Archive for the ‘New Venture’ Category

Funeral’s better than life support

February 23, 2009

I’ve often wondered why don’t they funnel stimulus funds to Greenfield projects than resuscitating the dying gorillas.  My argument – it’s lot more productive because it saves time (no wounds to heal) and money (no clean-up cost, no claims from the past). It saves jobs as well because trained workers can be re-hired at lower wages because of their huge supply.

But I needed an ally before I could air my views. Today I found one in Tom Friedman.  Excerpts –

“Bailing out the losers is not how we got rich as a country, and it is not how we’ll get out of this crisis…When it comes to helping companies, precious public money should focus on start-ups, not bailouts…If we are going to be spending billions of taxpayer dollars, it can’t only be on office-decorating bankers, over-leveraged home speculators and auto executives who year after year spent more energy resisting changes and lobbying Washington than leading change and beating Toyota…Our motto should be, “Start-ups, not bailouts: nurture the next Google, don’t nurse the old G.M.’s.

Our country is still bursting with innovators looking for capital. So, let’s make sure all the losers clamoring for help don’t drown out the potential winners who could lift us out of this. Some of our best companies, such as Intel, were started in recessions, when necessity makes innovators even more inventive and risk-takers even more daring.…they will drive innovation in all these areas — and move wind and solar technology down the cost-volume learning curve so they can compete against fossil fuels and become export industries at the “ChinIndia price,” that is the price at which they can scale in China and India.

That is how taxpayer money should be used to stimulate: limited financing, for a limited time, targeted on an industry bristling with new technology start-ups that, with a little push from Uncle Sam, won’t just survive this crisis but help us thrive when it is over. We need, and the world needs, an America that is thriving not just surviving.

Thank you Mr.Friedman. You nailed it – well, almost !

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A little off the VC plate

April 18, 2007

This is a sort of follow up on my recent post in my other blog. 

I found this nice article in Matt Marshall’s Venture Beat, where they had asked Ryan Floyd, venture capitalist with Storm Ventures, what the traits are of the most successful entrepreneurs he’s backed.

Ryan is apparently a climbing enthusiast, going by the mountaineering metaphors that he has liberally quoted. Quite apt, I thought since startup entrepreneurs life can’t be compared with nothing else for its arduousness. I sensed the delight that was in store for me from the word go, as I read Ryan’s opener “I am not sure there is a stereotypical entrepreneur right out of central casting”.

Some gems from Ryan’s piece – 

On determination and commitment“It can be a roller coaster ride for even the best funded companies. When companies are small, the risks and challenges are tremendous and it’s easy to get discouraged. To expect to grow a company without these obstacles would be a fairytale. Entrepreneurs and founders need to have the gritty determination and commitment to succeed no matter how high the hill”. 

“Commitment [to entrepreneurs themselves, investors, employees] is beyond passion for a project or idea. It’s about knowing that failure just simply is not an option”. 

“Up until several years ago, I spent a significant amount of my free time climbing in Yosemite. The concept of commitment in climbing is very analogous to a start up. Once we were on the wall we were committed regardless of weather, injury etc., especially on multi-day routes. We had to put 100 percent of our emotional and physical energy into being successful because, as climbers will tell you, usually the first instinct after going up a wall is to immediately want to come down. Living with gravity has that effect. With startups, many smart people will tell entrepreneurs and founders that they won’t be successful, the bigger companies will crush them, etc. The great entrepreneurs listen, reflect,and keep climbing”.

On Intellectual honesty and integrity“While some may believe that intellectual honesty is in conflict with passion or belief in an idea, I think that the greatest entrepreneurs find that constantly questioning their assumptions and maintaining a healthy dose of paranoia about competitiveness and value creation pushes individuals and organizations to achieve more with confidence. It also helps to make the never ending small course corrections in a business that lead to success”. 

On need for domain expertise – “One of my partners once told me that when he walks out of a board room and feels as though he knows a lot more about the business than the team, he knows he is in trouble. Many entrepreneurs reading this may find it comical that a venture investor could resist trying to prove he or she is the smartest person in the room. The best entrepreneurs I have worked with always make me feel like I am the one trying to play catch up. Entrepreneurs and founders should make it their business to know more about the individuals, the competitors, the customers etc. that make up their industry than anyone else”.  Notice the humility and reality perception here, hallmark of a great VC…! 

May be it is not an exhaustive list as confessed by Ryan for having left out traits like leadership, ability to build a team business experience, prior successes, or the ability to understand their customers and deliver a compelling product or service.  But I liked the narration powerful and hard hitting.   

I enjoyed the read. Hope you did too…!

Try the next cool thing instead !

April 12, 2007

I have often found startup entrepreneurs claiming “we want to be the Amazon in ……..space, we will be the Google in …….space” etc.  Modeling businesses after these success stories are alright so long as the desire to replicate does not crowd innovation out, which is the holy grail of startups that earned them that distinct reputation.   

The advantage of being a startup is that you don’t have too many rules to follow or approvals to take for doing what you think is right.  The freedom liberates you from constrictions, results in creativity that is the springboard of innovation.  When you are conscious of your thoughts and actions every moment, you will never slip into forming judgments. You simply don’t need to do what Google or Amazon did to succeed.  Why not be a benchmark yourself at something new instead of building the  brand equity of others ? 

The trouble with being judgmental is that our preconceived notions distort actual vision of life. When all our thoughts are centered around a predisposed state of mind, we see only what we wish to see or how we want them to be instead of how they are. We modify facts of our observation to suit our perception.  To relate it to a daily event, when we meet a person, we form a judgment about the person and then we collect facts that support it ; those which don’t conform are rejected.  Clearly, the casualty here is objective assessment.  That’s why being judgmental sucks.  

I often learn a lot from kids.  Kids never have fixed ideas about life or how it ought to be.  That’s why they are always cheerful and full of smiles.  All things are new for them and never take anything for granted.  They live fully every moment and they fear nothing. They don’t look at other happy kids to delight themselves. They give themselves joy by accepting things around them as are.  It’s ironic and indeed sad as we grow up, we trade a lot of useful natural instincts in for acquiring all that junk.  

While forming the startup idea, drop all your prejudices and opinions and look at the problem that you wish to solve. Find out what’s wrong with the solutions that already exist or what could be done to improve upon it. Analyze the pain points of users of a bad product or service and learn from them how they wished it were. Soon you’ll understand a thing or two about user perception and will tend to design only things that are user friendly.  

I don’t mean you stop marveling at yesterday’s heroes. It’s your turn to build the next spectacle for the rest of us !

Commit to excel

March 22, 2007

“Until one is committed, there is hesitancy, the chance to draw back, always ineffectiveness. Concerning all acts of initiative and creation, there is one elementary truth the ignorance of which kills countless ideas and splendid plans: that the moment one definitely commits oneself, then providence moves too. All sorts of things occur to help one that would never otherwise have occurred. A whole stream of events issues from the decision, raising in one’s favor all manner of unforeseen incidents, meetings and material assistance which no man could have dreamed would have come his way. Whatever you can do or dream you can, begin it. Boldness has genius, power and magic in it. Begin it now.“ – (Johann Wolfgang von Goethe).

The terms “Commitment” and “Excellence” have been so much used, abused, quoted in and out of context that I know I am just adding to the clutter. But I have a different goal. It’s not meant to be a motivation lecture, I use it here to get people to startup on new ventures. I’ve gotta’ make a living out of it.

What prompted me to write this piece was a series of startup dropouts that I came to know last week. Some of the projects were so near the gate, needing only that bit of an extra nudge. I’ve had grand plans for them, I had already talked up a few VCs over these and in fact had scheduled some meetings in the coming weeks to review the status of the project.

In a few cases, the founder(s) felt they had far too many critics in their team than colleagues. I haven’t gone into the merits of those, but I feel if you can build a team in which disagreements can be frank, even harsh, but where once a decision is made the team can get behind it and implement without reservation, then you actually have a team. I advised them to have the courage to act on their knowledge, but the humility to doubt what they know. When all else is lost, future still remains. Isn’t it ?

Criticism, for me is better than flattery any day. It sometimes hurts, but is less damaging. You’ll soon find out whether she points to a genuine flaw or is she just wanting to prick your ego. While you give both types a right to be heard, you’ve the liberty to not take the latter kind seriously. But flattery is like cologne water, to be smelt of, not swallowed.

I would say every entrepreneur starts off with a success. Know why? By demonstrating the ability to take risks, (s)he has actually crossed the first hurdle – fear of the unknown. It could be either that you’ve considered all aspects of your decision and have taken an intelligent bet or it could just be that you took it like a child crawling playfully towards the edge of a staircase. I have seen almost 80% don’t cross this hurdle, the crucial first step. Allow yourself a celebration for that !

People mistakenly think that if they take a risk and it doesn’t turn out the way they expect it to, that it’s all over. The sky will fall, their world will come crashing down, and that they’ll never bounce back from it. It’s precisely because of that one shot do or die mentality that prevents people from taking risks. Step back and look at the forest. Don’t look at the trees. Risk is not just about looking at one tree. It’s about exploring an entire forest.

You’ve got to understand that risk is nothing but a label and the reason why risk yields so much power over us is precisely because of that. Labels are extremely powerful because we tend to pass judgment solely based on that. When something is labeled, we equate some sort of image to it. Armani – fancy suit. Ferrari – fast car. Nike – running shoes. In this case, what image does the label of risk conjure up? Imminent danger. We judge risk as imminent danger and are influenced by it.

We need to change the label. Stop thinking of risk as just a one shot do or die situation. Instead, start thinking of risk as a journey of exploration. It’s not just about one shot. It’s about a journey, a journey you choose to embark on for the purpose of exploring a different path. Columbus did not take a risk. He chose to go on a journey to explore the new world.” ( Hat tip : Brian Kim)

Commit to excel every one must. In scouring the unknown there’s a sense of excitement. You can’t obviously get this in any other profession except what is creative. Entrepreneurship is as much about creativity as it is about taking risks. And then there’s the glory. If you find any value, any lift of the spirit in a beautiful mathematical proof, in an elegant balletic turn, in any of the myriad human endeavors that have no utility but only breathtaking beauty, then you should feel something when our little species succeeds in establishing new life in a void that for all eternity had been the province of the gods. If you don’t feel that, you are — don’t take this personally — deaf to the music of our time ! .

Don’t reduce passion to a cliche

February 19, 2007

Often I’ve heard from entrepreneurs that it was in fact passion for something which led them to this or that venture they are in.  It’s also not quite uncommon for Angel investors and VCs to pad it up when they say “ first thing we search a founder for, is passion for what (s)he does”. Now I understand passion as `intense feeling, desire, sexual urge or fervor’ – but how do founders get the VC to see it ?  With a trouser tent ?

Does that mean to run a DVD rental store, VCs expect you to have a passion for movies ? Love the stars ? Eventually when you run that business you’ll realize it’s just another retail outfit with long hours of work, boring inventory management, content display, book keeping and logistics. No high profile glitzy parties or nothing remotely close to glamour.  You wouldn’t be happy, and you weren’t accomplishing the dreams you wanted to achieve in life. The experience even end up taking away some of the passion you had for movies, since you associated the negatives of the retail business environment to the product you peddle : the movies.

Heck, you’ll soon begin to hate movies and stars – the very species you were once ready to die for.

I remember reading Jeff Elgin on passion in Franchisee business.  Excerpts –

“In any life endeavor, your chances of success increase greatly if you’re passionate about your desired goal. Passion is a huge source of energy–it drives people to accomplish whatever they set out to do. And, let’s face it, it’s far more rewarding and satisfying to strive for something you’re passionate about.

But as a franchisee, do you need to be passionate about the product or service your franchise is providing to be successful ? Furthermore, do you need to be passionate about the franchise business at all to be successful?

Truthfully, the answer is no.

You don’t need to be gaga over grass to be a great lawn-care franchisee. There’s no need to be passionate about dog poop to become a super-duper pooper-scooper. And yes, even a vegetarian can make a great fast-food franchisee. You don’t need passion for the franchise’s product or service–but you do need passion for some personal result that you believe you can achieve by being a franchisee.

The simple reality is that when most people become franchisees, their motivation isn’t to buy a specific business; their desire is to buy a certain outcome in their life they’d like to see as a result of buying a franchise. The specific product or service involved is often the least of their considerations–as long as they see the business having a high likelihood of producing that outcome. To be a successful franchisee, your passion for the outcome you seek will give you the drive and energy to overcome the obstacles involved with setting up any new franchise operation.

It’s also very important that you’re completely comfortable with the role you’ll have as a franchisee. If you’re only passionate about the product or service, it can actually be detrimental to success–especially if that passion leads you to get involved in a franchise business that otherwise doesn’t match well with your skills and goals.

Don’t get hung up on the product; it’s the results that matter. You should focus on the result you want in your life, whether that’s more free time, more responsibility, more income–whatever’s driving your passion”.

Now tell me, what `outcome’ are you passionate about ?

On getting advisors

January 28, 2007

I reserve my posts in this blog mainly for guiding startup entrepreneurs and aspiring Angel investors. I was in one such frame of mind as I wrote mentor metrics.  My accent in that post was what to look for in a mentor while going for one and my last sweeping para was mentors are not a `must’ if you can’t land the right one.  I had also followed it up by startup strategies outlining a few essential guidelines for entrepreneurs who ignored strategy early on.

A while ago I was reading an article written by Chase Norlin in Venture Beat on the importance of assembling an advisory board.  Chase is busy founding Pixsy, a company in the competitive video search industry.  

My redeeming moment came as I was reading the para where Norlin said something similar to what I had said about mentors – which I quote here.  “Keep in mind that not all advisors are equal and they’re all very different, just as every person is different. While their advice is usually intelligent and grounded in experience; it is, nevertheless, just their advice. You’ve got to always follow your own instincts”.  The stress on individual enterprise is unmistakable.

Making the VC cut

December 31, 2006

“ You are not VC ready “ – Startup founders often get this baffling censure from VCs ( or worse, none at all ) after they submit their Business Plan. At times, it gets on founders’ nerves and infuriates them no end. Founders like to say “ hey, now what…? We’ve developed a bug-free prototype, been thro an extensive beta,  got a brilliant team of people to work, a tried and tested mentor,  set of high quality advisers and what the hell, we’re  into year two with a good set of paying customers too…what more do you expect from us …a Microsoft rolled back in time ? ” 

Where the hell does it suck…?

I am letting you in on some inside metrics.  Too bad if you’ve tried this already.  

Uptight with strap :  Burn less capital to finance overhead before generating revenues. In other words, suck cash only if it makes revenues grow.  Stick with Top Ramen noodles for lunch, Sushi can wait. 

Burn rate is usually quoted in terms of cash spent per month.  It’s bad if the burn rate begins to exceed forecasts or revenue fails to meet expectations. The usual recourse is to reduce the burn rate by reducing overhead or by looking at ways to improve profit margins.  

Lead earnings : Companies with high operating leverage ( lower cost of incremental sales ) can make more money from each additional sale if they don’t have to increase costs to produce more sales. The minute business picks up, your assets as well as existing workers can do a whole lot more without adding to costs. Profit margins expand and earnings soar faster than revenues. ( imagine Consumer internet like travel portals, online DVD rentals etc.) So get your business to recover its fixed costs early and keep adding to the bottomline with every additional sale. This can be achieved by keeping the initial development costs low by scheduling a faster go-to-market. Secret here is to quick-brand staged product development and serializing it.  Features can be added later  which can be released as V 2.0 followed by V 3.0 etc. Take a leaf from Google and Microsoft who are masters at it. 

Strong tailwinds :  VCs have a commitment to the investors ( limited partners ) in their funds for realizing a rate of return well in excess of the market average. VCs rankings go up if they could achieve their ROI targets fast and return the money to the investors early enough.  As such, VCs prefer to lock-in $$ for as short a duration as possible. Closer your venture is to a liquidity event ( like IPO, buyout, M&A ),  more attractive it is to the VCs.  You stand a better chance of getting noticed by acquirers ( or lapped up by investors ) if your venture is highly scalable with the momentum provided by the VC money. Sooner you position yourself in the eye of the acquisition storm to get swept by it, the better.  Approach the VCs with a clear roadmap for them to exit quickly thro such events and get invited to dance. 

Be the current flavor : VCs are paranoid by nature and fear to tread alone. They prefer to move in herds.  If your venture belongs to a sector which is currently funded by some VC, you stand a fair chance unless you screw it up hopelessly. So belong to the sector which is the current flavor. Conversely, time your approach to VCs as soon as your competitor got funded. Technology / Internet / Semiconductor wave of the 90’s, followed by Biotech and Clean Energy wave are all examples you can relate here.   

Suck up to a dud : This is sure to work. Just be a bit charitable. If you know of any dud among the VC portfolio that could be useful to your early development efforts, it’s a great favor that you’re doing to him.  There are quite a few in almost every VC portfolio. Seeing an opportunity to recoup his dead investment in the dud, VC will make the dud offer everything it has including its IP for a song. So while you zoom in on a VC to pitch, remember to scan its portfolio for complementary duds. Better still, find a dud to build your idea upon. VCs are quick on the uptake,  just tell him the story nicely.  He wouldn’t miss it.  If he’s desperate enough,  you might even escape from draconian  multi-x liquidity preferences or anti dilution clauses in the term sheet.