Out of all the meeting requests that I receive from founders outside of morpheus gang, a large percentage of the founders want advice & help on fund raising, intros to VCs / angels etc

In most such conversations I end up repeating what I have already shared in other similar conversations. I figured it would be a good time-saver to just write a post on this topic, some folks would hopefully read it before sending me the request & for others, I can forward the post.

What I end up giving is not “Fund raising advice” but “Anti fund raising advice”. I always start off by saying, “I am not sure I am a good person to talk to for advice on fund raising”. I say this because one of the core beliefs that we preach, to startups at TM, is to completely de-focus fund raising from the process of building a business.  None of the great businesses were built in such a way, where the founders first focused on raising funds & after they completed fund raising, they came back to focus on building the business.

Instead the right way is to just keep building the business in best possible manner with the resources available to you. Just keep moving, keep hiting the milestones, get the prototype out, launch V 1.0 / 2.0 , get initial customers, collect feedback, keep itrating, use organic channels to acquire customers, be super capital efficient, get coverage, start making money, become profitable, understand your numbers, understand the industry.  Do all this with a belief that you will never raise money, but will still build the best company even in this space – if it takes time, hard work & lot of effort, so be it. Customers are the best & most loyal investors. As long as you keep adding value to their lives, they wont leave you.

The magic here is that once you gain the ‘supreme self belief’ that you can & you will do this without help or money from the money guys, the money guys automatically start becoming interested. You start receiving geninune incoming interest, where the conversations are much more constructive & friendly, You do not need to make long presentations, imaginary business plans or 5 year financial projections. Your business has traction, you have created real value & good investors can see that. Things move fast, negotiations are easy, you can continue your focus on your business & the fund raising activity just happens on the side. If at all you are dealing with someone who is acting too tough to your liking or taking too much time, you have the power to walk away from the deal, which is the supreme power in any negotiation. And you can do that because you are not dependent, you do not need their money to build or continue your business. The equation is now reversed – they need you more than you need them.

Good investors & external capital can play an important role in the growth & success of a company but only if it comes at the right time, in the right manner, at the right terms & from the right source.

So as I am fond of saying: “Stop all fund raising activties, do not look for money. Build a great business & the money will find you.”

Here are couple of detailed articles I have written on this topic:

• Investor / Entrepreneur – Who is the horse and who is the cart?
• Money will find you

This article was first published on Yourstory.in. The original article can be found here

Over the last year or so, one interesting philosophy evolved at TM:

• Almost everyone around was busy either in investing in e-commerce / group deals (ECGD) or starting an ECGD venture themselves (Bollywood celebrities included)
• Specially e-commerce ventures where you setup a website to sell stuff which is easily available from offline shops (commodity e-commerce services)
• We have an investment in Jumadi (commodity e-commerce) & have closely looked at a quite a few companies in ECGD domain
• The topic of ECGD has been beaten to death at a number of heated discussions at TM-gang meet-ups
• Based on our experiences we formed a strong hypothesis that lead us to believe that very few of these will turn out be real winners & most of these deals will end up losing money
• We could also see that it will take 2-3 years before people involved will realise & accept this hypothesis
• This rush towards a couple of sectors meant that most other sectors will get very little attention & money from investors
• But still a number of good founders will start companies to solve problems they are passionate about without bothering about the ECGD madness
• For TM the philosophy was, “While everyone & there mom is busy doing ECGD, we would like to aggressively go out, find teams of good founders working on so called ‘un-trendy / unsexy problems’, & capture all of that”
• Following this philosophy, we did 24 deals in last two batches: Batch 6 & 7, as compared to 11 which we did in two batches before : Batch 4 & 5
• None of these companies conformed to ongoing trends of their time
• In Batch 6 we have two companies in e-commerce domain but they are far away from the general trend (www.engrave.in, www.zepo.in)

This was not a philosophy that we created by sitting around a table & nor did we make a conscious decision to follow it. As a team we always pay attention to our subconscious instincts & act on them. This was also one of those things that happened as we followed our instincts. Even we were not completely aware of the reasons behind our actions.  The questions we wanted to find answers for:

• Why is everyone doing this?
• Why are we not doing this same thing?

In last couple of months, we got the time to reflect on our decisions & have been able to understand them better. This post is an attempt to share what we have found & understood. Would love to get contributions from readers, please do share your thoughts.

Best investors “invest” in “highly undervalued” assets 

• There is one common theme in the investments of great investors like Ben Graham, Warren Buffet, Charlie Munger, George Soros, Peter Theil, Paul Graham, Vinod Khosla & many more such folks
• They were able to identify assets which were highly undervalued by the market in the prevailing market conditions
• But as per their judgement & assessment, once unlocked, the real value of these assets would be much higher than the current market value
• They reached these conclusions very early on without availability of a lot of data or market proof etc
• Most of these realisations were very subconscious in nature, just based on their judgement of people, life experiences or unique theories etc
• On top of the ability to spot these assets they also had the chutzpah to “pull the trigger” & make investments in these assets
• Also, while investing in these assets, they were either able to spot some underlying trends which would lead to markets realising the real value of these assets (George Soros belongs to this category)
• Or they themselves played a critical role in “unlocking” the value of these assets  (Warren Buffet & Paul Graham belong to this category)
• After making the investments they either worked with people who managed these assets (exec management of the companies) or just waited for markets to correct themselves based on the underlying trends
• In most cases, over time the value of these undervalued assets got unlocked & they ended up creating a lot of value for their shareholders & for themselves

Most investors invest in trends 

As we know most investors invest in trends (ECGD has been the recent trend among startup investors in India). For any sector to become a “trend” amongst the “startup investors of India” some or all of the following should happen:

• There is initial activity in an undervalued sector, a set of founders take the initiative, work hard to build a business
• A set of investors who spot them & take bets on these undervalued assets
• This also happens to be the sector that has generated a lot of investor wealth / investment activities in bigger economies like US & China
• Lots of folks start watching the developments closely
• There are visible signs of success & activity starts to pick up (most of these are false signs like GroupOn going IPO or some company valuation going thru the roof)
• More founders start companies in this sector & more investors starting actively scouting for deals
• Startup media takes notice & starts writing actively about this sector, which is soon followed by the traditional media
• The deal tracking firms start highlighting these sectors in the private reports they send to investors
• Investment firms now have dedicated analysts tracking these sectors & sending their finding on daily basis to the Partners
• Media continues to write about these sectors
• As a result of all this, partners at firms hear the same thing from every direction : Media / Deal reports / Internal analysts / Partners at other firms / Founders pitching to them & more
• Soon it becomes a self full filling prophecy
• Now investors start believing that this is a huge market opportunity which is backed by “data / trends / media reports & many more things” & they should catch this wave at any cost
• Same data & hype now leads to formation of founder teams with impressive back grounds on paper (name of colleges, names of companies they were at etc)
• These are exactly the wrong type of founders who would only start a company when there is a lot of data to back their decision & as per them the chances of getting funded are more than 100%
• Many such founding teams are formed
• All these teams will start talking to angels / VCs , who have also seen the same data backing a huge market opportunity
• A certain percentage of these founders get funded by investors eager to jump into the trend
• This reinforces the same trend & leads to more activity of similar kind
• The “hotness” factor of the sector continues to increase, the valuations surge across the board
• New firms jump into the market & start investing aggressively into these sectors
• Series B / C rounds are now 20-40 million / couple of companies are valued at Billion dollars
• Seed rounds are ranging between 1 – 5 million

If you take off your 3D glasses, you can see the real picture behind any “hot investment trend” 

• Valuations are sky high
• Founder type is grossly wrong
• At the peak of the trend lots of money gets invested at super high valuations in “low quality, opportunist teams”
• The sector is over heated with competition & lot of excess money
• No one cares about being capital efficient.
• Rents paid are insanely high / salaries go thru the roof / selling prices are dropped to unviable levels in the name of building customer base
• There is a mad rush to acquire customers & loads of money is pumped into marketing across media : Social Media / Searching Engines / TV Spots
• The super capital inefficient scenario is surely bad for almost everyone who jumped in after this became a trend
• Only folks who may end up benefiting are those who were in the game before it became a trend
• Even they could get wiped out if they start thinking too much of this trend status of the sector & it goes to their heads
• This could even lead to the whole sector getting wiped out, where none of the players succeed in building a long lasting business
• As the founder of madhouse, I was part of a similar trend like this in the “DVD Rental” days (which was way smaller than what we are seeing today)
• The players who survived had 20 million+ funding & today no one is doing the “DVD rental” business in India
• The whole thing got wiped out, not because there was no demand – there are still so many customers with real need of watching good movies
• These trends have nothing to do any particular sector (e-commerce / group deal / travel or DVD rentals) nor are these caused by fault of some particular individuals / firms
• These things are part of how the human minds get affected by events happening around & the urge to do what others seem to be succeeding so easily at. Why should I miss it?
• But each time a trend booms &  busts, the sequence of events is striking similar & results are also similar
• Even if you invest in a company as part of a trend & that company achieves certain success, no big deal – you just rode the trend
• And the returns certainly will be lower as compared to an well executed investment in an undervalued asset
• The risks involved in trend investments are way higher even thought it feels other way around – it becomes kind of a lottery game
• We used to get really puzzled when we saw some of the excellent investment minds in India investing in trends (or skipping good undervalued assets)
• I am sure is that at the subconscious level they do realise the truth but they  are making these investments because the LPs (investors in funds) or the Senior US Partners who made money in the same sectors in US / China want them to do so
• It is a combination of
  • Lack of complete self belief
  • Lack of authority

Who can be a good investor? 

• Someone who has gained intense real life experience in startups
• In the order of priority the following are the ways people get the intense experiences:
• By starting & running their own startup once or more & going thru the whole cycle end to end
• By working at one or more startups in the early stage, where they were close to real action, spent countless hours / days working & absorbed the whole thing
• By investing in startups & working closely with them
• Folks who go thru these intense experiences develop a certain level of subconscious capability to intuitively understand & analyse investment opportunities in startups
• This allows them to recognise “investment opportunities in undervalued assets” which are away from current trends of the market
• Alongside they also have complete self belief / chutzpah to pull the triggers & make the investments in undervalued assets which they believe will eventually rise in value
• Startup investments are all about founders, they are only assets that one bets on
• It requires a lot of courage to invest in just founders since the success might be huge (if it happens) but the probability of failure is higher – unproven entrepreneur treading on an unproven path
• The hallmark of  a good startup investor is the amazing amount of trust they have in the founders’ ability
• There is ZERO focus on ideas. They back the “founders” from whom the idea came out & not the founders working on the right idea
• Also these investors need a lot of patience since these investments will typically have long gestation periods
• And through this period they will need to put tremendous efforts in helping these companies stay course & overcome a slew of tough obstacles
• Over time as these investors succeed with certain strategies, others will start to notice & start to follow a similar path without having the right reasons (for example even if there is a rumour that Warren Buffet is going to invest in a particular sector the stock prices shoot up)
• Which would mean the buying price of assets which they were investing will no longer be “cheap”
• At which point they need to have the ability to move on & find a new “class of undervalued assets” to invest in
• Also, at this point a new cycle starts afresh again

Forbes has published a list of 6 YC companies that may be worth billion dollars and Interview Street is on that list. Everyone in the morpheus gang is very proud of IS team and what they have accomplished. Now that IS may become the first startup from the morpheus gang to hit the billion dollar mark, we are very confident that many more will emerge, reach the billion dollar and go far beyond that.

Interviewstreet An online marketplace for hackers timed perfectly for Silicon Valley’s escalating Nuclear War for Talent. Interviewstreet challenges engineers to programming puzzles and real world problems. At the end of these challenges, engineers are asked which companies they want to work for. Should those companies hire them, Interviewstreet gets a nice $10,000 referral bonus. Facebook, Amazon and Zynga are already using the service and some 200 other tech companies are waiting to sign up. Interviewstreet claims it is already profitable and doubling revenues each month.

I just read this post by Mark Birch, Avoid the middlemen & it reminded me of a few Indian startup stories on the same topic.

Story 1

Couple of weeks back one of our portfolio founders told me that after presenting at Startup Saturday Delh he received a call from a certain middleman who was also at the event & the conversation went like this.

Middleman: I saw your presentation at Startup Saturday, it was very impressive. You guys are onto something big.

Founder: Thanks.

Middleman: You could easily raise some good money.

Founder: Maybe, but we are not looking to raise money right now, we are focusing on building our sales channels.

Middleman: You really should raise money right now. There is so much money available in the market, investors are investing like crazy. I run a financial advisory firm, we help startups raise money.  We can help you as well. How much would you like to raise?

Founder (getting impatient) : Well, as I said we are not looking to raise. Maybe we will get in touch with you later.

Middleman (not giving up): I know some folks who will be really interested, I can talk to them. Why don’t you send me your business plan?

Founder (cuts him off) : I have to get into another call, will talk to you later. Bye.

Most founders get tempted to go after opportunities to raise money, even if the opportunities don’t look so real. So even in this case the founder was a bit tempted and discussed the same with me. I happened to know the middleman who had approached him & was also aware that all these promises of “I can help you raise funding” are totally fraudulent. Good investors do not invest via middlemen, they look for deals themselves & good founders raise money by themsleves. I advised the founder to stay away from this guy & other similar characters. I asked him to continue his focus towards building a great business. Funding (growth capital) is a by-product of building a high potential business.

Two weeks later, the founder received another call:

Middleman: Can you come to mumbai next week? I have arranged for an investor meeting.

Founder (who is based in Delhi): But I never asked you to talk to any investor.

Middleman (ignoring the founder): But I already talked to them & they are really interested to meet you. There is a cocktail party with the investors, you can have a few drinks.

Founder (a bit angry): I don’t drink

Middleman (trying his best): You must come, I have talked to them about you & they want to meet you. These guys are top angel (devil) investors in the country.

Founder (cuts the call) : Don’t think I can come. Will talk to you later.

Story 2

Couple of years ago I was invited as a speaker to a startup event in Noida. I ran into a gentleman who is member of a well know angel network & had given a very cold response to the pitch for investing in my first startup madhouse. He faintly recognized me & asked what I am up-to these days, I told him about Morpheus. He suddenly got very warm & told me that he has recently invested in a company which could have synergies with Morpheus. Before I could say anything, he took me to meet someone from that company, who was also attending the event.

This new gentleman started explaining me about their business & what I heard was shocking, I had never heard about anything like this. They were running a company which sold investor meetings to founders & charged 15-25 k rupees for setting up a single meeting. Can you imagine paying 25 k to meet someone at a VC firm or some angel investor?

I was thinking in my mind that this totally sucks, these guys are making fools out of ignorant founders. And you know what he said about synergies to me, “Why dont you send startups that are rejected by The Morpheus to us as leads?”. Oh man I was so fucking angry, I could have slapped the guy on the spot. But I controlled myself, told him I don’t think I am interested & walked away. The guy even had the nerve to send me a followup email (which I deleted).

Later I learned that this new guy was just the front face. Actually this company belongs to the so-called angel (devil) investor. He uses the tag of an angel investor to meet new entrepreneurs & then refers them to his company which will sell them “investor meetings”. He did the same thing at various startup events, where he would claim on stage that he is an angel investor, desperate founders will come talk to him & they would be sent to the company as ‘leads’. The society thrives on someone else’s need, but this is out right dacoity! Isn’t it disgusting?

These are just two stories, I could go on but I guess I have made the point.

Taking advantage of the startup trend

In last few years startups have become a trend, loads of people (young & old) are starting companies. Across all startups, the thing which is in most demand is “funding”. Almost all founders want to raise funding desperately & if they come across a person who says “I can get you funded” they are ready to do whatever it takes.

There are two things at play here:

• One, the demand of ‘funding’ is much higher than the ‘supply’. 
• Two, the whole fund process is totally opaque, there is very little credible information about how the ‘black magic’ of funding actually works.

Almost none of the investors in India maintain a blog via which they can create transparency around the whole process and what they really think. They only appear once in a while on the stages of “startup events”, as part of a panel or as a speaker and after they are done, they get swarmed by crowds of foudners who have bought expensive tickets to such events just to meet with “the money guys”. Soon after that they leave the venue to catch a flight to the next destination or to attend another meeting.

This maddness for funding has given birth to many business models.

 Financial advisory firms / Individual deal brokers

• These firms are almost always run by folks who never did a startup in their life
• They all tell the same story in different words
  • We have done research on your startup & the market you are in
  • You have a lot of potential and you are the next facebook / twitter / groupon / apple / cisco etc
  • All you need is someone who can help you raise a “ton of money” 
  • We understand the startup investments very well and have partnerships with “leading VCs”
  • We already know some really good “strategic investors” who may be interested
  • Strategic investors is really a label for some names they will talk about and claim would be most amazing investors in the world for you, even though you may have never heard of them and can not find them anywhere on google / linkedin etc
• What will they claim to do for you?
  • We will help you create a business plan if you dont have one and if you do we will help you make it fundable
  • We will create financial projections for next 5-10 years and do discounted cash flows to derive a valuation
  • We will take the deal to the “investors” and help you thru the process
  • We will help you get the best valuation since we are the experts here and you the founder can focus on the business
• What do they want from you?
  • Depending on whom they are talking to they will ask for a combination of
    • 2-10% of the amount raised
    • Upfront fee between 50 k to 2 L which will be adjusted against the % of the amount raised
    • Monthly retainer
    • 2-10% equity in the startup
    • In some cases they will agree to waive of the upfront fee and only charge a % of a the amount raised
• What can they actually do for you?
  • Practically nothing, except wasting your very precious time and money. 
  • You & your team will have false hopes of getting funded
  • You will end up having some useless discussions / meetings which wont go anywhere
  • If by chance there is an interested investor, the terms would be totally “anti entrepreneur”
  • As a founder you need to take charge of something as important as raising money from the right investors
  • I know most of the real VCs & individual investors in India, plus I have first hand information of minimum of 50-70 startup investment deals in morpheus portfolio and outside (not counting our own investments)
  • Never in my life I have known of a startup investment deal where either the entereprneur or investor worked with a “middleman”
  • This just does not happen – so stay away from these guys
  • Do it on your own, when the time comes – you can get the knowledge about the process from so many excellent blogs and by talking to some helpful founders who have done it before

These financial advisory firms may work well in the world of mid size / large companies where most of the work is done based on numbers but in the world of startups this kind of stuff is an utter waste of time for founders. 

PS: Warren buffet never uses middlemen to buy any companies

Indirect middlemen

There are also set of indirect middlemen which are trying to take advantage of the startup trend and want to profit from it without really creating value for the other side.

Advice for founders

Guys – do you really think, some random financial advisor can go pitch your company to a top VC firm & get a cheque which you can deposit next week in your bank account. These are just fantacies so just stay far far away from these “financial middlemen”

As  founders you should just focus on building the best business possible within the financial & human resources available to you. Use capital efficiently & most importantly focus on building a good product & adding value to the life of your customer. If you can do that repeatedly, you are on the path to building a great business and if you are worth funding, money will show up. 

Even if you want to go out and proactively raise money from VCs or individuals, you should reach out to them directly. Do not send mails to the generic email IDs given on the websites, but get a warm introduction to the investor via someone with whom they have worked before and have respect for. If you can not manage that – you may be missing on the vital skill of networking that is needed to build any business.

The fundamental reason to become entreprenuer is to do each and everything yourself, learn from it and do it better the next time – so go do the fund raising yourself.

Advice for good investors

Kill the opacity, share more information so that we can have a more efficient industry. Here are some ideas to become more transparent and more available to founders:

• Write regularly on a personal blog
• Comment on other blogs
• Join twitter & be active on twitter
• Join quora & answer stuff
• Once in every 1-2 months, conduct open events / open hours where people can just come and meet you
• Answer more emails
• Partners of the VC firms should attend startup events along with the junior guys & stay longer to interact with founders in an informal setting

Has the blog helped your  investing?

Absolutely. I’m not sure I could be a VC without the blog. You have to be out there in the hearts and minds of the entrepreneurs, and that’s the scarce resource with what we have as investors; it’s certainly not the money.

Advice for ‘middlemen’

Guys – startups really do not have anything for you. They need to do things on their own. So please leave them alone and change your focus to some other customer segment or better yet do a real startup yourself. Do not take my post personally, this is just an indiviudal prespective. 

Back in 1999, I had a cushy software engineer, job at Digital Equipment Corporation (DEC), Bangalore (a MNC) but I was getting super bored. I was looking after few components of  an old product, no new development was in pipeline, purely maintenance work.  On a working day, I spent 7-8 hrs in office & out of that nearly 5-6 hrs were spent talking to friends / drinking coffee/ checking mails / downloading songs & repeating some of these things, work only took 1-1.5 hrs of time every day. For a while it seemed like fun but then it hit me hard, “What the heck am I doing with my career? I am wasting day after day & not learning anything.”  I was young (22 yrs) & I realy wanted to face some challenges & to learn from them. During those days someone said to me “If you want to learn you should work for a startup. A startup is a new company with small number of people who are creating something for the future “.

Honestly, I didn’t fully understand what a startup is, but it resonated with me & I decided to give it a shot. I started looking for openings & fairly quickly landed an offer from a startup (Sonim) but in parallel I also got an offer from an established company (Celstream).  Now I had to decide. Like regular people I had my fears about working for a startup – will they pay me regularly, what if they shutdown in few months, there is no brand value etc. But there was something about the startup that was attracting me. In particular it was what one of the founders (Jai) said to me in the final interview.  

Think carefully before joining a startup, startups are not for the weak hearted. Your offer letter will off course say 40 hrs work week, but we will expect you to be around day & night

Actually with that line he was throwing a challenge my way. I decided to accept that challenge & took the offer. And, believe me, that was the best career decision I have ever made. I had the time of my life at Sonim. They were not offering me a higher salary than the established firm, but they were offering an adventure / a chance to create a part of the future / a chance to work with super smart people / a chance to fully immerse & do some crazy learning / a chance to work at a fun place – where they don’t look at what you wear & what time you come to office, they only care about performance. I joined at a lower salary as compared to the other (established) job offer, but within a year when they did annual appraisals – I got a 100% raise, the best in the company.

The transformation was amazing:

• From a guy who used to work 1.5 hrs a day only on weekdays I went on to work 18 hrs a day, all days of the week (same with all my super smart colleagues)
• From working on a ancient, soon to die, product I went to work on cutting edge solutions for the future (we were creating applications for GPRS  networks & GPRS was only available in Labs at that point)
• I joined the server team as a software engineer but within 3 months one of the founders (sudu) told me he is creating a new team to work on handset /device side of things & he would like me to lead that team. I was unsure. I said that I don’t how to lead a team & I only have 2.5 yrs of experience. He said don’t worry about it I know you can do it, I will help you.
• That’s the beauty about joining a startup in early days. You get to work with super smart founders and these guys can really airlift you. I mean this guy was a top hacker from Netscape – really awesome & he took me under his wing. After my parents, I consider him one my first real gurus along with another founder Jai
• I ended up leading the devices team for the next 3 years, travelled across the world, worked with all leading handset & chipset companies of the world – Sony Ericsson, Motorola, Samsung, Siemens, LG, TI, Infineon & many more.

I can go on & on about my amazing time at Sonim but I will stop here.  I had done 3 jobs before Sonim &  ran from each one in 7-8 months, but I stayed with Sonim for 3.5 years. I left after they raised too much money and the founders moved on other projects, but again I went to work for another startup (Telephia – acquired by Nielson). At sonim, I joined as employee number 19, I had loads of fun / amazing amount of learning / did lots of biz travel / made a habit to take on the giants in my industry / learnt a lot about startups & one day it lead to me doing my own startup (Madhouse) & now to The Morpheus.

Working for a startup is not for everyone, it is not a regular job, it is a lifestyle choice. Do you want to choose challenges, learning, creation, responsibility, adventure, chance of getting rich on equity over the “safe, cushy job”. If yes, then start looking now (shameless plug: many of the Morpheus portfolio companies are hiring).

Once you work for a startup & you enjoy it, you can never go back to work for a regular company. You will either work for another startup or you will start your own startup.

But if you are the weak hearted type, stay with your job, go visit naukri.com, send your resume to a consultant or apply to an MNC.

Note: I am really thankful to the founders of Sonim & my amazing friends who worked with me at Sonim for the wonderful time. All of them are really smart & many of them are my best friends now.

Couple of weeks ago I went out to have breakfast at Backpackers Cafe (Chandigarh) with Nandini & our daughter Sanaa. Backpackers is a fabulous place, we love going there to have a relaxed slow paced breakfast. So while I was enjoying my breakfast & generally relaxing, few thoughts walked into my head & have stayed with me long enough that I decided to blog them.

We visit Backpackers 3-4 times every month / bring many friends & recommend the place to everyone. We never notice how much we pay for the food. When we are done, we just ask for the bill / hand over the credit card / sign the slip / put in a nice tip & walk out. We always spend around 3 hrs at Backpackers & even after 3 hrs when we leave we are sad we are not staying longer. There are always a lot of happy customers sitting on other tables.

While thinking about all this, some questions came to my mind :

• Why do I like this place so much?
• Why can’t all cafes / restaurants be this good?
• What is so special about this place?
• What are they doing differently?

Answers that popped up :

• The place is just perfect : great breakfast (eggs, sausages, pan cakes, black coffee) /great ambiance / good service (cld be great) / great location / nice crowd
• In my crazily busy life, backpackers allows me to spend 2-3 hrs in a relaxed mood,  I am refreshed after every visit & I value that a lot
• The food is way better than the other breakfast places in Chandigarh
• Sanaa also loves hanging out at backpackers. She likes to eat the potato fries & the whipped cream that comes with pan cakes

Graudually, my thoughts moved to other brands I am in love with : Apple, Indigo airlines, Books & Brew (free wifi cafe near my home), Levis jeans, Cuban cigars, Jack Daniels, Live Saloon (Grt saloon near my home), Gmail, Flipboard, Radbox & many more.

Why am so crazy about these brands? What do all of them do differently?

1. All these brands add a lot of value to my life
2. The quantity & quality of value they add is way higher than available alternatives (not just incremental)
3. Basically, these brands are “Hitting the ball out of the park”

The Test

The message was clear. Every brand / company / startup that ever became successful / is successful today or wants to succeed in future has to pass this test.

Are you continuously hitting the ball out of the park when it comes to adding value to your customer’s life?

It looks simple & obvious on paper but is very difficult to achieve in practice, where it is all about cold, hard execution. That is why out of hundreds & thousands of ventures that get started there are only few who manage to pass this crucial test.

Here is the fundamental secret of founders who have built & will build businesses that are valued by customers :

• They are good at spotting important need gaps or problems in the lives of customers (even before customers themselves notice them)
• In most cases they are looking to address a personal itch that bothers them or a problem they personally care about
• They intuitively know that the first & the most important thing they need to figure out is “How to start adding loads of value to the customers life?”
• More importantly they manage to stay focused on adding that value
• Everything else can pretty much wait : b-plan / scaling / costing / hiring / fund raising / roadmaps / financial models / events / awards & other blah

Understanding value creation

It is not possible to define ‘value’ because it is different for every startup depending on the problem they are solving / the customer they are targeting & many other factors.

Here are some broad guidelines :

• Start by identifying an important need gap or a problem that is unsolved or a problem that has not been solved well
  • Google founders identified that none of the search engines provided accurate search results, as they went deeper they realized the results were grossly wrong and they had some good ideas to try & fix it
  • After the success if iPod + iTunes apple guys said to themselves “What should we change next?” and after some looking around they realized that all of them hated their phones
• Before starting the work on the solution, do a 1-2 week deep dive into the specific domain of the problem. You should know whatever there is to know about the domain inside out
• Do not do any market research activities, surveys & stuff, those are useless. Build real on the ground learning
• Various things you should learn :
  • What are the various solutions / products that are currently used to address this problem?
  • What are the alternatives & options that customers are using?
    • Before Tata Sky the option was local cable guy or before Tanishq the option were non-branded family run jewelry shops
  • Which players are selling & making these solutions ?
  • What do people like & hate about the available solutions ?
  • How well are the current solutions addressing the problem ?
  • Who are the thought leaders in this domain? What are they upto?
    
  • Are there any new startups trying to disrupt this domain? What approach are they taking ?
  • How large is the addressable market?
    
  • Is there really is a need for a new player?
    
    • If the answer to this last question is NO – be quick to drop the current idea and move on to something else
      
• While designing your solution do not look at just making something ‘incrementally better’ or ‘artificially different’ than the currently available options
  • Do you think there is any significant difference between Coffee day & Barista (I don’t).
  • Cafe Mocha was launched with a totally different experience & that is why it has a unique identity / loyal audience.
• If you want to create long term value & get a real edge, you need to change the game & do something completely different.
  
• Create something that is light years ahead of other alternatives
  • 37signals completely changed the paradigm of project management / salesforce.com turned CRM market on its head
  • Players like LG/ Samsung/ HTC kept doing phones which were incrementally better than Nokia one way or other
  • Where as the first generation iPhone’s were light years ahead of ‘most advanced’ nokia phones
• If you manage to change the game, you also get to make the rules of the new game. Which is strongest ‘entry barrier’ anyone can create. This barrier can not be overcome by muscle or money
• Suddenly the current market leaders do not know, how to play the game & are found struggling
  • Yahoo or Microsoft could never catch up with google in web search or email
  • Nokia / Blackberry are looking at extinction in two years unless a miracle happens

Summary:

If you are doing a startup (or planning to), stay away from the zillion distractions. Just focus on the below mentioned basics & do them really well.

1. Figure out a sure shot way to add lot of value to your customer’s life & continuously keep hitting the ball out of the park  
2. Figure out a way to monetize the value (right pricing takes some experimentation) 
3. Build & deliver the value in less money than what the customer will pay you 
4. Be in a market which has large / growing number of such customers whose lives you can improve

Notes:

1. Thanks to Nandini, Praveen Singh, Siddharth & Niraj for reviewing & providing inputs. Thanks rest of the morpheus gang for reviewing it
2. The post is written mainly in context of startups but most of the concepts also apply to established businesses
3. This article assumes free market forces & does not apply to conditions like monopolies / unfair govt. regulations etc.

I just finished going through my copy of The SaaS Edge – a fabulous book on SaaS by Sahil Parikh/ Founder / Deskaway, a portfolio company of The Morpheus. Sahil sent me signed copy of the book couple of months ago with a personal note, I read it in parts in between my travels & other things that kept my busy – it was never easy to keep it down.

I have known Sahil for over 2 years & one thing that stands out about him is that he has extremely clear thoughts about things that he cares about . This includes his startup Deskaway / colleagues / family / friends / vacations / work life balance etc. His thoughts on all these subjects are very clear – no confusion what so ever. And to the delight of all the readers – he has brought the same clarity to the book, that is what makes it “Simple but very powerful”. The book starts with basics and it really holds the hand of the reader while taking the him through the fascinating world of Web 2.0 and SaaS. It does not let the reader get scared or over whelmed by the jargons. Every concept is introduced using simple but relavent examples / qoutes / diagrams. After learning the basics reader will effortlessely move into the more advanced levels.

• SaaS for you
  
  • One part of the book talks about tools and platforms available for an individual
  • It gives an intro of web 2.0, covers things like blogging / twitter / FB / LinkedIn in a very practical manner
  • If you are already using these tools – the book can help you get more out of them
  • If you are someone who knows browsing but has never used these tools – get the book, you can get started & starting benefititing in no time
  • I have recommended the book to my dad. He uses his laptop regularly for reading news and doing email. He does have accounts with FB / twiiter /linkedin but does not know how to really use them – I am sure the book will help him
• SaaS for your business
  • Again in a very simple manner concept of SaaS is introduced as “renting software via the internet”
  • It talks about the common tasks that your business accomplish using different SaaS applications like blogs / wikis / google apps / sales force / get satisfaction etc
  • It talks about Myths around SaaS / advantages of SaaS and leaves you with a sense of power of SaaS
  • Armed with this book and a willingness to change any business owner can transform his business

I was an early adopter of SaaS & for last 3+ years I have hardly used any desktop application. Every thing that I use is either a SaaS app or an iOS app – mails / social networking / video / productivity apps / music / contacts / calender / blogging – abosultely everything. Not using desktop applicitons is very librating, becasue you are no longer tied to a particulat laptop or desktop. I purchased an iPad a month ago , before that I spent almost 6 months without a laptop. Most of my things I did on my iPhone and if needed I could use the browser on any laptop / desktop around me.

For Morpheus, right from beginning we have used SaaS for everything – mails, docs, CRM, blogging, managing portfolio. It allows us to be wagabond & bootstrapped, while we use high quality products.

I find SaaS so practical and good that I think this is only way software should be build or used. So if you want to start your journey or get better at harnessing the power of SaaS go right ahead and place your order with Jumadi.  Jumadi is an online bookstore (morpheus portfolio company) you will get 25% discount on the book & if you mention discount code SAHIL you will get another 5% off.

Everyone in the Morpheus Gang (partners & portflio founders) is very proud of Sahil for writting such an amazing first book and believes that he will keep producing high quality work well into the future.