept on hold when starting the startup. Now you go to work as if it’s a regular job, filling excel sheets, project plans, as you did before the startup. The hunger is already gone and now it’s replaced by satiety, too soon too fast.

I see a dangerous trend in Indian startups. I am not comfortable with it.

Startups in India see their first round of heavy investment as a major achievement in itself. They see it as an end in itself. They see it as a major milestone after which all problems are solved. This particular single-focus goal is detrimental to its long term prospects as a business. Usually the startups go through a process of exhaustion and starvation and the thought of a gush of money is a welcoming prospect, so much so that, their entire focus is now shifted to raising that money instead of concentrating on other business goals. Once that investment is made, you back to your old style of working.

I know of few companies in Bangalore which are setting very bad examples. These companies have ‘successfully’ raised many rounds of funding and yet, there is no product release or source of income. Most of the time is spent in partying and celebrating little achievements which have no consequence in business.

In a city of very few successful product making companies, to have a few bad apples will have negative effect on prospects of future investments. Unlike Silicon Valley which spawns thousands of startups which are VC backed, India produces very few. And if out of those very few we start seeing bad examples that sets a negative outlook on future prospects for Indian product startups.

Some VCs who witness these trends, instead of correcting them, are actually casting a blind eye, and are believing themselves into a delusion that everything is going alright, when in fact it is not. They cover up the inadequacies of their startups and keep promoting them in all forums and events as if they are best companies on the planet. The first round VCs think their startup is successful if it is in a position to raise the second round. And second round investors in turn believe it is a successful company if it raises the third round, and so on. Nobody is bothering to check if these companies are actually creating value as a business, in terms of market share, revenues and profit margins.

This trend of blowing up the VC money may work well in Silicon Valley where there are thousands of companies being started every year, and few bad apples will not make a big difference. In India, where there is dearth of startups and where a paltry number of companies get invested, this trend does not bode well.

A startup should have the same hunger even after they raise their round of heavy investment. That hunger should keep them going after pursuing the markets, getting the cash into the company. They should not squander the money. Instead they should continue to use the art of managing the cash flow wisely as they did prior to their investments. They should not let go of this innate strength all in one episode.

Indian startups need to set successful examples of using India as a cost-effective way to launch global brands of high quality products.

What is your primary objective as a startup?

In my conversations with many entrepreneurs during the events at Proto.in and Headstart.in, 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.

Observations

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, Proto.in and Headstart.in, 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.

Proto.in and Headstart.in

I was at Proto.in (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 HeadStart.in (Bangalore). Being a strong proponent of developing the ecosystem here in Bangalore, I couldn’t miss this event.

Vijay Anand and his Proto.in has already attracted lot of attention in entrepreneurial world with a strong focus on India. Proto.in 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’.

HeadStart.in, 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 Proto.in. 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 HeadStart.in 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, Headstart.in 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.