Monthly Archives: January 2011

Be nice to your customers

Posted on by
6

One day I was taking my daughter for a walk near home, in Chandigarh, and I noticed a person on the other side of road, as soon as I recognized him my mind was flooded with unpleasant memories. I looked away to avoid eye contact. I didn’t even want to acknowledge him. My memories of this guy & his family go back 20 yrs, when I was a 13-14 yr old kid. They ran a small grocery store near my house. They lives in a corner house which had a small playground next to it. The shop was in the backyard and its gate opened into the playground. Although their shop was within 150 meters of our house, we would always walk 500 meters to other shops even to buy small stuff. These guys were not nice to the customers. They always picked arguments with customers on small things like non-availability of change or exchange of goods. The only customers who bought from them were people who were either new to the shop or had credit accounts with them. Even though the business was not doing well, these guys never learnt the lesson.

I strongly disliked them because they really mistreated the group of children who played at the ground near the shop. This group included me, my brother and around 10 other kids. Their contention was children playing near thee shop effects the business in a negative manner. Everyday they shouted at us / confesicated the cricket ball or other play things etc. They went to the extent of loudly arguging with 5 yrs old kids & I used to get into many heated arguments with them.

After some time these guys raised debt & moved their business to a big shop in a nearby commercial area. They made it a point to tell us mutiple times that now that the shop is moving away from the playground their business would do really well, as there will be no kids interrupting business. But as can guess, they never learnt to be nice to their customers & soon went bankrupt due to the heavy debt and high costs of the big shop. They closed the new shop, left the house in our locality & went underground.

As my thoughts settled down, I saw an important lesson in this story. If you are not nice to your customers your business will fail. It doesn’t matter who you are / which angel or VC has invested in your business / how much money you have raised / what your idea is – it’s all immaterial. Being nice to the customers has to be the number one thing on the agenda of founders / promoters / management, not only at the startup stage but during all stages of the business. Even though it sounds like an obvious thing for a business to do, almost 90% of them don’t get it.

The question I am trying to answer is why does this happen?

Starting with wrong mindset

Many businesses are started by promoters / founders who do not have the mindset of being nice to customers. They identify a seemingly attractive market / create or get a product that they believe can fulfill the customer needs and assume customers will come to them.

a) Curse of capital

If the wrong mindset is accompanied by the business getting access to a lot of capital too early in its life, (via venture funding or via a parent company / group) the capital become a curse. The money plays role of a shock absorber between customers & founders. The business can continue to pay salaries & rent for months even if it they are loosing money in the name of growth. They don’t feel the need for loyal customers who would regularly buy from them and be happy enough to refer other customers.  In most cases (specially in case of VC funded companies) this doesnt last forever. Eventually either the money runs out or the investors wake up & pull the plug.

b) Blessing of bootstrapping

If the same founders don’t get access to capital and have to bootstrap the business, there is high probability they will change their mindset early on. Simply because the only way for the business to survive is by becoming cash flow positive before running out of money. The only potential source of capital is customers, they need to become a customer funded business. This brings a sharp focus on the customers / their needs & wants and leads to a customer centric culture. You first start by becoming nice to potential customers, which encourages them  to try your product / service. You make sure they get the highest quality product with mind blowing service. This makes the customer come back to buy more & say nice things about the brand to their friends, some of them also start buying. This leads to a postive feedback loop and in time you would have more customers than you can handle.


Starting with the right mindset

There are some founders / promoters (less in number) who know it right at the start that the only way to surive, grow & eventually build a large business is by being nice to the customers. They always keep customers at the center of all decisions & they inclucate the same love for the customers in all people who work for them.

a) The success trap

Whenever I see a good business which had been doing the right things, stray from the path of quality and being nice to customers, it bothers me. If only I can do something about it. Basically people start with the right mindset, as underdogs they take the right path / do all the hard work / build the right culture / get the intial fan club of loyal customers in place. All this leads them to be successful, they are no longer the underdogs but one of the leaders.

Precisely at this juncture the probability of falling into the success trap is the highest. They tend to forget the original mindset & hardwork that made everything possible, and begin straying from the path. As underdogs they worked extremely hard/ cared about quality / paid attention to detail and built things brick by brick. Once they reach a certain level they forget the same principals & start thinking of themselves as a brand under which they can sell what they want, they don’t focus on quality anymore. But as we all know, customers are the smartest breed, the moment they notice drop in quality they start leaving the business. Some of the really loyal ones may come up with feedback but if things don’t change – eventually they move on as well. Once customers start leaving and the company still pretty much the same cost structures, it results in a negative cash flow situation & eventually business runs out of cash. Few years back Statbucks fell into the success trap & they are still struggling to find their way out, hopefully they will. Some of the household names in US, like Blockbuster / Barnes & Nobles have gone bankrupt . Google is struggling as we speak.

b) Staying successful

Accomplishing this is extremely tough and takes continued dedication. Companies or people who stay succesful in the long-term are the ones who did not fall into the succes trap or if at they fell they were able claw their way out. They continued to care about customers & to obssess with quality. McDonalds, Amazon, Apple are examples of such companies. They continue to create value for their customers and their shareholders. Interestingly many of these companies have founders still at the center of the action / making or influencing key decisions.

Final word

  • You need to start your business with a focus on being nice to your customers
  • This is the most important aspect that will decide if your venture would fail or succeed
  • Even if you achieve success by following this principal at no point you can move away from it
  • The day you move away, you fall into the success trap, the decline of your business starts

 

Thanks to Nandini for reviewing the post and providing inputs

Givers & Takers

Posted on by
42

Quite some years ago someone told me that you can only make good friends during school / college / university. Once you start working you would only make acquaintances or casual friends. Later I found that most people believe this theory. I never believed it – mainly because I have been able to make good friends at all places I have worked as well as during my entrepreneurial journey.

The argument in favor of the theory is that during education days most people are more open, quite friendly & not very selfish. They have not been exposed to world of working people which is full of politics / competition / behind the back tactics etc. I could not spot the fault in the logic but my personal experience was totally different, so I kept looking for a way to explain my experience.

Over the last year I developed a theory about a very fundamental aspect of human nature – giving & taking. Of course, there have been many others who have written about this aspect.

Giving is an act where you willingly give something of value to another person or an organization. One way is to give things that have clear monetary value, like a book, or a ride home. The other way is to share insights, give advice or make introductions. The opposite of “giving” is “taking”, and the two always occur together.

While each person gets involved in giving & taking many times every day, my theory is that in most cases one of the trait dominates – so a person is either a natural giver or a taker.

  • A natural giver is someone who is happy to give first without worrying about what he can take back from the other person
  • A taker is someone who only gives to people from whom he expects to get something

After we started madhouse, the first major conference I attended was TiECON Delhi. I was an entry level entrepreneur & wanted to interact with folks who are experienced, so that I can learn from them. I didn’t have anything to give in return. I only wanted to take & assumed that all the experienced folks whom I would meet would be happy to share their experience & give me advice. Well, it didn’t quite turn out like that. A majority of the guys I met turned out to be takers, (I evolved the theory many years later) as soon as they learnt I am an entry level guy, they would make an excuse & move on to someone else  They only wanted to talk to folks who were above their own level. But I was also fortunate to meet some folks who were natural givers & didn’t treat an entry level guy like me like an untouchable. They were happy to hear me out / share their experiences / offer me some contacts / give insights. A lot of what I am today an entrepreneur is due to these helpful people, whom I kept meeting thru the years.Whenever I get an opportunity to give back to some of these folks, I go out of the way to help.

This much of the concept I have had in mind for 6 months now but recently I had a major new insight, which led me to write this post.

“Over the long run, progress in the world happens only with the efforts between two (or more) givers. Even if one person in the equation is a taker, at best there would be some short term progress.”


Life of a taker

  • When a taker meets a person who is at a better level in a particular aspect he wants to take some benefit
  • He starts by behaving as a giver so that he can create a good impression but his eventual goal is to take
  • If the other person is a giver, it works for sometime but sooner or later, the relationship goes downhill when the taker’s true intent is revealed 
  • If the second person is also a taker the whole thing will anyway be a non-starter
  • If a taker meets a person who is lower level than him he would take no interest in this person

Giver meets giver

A good friend of mine one day bumped into a popular & accomplished author at a Crossword book store near his home. They had an interesting conversation & decided to meet for coffee. During the coffee my friend mentioned that he too had plans to write books but didn’t know where to start. The author asked him about the ideas he had for writing a book / dismissed his first idea / probed more into his life & helped him pick a topic which was far more suited to make a good book. Once the topic was finalized he told my friend “If you decide to write the book now, I will edit it for you & will help you write it”. My friend could hardly believe what he heard, such an accomplished author is offering to edit my book & help me write, I must be dreaming. But he had heard it right. “If you want me to help, you will need to commit to writing one chapter every week”, the author added. That sounded almost impossible to my friend, but it seemed too good an opportunity to miss and  my friend signed up for it. Last time I spoke to him, he had already finished 6 chapters & learnt an awful lot about writing a book.

Sometime during this interaction it turned out that the author wants to learn Sanskrit & my friend is quite good with Sanskrit. He started teaching Sanskrit to the author & a good amount of progress has made on that front as well. As the author is getting something of value to him, he is even more willing to help my friend with the book. And the story goes on.

This is a story in which two givers meet, give to each other in a selfless manner. The world now has one new author & one more guy who is learning Sanskrit. Whereas if the author was a taker there would have been no value creation / if my friend was only interested in taking the friendship would have fizzled out after a point / if both were takers the outcome would be zero as well. They are both benefitting because they are both givers.

The giver-taker theory has helped me properly explain why I was able to make good friends even after school / college / university. Basically these people who became my good friends are all givers & I’m a giver by nature as well. So whenever we connected the process of selfless giving took place & became foundation of our friendship.

The final word

In the long run, for your personal benefit and benefit of the world around you, you should be a giver. Just give it a shot – I am sure you will love the change. A nice side effect of folks who are givers is that people around them become more inclined to become givers and make the world a better place. If you are a part giver / part taker switchover totally to giving. If you are already a giver – stay as it is and keep contributing to the world.

Notes

1. This is my birthday post and a token thanks to all the givers of my life

2. Thanks to Shashank, Aditya, Ankur, Dhammo, Nandini and Jay for reviewing the draft and giving inputs

Dont let the BIG Companies kill you

Posted on by
11

You run a startup that is solving a tough problem and the market potential is large. You never had enough money, so the only way to survive was to practice super bootstrapping and to actually make something which customers will pay for. You also had to make sure that your customers are happy with your product / service so that they keep coming back and refer more customers. After some near death experiences you finally managed to become cash flow positive. You had to create stuff in near zero cost, innovate, try a lot of different things and approach the market from a completely fresh perspective. You understand the market now, you have handle on things, sales are growing at a healthy pace, product seems to have reached a certain maturity, hiring is no longer that difficult and your startup is getting good visibility. There may be interest from investors to give you the first Rs.1-2 crore (200K USD) of investment. Overall things are looking up, team is looking forward to next phase of growth and next set of problems that will come with it. 

Sometime now you come in contact with a large company. Reason could be any: they have just entered this market or are planning to enter, they have some offering in this space and you can fit in. Because of what you have accomplished so far they are very keen to speak to you and figure out what can be done together. Isn’t that exciting? It seems too good to be true. But you tell yourself – maybe we are really that good.

That is how we felt before the first meeting with a senior guy at one of India’s largest companies, they were planning on entering the same market as madhouse. “Wow – this is our first startup and one of India’s largest company is interesting in talking to us. If we can crack a deal, we will be golden”. There was nothing on the table – no deal / no partnership nothing – it was just a meeting. But we were quite excited, guess it was natural. We had gone thru 2-2.5 yrs of extreme hard work to bring madhouse to that stage, we could bring a lot of value to the large company. If we get acquired for a good price or figure out a good way to partner with them, we can really scale the business. With their size they will bring the money / the network / the leverage and loads of other advantages.

With this mindset we did the first meeting and many meetings after that. They only asked questions / never answered any of our questions. They wanted to know everything about our business and in detail. How do we get customers? How do we manage operations / specially the hard parts? Can we walk them thru our financial model? Who is our SW vendor? Can they get a photocopy of our packaging?

Looking back it is pretty obvious to me that they probably never wanted to do anything with us. But back then they made us believe that they are interested in acquiring / investing and hence want more info. We made a consious decision to open our kimono. Which was a bad decision because the whole thing it was a farce – till the time they wanted to learn from us the relation was warm and after that it just started dragging. They stopped answering calls / wouldn’t reply to emails for days. And the offer to acquire did not come. At a very crucial time for our business we wasted a lot of effort in talking to them – same effort which could have been used constructively to take our business further.  They learnt all they could, took all the contacts. They even got our SW vendor to build their website and backend, I learnt this a few years later. So the moral of the story is that the big company just used us and moved on.

What is really happening?

With time I learnt that this is a pretty standard way most of the big (even medium) Indian companies to deal with young / promising startups or smaller organizations

  • These guys know that founders have run hard for quite some time without much resources and a possibility of good returns / large sales channel or a large client would be attractive to startups 
  • They use their big company charm to lure the startups towards them, take whatever advantage they can
  • These guys just do not care if the startup lives or dies as long as they can get their stuff dont 
  • If the discussion is about acquisition – they will just go cold after few calls / meetings
  • If the discussion is about partnering – they will make some really unreasonable demands of you just to partner with you (e.g.: we will help you sell if you give us 60% margin on product sales and you own the inventory)
  • If the discussion is about them being your client – they will take forever and if they decide to buy from you they will want to negotiate really low prices and make the payments 90 days after acceptance of goods / services (in many such cases they will not sign any contracts and then terminate contracts whenever they feel like)
  • If it is about investing – they will want 60% of your company for 20 Lacs

Why I hate such practices?

  • I hate these practices not only because they are unfair / unethical
  • But mainly because this is one of the major reasons Indian startups have not taken off
  • Startups have to co-exist with big/medium companies in the  economic eco-system
  • They have to deal with big companies at various times in different circumstances
  • If big companies continue to follow these practices / they are essentially hampering growth of startups and the overall economy
  • The motivations behind such practices are very short term and in most cases such things happen because of the incompetent middle managers / senior managers in these companies who only care about making their bosses happy and their monthly paychecks
  • Because in long term partnering with or acquiring a startup with talented resources can bring big benefits to big / medium companies
  • Smart companies in US have created lot of value for their shareholders by partnering with or acquiring good startups – but such practice is not common in India
  • In India the standard thought process is – we can do a better job than the upstarts, we have lot of money and leverage. Startups do have some head start  – but we just have to make one call and these guys will come running and do whatever we ask them for 

Make your own rules. Dont follow what BIG companies tell you

  • Startups should not stop dealing with big / medium companies (that would be suicidal) but they need to change their ways so that these interactions create long term value for the startup, the big company and the consumers
  • Founders need to realize that the big guys need you more than you need them – you are doing something unique that not too many companies can do (including the big company)
  • Donts
    • Don’t jump on the offers to talk. Show some attitude – take your time in responding
    • Don’t get blinded by the excitement
    • Don’t bend over backwards to make them happy
    • Don’t accept unreasonable payment terms
    • Don’t take loans to full fill big company orders
    • Don’t take the next day full price flight to go and meet them
    • Don’t be desperate
    • Even if you are desperate – don’t show the desperation. They just need one signal to take you out
    • Don’t believe the rosy pictures they paint or the big promises they make
    • Don’t bend or be extra humble and use terms like “Sir / Kindly / Please / Mr / Honored ” – while communicating with them
    • [Updated] Never agree to pay comission / bribe. You will run into folks who will say they can get you the order, if you can give them a kickback – this may work once wont help you in the long run
  • Dos
    • Be confident / believe in yourself / your product / your team
    • Stand your ground / stick to your guns
    • Ask for fair terms. Say that you will deliver the best quality product on time and on cost
    • Deliver on promises of time lines & quality standard ( always try to under promise and over deliver)
    • If you are making something worthwhile they will deal with you on fair terms if not its better you move on to something else
    • Be open to reasonable negotiations / concessions / free trials / prototypes to get in – but do not let it become a norm 
    • Treat the CEO / Directors / VPs of large companies as your peers and be on first name basis
    • Across all the communication with them (meeting / calls / emails etc) – be confident,  be cool, be yourself   
    • Do not start any major work without formal agreements / purchase orders
  • Basically big companies have slow / long processes, lots of gatekeepers and very few people who can give the final GO
  • The way to get around is first of all stop expecting/ pushing them to make a big decision in your favor within few meetings
  • Instead propose a trial engagement which leads to something valuable for them.
  • Trial should come at low / no cost to them and it should not have a lot effort on their side
  • Do all the work yourself, invest a bit of cash if required and deliver exceptional results
  • These results will get them interested in taking the next step, which could be a limited pilot.
  • Deliver exceptional results again
  • That would lead to bigger engagement and slowly you can have them as a regular client or even get them interested in acquiring you

Finally, I would like to clarify that not all large companies are bad or filled with bad guys, there are loads of good ones. I have had lots of good experiences as well. Sometime since they are big they may look bad but if you follow the process things will work out. But as a startup you need to watch out, do not let over dependence on a big company become reason for the death of your startup.

Thanks to Ankur, Nandini, Ankit, Pankaj, Shashank, Sid and others for reviewing the article

Investor / Entrepreneur – Who is the horse and who is the cart?

Posted on by
22

The Indian startup eco-system is around 10 years old and the two main constituents of this eco-system are – professional entrepreneurs (*1) and investors (angels / VCs). The growth in numbers in both these groups has been quite phenomenal; specially in the last 2 years. But despite the rise in numbers, we have not seen enough number of successful startups, that either have achieved high revenue numbers or have achieved attractive exits.

This issue of creating successful startups is very closely related to the business model of my current venture – The Morpheus, so I think about it a lot. While there are a number of important issues that need to be addressed, one key issue is the dynamics between Investors & Entrepreneurs. And there is a big fallacy in the way the two parties view each other.

  • Fallacy: Investors are the horses and Entrepreneurs are the carts 
  • Truth: Entrepreneurs are the horses and Investors are the carts

For real progress to happen the horse should come in front of the the cart and pull it forward. If by mistake the cart comes before the horse – there wont be any significant movement, as the horse will be pushing from behind. This fallacy is today plaguing most entrepreneurial ventures – funded and non-funded and hence little success has been achieved in last 10 years.

Majority of the folks believe that the Investor is the horse and the entrepreneur is the cart. Why? Because the investor is the source of  money – which is believed to be the starting point. And actually it looks pretty logical – you do need money to get started. But if you look carefully you can see that this thought process is entirely wrong. In reality its the entrepreneur who is the prime mover in a startup – he is the horse. Everyone else – angels / VCs / accelerators/ incubators are the various forms of carts and the carts need the horses to pull them and not the other way around.

This fallacy is leading to a bunch of  problems in the Indian eco-system and hence we have not made much progress in creating real start-ups that execute the classical path of – bootstrap / build great stuff / raise money / keep growing / raise more money and reach the finish line with an exit or start making serious revenues. If you look closely at the 10 odd year history of start-up investments in India – there are no profitable exits to show – except Makemytrip. (I am of course not counting the PE stage investments done by some venture capital firms). I believe the main reason “lack of startup performence” is the same fallacy.

“Cart” type Entrepreneurs  

  • 90-95% of folks who plan to do start-ups believe that they are the cart and so they need horses (Investors) to get them started and unless they get an Investor pretty early (or even before starting) they really cannot make much progress
  • These people spend a lot effort looking for funding during the initial days of the start-up
  • Which essentially means they are not putting all the effort into building the product or doing sales
  • As a result most of these start-ups make poor progress on two most important aspects – product and sales and eventually die 
  • Some of them actually do manage to raise money because of their Miss India type backgrounds 
    • Ex-CEO of so & so company
    • Worked at top tier consulting firm
    • Alumni of certain institute
    • And other such reasons 
  • Since these guys haven’t build anything great before they raised money, and now they believe have found the horse which will pull them – they become complacent. Such investments don’t really pay off the investor or the entrepreneur.

Me and my co-founder, Nandini, were in the same category of “cart” entrepreneurs when we were starting madhouse. We spent the initial months creating B-plans / spreadsheets / projections / market study and all that jazz, spent couple of months meeting the investors. We would have died in that Chakraviuh. But were extremely lucky to have a great mentor who helped us see truth – which is “If you build something great, money will find you“. That is when we realized that we come first – we are horses. The investors come later.

“Horse” type Investors

  • These are investors who believe they are the horses and whomever they fund is only a cart
  • So who they invest in does not matter that much since they believe can pull the cart to the finish line
  • In this mindset they end up funding all kind of wrong folks who also believed they are carts
  • So you have a cart (investor) who thinks its a horse and tries to do a lot of pulling – of course with no visible results and a potential horse (entreprenuer) who thinks its a cart and hence doesn’t pull – and the result is disastrous anyways
  • We see many such deals happen around us and often wonder “How come these guys raised money?”
  • Just after the deal happens there are celebrations and the founders feel they have arrived and get on with the job of burning the cash. For a while no one notices and some time later the companies die because of lack of progres
  • Many investors get fascinated by trends and start believing this is where the next big company will come from. And following the horse mentality they look for start-ups in that domain and even tell entrepreneurs whom they meet to change their business & go after this trend
  • Now when these guys meet the real entrepreneur – who knows he is a horse – they fail to recognize the opportunity and pass on the deal

All through my madhouse days we were being told by would be investors with a lot of authority about how we should build our business. Just before I started Morpheus I was asked by a couple of guys to “start something like mGinger” which was a heavily contested deal at that time – but has been long forgotten

Who can fix things? 

“Horse” type entrepreneurs

  • We need more entrepreneurs who know that they are the horses and hence take the ownership of pulling the cart – which includes the business and the investors
  • They start their journey as a young horse, gain strength and speed along the way – they become strong horses
  • Irrespective of whether they have  cartsc(investors) or not they win their races

“Cart” type investors

  • We also need more investors who clearly understand that entrepreneur is the horse / the prime mover / the creator
  • They respect the entrepreneurs and look for horses that have the potential to run a long race and win
  • They look for horses that have shown promise in the race so far
  • They do not try to manage the show but provide the right kind of support

We already have a few folks in both of the above categories. They are doing their respective jobs silently & do not really make much noise. The real trend is on their side. Eventually their successes will correct the fallacy and I am sure India will produce a great percentage of good quality, successful start-ups and good quality investors who invest in those start-ups!

Notes:

1. Professional entrepreneur is someone who has gained knowledge & experience through education / work and he combines that with his intelligence, passion, hard work to create a venture.