Entrepreneurs & the need for control

On multiple occasions, I have heard this phrase "Indian entrepreneurs are obsessed with control".

Am pretty sure this is true for all entrepreneurs globally though!

During conversations around Board seats, equity holding and supermajority rights negotiations - embedded in 250 page shareholder agreements - investors take pains to point out that they are not in the business of running a business. They cannot be successful unless the team succeeds. And if the team performs, there is no rational reason why they would want to rock the boat.

Clearly "if the team performs" is the key phrase - and the definitions of performance can vary based on the hat you are wearing (investor, promoter, ceo, employee, customer etc) - and based on the stage of the business (early stage, growth stage, impatient investor looking for exit stage, employees needing market salaries stage etc)

 I believe the varying definition of performance over time and role is a key issue that makes entrepreneurs worry about losing control.

One other aspect that I got thinking about is the prevalence of service businesses  in India - as against product/technology/IP businesses.

In a product/technology business, as the entrepreneur whose trip was to develop a new product or technology, you still retain the leverage of the R&D and new product development creation process even if you are not the CEO or control the Board directly.

So, if you are technically smart  or able to come up with new products, you do not need to worry about control. The company needs you more than you need them.

But in a service business, the key leverage is the relationships that the business has with its customers, partners, vendors, employees etc. Most of these have been established by the founder/founding team. It is not possible to recreate these in another space. Each one of them has happened over years of engagement, landing up at customers' kids weddings, showing up for their functions, doing them a favor once in a while etc.
In addition, in a service business, the value is  delivered by the team in the company. Not by the guy defining the service.

The entrepreneur needs control to leverage this huge set of relationships for the new ideas (product or service).

Maybe in a product business, as long as you deliver cool technology, it is fine to not be in control. But in a service business, if you do not control the "system" and its priorities, you cannot make things happen in the marketplace.

Put in all the hard work, build the relationship network and when the real leverage has kicked in, it is important to be in control.

And from an ongoing value creation and a final value capture (acquisition/IPO) perspective, this is a big issue for entrepreneurs.

Maybe the predominance of service businesses and the variation in the definition of performance is why entrepreneurs have a need for control.

Or maybe they are really paranoid! :)

Good business or good jobs?

Good business is providing the same great service at the great price with the great smile again and again.

Good business is collecting the money on time, investing in your systems, keeping your costs under control and building the "platform" (team, content, technology, processes) to scale.

Good jobs provide a variety of challenges, hefty pay hikes & a great work environment.

Good jobs are about doing new stuff. Good jobs are cool to talk about at parties. 

Good business is boring. Good jobs are exciting!

When you start a new business, all jobs at the start-up are exciting.

As a new business gets to a point where the value proposition is getting well-defined, the delivery processes are getting mature, some of the cool "let's figure out how to do this" goes away.

The innovation is no longer at a product/service definition level but at an implementation level. The problems that need attention are not about "what should we do?" but "we know what to do. how can we do it better? "

How can we sign-up 10% higher customers this quarter with the same value-prop & the same budget?

How can we improve our hiring ratio by 5%?

How can we deliver a 10% higher margin across 100 customers?

There are opportunities for innovation. Many of them. There is path-breaking stuff but not of the type that existed when the venture started.

If we build a good, profitable business, there will be opportunities to create something from scratch all over again - within the same business or as a spin-off. But first, a good business has to be built.

Earlier 80% of the time was spent on concept-level discussions. Now 80% is around doing existing stuff better. The team has to now focus on making 5-10% improvements in the existing business. 

The team that came together for a good job now has to do good business. But that is not what most of them came for.

The shared ownership route is seen as the way to align the stakeholders. Build a good business today and make lots of money through your stock options tomorrow. 

Maybe the correct way is to emphasise that a good job is not about excitement and novelty. A good job is about building a good business. A good business that delivers great value to its customers & its stakeholders.   

Good business is how wealth gets created.  

And good business is boring. Get used to it.  

The Dark Side of Networking!

Networking - that fantastic source of support for entrepreneurs who start with just an idea, some foolishness and lots of energy!

I like to think of entrepreneurs as Jedi Knights and Networking as "the Force" in Star Wars movies! :)

"The force is an energy field created by all living things, it surrounds us, it penetrates us, it binds the galaxy together" - Obi-Wan to Luke

With the proliferation of sites like LinkedIn, Facebook, Twitter and search engines, it is now getting easier to network with anybody on earth.

Looks like the Six Degrees of Separation has come down to Two. Maybe Three!

At the same time, there is a surge in entrepreneurial activity. The number of start-up related events and organisations seem to indicate a high interest in students and working professionals to explore the entrepreneurial adventure.

And "Networking" is always one of the things that an entrepreneur must do. Completely agree.

Many people in my network have helped me without any expectation of any return. And many entrepreneurs like me believe it is our responsibility to "carry forward" this virtuous cycle when someone reaches out - for introductions, brain-storming, advice etc.

However, over the last 6 months, I have got worried about the Dark Side of Networking.

While the combination of  a) entrepreneurial enthusiasm, b)start-up related organisations, c)networking/search sites and d) the willingness of the "network" to support - create a great platform for entrepreneurs to network, I am concerned that the easy access to this platform is turning out to be the source of problems.

"This is a dangerous time for you... and you will be tempted by the Dark Side of the Force" - Ben to Luke

Multiple friends and I have experienced one or more of the following:

1. Folks don't show up on time for a meeting that they have requested for.

2. Folks show up completely unprepared for the conversation.
Someone I met (through someone else whom I have met just once!) recently wanted to meet and discuss an ecommerce opportunity.
I started by asking him: "Does Flipkart do this? How about Indiaplaza?".
Answer: "I am not sure".

3. Folks leverage someone's network to get an introduction - and then do not bother to follow-up or drop a note.

Maybe the easy access is being taken for granted - and hence not valued.

While the downside of the individual transaction is not very great, I think something major is not being understood by folks trying to "network" without the necessary discipline and basics in place:

The Network that has opened up access for them can - and will - also close down very rapidly.

"Yes. A Jedi strength flow from the Force, but beware of the Dark Side. " - Yoda to Luke


May the Force be with you!

Fail Spectatularly?! .....You must be kidding me!

Have been following some of the posts coming out of startup related events, advisors, VC interviews etc - and of late, the "F" word has started getting some attention.

Given the nature of startups, failure is clearly a highly probably event. However, some of the advice given out to entrepreneurs bothered me. Hence this post.

"Don't be afraid to fail" "Only when you fail do you know that you have really tried hard"  etc are the kind of stuff I have heard. And that is extremely appropriate.

But when people started talking about failing spectacularly, I felt that we are missing the core essence of the discussion around failure.

Conquering a fear of failure is what one needs - so that one can try multiple options, learn from the mistakes and make corrections on the path going ahead. That means that you dont give up. Keep trying.

Not get carried away by fancy statements like:
"go out with a bang!"
"the world will remember you!" .

Guess what? .... after you fail, you will realise that the world has better things to do!

Not many of the people who talk about failure have actually failed in a venture. And therefore they have no clue of the kind of costs - financial, social, psychological and emotional costs - that one has to pay when a venture fails.

I don't think any entrepreneur who has failed will ever recommend - "fail spectacularly". Because the guy whose venture has failed knows how painful it is. For himself, for his team, his well-wishers, his family and his investors.

A lot of the advice works for investors who play a portfolio game with risk capital. And hence the focus on pushing entrepreneurs to try something so big that the probability of failure is very high - but if it works, its a "multi-bagger" as they call it.

"For every 10 companies we invest in, we expect a few to fail. Few to be moderate successes. And 1 or 2 to be spectacular successes". I have heard this from just about every fund-manager I have met.
And this makes sense since money is fungible. Lose some here. Make some there. Lose some today. Make some tomorrow.

This works just fine for investors. But an entrepreneur does not play a portfolio game. The years of his life and the efforts put into the venture are not fungible. You will not get back the best years of your life or (in most cases) be able to fully leverage the learnings of your previous venture. It makes more sense to take your time deciding on which venture to commit to - and then stay with it till it succeeds. Your leverage keeps increasing as you spend more time in the same industry/market.

So many things need to fall in place for success (see my earlier post) that as you spend more time in the same market, you increase your chances of success.

"Fail spectacularly" is not something i'd ever tell a fellow entrepreneur.
I'd rephrase the advice to : Keep trying to win spectacularly. But you only fail when you give up. So.....dont.

What do you think? :)

Serial entrepreneur?? ….Who? Me?

http://articles.economictimes.indiatimes.com/2012-07-14/news/32675029_1_serial-entrepreneur-investors-or-venture-capitalists-success

This article got published in Economic Times (link above)

Serial entrepreneur?? ….Who? Me?




When I was asked to write about my experience as a serial entrepreneur, I realized that I had never given the label, its definition and implications too much thought.



So, I first decided to find the definition – and this is what I got (across multiple sources): “A serial entrepreneur is one who continuously comes up with new ideas and starts new businesses”

Note that it doesn’t talk about success. Only about starting new businesses. Maybe success is assumed.



And here’s a definition that one of my entrepreneur buddies gave me many years ago: “A serial entrepreneur is very often a euphemism for a failed businessman!”



I started my 2nd venture – SportzVillage - because my first one – QSupport - did not work out in 2002. And then people started referring to me as a “serial entrepreneur”.



In 2003, the only promise I made to myself was that whatever I start next, I will not give up till it is successful. So, the choice of what to start next was extremely critical.



As I started SportzVillage, I found that there was very little leverage of my past network, learnings and expertise. So, I had to work much harder since I chose to start a new venture in an unrelated field but one that I was passionate about.



The risk with “serial entrepreneurship” is that the market can be spooked into thinking that, if the going gets tough, you might just give up on this one and start another venture if something exciting catches your fancy. I guess it is like job hopping. Kind of.



Success in business requires you to be at the right place at the right time with the right product/service/team. Too many moving parts that have to fall in place just right. If you are there already, just stay there! Don’t go searching in the dark again!



If things start working out, here’s how it comes at you: “Mr. Founder: Now that you have built a team, raised funding, got early customers, it is time for you to hire a CEO and move on to the next venture” Congratulations! You just became a serial entrepreneur.



This might make sense occasionally – but only if you feel that you have built all that you could – and have monetized the value of your efforts so far.



I also found that as a venture starts to get early success and then grow, it is important for the entrepreneur to hold back all his other new ideas – and focus on the one that is working.



In the last 8 years of SportzVillage, we have tried multiple business lines (corporate sports, sports travel, sports technology, sports infra, school sports) in order to build a profitable, scalable business – as long as it was in Sports. We had to try multiple lines because many of the early ones did not work out.

EduSports today delivers on the original SportzVillage raison d’être by working with nearly 200 schools and getting 1,50,000 kids to play through a structured in-school sports program.

SportzConsult is a leading Sports Management business that works with corporates and brands.



So, no compromise on the core vision of building a business in Sport – but extremely flexible tactically in order to survive and then grow.



I am told this approach is called “pivot” nowadays!



In most cases, if a business is – or looks like becoming - really successful (Wipro, Microsoft, Ranbaxy…), most founders stay with it and build it. Why would you leave a successful business and start another one with a 98% mortality risk?



Unless of course, they have sold it and made lots of money. Or their business is on an auto-pilot mode and they have lots of cash to invest. In such cases, most entrepreneurs typically turn into angel investors/VCs.



Very rarely do successful entrepreneurs start another business from scratch the way they did their earlier business (and the exceptions are statistically irrelevant). If they do, they quickly become the “Chairman” and hire an Executive team to do the day-to-day work. The only exception I have found to this rule is if the next venture happens to be a “second try” at one of the earlier failed ventures – and if the entrepreneur still believes that it is a good idea (in the current market context). In this case, I believe the willingness to rough it out is significantly higher as you want to prove a point.



So, here’s my take on serial entrepreneurship. Most entrepreneurs turn serial entrepreneurs because their earlier venture did not work out. And then, it is hunger that makes them start a new business. The hunger for success; the hunger to relive the excitement of a new venture; the hunger to make a “dent in the Universe”; the desire to prove to yourself – and then, maybe the world at large, that you can spot an opportunity, build a business and make it successful.



That said, investors clearly value an entrepreneur who has had a failure “under his belt” – as one of my VC friends put it – and is therefore hungry for success.



If QSupport had worked out, I’d be running it today– or I’d have sold it, turned angel investor, playing golf and maybe I’d have still started a business in Sports. Many friends pointed out that if QSupport had worked out, I’d never have got a chance to start SportzVillage! That’s the other bit about serial entrepreneurship. The “what if….” keeps coming back frequently!



It has been a great ride. Maybe, in the next few years, I will graduate from being a serial entrepreneur to a “Sports Businessman”!





5 lessons only a serial entrepreneur can provide:



1. Having battle scars is good. Leverage your past but don’t let it bog you down.

2. The market responds (to your venture) when it is ready. Not when you are.

3. Some ideas work out. Many don’t. Just keep giving it your best shot.

4. Stay true to the core vision. And then “pivot” on multiple paths till you hit one that works. And then commit.

5. Find the sources of positive energy that recharge you. A daily game, a book, a walk – whatever. And schedule it into your life.



Things most startups overlook:



1. Building a business takes 10-12 years. Not 3-5 years.

2. Money helps – but it is neither necessary nor sufficient for success.

3. Persistence beats everything else. Just don’t give up.

4. Go out and meet people.

5. The world is willing to help. But you need to ask.





Current designation: Co-founder & MD - EduSports

Companies founded: Learn@Home, QSupport, SportzVillage, EduSports

Name and very short description of company 1: QSupport – 24*7 online remote tech-support for personal computing devices.

Name and very short description of company 2: SportzVillage – Providing opportunities for kids to play.

One thing I would do differently if I were to start my first company now: I would not give up.

The most exciting space to launch a new business today: Indian consumer space

Failure? Not a chance!

More than 95% of all startups do not last beyond the 1st few years. Nearly everybody who contemplates starting a venture gets to know of this statistic – through research or through well-wishers.




Given that there usually are well-established players in the market & there is so much chaos in the marketplace, creating sharp cause-effect correlations on success is difficult. The financing available to startups is typically from angel investors, early stage funds & VCs. These investors are also looking to invest in ventures that have exponential returns due to the class of capital they manage. (7-10 years horizon, 25% IRR, 10X returns etc).



So, the structure of the new venture ecosystem forces startups to play on the fringes and try out new models, new products/services for new markets. Failure is intrinsic to this high-risk, high-reward system.



But everybody feels that this statistic does not apply to them, their venture, their product!



The structure, the statistic – and the consequent reality - though does not change just because folks ignore the data.



In the startup scenario, entrepreneurs fail when they give up. Businesses shut down when they run out of cash and the promoters decide to quit.



Theoretically, businesses should shut down because their product/ service does not fit with the market needs.



Some of the failures we see are because of a different reason. Some ventures were started with a “we will change the world overnight” view – and when things take longer or get tougher, many entrepreneurs and investors decide to pull the plug. Phrases like “opportunity cost”, “do not put good money after bad money”, “start another venture if this one does not work out” are heard frequently. In my view, this is a reflection of the entrepreneur’s – and the investor’s – state of mind, timelines they had set for themselves, the amount of pain they were willing to take to make it a success etc. Not a reflection on the inherent viability of the business itself. Many of these businesses shut down because the entrepreneur and the investors were not willing to give it the time required to scale.



Businesses in the Indian market take 10-12 years to establish themselves. Not 3-5 years that is the typical horizon most investors will give an entrepreneur. And due to this structural mis-match, we see businesses being forced to shut down, sell, go for an IPO etc. Running a small – but profitable - business is seen as a failure. Growth is seen as the only panacea.

Many of these are US Silicon Valley, high-technology market-based models that are being forced onto Indian markets – and onto businesses that are anything but high-tech.



The emotional and financial pain that entrepreneurs face due to this can be reduced if the structure of the early-stage ecosystem adapts to the reality of the Indian market i.e. businesses take 10-12 years to mature. There should be 15 year funds if not, ideally, open-ended funds. Not 7-10 year horizons.



In my view, the best way to deal with this is to ensure that as an entrepreneur, you have an open-ended time horizon for the venture. Because good things do take time to make.



Our education system does not prepare us well for handling failure – and there is a tendency in society to confuse “My venture failed” with “I am a failure”. The entrepreneur needs to be clear about the difference and if the immediate friends/family circle reinforces the difference, it definitely helps.



Investors should reset their LP expectations for the longer timelines – and structure their fund tenures and expectations accordingly. The fund management should also understand the time, effort and inherent chaos involved in building a business. We were fortunate to have SeedFund as an early supporter.



The class of capital you choose should be as per the stage of your business. If you are in the exploratory stage, either don’t raise funds – or raise small amounts from friends and family. Once you have identified the space, got an early pilot done – and the model is proven, only then should you involve VCs. Till then, just keep tinkering with the business model, the product lines, service options till you crack the code.



Enjoy the ride!

Excess Quality: Bane or Boon?

Whenever a new venture starts, the benchmarks for quality are always set very high. Clearly, anyone who starts a new venture wants it to be the best in the world.

In some cases where the product/service is an established one, very often, it's because the startup is a reflection of the founding team's own aspirations and sense of self. "If my friends experience my product/service, I want them to feel comfortable since it is my company". The risk with this approach is that the product spec gets defined by the founding team's background and not by what the market can really bear.

In other cases, if it is a new product/service, there is no well-defined quality standard. Customers also "dont know what they dont know" - and are therefore not able to define the quality spec upfront. In such cases, the founding team is forced to go for "excess quality" in order to ensure that they are able to sign-up customers quickly and get the business off the ground.

While this approach helps get early customers quickly, it also requires higher resources (people/money) to be able to deliver the excess quality that has been spec-ed into the early orders. The startup needs to be well-resourced to survive the excess quality route. Else, the gap between the business plan and the actual market reality (of delivering on the excess quality promise reqd to meet the business plan projections!) can start hurting very badly.

Over time, as the service/product stabilises and the team gets very specific feedback from customers, it is easier to start defining the specific value parameters and recalibrate the excess quality to a more realistic quality level.

Here's my shot at explaining this visually:

The T - Time axis - can vary depending on the business. It could be the 1st 10 customers - or could be a few days depending on the cycle time of prospect-sale-service delivery - feedback - negotiations for service renewal.

So, on the whole, is excess quality a bane or boon? I dont think startups have a choice. They just have to put a stake in the ground. A stake that customers are willing to pause and listen for - as well as think it is something that is deliverable.

Not having customers is not an option. :)