Should a startup be Ramen Profitable?

An interesting question was popped by Mayank in context of PG’s essay – Ramen Profitable
  • How does/should one take call between growing without being profitable or being profitable and then growing (Ramen Profitable)?

At the minimum once every 2-3 months this question pops in the head of  a startup founder. Should we invest in growth or try to become/stay profitable? If one thinks long-term: investing in growth seems to be the call.  From short-term perspective becoming profitable seems important.  What is the right answer?

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  • Every startup’s journey is made up of many “startup phases”
  • Each “startup phase” is on an average 18-24 months long
    • Phase duration could be different for different startups
    • Different phases for the same startup could be of different duration
    • Typically initial phases are of smaller durations (9-12 months) and the phase duration grows longer with each phase and finally settles at 18-24 months

All phases will typically have 3 different parts to it and i’ve detailed them below:

  • Part 1 (6-8 months)
    • You have certain amount of cash, certain goals  & growth targets that you want to achieve
    • The approach should be to invest in growth & towards achieving the planned goals
    • This is the non-profitable time that will include investing in
      • Development of the next (or first) version of the product
      • Team building
      • Building additional capacity
      • More office space (as required)
      • Customer acquisition efforts
      • New branches / New sales channels / Trying new revenue streams (not applicable for startups in the first phase )
      • And other similar activities
    • The startup will use 40-50% of the expense budget for this phase during Part 1
  • Part 2 (6-8 months)
    • Focus on reducing the gap between monthly expenses and monthly revenues and move towards cash-flow positive
    • No more major investments and laser sharp focus on increasing revenues while keeping costs the same or lower
  • Part 3 (6-8 months)
    • Somewhere in the beginning of Part 3 you should hit cash-flow positive state and become – Ramen Profitable – where your revenues are just above your expenses
    • Post that you need to continue to ensure that the gap between the two increases steadily and as a result start building some cash reserves
    • Couple of months after you hit cash-flow positive (for this phase) you can start considering fund raising options
    • To have high probability of raising funds you need both:
      • Significant growth in this phase
      • Cash-flow positive business operations
    • The above two are positives signs for the investor
      • It shows that you are capable of achieving growth as well as capable of managing your cash flow / profitability
      • Also it puts you in a position where you can continue to exist & grow organically without an dependency on any new investors
    • And every investor wants to invest in a team that can succeed without them
    • Once you raise funds or build adequate cash reserves from internal accruals you can start the next phase and repeat the same cycle

Life cycle of a “startup phase”

  • Part 1:
    • Start the phase with certain cash reserves, growth targets & goals
    • Invest in growth
  • Part 2:
    • Focus on building  revenues and reduce the burn rate
    • Start achieving the growth targets
  • Part 3:
    • Become – Ramen profitable / Cash flow positive.
    • Build cash reserves / Raise capital
    • Move to next phase & repeat the cycle

Ready to endure and enjoy the startup-pain?

Most founders start companies to achieve things like : financial freedom, creative freedom, change the world, make a difference, do something different, be the master of their own fate, be known for their work, be respected by friends & family, lead people, create jobs and the list goes on.

A surprisingly a large number of folks who start companies expect these glamorous  things to start happening automatically the day they leave their job and become entrepreneurs. And since the reality is very different, very soon they start complaining and eventually quit. Here is a little secret you should know:

“Things don’t happen automatically, u have to make them happen. You have to endure and enjoy the pain. Successful entrepreneurs know it instinctively & that’s what makes them tick.”

First 2 years (or more) of a startup are extremely demanding on you as the founder of the startup. You have to endure a lot of pain before you can even get a glimpse of some of these nice things. And there is always a high probability of not making it. Its kind of being pregnant for 2 years while knowing that probability of giving birth to a healthy child at the end of it is a mere 10-15%.  People who go through this period of pregnancy and deliver successfully are the ones who enjoy the journey and the pain more than the outcomes; ones who are prepared to do what ever it takes. You should ask the same question of yourself – are you ready to endure the pain? Or are you better off in your job?

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Here is the list of some the things that you should be prepared to go through at a personal/ emotional level during your entrepreneurial journey.

  • Unless you plan to live with  your parents, be prepared to move out of your comfortable flat in Versova  with rent of 20k a month and  move to Dahisar to maintain the size of the flat but reduce the rental bill to 10k a month.
  • Flights won’t be the default mode of travel between cities (surely not kingfisher).  Every time you’ll travel you will evaluate train vs flight, usually the trains win and mostly sleeper class fare.
  • Cabs are no more allowed for travel within the cities. You gotta be using auto rickshaws,  ride buses / trains / metros or even hop on the shared cabs (yeah I have done that)
  • No staying in hotels, not even budget hotels. Make a list of friends / relatives in all cities and starting piling on. Or checkout  www.couchsurfing.org
  • Can not eat in any fancy restaurant – get a list of affordable but clean food joints – McD is a great option. Cooking at home is even better.
  • No more drinking out in pubs. If you wanna drink bring it home.
  • No movies in multiplexes. In fact no time to watch TV.
  • No phone upgrades / No laptop upgrades. Manage with what ever you have.
  • No bank will give you loan. Not even a credit card.
  • When we were doing our first venture madhouse – did not buy new clothes for 3 years. Only bought when an investor asked me come to the next meeting in formals.
  • There is nothing called a work-life balance in first 2 years of a startup. It’s only work, work and more work. So get used to it and tell your family also.
  • You are doing to work (or should I say slog) 18-20 hrs a day everyday for the whole 2 years. And in your 4-6 hrs sleep you will keep dreaming about work anyways
  • And a lot of your work time will be spent doing small things, which are not exactly intellectually stimulating  – kinda stuff you always took for granted – cleaning the loo, mopping the floor, making tea, opening your office, buying food, going to banks, dealing with govt officials, starting the generator
  • You won’t have much time with family or friends. You will regularly face – angry parents, angry wife, angry kids and angry girlfriends/ boy friends.
  • No going to family functions or weddings. Even if they drag you to the function – you will be sitting a corner on your laptop or iPhone and that would leave your relatives angry with you.
  • No holidays. No weekends. And if you really want a vacation – Use Google earth to enjoy your imaginary vacations. Feel happy when google earth has higher resolution imagery for your vacation spots. They have recently added high imagery for Kashmir region, especially gulmarg and Amarnath.
  • No time to take care of your health. Running, exercises, gyms – all go for a toss
  • Don’t expect any recognition for your efforts from friends and relatives – they wont get it – for them you are still a moron – who quit his fancy job with a big company and fat paycheck to do some thing as mundane as SELLING DVDS
  • Be prepared to a lot negative talk – all most all people around you will keeping tell you how big a looser you are and many more things.
  • Totally get used to failing. Infact failing is not bad – that’s the way to make progress. If you are building anything from scratch – you have to fail 20-50-100 times before you get it right. That’s how evolution works. That’s what happens when you try to solve hard problems.
  • Be ready, most people will reject you : customers, investors, employees you try to hire, organizers of startup showcases. You have to keep looking for the ones who will accept you.
  • Employee retention will be a pain. You will spend a lot of time finding and training freshers to find they have been poached by biggies with just 1.5x or 2x the salary as soon as training is completed.
  • Your girlfriend’s / boyfriend’s parents may tell you that they are not too keen to marry their son/ daughter to an entrepreneur
  • And if you plan to close an arrange marriage deal you can forget about it. Entrepreneurs are a total flop in arranged marriage scenarios
  • Your co-founder will chicken out and will create a bitter scene. People who seem super committed and ready to give their life for the cause would suddenly find out reality and bail on you.
  • Be ready to max your cards / pledge your Personal Assets/Share certificates to give fuel to your Business.

Lot of startups fail / shutdown, just because founders were expecting too much too soon and were not prepared for some of the hard things. I believe being aware of what is in store; can help you prepare for it. If you are prepared for the pain, it will not come as a surprise and I promise at the end of it – all the nice things that you started out for are eagerly awaiting you.

Thanks to Ashutosh Upadhyay , Ankit Maheshwari, Robin Moses, Indus Khaitan, Pankaj Guglani, Sahil Parikh and Nandini Hirianniah for reviewing the draft of the article.

Carpe diem – Seize the day

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Dead poets anthem

Recently I watched the movie Dead poets society. The movie hit me hard,  I had tears in my eyes during the last 20-25 minutes. After the movie got over I was numb for sometime and my mind wouldn’t get away from it.  Its been 3 days since I watched it but the movie is with me. I can close my eyes and play the whole movie for myself.  So I guess its not a bad idea to write a post about it.

It teaches some of the most important lessons of life and delivers them in quite a hard hitting way.

  • Be a free thinker
  • Don’t conform; create your own identity
  • Suck out all the marrow of life
  • View things from a different perspective
  • Be loyal
  • (Most important) Carpe diem – Seize the day

Most institutions and influencers around us discourage us from following these lessons and sometimes even force us,  “to conform, to follow, to accept established views & methods, and to be safe”. These include – schools, colleges, parents, govt., relatives & more.

The movie is set in Welton Academy, shown as USAs most prestigious preparatory school, after finishing the school 90% of students  get into Ivy League. The school is run by a headmaster (and management) who is proud to continue the traditional, conformist ways of learning and wants to maintain absolute discipline. Mr. Keating (played by Robin Williams), an graduate of the same Welton Academy, comes into the school to teach English Literature – which is given pretty much a step-motherly treatment since the school wants to only produce – Doctors, Lawyers, Engineers, MBAs.

Keating on other hand has different ideas. He starts his first class with “Carpe Diem” – a latin word that means “Seize the day” and Carpe Diem is the central philosophy of his teachings. He wants the students to be free thinkers, to create their own identities – he wants to them to “Seize the day” – Carpe Diem.

As per him English poetry has all the things we stay alive for – beauty, love, romance. His style of teaching is very fresh and totally out-of-the-box. Some of the boys go look up the yearbook for the year in which Keating had graduated from Welton and among other things they find the mention of Dead Poet Society. They ask Keating about it, at first he doesn’t want to talk about it. But when the boys push him he tells them about it but asks them to keep it a secret. During his school days, members of Dead Poet Society met in the Indian Cave which was away in the jungle by the river after dinners, read poetry and sucked the marrow of life. A group of boys lead by Neil like the idea, re-form the Dead Poet’s Society and start the meetings. These boys also start becoming free thinkers and start to create their own identities. One track of the movie is about the teaching methods of Keating – where he uses poetry to teach them some important lessons of life. Second track shows stories of  all current members of Dead Poets Society who are influenced by Keating’s teachings and decide to “be thinkers and find there own destiny”, instead of just doing what their parents and headmasters are telling them to do. As expected the school management does not appreciate his endeavor of making real thinking citizens out of the students and they decide to throw him out. The movie has an amazing ending, but I wont spoil the movie for you by telling the end. But let me tell you – it is the ending that is the most hard hitting. Watch the movie – you will enjoy it.

One of the reasons India has not realized its entrepreneurial potential and not produced the googles is that our kids continue to grow up in a conformist environment, risk averse society, surrounded by schools, colleges, parents and other influencing forces telling the kids to just follow, to conform and not to try new things. All of us admire and respect people like – JRD, Dhirubhai, Sunil Mittal, LN Mittal, Sanjiv Bhikchandani, Subhash Chandra, Narayan Murthy and many more, the entrepreneurs who have made a difference. Ironically, these guys were anything but conformist, all of them traveled the ‘road less traveled’, took the risk , trusted their guts and pursued opportunities which looked stupid to others. When Nandan Nikeleni decided to join Infosys as a young engineer from IIT Mumbai – his friends and family thought he was crazy and today he is one of the most respected guys in India.

The lessons of Dead Poet Society are cardinal to the success of an entreprenuer and I would strongly urge all entrepreneurs (current and would be) to watch the movie and internalize the lessons.  Get your parents to watch the movie as well.

Lessons once more:

  • Be a free thinker
  • Don’t conform; create your own identity
  • Suck out all the marrow of life
  • View things from a different perspective
  • Be loyal
  • and

Carpe Diem – Seize The Day

Credit: The image was taken from a blog post about Dead poets society

How to practice quality in your startup?

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Image via Wikipedia

(This article was written for IT magazine and was published in Feb 2009 issue. Original article can be founder here)

These thoughts about quality crystallized in my mind while I was reading Robert Pirsig‘s “Zen and the Art of Motorcycle Maintenance: An Inquiry into Values”. There was such a rush of thoughts in my head that I had to keep the book away and start writing down my thoughts.

Pirsig offers this definition for Quality:

“Quality is a characteristic of thought and statement that is recognized by a non thinking process. Because definitions are a product of rigid, formal thinking, quality cannot be defined.”

But then below the definition on the blackboard, he wrote,

“But even though Quality cannot be defined, you know what Quality is”

Startups are essentially units of passionate, committed, and somewhat foolish people trying to accomplish things which would normally be considered far out of reach for them. The only way for the startups to make it across to the other side is by ‘practicing superior quality’, quality in all aspects of the startup:

  • Quality of the founding team
  • Quality of the idea
  • Quality of the execution
  • Quality of the product design
  • Quality of everything else being done in the startup…

Now the question really is, if ‘quality’ can not be defined, how does the startup practice it? The short simple answer is that Quality at a startup directly proportional to the:

  • Sense of quality of founder(s)
  • The discipline with which they follow it
  • The amount of pain they are ready to bear to ensure quality is practiced

The ‘sense of quality’ is not something one is born with, its something that comes with ‘care’.

Though the Google founders were not UI experts, they came up with a high quality search page design, because they deeply cared about the users experiences. They cared about keeping it simplistic and natural to how people would want to look for information. As a founder you must first of all ‘care deeply’ about all things that your company is doing. This ‘care’ will turn into the ‘sense of quality’, which will give you the ability to tell good quality from bad.

Evan Williams; the founder of blogger cared so deeply about the users of blogger, that he stayed on with the company as a single employee running servers, teaching himself stuff, writing code, talking to users, fixing bugs even when all other employees moved on, when the company had almost no money. He did not leave, he stayed on continuing to ensure quality experience to the users whom he cared about and prevailed. Blogger became Google’s first acquisition.

Similarly, the guys who designed the first spreadsheet ‘VisiCalc’ spent less time coding but a lot more time thinking to make it easy for people to use, to ‘make it natural’. They knew they were competing with ‘back of the envelope’. They cared about the users, cared about minimizing the number of clicks and steps that a user needs to go through for performing a function. And if that was not the case, they would have designed a product which would have sunk without a trace, like many other ‘low quality’ products.

Once the founders reach a point where they care about everything that matters, the next most important thing is they have to get ‘quality’ people onboard. They have to instill ‘care’ and teach the ‘quality’ to each of these guys.

How can founders/leaders teach quality?

Some of the points to keep in mind would be:

  • Understand that you are also learning the subject which you are teaching, so be open to questioning and changing your existing ideas and beliefs
  • Unless its science or math, never give rules to be followed
  • Provide a broad framework to help the guy get started, but make it clear that these are not rules, its just one representative framework. It can be wrong, can be changed, challenged and improved ( mental model )
  • Use real-life examples and case studies to understand and learn from the examples along with the person your are discussing it with
  • Evolve and further understand the model as you proceed
  • Also establish that learning for everyone is a continuous process, everyone is learning
  • Don’t try to arrive at rules / rigid patterns from past data or information
  • Finally, create adaptable mental models – which can handle randomness

Tim Brady, the first employee of Yahoo after David and Yang was obviously given the quality training by the founders, though he was a business guy and these guys where geeks, they managed to convey their care and sense of quality about various things.

Always remember, there is no single or fixed number of routes. There are as many routes as there are individual startups. So don’t follow rules. Make your own rules. ‘Care’ about every damn thing and ‘ensure highest level of quality’ in every task undertaken, every person hired, every product feature designed, every sales call made. Just be paranoid about quality and not let it go. It’s a tough thing to ask and that’s perhaps why there have been so far and few who have made it through.

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The Process

Ankit shared this excellent post by Seth Godin. Seth makes a very subtle but extremely powerful point about “The Process”.

  • of understanding people
  • of getting things done
  • of knowing that “leaders are servants”, the more people you lead the more you are serving
  • of understanding that “no idea is so good that it can not be improved upon”
  • of practicing humility and understanding that “humility disarms”
  • of looking at fundamentals while solving problems
  • of breaking a complex problem into simpler, smaller pieces
  • of not second guessing everyone who works with you
  • of making small checking list of things and crossing them one by one

(These are points that came to my mind about “The Process”)

Startup Madness

(This article is jointly written by Sameer Guglani and Nandini Hirianniah)

In recent days, while working with the MVP portfolio companies and reflecting back on the days of madhouse, we have identified this phenomenon we are calling ‘startup madness’.

It’s visible and present from the time when you start thinking of your million dollar/world changing idea to the steady state point (personal satisfaction, acquisition, IPO or maybe shutdown). Things that you do, don’t make any sense to outsiders and they are like ‘This guy is crazy’ and even when you look back at that period you think “what was I thinking when I did this?”

Looking back at the time when we got the idea to start madhouse, we did not know anything about business, we were just two 27 year old kids (later three of us, with Ankur joining us). We had tried a variety of things in our lives and had managed to do reasonably well in whatever we put our hands into, may be that’s what gave us the stupid confidence. Very importantly we were quite ignorant about ‘real business’ and hence came up with our own take on every business problem we faced.

This streak of startup madness showed at various places:

  • We did not hear NO:  not from vendors, not from people we were trying to hire, not from investors, customers, no one. A NO just meant we had to come back with new ideas and try again.
  • We would never get tired of talking about madhouse and we could talk to any one about it. Most times the other guy did not give a damn :-(,  for him/her it was just a blabber
  • We just worked non-stop for three years , not even a day off (except when forced by illness)
  • Other than work everything else was just plain unimportant : sleeping, eating, meeting friends, attending social functions, family, watching TV, movies, newspaper – all of this had very little place in our lives. We just filled all our day with work with average working day of 16-18 hrs all thru.
  • We worked out of anywhere and everywhere.  Our tools were a Fujitsu laptop and a CDMA phone which could be used like a modem.  Restaurants, inside a car / train / auto rickshaw / bus, out on the road, in the park, bedroom, living room and the loo, locations stopped to matter, every place was work place.
  • We did not need a lot of money to live and we were happier than ever (no purchases of over 1000 for 3 years, eating at economical places, shamelessly staying with friends / relatives / acquaintances in cities we visited on work )
  • ‘The world impossible was missing” – we just did not believe that there was any problem that we could not solve or anything we could not do. Our minds were one track – focus hard, think hard, work hard and just do whatever it takes.
  • We had access to this inhuman energy that allowed us to just keep going – “never get tired” or “never run out of steam”.
  • Each time we met a new person, we were constantly thinking of how this person can help our venture, . Everywhere we went, we explored if there was something there that could benefit our startup. Frankly we were classical ‘opportunity hounds” and quite shamelessly so 🙂
  • We were basically “stuck” in our own world in which we could not fail. While we adapted like crazy, we sort of forced business to work the way we thought it should work, without caring a lot about the outside world.

This madness is the essence of start-ups; it signifies the purity of a startup. It makes the startup tick and makes it successful and enjoyable. The same madness makes you innovate, over perform, challenge your skill set, think out of the box or even out of the world, take 28 hrs out of a 24 hrs a day, it gets you to focus but does not let you  blindly focus!

Its also important to figure out how can you keep re-fueling the desire, the madness, so that it lasts forever, not just for days, weeks or months, start ups that click need to be at it for years. For an individual or team to succeed as a startup, having the startup madness is a must.

If you are an entrepreneur look inside you and make an honest assessment. Do you have the streak?

  • If yes, great.
  • If no. But you think you can build it – nice, go ahead and do it at the highest priority.
  • If you don’t have it and you can’t build it – I am not sure you should continue being an entrepreneur.

On that other hand, if you are not yet an entrepreneur you should also look inside you and make the same honest assessment. Do I have the mad streak?

  • If yes, you fool, leave your job right now – the world of ‘startup madness’ is calling
  • If no, it would best for you to avoid the path of entrepreneurship, until the ‘madness streak’ gets to you 🙂

It takes a leader to deliver – Blue Dart

“It takes a leader to deliver”

This is the slogan of Bluedart – which was written on the posters all around me, when I went a Blue Dart Hub to send a courier to Mumbai.

I went in, asked for envelope, wrote the address on envelop, waited 5 minutes for my turn while keeping an eye on a guy who came after me but was trying to push his packet ahead of mine.  The bluedart guy took my packet looked at it and said “We need complete From address” and gave my packet back into my hands and started processing the other guys package.

I was thinking “Why was this not mentioned to me before while I was asking for the envelope ? Why is their no written instruction on the wall saying one needs to have full From address ?”.

Anyways, I had no choice so I wrote the From address on my package and gave it back. The guy started processing it and asked me to pay 230 bucks. Which I thought was too high for a Bangalore – Mumbai courier. I mean Bluedart is (so called) high quality and more expensive courier but, Is it worth 5 times the price of others?. Anyways since the courier was urgent I decided to pay 230 bucks.

I gave the guy 300 bucks, he took the money and asked me if I had change, I told him I dont have change. He looked at me as if I have committed a big crime and looked at me for some time. I guess he was hoping that I will go and arrange some change. When that did not happen, he waited a little more and then went in to arrange change. I was already quite irritated, that these f***s want to charge 230 bucks for a 50 bucks service but won’t keep change.

He returned in few minutes and told me “Sorry sir we dont have change”, expecting me to do something, may be go out and start looking for change or may be cancel my order.

At this point, I got really really pissed I said “Fine, give me phone number of your manager, I will talk to him”. Suddenly his face changed, he quickly completed the documentation, once again went in and with one minute came back with exact change and gave it to me.

Do you think I will go back to bluedart after this? To get ripped off and get shitty service.

Reporting Live: Google chrome crash

Just 10 minutes back the famous chrome gave me the same “problems” which it claims to be solving. Here is what happened:

  • I was on chrome (on XP) and had a few open Tabs  gmail, google apps and my wordpress blog and google docs
  • I was jumping between Tabs and there you go!
  • The dreaded browser hang happened, the problem in one TAB causing all TABs to hang.
  • I waited for a few minutes to try and see if it recovers, I also tried taking a screen shot to publish it on this post, but hang was so bad, it did not let me do that as well.
  • As a next step I opened “task manager”, here I see 4-5 “chrome.exes”, all of them on top when I sorted by memory usage
  • Since the whole thing was hanging, I proceeded to kill each one of them one by one.
  • But the last one was not going at all, it just kept hanging in there “end process” / “end process tree” , nothing was working at all
  • Since I wanted to finish some work, I opened FIREFOX todo the same and it also hanged. Basically the chrome hang caused the whole OS to hang
  • So I went and did a RE-START on Windows
  • No use here also
  • I had to do a  HARD REBOOT of my laptop to recover

Disclaimer: I do realize that its a initial beta release and problems are expected to happen. This post was just to report my experience and see what others are seeing.