“To turn a powerful idea into a successful business - Forget, Borrow, and Learn.”  [Bolds are  mine] Authors Vijay Govindarajan and Chris Timble in the Ten Rules for Strategic Innovators: From Idea to Execution.

“Forget assumptions, mind-sets, and biases from the traditional core business, because a new business (as opposed to a business extension) must be fundamentally different from a company’s traditional core business. Borrow assets like existing customer relationships, distribution channels, supply networks, brands, credibility, manufacturing capacity, and technological expertise from the core business, because those assets confer a significant advantage over entrepreneurial startups. Learn to make ideas — some of which may not be new — work together in ways that are fresh to your industry. And learning quickly minimizes the time to profitability, lowers risk exposure, and maximizes the chance to overwhelm the competition.”

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Very well said.  There is always a hangover from an earlier something that we unconsciously inherit and implant.  So long as it is a perfect overlay (say accounting method, inventory control or even a security system), it doesn’t matter. But mostly we inherit a lot of practises from the past unrelated business that is ill-suited to the new outfit. 

I have experienced it.  I was working for a family owned full service media & advertising outfit where the management consisted of two sons and the father.  The sons had developed the business along the modern methods and practises.  But the father, coming from sugar industry took charge of HR and Administration and started running it like he did the blue collar workers in a rural sugar mill.  Soon the geezer became the butt of all jokes in the office (even the chauffers ribbed him). But the major downside was that the agency lost quite a few good people that found him way too meddlesome - including a few top dogs. 

Have you had similar run-ins with such dim stereotypes?

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My PE / VC consulting business is coming off age.  I want to make a difference just like you.

My take on Indian I-banking industry can be found here, here and here.  If you think like me and have put in over a decade in the industry, you know what I mean.  The markets are a lot sober now and deals are harder to come by because owners think their businesses are undervalued.  Now is the time when well intentioned and innovative deal structures (not far removed from the realm of common sense) are to be put to work.  The excitement and the reward are ours, up for grabs.  

So, I am about to enter my next phase in business.  My boutique proprietary business advisory (PE/VC consulting) outfit is maturing into a full blown business model and I am about to hire the best in business.  The entrepreneurially inclined, battle hardened I-bankers and operational whiz kids that have resurrected many a badly mauled, terminally ill enterprise.  [Not for me the 0.001% fee based deal making.  Leave those crumbs for the rats!] 

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Would you like some piece of action?  You think you’ve got what it takes?  Namaste. Welcome aboard! 

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Get a hang of it here. 

 Run your mouse over the links below and just click to read my other recent posts.

Not alone, not at all

Buying a shell calls for skill

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“Can we restart our lives?”

Who doesn’t wish that?  Not the balanced amongst us can claim we’ve led a perfect life.  There could’ve been instances where we had badly screwed up that we wished we could go back in time and fix it.  If it still impacts your life, you crave for that fix all the more.

That’s when we say “How I wish I could restart my life?”

May be you cannot.  But you certainly can recognize the irrationalities that led you to those mistakes.  Here’s a good post that I’ve come across at marcandangel. 

Money quote –

“…Irrational thoughts occasionally occur in the minds of all people.  Intelligence does not make someone immune to irrational thought.  These thoughts typically clutter our minds with feelings of resentment and distaste. 

Here are 10 irrational thoughts that rational people often fall victim to at one point or another:

1. Mistakes are never acceptable.  If I make one, it means that I am incompetent.
2. When somebody disagrees with me, it is a personal attack against me.
3. To be content in life, I must be liked by all people.
4. My true value as an individual depends on what others people think of me.
5. If I am not involved in an intimate relationship, I am completely alone.
6. There is no grey area.  Success is black and failure is white.
7. Nothing ever turns out the way you want it to.
8. If the outcome was not perfect, it was a complete failure.
9. I am in absolute control of my life.  If something bad happens, it is my fault.
10. The past always repeats itself. If it was true then, it must be true now.”

So Just don’t be despondent.  Spot that irrationality when it occurs to you next time and just shrug it off. You’re going to be alright. 

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My constant carping on the irrelevance of traditional B-School education found a great ally in none other than Joel M Podolny, Dean and William S Beinecke Professor of Management, Yale School of Management.  Money quote -

“… The Internet, the 24-hour news cycle, the popularity of social networking, and almost instantaneous ‘on-demand’ access to knowledge have all contributed to a significant shift in the mindset and the learning process for the 20-somethings now entering our MBA programmes…..New methodologies and new approaches to MBA pedagogy that more accurately reflect the demands of the contemporary work environment and the realities of the current MBA student population are urgently needed.”

My line of business brings me face to face with several CEOs, COOs and all CXOs – all B-School grads - but most of them lose interest if the presentation is innovative or even slightly deviating from the template they’re used to.  I give them a simple ratio analysis or a balance sheet projection (the old stuff) together with post event capital structure, they are doubly happy to cut my check.  I try to give a bit of ancillary industry comparison or a new revenue line, they lose the picture.  Recently it happened with a NLS/AI startup focusing on Mobile Apps. I found use for AI in web analytics being developed by a CRM client of mine, they kinda’ gave a cold response. Perhaps, they marked it “off-priority”.  Well, I am happy for the check part. But I want to do more justice, make clients see hidden opportunities – but they won’t let me.  Just do so much types.

The world didn’t sit up when I cried out.  Now the Dean of Yale says it, I hope some of them will

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Kiruba bemoans in BS – why CEOs don’t blog?

He cites reasons like fears of blurting their hearts out, reprisals by readers to simple strapped for time.  Those as appear on the surface.  Not all are Lou Gerstners and Jack Welches.  Don’t even come a thousand miles close.

Let me amplify. How did he miss out on the typical CEO fear – of exposure of personal inadequacies, inferior intellect, analytical skills. Many CEOs run on the steam of excellent teammates. Individually they shine in the reflected glow of star teams.  Most are bad articulators. Many are great pretenders that lucked out and just get by.

Yet another reason is their priorities. A professional CEO is bent on spending 3-4 years in a company, appear in the media on some silly pretext (boss’s day out? It’s ok even if it means having to walk with an androgynous, plain chested, walking stick of a reporter appearing to play Golf) and wait for the head hunter to show up with the next nest to perch, next bunch of shareholders to con.  Who wants to blog? Why bother (and run into trouble)? 

CEO spends about a couple decades like this and move into (what else?) Private Equity firms.  Where you can squander other people’s money and get paid - generously.  Those that are destined to be team members slug it out, wilting and brooding over their lost opportunities that get usurped serially by the lousiest of the lot that just happened to be the luckiest bastard in town!

Says Paul Williams of Marketing Profs -

“Marketing programs fail because we don’t think through what it actually takes to make a new product, service, or store opening exciting and relevant enough to attract attention and motivate action….

We’re so wrapped up in our own excitement we develop a “if we build it he will come” mentality, losing sight the average customer really doesn’t care about our new thing… especially not enough to attend the ribbon cutting.

So that’s our problem… What are potential solutions?”

To make it “cross the threshold from ho-hum to possibly exciting to a can’t miss event,”…. Paul suggests a few broad hints.

Host the event at a time when (s)he could easily attend. 

Those nagging flyers under the wiper don’t fly with people. It bugs them no end especially if they are in a hurry when this flyer becomes an eyesore.  Neither does print ads, direct mail bring in attendees.

Special offers?  An year of free subscription to those who attend the launch? Seems it will work. 

So communicate in a way that gets peoples’ attention.  Deliver some value upfront.  Be relevant enough for potential customers to set their alarm to attend the event. 

So when are you launching your designer jewellery store?  What’s up on offer

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Asks Fred Wilson.  Fred contends that the IPO market has been languid since 2000 and to sustain the current pace of innovation financing, VCs need a new route to exit their investments. M&A have lost momentum. The acquisitions by Google (YouTube, Feedburner), Microsoft (Facebook), AOL (Takoda) and Yahoo (Del.icio.us, Flickr) have flailed post acquisition.  Soon this window too will be shut.

So Fred suggests a new path to liquidity.  I quote –

“This topic came up in the comments to my Decline of the Firm post and one thing that was mentioned is Goldman Sachs’s GS True market. As my friend Roger Ehrenberg (author of the awesome Information Arbitrage blog) explains on Seeking Alpha:

But now there is a new game in town, and it relates to IPOs: Goldman Sachs’ (GS) GSTrUE (”GS Tradable Unregistered Equity OTC Market”) program.

It turns out that there is another private liquidity market under development called Opus-5.

The idea behind both of these new emerging (and currently illiquid) markets is to provide a place for private equity investors to trade securities with each other. The companies remain private, do not have to file with the SEC, and do not trade daily like public stocks do. When an entrepreneur or investor wants liquidity on a position they own, they come to these private markets, offer their position or part of their position for sale, and a trade is made.”  (Hat Tip : Narain)

Huh, is that so simple?  I see some basic flaws in such private exchanges.

a) Signals despair : Private exchanges have no market makers; and hence no two way quotes. The very fact that a VC investor is putting up his stake for sale declares (a) the investment has turned bad; or (b) the investor is in a hurry to exit. There is only an `ask’ and without a counter `bid’, VC has bared all her cards. Out goes her bargaining power.

b) Disillusions founders: Founders look up to VCs to provide them strategic support, connections and mentoring. If VC stakes change many hands, the founders lose orientation and may even stray. They feel they’ve been taken for granted.

c) Tax treatment of Income : Trading thro private exchanges meant for a special category of investors like VCs will make them ineligible for concessional tax treatments (capital gains / business income) available to traders in public markets. Proceeds from such divestments may get treated as windfall / speculative income – that could suffer far higher rate of tax.

d) Cartel plays : It is possible for a group of high networth investors to get together and indulge in price manipulation or badger a VC into submission. All they need to do is quote their bids in unison with a time stamp. Take it or leave it.

A better way I think, is [to let VCs like Fred not have post-selloff remorse] is “stock warehousing”. VCs can found a platform with high networth investors and build a fund that offers liquidity in lieu of stock placements, with a promise to take them back at a later date at a pre-determined price. Just have a neutral body for valuations. VCs get liquidity, they don’t forego control and the business is run as usual.

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One reason why VC firms earnestly look at deals that I drive is not just their faith in my level of competence, scrupulousness and fussy due diligence initiatives; they come with “I-know-the-entrepreneur” stamp.  Ho-Hum, how does that matter?  Read this.

Some of my favorite principles in screening deals –

a.   Premium on experience – I avoid teams that has just youthful enthusiasm.  I would any day place a premium on experience.  A venture backed by a mature team that has deep domain skills and expertise is always, always better than a bunch of upstarts with hollow passion.  The youthful team may certainly have some `cool’ quotient about it, but I would settle for teams that have a higher chance of hitting big time.  Youth loses its cheer after first few setbacks that can’t be wished away; experience is more resilient. “It’s my investors’ money on the line; that’s as good as my own.”

b.   Fee Filter – “Can’t afford $2500?  Don’t suck up.” That’s pretty much in-the-face, right?  I wouldn’t have it any other way. Teams that start up with scanty bootstrap will not survive to see beta, is what I think. No point in wasting precious time with teams that want `FREE’ consulting; “brainsuckers” as I call them.  So I quote my engagement fee upfront that gets rid of a lot of milk babies and some nags. Most beavers don’t ping back (and serious teams do sign up).  Seldom do they get far in their venture if they can’t engage a $2500 independent professional to scan their faint idea, vet up the opportunity, run viability checks, beef up with industry survey, forge out a sound business plan after several rounds of brainstorming and vouch for the team before connecting them with an investor that has a fair grip over the domain.  “All of this costs money, pal. So, call me only when you’re ready.”

c.   Technology that sells – Most founders begin with a big fuss over their technology.  Scratch the surface and you’ll find that it is the 25^th idea with the same theme.  I tell them openly it’s of no use unless their business model screams customers. Keep your tech to yourself; give the customer a sexy application that rids him of worries, costs and complexities. “Does your tech do something of the kind?  Then let’s get talking.”

d.   No investor bets on vaccum - Technology business is not loaded with physical assets to salvage sunk capital. No large swathes of land, building or fixed assets as in a standard manufacturing operation. The big bet is on the juicy idea and execution skills of the team.  If your project is meaty on these lines, you’re sure to get funded as well. I don’t mince words. I advise them to save up, start something small and then pitch for the next big thing.  “Do yourself a favor; stick with that sucky job.”

e.  Track record – “How many deals have you closed?”  This question makes me smirk.  You don’t close startup deals with investors as fast as you do large Private Equity deals.  PE deals are closed faster because it is done with listed companies that have a track record. To that extent, the risk is limited. Investors get to control a real business. They can replace the sloppy CEO with the best-of-breed that can turn fortunes around. But startups are concept bets. They take time to mature, undergo cycles of refinement that makes the diligence process tighter and hence, tardier. I don’t let them pitch unless I am satisfied of their pitch worthiness. Then investors come up with their own set of observations that make them go back to the drawing board.  It’s an iterative process.  It’s gotta’ be, because in the end somebody is gonna’ put his money on the line.  “Remember, your parents refused to bet their farm!”

f.    People traits – I co-habit with the founding team for quite a while when I prepare them for the pitch.  It helps me in getting to know them personally upclose.  That awareness is essential since it yields early clues into their lifestyles, habits and attitudes which are equally important to an investor as are their domain strengths.  “Can I trust this team with my capital?“  I realize it would’ve been yielding fair returns elsewhere and I’d better give them a good reason to take it out and invest in a startup. If you move closely with the team and influenze them positively as much as I do, you most likely will get the answer - “Trust them with the best you’ve got.“

So now you know why investors don’t trash the deals I drive; why fewer deals qualify!

Kevin Roberts, CEO of Saatchi & Saatchi zigs when others zag.  No one knows what he’ll do next. 

The legend has it that while during a presentation in Canada, he took a machine gun and blew up a coke vending machine to prove to his employees and bottlers that Pepsi can go past Coke!  He is also the author of the book Sisomo – that is about Sight, Sound and Motion.  He is credited with coining a brand attribute – loyalty beyond reason – that he famously called “Lovemarks”.

Some gems from this K@W interview –

“Yoshi Suzuka, who ran Toyota for a decade, said to me 10 years ago, “Kevin, you will never know more about cars than Toyota — and we will never know more about the people who buy them than Saatchi & Saatchi.”

Companies like us now have to become very, very close to consumers. That’s complex because every consumer is different. So the whole mass reach and scale thing is gone. It’s complex because information and knowledge are now pure and simple table stakes. You will send the MBAs out of here. They will be fully equipped with information. They will be very knowledgeable about how to use it. Harvard will do the same, Stanford will do the same … they will focus very hard on information and knowledge.

What will win in our world is using those vital table stakes quickly, but then developing insight and foresight. You can’t get insight and foresight from data and from analysis. If you want to know a hell of a lot about lions, you better go to the jungle and not to the zoo. So, you’ve got to figure out how you can empathetically have the insight into consumer behavior and then have the creative foresight to do something about that before the competition. [Steve] Jobs and his folks are very empathetic.”

You can’t get much better than that!

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