Tag Archives: startup essentials

Should a startup be Ramen Profitable?

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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

Practical advice for your VC meeting

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Important: Don’t mistake this post as set of fixed rules, these are just some possible combinations to enable you to create your own scenarios

Some top level things

  • “Before you think of raising big money, make sure your customers trust you with their money” (from Indus’s post : How much money do you need to get started?)
  • Be humble, honest, friendly and upfront
  • Speak the truth
  • Be passionate / energetic about your business
  • Listen Listen Listen
  • Share examples and stories from real experiences
  • Before the meeting – learn about the VC firm and the folks you are meeting via Google/twitter. E.g –  firm background, current portfolio, good investments, info about the guy you are going to meet
  • VC’s job is to punch holes on your business model / ask tough questions. Don’t get offended, don’t become defensive
  • Appreciate and acknowledge good suggestions / good feedback.
  • If you don’t know answer to some questions – DONT BS – Just say “I don’t know. I can get back to you on this”
  • Let it go. Never get into back & forth arguments for proving your point – even if you are right.
  • Show respect for other’s time (a surprisingly big number of founders don’t get it)
    • Note down all action items from the meeting and ensure that you get back on or before promised dates
    • Be on time for all calls & meetings. This is one of the biggest turn-offs
  • Be you. Dress like yourself (but be clean), talk like yourself. Good folks want to meet the real you, so point being someone else to impr

Have your questions

#LeaveTheVcThinking: they have done the homework , they have good knowledge of  the VC industry, i can not fool them

  • Have a set of questions that you would like to ask the VC.
  • It will be great if  you can get in your questions first and garner some useful insight. If not make sure you get some time for you questions at the end
  • Don’t be afraid to ask questions that you will offend the VC.  Good guys will appreciate it  and those who dont even have enough respect for you to answer your questions don’t deserve to fund you anyways
  • What is the background of the firm?
  • What is the background of folks who are meeting you?
  • What investments have they made so far? Any in your geography domain?
  • What is typical range in the size their investments?
  • Which sectors do they normally invest in?
  • At which stage do they normally invest in?
  • What do they look for in a team / company?
  • What value do they bring to the table?

The Team and You

#LeaveTheVcThinking: the team has a lot of passion/fire/determination, they are doing it for the right reasons, they will last & never give up, they will make it happen even without us

  • Don’t rush through your intro, good folks want to know you and your story, so that  they can see inside you and get some key insights
  • Don’t start with talking about your venture – talk about u
  • Start with where did you grow up, schooling, college, work-ex, how did to decide to do a startup, story so far, what makes you tick and all the interesting stories
  • Focus on things, items, incidents, experiences, stories that directly / indirectly relate to you as entrepreneur and your startup. Dont spend time on other things
  • Give timelines of your story. Eg: which year did you graduate in, from when to when you worked at MS
  • Every founder should personally talk about themselves

What does your startup make for customers? What problem are you solving?

#LeaveTheVcThinking: your are solving a real problem that is important enough to potential customers, this product – if done well – can get customers to spend dollars, there are no good alternatives, you really care about your customers, your approach to product development is extremely bootstrapped and iterative

  • Take them on a journey with you, make them see your passion
  • Share the story of how did you get this idea and how was it developed from an idea to a real solution.
  • What do the customers want and how are you giving that
  • Will always be compared to some companies – be prepared. How is Deskaway different than Basecamp? How can madhouse compete with Reliance? How will flipkart compete with Brick & Motar book stores?
  • Respect the competition. Don’t focus on telling why your product is better than competition or what competition is doing wrong.
  • Focus on what you are doing. Tell them how your approach to the problem is well thought off and different as compared to the solutions available in market?
    • You are creating a blue ocean, instead of getting to a red ocean
    • You are going beyond the customer expectation and delivering over and above it
  • Talk about your experience of making & selling the product
  • How are people reacting to it? How are they using it?
  • Talk about real customer stories – how your product is improving people’s lives and giving them an amazing experience

How large is the market of this service?

#LeaveTheVcThinking:  Market is very very large, customer are/ very likely to spend dollars on the kind of problem you are solving, market is no where near saturation / commoditization , if a company can take 5-10% market share the top line will be very attractive

  • Share your understanding of the market both from from top down and from bottom up
  • Top down:
    • Use some obvious data, facts, trends which are available in a public to establish the market size.
    • Share your sources of data
  • Bottom up:
    • Share your supporting hypothesis,  base it on your experience with usage of product and selling the product
    • What will it take to reach annual revenues of 10 L, 1 Cr, 10 Cr?
      • No of customers
      • ARPU (avg rev per user)
      • No of employees
      • Amount of capital
      • Time required
      • No of markets
      • Market penetration level

Product Development / Operations / Delivery: How will you continue to make and deliver quality product / experience at scale ?

#LeaveTheVcThinking: the way delivering & building can be scaled to levels of delivering service to customer when rev is 100 crore,  tech/product is playing the main anchor, it will be possible to find required human resources, business is not dependent on too many human resources

  • Talk about how are you currently building and delivering  (its ok if some of it is mannual / non-scalable today)
  • Talk about about your road map for continuing to improve technology /  operations / processes / automation  at every stage of the company
  • Talk about team which develops the product. What kind of team do you have? Are they competent enough to build the product?
  • How do you find / recruit people?
  • How do you measure / track operations / product usage?
  • How do  you plan projects and track progress?
  • What is your product development methodology? Eg: agile

What are the unit economics?

#LeaveTheVcThinking: you are the master in economics of you business, you are mad about keeping this costs low, the product can be build / sold /  delivered at reasonably good margins , the bottom line will improve rapidly with scale

  • What is the current cost of serving a customer for each type?
  • What is gross margin, expected net margin? (its ok if you are loosing money right now)
  • What are important drivers of costs / margins? How well you know them?
  • How will these costs move as you scale the business
  • What are you doing to improve the economics?

How do you acquire customers?

#LeaveTheVcThinking:  you understand the dynamics of customer acquisition, Customer acquisition can be scaled,  Customer lifetime in months * avg revenue per month > customer lifetime in months * avg cost of serving a customer + customer acquisition cost

  • What are various marketing activities you do for generating good qulity leads?
  • How do you validate leads?
  • Also talk about some of the activities that you tried but they did not work out
  • Talk about your sales process that works on converting that lead
  • Talk about factors of how a customer makes buying decision
  • What are qualities needed for someone to be a likely customer?
  • Economics of your marketing channels (cost vs sales generated)
  • Economics of your sales  channels (cost vs sales generated)
  • Economics of a sales person (cost vs sales generated)

Are you looking to raise money? How much money are you looking to raise?

#LeaveTheVcThinking : you don’t need money but whenever you are ready talk – we want to be the first guys to look at the deal , they will use money well, they can make money for us, they can give us 10x or more returns on investment

  • Show that you are are cash flow positive and are generating enough cash to support our growth (this is also a requirement for doing fund raising)
  • Your preference is continue to spend time building and growing the business, since normally fund raising is a very time consuming process
  • If this meeting is not setup specifically for fund raising – tell them your are not looking to raise money and will probably look at raising 2-3 millions in 4-6 months time frame once you have hit so and so milestones as a business (fill in your timeline and numbers)
  • If the meeting is about fund raising – talk about the amount your are looking how you can use it to really grow the product, expand sales, expand operation , build solid management team and essentially achieve the hockey stick growth
  • How much total money will you need to raise during life of the venture?

Revenues (Current & projected)

#LeaveTheVcThinking : revenues are at good level, growth in revenue is good, revenues can be scaled with funding

  • Share the revenue numbers for last 3 months, have numbers of previous months also handy
  • Monthly growth in revenues
  • Projected revenues for 3 months , 6 months , 12 months
  • Projections beyond 12 months
    • If you dont have them say we haven’t done those numbers but will be happy to get back and share them
    • If you have them handy, share them but point out that beyond 12 months its really difficult to make accurate predictions since things change quite rapidly for a startup

Competition

#LeaveTheVcThinking :  market is large and can support multiple companies, if you continue to deliver high quality service and manage your costs well you will do well, you are well aware of our competition and respect  them

  • Be honest about competition. Never try to show that you don’t have competition – that’s one of the worst things to say, competition validates what you are doing.
  • How are people solving the same problem without our product?
  • Who are our direct competitors? How well do we understand them?
  • Who are our indirect competitors? How well do we understand them?
  • Who are the potential competitors?

How to value your startup?

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Notes:

1. This post is written keeping the market conditions of India in mind and may not apply to other geographies.

2. The table shows somewhat ideal scenarios just for understanding, in real world there are many more variations.

3. Don’t mistake table as set of fixed rules, these are just some possible combinations to enable you to create your own scenarios

4. Most of the times these things are function of the main investors subjective opinion, competition for the deal

5. This is not description of what my firm The Morpheus follows. Methods followed by The Morpheus could be different depending on the exact scenario

Update: (answers to the questions that have come on the post)

What percent of equity that will be diluted to the investors at each step?

This can be calculated fairly easily

  • Equity given to the investors =  Total money invested / Post-money valuation of the company
  • Post money valuation = Pre-money valuation + Total money invested
  • Pre-money valution = Valution of your company before taking the investment
  • Example:

    • Pre-money valuation = 1 Cr
    • Money being invested = 15 L
    • Post-money valuation = 1Cr + 15 L = 1.15 Cr
    • Equity given to the investors = 15 L / 1.15 Cr = 13.04 %

How did you come up with the pre-money calculations?

  • Startup valuations are essentially an art, end of the day valuation of a company  on which both the startup and the investor agree on
  • I have based these numbers on my observations and understanding of the preferences of Indian startups and Indian investors operating at different stages
    • I have been directly / indirectly involved in a good number of funding deals  / discussions
    • Also there are deals in which I was not involved but i have the information about them
  • I have a personal bias towards revenue generating / cash flow positive startups

Ready to endure and enjoy the startup-pain?

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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.

Be an ‘exceptionally’ good problem solver

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Some time back I read this essay by Paul Graham – Be Relentlessly Resourceful . The essay attempts to answer a very fundamental question –  “Which is the most important quality / skill you should have as a startup founder”.  Like all essays by PG it is a very insightful piece, but it felt like something was missing, the answer was not complete.

I tried to pin point the missing part.  But even after thinking hard, I was stuck and wasn’t able to figure out what was missing.  So I let it go from my conscious mind & assigned the task to my unconscious mind, so that if there is a good answer it will bubble up.  Here is my post on the same – hope you will enjoy it.

Problem solving is the single most important skill you should have as an entrepreneur or a start-up founder

Just like we break down materials to elements, elements to atoms and atoms to electrons & protons. If we break down the work of an entrepreneur, go to  the most basic level and ask

  • What’s the job of an entrepreneur? What does  he do?
  • Answer:  He solves problems

That’s what an entrepreneur is continuously doing. Solving problems is what moves things forward.

  • You are in STATE A, you come across a problem, you start working on solving the problem, if the problem is solved you move forward to STATE B
  • If you don’t solve the problem – you will be standing still
  • And if you solve a problem in a wrong way, you will move backwards
  • Good problem solvers keep navigating from state to state and the progress keeps happening

Some common problem statements:

  • How do i get featured in techcrunch?
  • How much of seed capital do we need? How can we minimize the requirement?
  • How to find contacts of the right angels?
  • How to in launch next 1 week?
  • How do i make money?
  • How can I define my target customer?
  • How can I make the website load faster?
  • How can I negotiate the rent of my apartment?
  • How can get the damn coffee machine to work?

Problem solving has two aspects to it:

  • Quality of solution
  • Speed of problem solving

Assuming that quality is constant, the speed of solving the problems – that’s what will you give you an edge. It will allow you to be ahead of your customer’s requirements. In case the speed is constant – a better quality solution will make the difference.

But at the end of the day its not an either-or game. To be an exceptionally good problem solver you have to do a good job on both aspects – quality and speed, and you have to do it consistently for all kind of creative problems that a start-up will come across – from technology – to – finance, legal, UI, people, funding, partnerships, sales and the list can really go on.

How to get better at problem solving?

An entrepreneur must be exceptionally good at problem solving in order for their venture to succeed. This skill can be learnt by someone with good aptitude and a discipline to learn. Also one can keep getting better at it, so keep working on it.

Here are some fundamental approaches to problem solving. Use of each of these can make you a better problem solver.

  • The Scientific Method Of Problem Solving

    • Come up with a clear “Problem Statement”  – A problem can’t be solved if it isn’t understood
    • Form a Hypothesis – Hypothesis are reached at after gathering enough information about the problem
      • Hypothesis can be a possible solution to the problem, so if its tested its true you will arrive at the solution
      • Hypothesis can define potential reason for the problem. So if its tested true you would have identified the cause of the problem and can build a solution around that knowledge
    • Test the Hypothesis – For each hypothesis an experiment/ test is performed to determine if the hypothesis is true or false. Experiments are done to gather data.  It is very important that good observations and records are made during an experiment / test
    • Collect the Data – This is where you record your observations, measurements, or information from experiment / test
    • Analyze the Data – Just what does all that data indicate about answering the problem you are solving?
    • Draw Conclusions – After examining the data from the experiment, conclusions can be drawn. In it’s simplest form, the conclusion will be “yes” the hypothesis was correct, or “no” the hypothesis was not correct
      • Yes means – you have the possible answer
      • No means – this was not a correct hypothesis and you cross it out. Based on the current information you should come up with the next hypothesis and test it all over again
    • Repeating the above will normally take you to the solution
  • Increase your collection of “Mental models”

    • Google founders used the citation analysis as a model to solve the “search ranking problem” and created the page-rank algo based on that. This only happened because they knew the  citation analysis and had it in their mind as a mental model
    • Whenever you are solving a problem your mind does pattern matching or looks for similar mental models which can be applied to the current problem you are working on
    • You take a mental model – modify it as per the problem at hand and apply it
    • So the more mental models you are aware of – specially the ones that are used in the context of start-ups – the better it is
    • Here are some ways to increase your collection of relevant startup mental model:
      • Read biographies
      • Read good books: business books and books that have nothing to do with business but can teach you something about life
      • Blogs
      • Info on internet : text, videos on youtube, ted.com, slideshare, fachak
      • Meet lots of people
  • Use the white board and ask four Questions

    • Where are we?
    • How did we get here?
    • Where do we want to go?
    • How can we get there?

I have found this one to be the most useful starting point in problem solving. I have found that this is also the one which most people miss out on. I suggest you put it on paper and paste in your office. The way it works is; bring the team in a room , put the four question on a whiteboard and start putting answers to the questions on the board. Most likely by the time you get to the last question you will see the answer.

  • Networking and relationships

    • Have a network of people who may have faced similar problems and can help you solve it
    • Knowing them well will give you access to the mental models that these folks have collected
  • Focus! Focus! Focus

    • While solving a problem, keep a laser sharp focus on the problem at hand. Don’t go into tangents. Don’t get distracted.
    • If you get some ideas in between, write them down and worry about them later
  • Practice! Practice! Practice!

    • The more you practice the better you will get at it
  • [Updated]  Create your own road maps without a prior set of rules

    • Dipankar made an excellent point in comments, end of the day its about you figuring out your own rules and not be constrained by any lists.

Business proposals are like paintings

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As a startup, specially if you are in the B2B domain, you need to write a lot of Business proposals and send them to potential clients (mostly big companies) . These proposals play a very critical role when you are dealing with big companies, they are used to old way of doing things.  Here are some thoughts on proposal documents.

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  • Good proposal documents are like paintings
    • Writing a good proposal document is an art
    • It has to come from within, you need a deep understanding of “what does the proposal document stand for, what is it trying to accomplish, who is my audience, what do I need to communicate”
    • Once thats done just let your self loose and a good document will emerge
    • Review the document a couple of times to De-text and make it crisp and professional
    • Identify a few folks whose proposal reviewing skills are good and get them to give you critical feedback
    • Don’t ignore the feedback or parts of the feedback. Work on each point meticulously
  • Overall Goals
    • Clearly document the goals of the proposal
    • What are you trying to achieve via this proposal ?
      • Make sure every word & every sentence in the proposal contributes to that
      • Dont get carried away and write stuff which is not directly related to the goal
    • Example Goals

      • Convince Westside to do a pilot in mumbai
      • Pilot should start in next 1-2 months
      • Get Westside to purchase stock against advance payment
  • Communication goals
    • Document what are you trying to communicate through the proposal and ensure that of it (and not more than that) is communicated
      • Example communication goals

        • Who are we
        • What do we make
        • What are we selling to the customer and why should the customer buy it
        • What is a simple initial pilot we can get started with (initially try to get into a pilot which is simple and easy to get started with for both sides, you can get into deeper more elaborate partnerships later)
        • What are the mechanics of the initial pilot
        • What are the commercials
        • Other terms & conditions
        • How can we get started
  • Audience
    • Define who is the audience, who will read it?
    • Step into heads of your audience and think what do they want to see so that they will make decision that you want them to make
  • Overall structure and format
    • Create a document structure to accomplish goals listed above with the stated audience in mind
    • Fill in the content in the structure
  • De-text
    • De-texting means going through the written text and removing unnecessary words / sentences that don’t all value to the content or don’t contribute towards the goals of the document / section
    • De-texting is an art and it takes patience to do it but once you practice enough you will become good at it
  • Have just enough
    • You should have “just enough” content in the document
    • Every word / sentence / section in the document competes for attention of the reader
    • Hence every extra sentence takes away attention from existing sentences
    • So be careful and sure about every word / sentence / section – that its required to complete the document
    • Removal of every unwanted less wanted section will increase the chances of rest of the document being understand better by the reader

Please share your experiences / views in comments about the proposals. I plan to update the post based on feedback from readers.

PS: After reading this post again I realized that its equally applicable to other forms of written communications like presentations, agreements, e-mails, requirement documents etc .

VC’s and startups: Looking for the right mating call

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Think of VCs  and startups like animals in a jungle who are looking for the right partner to mate. Just because two lions of opposite sex are roaming in the same area and come across each other, it does not lead to mating. The process of attraction only starts if they give each other the right mating signals.

Similarly investors respond to certain signals and for the process of attraction to start startups need to give those signals out.

Important signals:

  • Team: experience , domain expertise , passion, staying power, etc.
  • Market: potential size should be very large , your products/service /  business model should clearly indicate what problem you are solving and why will you get a significant share of the market.
  • Return on investment (only thing that matters in the end to an investor):  An investor needs to see strong possibility of a 10x plus exit. Which is a function of:

    • A large market
    • Capability of the team with its products / services to take the business to a scale , within 5-7 years. So that the investor can sell his shares @ 10 times the investment price
Apart from the signals investors are looking for, everything else is pretty much NOISE at this stage and should be minimized.

Once the investor sees the right signals, the process of attraction starts. He will come closer to you and your business. That’s when he will look for further details about products , domain, detailed financials etc. He will also spend efforts to learn more about the domain and may involve some domain experts.

He further validates the same thing:

  • Whats are the odds of getting 10-20 X Return on Investment in 5-7 years
  • Whats are the odds of getting 5-10 X Return on Investment in 5-7 years

Once he is reasonably convinced about the RoI.  Next stage for him is to look for all reasons to say NO.  He looks for things about the team / market / product / competition / legal issues – which may put the odds of RoI at a big risk.

  • And if he finds anything which can seriously risk the RoI – he will back out
  • If not, things move forward
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WWWN (Part 2): Presentations & Pitches

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Previous post in the WWWN series : Extreme Marketing

(WWWN = Whats working whats not)

Creating Business Presentations and pitching your venture to people is an essential part of a startup founder’s job. The audience can be angel investors, VCs, potential partners, potential employees, potential acquirers, bar-campers, OCC guys etc. I have looked through quite a lot of presentations, have worked on a number of presentation / pitches with start-up founders and of course did more than 30 versions of the business presentation and 80+ pitches for madhouse. Here are some points that are good to know while working on presentations & pitches.

Creating the Business presentation / pitch:

  • Present only 10-15 slides, nothing more than that
  • Consider tailoring the presentation a little bit; keeping the target audience in mind
  • Suggested slides (see example presentation below)
    • Title slide
    • Summary / Highlights (4-6 bullets, high level business summary)
    • Market size / market opportunity
    • Business Overview / Business Metrics (these are not financials)
      • Current Numbers and Projected Numbers 6 or 12 months from now
      • Numbers that represent your business the best and  show the audience that you are running and presenting a real business
      • Example: Visitors, users, registered users, active users, revenues, products released, customer acquisition cost, number of outlets, employees etc
    • Team
    • Problem the venture is solving
    • Service / Product (how it is different than other available alternatives)
    • Sales and marketing strategy
    • Key Challenges
    • Competition
    • Financial Projections (optional for very early stage ventures)
    • Closing slide
  • Exit Strategy
    • Don’t have this as a slide. Just talk about it towards the end while presenting or when asked
    • Don’t promise exits in 2-3 years, any good business takes 5-7 years, that the horizon for angel investors
  • Team slide
    • Have it as 3 or 4th slide, not later than that
  • Financials
    • Dont show projections beyond 1 year in your presentation.
    • For young startups, no one really knows what will happen beyond even 6 months.
    • Claiming you know what will happen beyond one year is not a smart idea
    • Have 3-5 year projections ready if people ask for it but do not claim accuracy of these, say that there are based on our current assumptions. We believe things will change significantly over the next 6-12 months and we will rework these accordingly.
  • Create an appendix section to include additional details of slides
    • Org structure
    • Product screen shots (too many screen shots right now, need to reduce and show clear flow)
    • Details of market size etc, graphs etc
  • Don’t use “colorful” backgrounds. Keep a white background : simple, clean and readable
  • Use uniform font size and color:
    • Arial is one of the most readable fonts
    • Choose a font color for “Slide title”, go for the dominant color from your logo
    • Maintain the same color and size in all slides. Font size between 36-44 is good for slide title
    • Use black color for all the body text in the presentation
    • Use same font size for all body text. Font size between 14-18 is good for body text
  • Once you do an initial version of the presentation, there will surely be too much TEXT in the presentation, now you need to “DETEXT” – that means edit and cut off all unnecessary text, remove all words that don’t add any value
  • Have small and crisp points. Most bullet points should be one line or max 1.5 line long. Don’t have any para type of bullets. Split longer points into smaller bullets
  • Vary the presentation of content : break the monotony , give visual breaks and create interest
    • Use different content layouts – dont have only “bullet lists” in each slide
    • Try one column bullet slide, two column bullet, 1/2/3 tabular formats
    • Be be careful not to over do it, use the most suitable format to present the content and do not use something because you have to use it
  • Don’t use language that is too “Domain specific” . Use language that is simple and can be understood by people who are not “Domain experts”
  • Not everything needs to be written on the slides, many-a-times we tend to pack each slide with all that we want to say and making the slide text heavy. Human attention span is very low and no one reads all of the information-loaded slides. Hi-light the important points and keep the rest for oral / spoken presentation. This will prevent the main/important points from getting lost.
  • Keep the size of presentation less than 1 MB, many mail servers block 1MB and more attachments and anyways they take more time to load/view.
  • Presentations become large due to use of heavy images, use the compress images feature of MS Powerpoint to reduce the presentation size. Choose web/email resolution for images.
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Pitching the Startup

  • Be humble. Remember – Humility disarms.
  • Be calm, composed and confident.
  • Always, always be on time. Never miss an appointment. For god’s sake put the appointments on all your calenders, start early, keep a buffer of 30-60 minutes. Keep people informed if you are about to get delayed.  In more than 50% meetings founders show up late or don’t show up at all. This is a serious damage to the reputation of the startup.
  • Show up clean and presentable. I am not advocating a formal look, be causal if you like so, be formal if you like so. But keep your self clean and presentable. Don’t look PUNK.
  • Crack a joke, tell an anecdote, make general conversation, figure out a connection. Before jumping into the presentation, create a comfort level, break the ice.
  • Weave a story. Don’t just show a stand-alone slide, weave a story around the venture, create interest, tell how you came up with the idea, etc. Engage the audience.
  • The passion, commitment, involvement, confidence and energy needs of the team to come thru. So turn it on, talk enough about the team, its all about people.
  • Don’t look cold or unconcerned.
  • Focus on now and may be next 3-12 months. Spend most time on plans / features/ revenues etc of now and of next 12 months at max, dont keep talking about things that will happen beyond that – people are interested in your immediate future – beyond that no one really knows what will happen.
  • Multiple people presenting is always very tricky and can be problematic. Its best if you can choose one person from the team to present. In case you decide on multiple presenters, work very hard on the hand-overs. Try to just have two sections, presenter 1 does section and presented 2 does section 2 – No back and forth.
  • Product demo: jump into the product demo as soon as possible. Show the real stuff and the impact will be 10-20x as compared to “prepared slides”
  • Listen! Listen! Listen! Many times folks who you are presenting to will say stuff. Be very patient in listening to them. Give them respect and let them complete, before you talk. Don’t be overtly defensive, be open to suggestions/feedback. Give your response and answers in a structured manner. Many presenters start answering before the person talking has finished.
  • If you are asked a question whose answer you dont know or are not sure about, its totlaly cool to say “I dont know the answer, but let me try or I will get back to you “.  Dont try any BS, if you dont know the answer.
  • Make note of action items (mostly stuff to get back on ) which come out of the presentation and make sure you do get back 100% on or before the promised due date. Again here more than 70% founders will miss promised deadlines or not get back at all, just by doing this you can get into the top 30%.
  • Have your set of questions as well, which you would like to ask the audiences of investors, partners, bar campers etc.
  • Practice! Practice! Practice! – you can never do it enough. Practice in front of people  – take feedback and improve.

Couple of bonus TIPs from Ankit

If your audience is a potential investor:

  • Be very clear what you need money for. You can skip it from the slides. This is a question, which surely is going to be asked, if investors are showing even a little interest in your startup.
  • This part has to be extremely clear in your mind. You should be ready to tell how do you plan to spend the money.
  • One thing common to most of the VCs is that they are good with numbers, that is their core area.
  • Testimonials can provide good customer validation.

If your audience is barcampers:

  • Try not to pitch your company directly. Start explaining some concept, and then plug in your company as a case study.
  • For example, a few years ago, Rashmi Sinha used to give presentation on Taxonomy, tagging etc and then she used to plug in Slideshare as a case study.

(Thanks to Ankit, Indus and Nandini for reviewing the post and giving valuable inputs)

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Shout ’em out louder!

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(This post was born out of internal discussion that took place in MVP forums. Its jointly written by : Sameer, Ankit, Nandini and Indus)

Bharat Matrimony

Bharat Matrimony (BM) has launched its facial search feature that enables you to upload celebrity (you can also upload your ex-girlfriend’s pics) pictures and BM will find a look-alike. Check it out here

Though the technology is imperfect the idea is so perfect on so many levels:

  1. Viral nature
  2. Engagement of users
  3. Stickiness of the site
  4. Differentiator from other sites
  5. Users having fun, part of so many jokes

It totally rocks and its great to see an Indian company leading its way in innovation. On the other hand its disappointing to see so less buzz created by them in the Startup media.

AdaptiveAds

Glam Snaps Up AdaptiveAds. Mumbai based startup AdaptiveAds was acquired by Glam, a leading ad network based in US. This news was covered very well by Techcrunch and and other leading tech blogs of US about a month back, but again coverage in Indian Startup media left a lot wanted.

Adaptiveads, a mumbai based startup, clearly demonstrated that an Indian startup can target the global market very well and it makes a lot of sense for other Indian Companies to tap into borderless economy. When we can serve millions of western companies by being an outsourcing hub, by developing the core technology for them, why cant we guys put together our collectible brains to bring Indian products to whole world.

Startup Media

The current Startup Media in India consists of the leading startup blogs, some newspaper / magazine columns, couple of dedicated magazines and little bit of TV coverage. The main credit for creating the “Startup Media” goes out to the leading startup blogs, they have been at it for few years now and have done quite a good job of covering the news, sharing good practices, aggregating discussions around startups. They have built a strong and sticky community of readers / contributors around them.

Shout ’em out louder

Though a lot has been done, there is a need to increase and provide regular coverage “towards celebrating / highlighting / sharing the Indian startup ecosystem triumphs”. This post is a request to Startup media to shout louder about the successes. Indian ecosystem is evolving and it definitely requires much needed boosts from media to encourage them. There are quite a few successful Indian startups, may not be to the tune of 10-100 million USD, but still doing pretty good. But, every mention will only encourage and boost the morale of the others to push the bar & succeed!

Some suggestions to the Indian Startup Media:

  • Add regular weekly features that bring out startup success stories, backed by research. Bring out the reasons for the success and help others learn and get inspired. This can also be done with some guest writers contributing.
  • Missed out on covering the news in time? – not a problem – write enough juice and they’ll quote you on their blog!
  • Dig into the development of the startups you have already covered, ask them to keep you updated, monitor their blog feeds for news of successes – followup stories is always a welcome for a reader!
  • A lot can happen over coffee – spend more time with startup founders (new & old), listen to their stories – can make for a good copy!

Communication channels are the most important for development of any eco-system (Even Hitler banked on it) – you have the power to influence and help startups imbibe good practices – make the most of it! This will go a long way to also help dispel India’s image “as only copycats, service-based companies and outsourcing hub”.  It will encourage the ones who are on the edge and are evaluating doing a startup. Current and potential investors will see the successes and increase the financial participation towards Indian startups.

The day is not far when people will be bringing Garam chai and Samosas to your home (riff from people bringing donuts/coffee to Arrington to get covered) . While you make them the stars, they will make you the celebrity!

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How to practice quality in your startup?

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(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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