Category Archives: Entrepreneurship

What all does a non-technical co founder do in a SaaS / Mobile application startup?

If you are non-technical co founder at a startup that’s primarily a consumer web / SaaS or Mobile application company, there’s only ONE thing you should be focused on:

A plan to acquire, nurture and grow users (customers) with as little money as possible.

With a caveat – you should not use any of your technical cofounder’s time (once a week update / meeting to discuss progress is okay) to achieve your goal. If you do that, it takes away from building the product.

Dont waste your time on “legal paperwork”, “office space hunting”, “attending networking events” or “talking to lots of people to get advice”.

User acquisition involves multiple steps that you need to do in a disciplined fashion:

1. Understand, document and verify your user segments / audience / customers (demographics, usage patterns, usage behavior, etc.)

2. Put a plan to create awareness with as little budget as possible. Make the assumption that as a startup you will have some time but no money.

3. Document who are the key influencers (bloggers, reporters, analysts, etc.) you need to get in front of and when / where you plan to meet them to talk about your product.

4. Plan a content marketing strategy (blog posts, infographics, surveys, slide share presentations, videos, etc.) that will consistently help you build lots of content to help grow your organic traffic from search results.

5. Learn how to build, manage and grow a community of users to help build a great fan following for your company.

You can call this anything you please – Marketing, Hustling, Selling, Community building, User acquisition, etc.

Each of these are very measurable.

1. How many visitors came to your site?
2. What were the sources of your visitor traffic – blogs, organic search etc.
3. How many are repeat visitors, versus first time?

Nothing else matters. In fact if you do a great job at this, you will be as valuable as your technical co founder.

An early trend that I am noticing in B2B startups in India

Something interesting is starting to happen among the B2B companies that are starting / getting funded in India. Companies that have a larger price point (> $1000 per month for e.g.) are all either a) moving to the US (company founder, key employee) or b) they are hiring larger inside sales (telesales) teams and teaching them how to sell outside India. There are exceptions (Visual Website Optimizer) but I am seeing more companies moving to US to seek faster adoption in the early stages.

By B2B (Business to Business) I mean companies that sell to other businesses, either small or large. There are enough documented issues selling in India to businesses, some of which include:

1. An extreme focus on cost by Indian businesses, which results in much lower (or non-existent) profit margins.

2. The inability to find good, trained sales professionals

3. The “request” by many “decision makers” to be paid a kickback, which if not paid, results in unpredictable sales cycles

There have been many company founders (OrangeScape, InterviewStreet, Mobstac, etc.), who all started in India, sold to their first few business customers here in India, but have now either moved to the US or are focusing on the US market alone.

Besides the fact that early adopter companies are largely there in the US, many or all of the issues listed above tend to go away bringing mostly issues of upfront investment on sales resources as the primary barrier to a US only distribution strategy.

So what does this mean for new entrepreneurs looking to start B2B ventures in India?

1. Dont. Seriously. Find easier and more fun things to do than sell to Indian businesses (This is a personal opinion alone).

2. If you still insist on doing that, get an awesome sales director / manager from a kick-ass company to head up your sales efforts sooner rather than later and help create a detailed training plan to hire, train and manage new sales professionals.

3. Look to partner and ride an existing distribution channel that exists. Tally has an excellent list of re-sellers / partners who you might want to talk with.

One last thought – Entrepreneurship is hard. Dont make it harder by choosing a distribution strategy that’s even harder.

 

How to choose the right incubator to fuel your entrepreneurship goals?

A big trend I have noticed in the last few months is that almost every Venture Capital (VC) company in India is looking to either invest in or build an “incubator”, which can help early stage entrepreneurs. There are already several of them in India, including Morpheus, The Startup Center, CIIE at Ahmedabad and others. I would imagine that by December of 2012, we will have at least 10 very well funded incubators all looking to guide, mentor and help young entrepreneurs through their initial stages.  This will go a long way to help the startup ecosystem in India.

The flip side to this is the amount of choice that startup entrepreneurs will now have. I can easily see many entrepreneurs spending days and months trying to figure out which incubator is the best for them. The answer to the “right one” depends on multiple criteria including your background, what space you wish to build a company in, how big do you wish to build your company into and other related factors. Outside of these criteria, there are others that are dependent on the incubator itself.

Most Indian incubators offer a combination of some cash and mentorship in exchange for 8%- 12% of your company. Some incubators require you go to their office location and spend 3-6 months with them, yet others will prefer you stay at your own office / location. Some do offer design talent, technical resources, and others offer a bevy of informal advisors.

So how does an entrepreneur evaluate incubators? I decided to put together a simple (not comprehensive, initial cut) spreadsheet of the list of things to consider before you decide on your incubator. I would imagine an entrepreneur would use this sheet to write down things that are important to them in an incubator by and then rank their choices by their evaluation of each incubator.

While I personally believe the top 3 criteria are (a) ability for the incubator to help your company gain momentum (customers, hiring, resources, etc), (b) ability for the incubator to help you raise money and (c) quality of the network the incubator possesses which provides you access to other entrepreneurs, venture capitalists and resources that you might need to scale.

Here is a simple spreadsheet I put together and if you believe you need to add more criteria, feel free to drop me a comment on my blog.

 

# Criteria Notes Importance Incubator 1

1

Background of the incubator founders This is the most critical factor. If you have incubator founders, who have not successfully built and sold companies before, then it’s a warning signal.
Do they have an entrepreneurial background that’s proven?

2

Amount of capital the incubator has raised Not very relevant, but it gives you a sense of how many companies they might fund

3

Number of companies in each batch Fewer companies in each batch is usually better because each company gets more mentorship and time with the incubator executives

4

How many companies have they funded so far? This gives you a sense of their track record as an incubator.

5

How many of their companies got follow on investment? This is another critical metric for most founders. You are going to an incubator for experience and help with funding. If most of their companies do not get follow on funding, that’s not a good sign

6

How deep is their network of venture and angel investors? You want to understand the relationships the incubator has with follow-on investors so it makes it easy for you to raise the next round

7

How good is their existing portfolio of companies and their founders? The existing cofounders of their portfolio company will be great resources to network and advice

8

How much time do they provide to each company per batch At the early stage you need a lot of time with the mentors on all aspects of the business. If their time is unavailable then the value of the incubation is limited

9

Have they successfully helped a company grow in your space? Its important to see if they have a portfolio company in the same broad space as yours. For e.g if you are an eCommerce company, look for others they have funded so they know the issues and can help you early to avoid obvious mistakes

10

What is the deal offered? How much money will they give you, what % of your company will they take from you are important parts of the structure

11

How long is the program? Most incubators have 3-6 month programs, which should give you enough time to get your company to a seed / series A stage of investment

12

Can you work out of your office or do you have to relocate to the incubator’s city / office? Some of the incubators require that you move to the city where they HQ are located so you have access to their resources, others will let you work from your own office

 

How hard can it be? Underestimating the problems your startup really solves

I had a good friend who was deploring the state of payment gateways in India. As someone that has dealt with Times of Money (DirecPay), EBS, CCAvenue, HDFC Bank, ICICI, Citibank and Axis Bank, I can attest to that pain. Its amazing that the state of payment processing is so arcane and filled with issues.

The issue is not just one of payments BTW. I constantly hear people complain about lack of a very good “X” in India. X could be a angel investors, incubators, bloggers, engineers, <fill-the-blanks>.

Problem is most people actually underestimate the effort required to build quality and consistency. What you see in the payment gateway is a simple set of forms that accept a number, check if its valid, authorize it and return an accept / reject status message.

The “behind the scenes” is painful. The multiple layers of the onion that you have to peel are the ones that really  are painful. So most superficial jingoism that starts at the front-end of the startup fades when the real pains come to the front. Which happens in the first few months.

Which is the main reason most startups fail within the first year.

How can a hacker ask for startup advice so they get the most value?

The last few weeks I had the opportunity to talk and chat with several (engineer) entrepreneurs who were in various stages of their company. While most entrepreneurs are fairly clear and specific on the problems they are facing, a few are unable to clearly articulate where they could use help or advice. There are several “categories” of  questions and issues that an entrepreneur has. Some questions are procedural – “how do I do this”, others are “introduction”, still others are “transaction-al”.

The most difficult ones for both parties are the “What should I do?”.

Any mentor / advisor will not have enough context (regardless of how much time they spend with your company) to help you by giving the “right answer”.

For these class of questions there is really no right answer.

The right answer does not exist because it comes down to what the entrepreneur wants to do. What she is comfortable with, what her biases are and what her motivation is.

The only thing a good advisor can do is to provide a “framework” for your question.

The only other thing an advisor can do is to give the entrepreneur confidence in herself so she can best utilize the framework to her benefit.

A simple way to think about the “framework” is a set /series of “if-then-else” statements, with <then> and <else> colored with the advisor’s experiences.

E.g. When faced with this issue like <a>, I responded with <b>, but the alternative is <c>.

So, if <you believe “a” is true> and <you also think “b” will happen> then <you should do “c”> else <the other thing you can do is “d”>

The framework is not just one if-then-else. Its a series of them.

Can it be that simplistic you ask?

Yes. That’s it.

The best advisors / mentors listen and ask a lot of questions, with each answer leading to more questions. The questions are to help the entrepreneur think, not for the advisor to assess.

So the next time, as a hacker you are looking for some advice on a question “What do I do?”, then remember to keep a note of the conditional construct.

P.S. For those that know me as a hard-core sales guy and nothing else, I did study DES based cryptography algorithms under Dr. Sherman, who I am sure is absolutely disappointed that I ended up a sales guy in a tech company.

When there’s so much conflicting startup advice, why even bother reading?

For every piece of startup advice I have read, I have also read a counterpoint.

Mark Cuban says dont hire a PR firm. Paul Graham says hiring a PR firm was good.

Naval says find a passion market fit. HBR says passion is overrated.

Raise money from VC’s. Only bootstrap.

And I could go on.

So if you are looking for an “answer” you are going to be disappointed.

The best you can do is treat these posts and advice as a guideline or a recommendation.

No one knows your situation as well as you do. No one understand the intricacies of your business, challenges and customers as you will. So, the best advice I have ever heard (I unfortunately forget who told me this) was to develop a set of filters.

1. People filter – This filter applies to who you think is your “role model” or “ideal advisor” or mentor. This filter applies to both people you want to listen to and those you dont. So if you are looking for a mentor or advisor, apply this filter first and get people who you think you can take advice from without second-guessing their intent. You can get second opinions on their advice, but questioning their advice at every step will be counter-productive.

2. Expertise filter – This filter is for specific advice on topics – legal, finance, fund raising, etc. Get advice on these items from “experts”.

3. Context filter: This filter applies to how to apply which advice based on your context or situation. This is best done with folks within your company.

Most advice though, however well meaning is specific to the situation and a guideline. After all if you dont apply your own expertise, know-how or values to them, what good is that advice?

Startup Idea validation: How many people; how long before your idea’s worth pursuing?

Lets say I have an idea. Actually 3 different ideas I want to pursue. My next step is to get validation of that idea. The top 5 questions that I am looking to answer are (not necessarily in order):

1. Is this a real problem? (Pain point validation)

2. Is what I am trying to do solving the problem? (Product – market fit validation)

3. How much of a problem is this for the person who I am providing this solution for? (Customer validation)

4. Will people pay to have this problem solved? If so how much? (Pricing validation)

5. Is the problem big enough that I can make a large company out of solving this problem? (Market size validation)?

So the question is how much do you have to get validation for these questions until you decide to pursue it?

One approach is to actually develop, have customers pay and let the market validate your idea.Which is what was suggested by a user at HN.

The approach I am going to suggest is more measured and less expensive than actually developing the solution before you figure out if that’s the right idea for you to pursue. It involves talking to customers / prospects or even putting together a simple SEM campaign to test the idea out. I think many might say that’s not a new idea, but I dont see over 80% of startups doing this.

That’s way cheaper than time or resources to build your idea to a real product. At some time you have to build a real product and there no denying that.

First I would make a target list of 20 people – 10 who are potential customers who have the same title of the person you believe has the problem you are trying to validate. If you are a consumer startup, that might be the target audience of users who might want the product / service you are building. If you are an B2B company, look for the right title of buyer.

The list should include 5 potential industry experts, who might understand the nuts and bolts better and 5 “laymen”,  or those that have not much of an idea about the intricacies.

Is the number 20 enough? Maybe, not, but its a start.

Then prepare a one paragraph elevator pitch explaining what the problem is, and how you are going to solve it. Email it to your list and track their feedback.

Then try and get prospect validation. This is because people who know you might either a) not want to discourage you, and so give invalid answers, or b) might not understand the solution well enough to provide valid feedback.

I would setup Google adwords campaign for the keywords you think people will most likely click on. If you buy a domain and hosting from Godaddy or some other providers you even get $100 adwords credit, so there’s no excuse.

Create 3 different pages with your multiple campaigns and call to actions, and have a signup sheet (this is your call to action) for each. Track and categorize results. In each of these pages, provide a screenshot of your product / service you are trying to develop.

Wait, you think, wont this give my idea away and attract more competition. Sure, I think it might, but more likely, there’s competition already and you are just not aware of it yet is my answer. Or if there’s no competition, is that not a signal anyway?

Are you celebrating your milestones enough at your startup?

Celebrate
Celebrate all the little things

I had a friend who invited me to his new “office warming” party the other day. Unusual, but fun. It reminded me of our own office “warming” party at Jivity several months ago.

Side note first: If you are like most Indian entrepreneurs, you mom has a big say in the matter (so do most relatives, uncles, aunts and others). First was the date I should sign the agreement (has to add up to 9 was my mom’s advice), then the date I should move in, where I should sit (face East, the sun’s rays should first hit the CEO’s desk! yes, you laugh, but that’s what I was told). Did I really care about all these astrology / numerology and feng shui (Vaastu for us Indians)? Mostly no, but my mom did and mom’s always get their way. Anyway, I digress.

Back to my friend, though, who asked me “How often should we celebrate and what should be celebrate”?

There’s a really simple answer to that – “Very often and anything you believe is something to be proud of”.

That does not mean you break open the champagne every day or take the team out for a 7 course meal each week, but most startups dont celebrate achievements enough.

There are 3 important things celebrations do:

1. They cherish those moments of fun and accomplishment – these are then passed along to all new employees as “folklore”.

2. They help put together shared experiences which helps you tied over the Sine-curve of emotions at your startup.

3. Most importantly though, they reinforce achievement. However small.

Most startups celebrate only the “major” accomplishments – funding, customer wins, new office space,  end of the quarter. Or if you are in India, Diwali, Holi, etc.

The amazing part is there are small milestones you can celebrate daily. I am going to make a short list and please add your own in the comments below.

I put these celebrations into categories: Product, Hiring, Finance, Sales, Customers, Admin (or Operations), Marketing, etc.

Within each of these categories you can have multiple celebrations. For e.g:

1. Product – mockup ready, alpha/beta/version 1 ready, demo ready, etc.

2. Hiring – first employee offer letter, first (or 10th, 20th any number really) employee hired, etc.

3. Finance – funding from angel investor, adding members to the advisory board, etc.

You get the picture.

Here are some more examples!

1. Name resolution from ROC – Yay! The name you wanted for your company is actually available! I suggest going to your local print shop and getting the name typed in gold print & a certificate embossed.

2. Signed up your first advisor – Bring the advisor to meet your team and get everyone lunch. The person who asks the most questions, gets to drink beer. Rest have to drink water.

3. Got your company incorporated. Make 15 copies of you MOA and AOA. You’ll need it! Even the person that serves you tea and coffee in India wants a copy of these in paper!

4. Got your domain registered and website launch page is up! I am told the launch page being up is the most legit you can get early on!

5. Your first mockup created on the back of a napkin. Take multiple photos, get them printed so you can then hopefully sell them on eBay when you get big.

Celebrate more! Have tons of fun and please invite me to the party.

How to survive the sine-curve of emotions at your startup?

I have mentioned several times that working in a startup is like a sine-curve, or a roller-coaster rider. Its multiple ups and downs every hour, day, week and month. It takes a special kind of maturity to handle them as they come and not lose focus of your goal or the near-time milestone. I have tried to share some of the things we did in my previous companies and would love to hear what you guys do to handle the ups and downs.

The thing is, the ups are easy to handle, (that was obvious wasn’t it?) but the lows are make or break. So here are some things that might work for you to handle the downs.

1. Choose you favorite videos / songs and create a YouTube playlist for you and your co founders. Since  I love Dire Straits, Why worry now was part of every playlist and so was The bug.

Funny story: Our office was on the top floor of a building, and the owner “lived” in the first floor. Mid-week after a particularly bad meeting we “synchronized” our laptops to play some music and pick our spirits up. Turns out it was too loud, so our owner’s 60+ year old father trudges up the stairs to find out what’s going on. He saw a bunch of us doing some kind of really bad jig (when were engineers ever good at dance?) and ended up “showing us” how to do it right. I cant remember when we laughed so much. We recorded him making some “good moves” and posted it on our servers as a pick-me-up every week.

2. When you are doing demos with a client, record them by using Skype. Then keep the recording of the best feedback and save them so you can listen to feedback that’s a positive reinforcement.

3. Create your own holiday in the middle of a bad day/week and take many photographs. Post these photos on the glass of a few windows where you can see them daily.

Funny story: Summer months are awful in terms of holidays. There are so few of them that its not even funny. Adding to the misery was the incessant heat and the fact that most kids were out playing while we were working. So we created a mid-week holiday, where everyone in the team had to identify the top 3 places to eat in their neighborhood. The company would pay for them and their significant other’s breakfast, lunch and snack. They could take the day off and spend it recharging themselves and eating at the places they love.

4. Take photos of your first customer order or all your positive customer emails. Then print the photographs or emails them and paste them up on your kitchen area or conference room

5. Pick a favorite restaurant that the team likes which is fairly close (could even be a Baskin Robbins or Subway) and celebrate those down moments by eating out with the team.

What do you do to manage the sine-curve?

What valuations are early stage startups seeking in India ?

We (@vinitaananth and I) got 264 requests for funding in 2011. Of those we met with about 50 companies and ended up funding 3 (we lost out on 2 companies, one because of valuation and another because of mis-communication) . The companies were from across multiple categories including SaaS, eCommerce, Mobile applications, education and hospitality.

The number one question I get from entrepreneurs is what is the valuation I should expect at the seed round? Second question – “Is there a formula or spreadsheet that I can calculate my valuation”?

As many people might have told you already, there is NO standard formula for valuations. None whatsoever. I wish there was. There are several methods or techniques people use to get valuations, including

(a) # of engineers – mostly in cases where there are all star engineers from IIT / Google, etc.

(b) market size

(c) revenue multiple (if applicable)

(d) forward revenues and

(e) made up on-the-fly and pulled out of thin air.

If I had to guesstimate the % of times these different techniques are used, I’d say 80-90% are of type (e) – grin.

Of the 50 companies we met, we got to talking numbers with 20+ of them. Bear in mind these were all types of companies. There were 4 distinct buckets of valuation that we saw, and it was regardless of traction, product, market, etc.

1st: was valuation of 1 CR ($250K), – this was typically 2 people with an idea and early prototype, looking to raise about 10-20L ($20K – $40K)

2nd: 1 CR to 5 CR ($250K – $1M), – typically SaaS & education companies with 1 founder, looking to raise about 10L – 50L ($20K – $100K)

3rd: 5 CR to 10 CR ($1 M – $2M), looking to raise between 40L – 1.2 CR ($90K – $250K)

4th: greater than $2M – this was typically company with customers & some traction/revenues, many eCommerce companies were in this bracket, and they were looking to raise anywhere from 1.25CR to 4 CR ($500K – $750K)

As expected, the number of companies seeking higher valuation were few. We saw 8 companies in the first bucket, 7 in the second, and 4 each in the remaining 2 buckets.

As you can also see the implicit assumption is that the expected ownership of company to the seed investors was going to be about 10%. I have hear horror stories from many entrepreneurs that some angels were asking for 20-30% of the company at the seed round, but I have no way to confirm that.

Caveats: This is only one investors view, limited data set and is across multiple categories and sectors, but gives you a view into some of the numbers startups are asking for, YMMV.

P.S. The companies I actually funded dont want me to share either their names or numbers, so I apologize for being opaque on that. I dont get it, but sharing of data and information by a lot of Indian entrepreneurs and investors is limited to non-existent and leaves a lot to be desired.