Category Archives: Tips

A data driven approach to dispelling the myth that planning for #entrepreneurs is “old” school

There is an ongoing meme that keeps popping up ever so often among tech entrepreneurs and gurus. That the “business plan” is dead and there is actually no sense in planning at all.

After all they say “Hands-on Entrepreneurial Action is all that is required to create a Business”.

I have enough curiosity to keep finding out which of these truisms are valid and which are not. Fortunately I also have a position that allows me to try these experiments given that I run an accelerator program.

TLDR: This is absolutely false. Poor or any planning is better than no plan at all for over 80% of startups. In fact, the earlier the stage of the startup, the more is the value of that planning.

Here is the data:

Over the last 3 years, I had the opportunity to identify, select, coach and help 87 entrepreneurs for over 4 months each. I spent about 1.3 hours per week with each entrepreneurial team. In the last 3 years, and in 6 cohorts, there have been a total of 4834 applications we have received and reviewed. Of these my team and I have talked to about 450+ (about 10%) and have met with (for atleast 15-30 min) about 250 of these entrepreneurial teams. A total of 87 of them made it into our accelerator and that’s the sample size. Of these, 89% were from India, and 11% from the US.

There are between 10-12 sprints we run at each of our 4 month acceleration programs. Customer development, technology, product management, design, go-to-market, sales, partnerships, and others. One of the sprints we also run is called the “Operating plan” sprint. I instituted this after the first cohort, when I learned that most investors did not care so much about the “demo day pitch” as much as what the company was going to do with their investment for the next 12-18 months.

So, I put together an operating plan template. Think of this as your blueprint for execution. It would spell out what you were going to do to hire, sell, develop, fund and grow your startup. I put together a template as well to help the companies think through the plan.

It stems from your top level goal first, which depending on your stage could be – get product shipped, get customers to use it, increase usage, drive sales, increase revenue, etc. The only constraint I put was to ensure that you had one goal only. Not 3 or 5, just one.

Then you want to tie in various parts of your company to achieve that one goal.

If you had to hire engineers to build product, then that needed to be spelled out. If that then requires funding, you need to spell that out as well and so on.

So each operating plan will end up having 7-9 sub “plans” for product, development, hiring, sales, marketing, funding, etc.

This planning cycle begins in the 3rd month of our program and lasts 2-3 weeks for the entrepreneurs. During this time, many entrepreneurs are busy trying to get funding and meet investors, which means they tend to have little time for “all this other planning stuff”.

Which makes for a perfect experiment with a control group and a treatment group.

In the last 5 cohorts, I have asked and then politely urged all the entrepreneurs to participate actively in the operating plan sprint. But 50% of the cohort would get another 30 min pep talk from me on its importance.

I’d urge them over a lunch or coffee the importance of doing the plan.

I would not discourage the others from doing it, but the other group I did not spend the 30 minutes with on taking the operating plan seriously. Some of them took it seriously without my urging and cajoling and most ignored it.

Now that I have the data for 3 years, I can confidently tell you that just the act of putting together an operating plan – however poor it is, increases your chances of funding and raises valuation.

I went back to the data to look for my own biases and see if the ones that I urged were “somehow better suited to raise funding and be successful regardless of my urging” anyway, and I think I have no way to really check that at all, but I am confident that the sampling error, if any, was minimal.

Of the companies that I did the extra selling to, 69% of them raised funding within 6 months of the accelerator, compared to 31% who did not.

Even the companies that took the operating plan seriously and put what I consider a poor plan, beat the ones that did not take the operating plan seriously at all by a margin of 20 basis points.

I totally understand that funding is a weak (and only one) measure of achievement (and not of success), but I also realize that it is the metric most entrepreneurs judge an accelerator by.

So, the bottom-line is this.

If you want to achieve any form of success, creating an operating (or business) plan, even if it is poor, is better than not having one at all.

Surveys or open questions – What works better for initial product validation

Over the last few weeks, the new batch (fourth) of 16 companies at the Microsoft accelerator has been getting started with customer development. Some companies are fairly advanced, doing hundreds of thousands of dollars in revenue, but most are early stage. Last week our CEO-in-residence from the Israel accelerator, Hanan Lavy, came by to lead them through our customer development framework. The first thing I gathered from many entrepreneurs after that session, was that they were surprised at how it helped them revisit some of the assumptions they had made when they had the first idea about their product.

There’s an old saying that good sales folks are used to quoting “Always be Qualifying” (as opposed to the more popular ABC – Always be closing”, which never quite works, but is popular). The “lean startup” generation has its own version of that at the early stages of the startup – Always be validating – your assumptions, your plan, your pricing, your offering, etc.

Customer validations, early on, start by asking questions of customers, mostly in face-to-face meetings and then “graduate degenerate” to emails and phone conversations when entrepreneurs are unable to scale. I dont think there’s only one way to validate though – a good product manager uses all techniques to get in front of her customers / users as often as possible.

There are pros and cons to each of the techniques to validate your idea and assumptions, so rather than focus on all of them and their efficacy, I thought I’d take some time to share what I learned from 5 of the startup founders who have been trying 2 techniques over the last week with both Indian and US customers to validate their problem statements, ideas and positioning.

Think of this as A/B testing the format of communication as opposed to the medium or the message.

The medium most of them chose was email, given that they had to provide a quick turnaround back to Hanan (they were given 2 days to speak / connect with at least 10 customers. They could have chosen face-to-face meetings or focus groups using Webex / Skype, in app questions or real-time in-app chat, but they all chose to email their potential and few existing customers.

Now that most chose email, the next question I asked them was how many of the sent customers open-ended questions versus an objective survey with 3/4 choices for answers.

Turns out 2 of them used an online survey tool with 5 questions and 3/4 choices per question and 3 of them chose to send and email with 4-5 open-ended questions. Response rates varied from 40% to 60% I was told (fairly high given that their potential customers had only 24 hours to response). The survey’s got more responses than open questions.

What I did learn was that for companies that were earlier (had started building product, but did not have a prototype) the survey format worked better since they were able to get specific answers to questions and make decisions on 3 features they had to drop so they could ship quicker and gain more feedback quickly.

The open questions format worked for those that had worked longer with their customers and prospects since they got good qualitative feedback and a suggestion or two, which they had not considered before.

I have a personal bias against survey questions, since the choices are predetermined. Survey’s tend to be much better when you want a quick pulse to make feature decisions, not direction decisions. Surveys also work when you have a large pool of responses. Open questions on the other hand work just as well with 5 people as 50 – but at 50 people you have a hard time collating the responses. Open questions also requires you have a better relationship with the folks responding since their commitment of time is more.

What I also learned was that while there are pro’s and cons to both mechanisms, the decision you are trying should guide your choice of format, not the speed of the responses.

There are many types of decisions one takes at the early stages of the startup. Product direction decisions are rarely going to be resolved with surveys or email. Those are the type that many people leave to gut, data and lots of soul searching.

On the other hand, validating assumptions is always better with open questions is what I have learned.

Tip on being a good manager – Saying the same thing differently #startup #entrepreneur

One of the things I have figured out that I am not good at is being a great manager. I am largely bad at managing people. People that work for me like “hanging out with me” as a friend or a colleague, or even working on projects with me. Most people like working with me, but working for me as a direct report is a pain. I go between the two extremes of being a micro-manager to completely hands-off.

This is an extension of my personality. I am a known control freak, I prefer to be direct and am less of a consensus builder. I really value high intellect and have little patience (that’s is the biggest drawback in India as a manager) for people that dont articulate well or speak up. I do listen, (I am told) but I rarely acknowledge that I have listened.

This works in specific situations (running a sales team) or being a product manager (when the engineers report to another person), but works very little elsewhere.

I realize that most entrepreneurs with a technical and product background face a fairly similar situation. Not have too much experience in being a “manager” hurts your in retaining good people. Here is a rule of thumb if you will that I was taught early in my career at Cisco and then at HP, that have shaped my management “style” Ed. It is a joke I call it management style, when there’s no real style at all.

You have to adapt your communication style to the different people in your team. This was the biggest problem for me. I dont like the effort it takes to change my communication style. I am very direct, brutally honest and dont mince words. That does not work for most people. You cant change as a person much (I think) so you have to work hard at communicating the same thing differently to different people in your team. Let me give you an example.

In 2009, after 4 months of working on our product and getting feedback from customers that the product was not quite there, we knew we had to pivot. Communicating that pivot to the team was a bigger challenge.

One of the folks in my team is very numbers driven and a “give me the facts, so I can form my own opinions” . For her, I had to give the basic facts of our user engagement and customer feedback before I could convince her to pivot.

The tech lead was a young developer (with about 3+ years of experience) and had worked on the product from the start. He was a lot more emotional about the product being “his baby”. Giving him the facts only made him defensive. So the approach I had to take with him was to get him on a trip to meet 13 customers in 5 days to listen to the feedback for himself. More expensive, but worth it.

There was yet another person on our team who tended to be the group’s excitement barometer. When she was in a good mood, everyone’s spirits lifted and when she was cross, most people wont answer even the most basic of questions. It was pretty surprising given that she had no one reporting to her, but she was the team mascot. With her we had to make her feel “involved” with the process and the decision.

For her I had to take a dramatically different approach. I knew if we communicated the pivot incorrectly, there would be a week of unproductive nonsense at the office. Done right, I knew we could get a superhuman effort from the team.

To involve her, we put her in charge gathering feedback from all our customers. She had to put together the survey, let customers know, collate the responses and then come up with her recommendations to communicate to the team. Worked like a charm. She suggested that we “pivot” but did not use that word.

As an entrepreneur, one of the big challenges you will face is hiring people. The next big challenge is to keep them motivated and focused.

Communicating differently to each of your direct reports is one way to do that effectively.

Startup idea: Product attribute database

There are over a million online retailers in the US alone and over 2.5 Million worldwide. Many are in categories that are large and well defined (apparel, electronics, books, etc). If you are a online buyer one of the many things you want to do is to research a product well – understand the features, options and compare it to other similar products.

These are defined by what I call product attributes.

Comparisons & reviews are largely subjective and prone to long tirades and endless sentences without getting to the point. Here’s an example. Notice that current attributes that are already stored by Yelp include time the restaurant is open, expected attire, etc.

Those are some of the things I’d like to know.

A large number of things I’d like to know are not really comparable.

They are mentioned in the 88 reviews provided by end users. Taste of the food, visual appeal of the food, softness of the bread.

Reviews that are unstructured are a pain – to sort, filter, compare and review.

There are many who claim that the product attributes for products such as cameras and mobile phones are fairly complete and those are problems already solved.

I think that’s broken thinking.

If you look at how people search for cameras, many (not all) “lay people” dont search for HD pixel density, dual core Snapdragon processors etc.

They search for “how to take good pictures in the dark with your <favorite phone>” or “how to record a live band in <favorite phone> without the background noise”.

The attributes that customers want are those they use the product for. Unlike the specifications and features that manufacturers (or producers / service providers) build them with.

I think if you build a product to classify the attributes that matter for every product (start small and build by category) with a combination of technology and crowd sourcing (or any other mechanism), you will build a valuable company. 

Not to mention that its highly likely that Google, Yelp, Microsoft or others will buy you.

Startup trends: China: The “hunt and peck” has given way to the “touch and tap”

I have been spending a lot of time with startups from China the last few months. Reading about them, meeting them and learning from investors, partners and startup entrepreneurs. My intent was to understand what’s happening there that might most likely happen in India in a few years, based on market trends.

Without doubt the area that’s immensely competitive and hotly contested is mobile applications. With a large number of Internet enabled smartphones and a ARPU that’s nearly 2-3 times that of Indian consumers, it is a ripe area for innovation. I had a chance to talk to over 300+ entrepreneurs at GMIC in Bejing.

There are 3 major trends that I found particularly fascinating that I think will have some impact in the Indian ecosystem as well.

1. Messaging. Similar to Indians, the Chinese use a lot of messaging. SMS and text messaging have largely given way to messaging applications like What’s app clones in China. I was surprised to learn that the average Chinese user has a minimum of 4 messaging applications and most have close to 10. That struck me as overkill. Then I looked at my own phone and I was surprised that I had a lot of “inboxes” on my phone. Skype, What’s app, SMS, Lync, Yahoo messenger (to chat with my sis and brother-in-law, who are die-hard Yahoo users), Google talk and finally Facebook messenger.

2. Twists on messaging: There was one app that I saw that only had 2 icons and a Send button. The 2 icons revealed 20 to 30 standard messages but with icons instead of writing. Imagine they are “shortcut icons” to “How are you”? or “I am happy” or “I am late”. That’s it. The entire app was built on top of simple messages represented by icons.

It struck me that the hunt and peck of the laptop / notebook has given way to to the touch and tap of the mobile.

The amazing part of this app was that it supported folks that were not “literate”. Which is a large problem in India, given that only 20% or less of us are multi-lingual.

So an icon for “What’s up” is the same in Gujarati, Hindi, Bhojpuri or Tamil. Language barriers solved. Awesome.

3. Purpose built messaging instead of one size fits all. Tom wrote about unbundling of social networks and I think that’s what’s going to happen to messaging as well. Right now we are all happy with What’s app, but its ripe for disruption. I can imagine a couple just using a I love you messaging app to send sweet nothings to each other in 100 different ways during the day. Or two college buddies swearing at each other all day on their Galli De messaging app, just for fun. There’s another Chinese messaging app that’s just a blank canvas screen for people to message drawings to each other.

I’d love to get your perspective on if you have more than 1 messaging app on your phone and if you’d download and use multiple purpose built messaging apps.

What culture in any company is and is not? #startup

Until a few years ago when I used to hear a few very well respected startup experts on the importance of culture or what it was, I would ignore the remainder of their speech. Culture is nebulous, ephemeral and arbitrary thing I thought. After a closer reading of many startup’s  culture, documented in a series by a website, I would think that it was about being friendly, flexibility at work etc.

It was plain to me that when you get a few reporters who have never run a startup or been an entrepreneur, all you get is pithy statements – open culture, flexible work environment, with no digging deeper to help you build a framework for the topic.

I have a new theory about culture and not just startup culture in particular.

Culture defines how your company respond to situations.

When you are just one person culture is how you respond to certain situations – it is your personal ethos. When you have a cofounder, then it is how both of you decide to respond to situations. When you grow larger, it is the set of guidelines for your team on how to respond to situations. I dont know if that’s sufficient, so I’d like your feedback.

Let me give you an example.

I had a good friend and entrepreneur who came to see me yesterday.  He and his cofounder have been going through some tough times lately. Their team had significant performance issues which they were unable to turn around.

They were a small team of 10 folks so every team members performance would affect the company in a significant way. One of the team members, who was a good contributor had gone through some personal challenges and that affected his performance. He was well regarded, so his lackadaisical approach post his challenges, resulted in problems for the entire team. They all got more lax at work. Deadlines slipped and this “virus” soon spread to the entire team including their 2 sales people.

The founders realized the cause of the problem, but since he was an early employee, were loathe to let him go. They still wanted to “solve the problem” but were not sure on how to.

Take a few moments now to think about how you would handle this issue in your company if this happened. The simple response – “We would talk to the person and tell them to pull up their socks”, wont suffice. This is way past that stage. You have to take some action. The time for talking has passed is the assumption you have to make.

Yesterday I outlined 2 examples of how they could respond. I am going to call it the Zynga approach and the SAS approach. Having so many friends at both places, I feel they are poles apart in their culture .

The SAS approach is an “all hands on deck” approach. When a problem is noticed, such as customers not buying quickly enough, then the entire team rallies behind the problem and tries to solve it together. The pros of this approach it that it builds camaraderie and good-will, which leads to both higher performance in the short term and better morale in the long term. The cons of this approach is that there’s a lot of work for everyone in the short term to make up for the person that’s the slacker, which results in some bitterness among team members towards the “guilty” party.

The Zynga approach is “set the bar very high for performance”. If an individual is not performing to the level set by the objectives and metrics, they would replace that person after 1 or 2 warnings. The pros of this approach is that there’s a high bar for individual and team performance and everyone feels that they are accountable and responsible. The cons is that this environment tends to be rather detrimental to the team dynamics in the longer term.

Which road you take determines your culture.

When does serendipity play a role and when does it not?

M. E. Graebner describes serendipitous value in the context of the acquisition of a business as “windfalls that were not anticipated by the buyer prior to the deal”. source.

As the new buzzword in the startup world is serendipity I thought I’d take a few minutes to share the fear I have of many folks engineering serendipity.  Put many interesting (or intelligent) folks in a room they say and serendipity happens.

I do though unfortunately feel many folks are taking it to the extreme. Given the many conferences, meetups and events that occur for startups, I am sure its very tempting for entrepreneurs to make sure they are at all of those meetings, to ensure they dont “miss out”.  If you are however meeting the same people again and again and doing the same things, talking about the same 10 startups, there’s little room for serendipity.

At most startup events, I see the same folks who make up 50% (increasingly) of the audience both on the investors side and the entrepreneurs side. While its good to see many familiar faces, I am doubtful that there’s much serendipity and goodness that will come out of it.

As an entrepreneur the one thing you have on your side is time, besides your ideas and intentions. I dont believe you can really waste any time and much worse, attend meetings just to make serendipity happen. I would highly recommend a very strict discipline of attending events that you believe you will have a good chance to get something done, and then hope for more serendipity to happen.

If your sole purpose of attending events is to make magic happen just because you are there, then you are going to likely waste more time and get little done.