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Cheap Kills, Value Wins!

Competing on price is never a great strategy! Cheap Kills, Value Wins! As long you as you have a clearly differentiated offering, you should calculate the value your solution provides your users, and base your pricing on that! And stick to it! Competing on price creates a spiral of death for all competitors, no matter what the industry, no matter what the offerings are!

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Some eons ago, in one of the services start-ups I was with, prospects always brought up a competitor that offered better prices. Why just one? I usually volunteer to provide them an even larger list of competitors that can give them better raw pricing than me. Then I bring up the value of our higher priced offerings and how, over the course of the project, our total costs will  be lower for them, given the superiority of our hiring, training processes, and the higher productivity of our resources.

In another software product startup, we knew that many of our customers tried developing a solution in-house to solve the same problem and failed. We knew that in-house applications will not scale up as well as a carefully designed software product. Our product had the benefit of addressing  a larger variety of problems with all of our customers. And so every customer gets to benefit from better features, rapid customizability and scalability. We priced our offering at high US product prices; they were based on value provided rather than something that is worked from costs up!  We knew we had defensible intellectual property that cannot be easily replicated by any other competitor!

Perils of Competing on Price

Competing on price does not mean that you don’t provide strategically offered discounts on the total price to close a sale quickly.  It means that the only thing that differentiates you from your closest competitor is price and price alone. This is a terrible situation, not just for you, but all of your competitors also. Here are the perils of competing on price:

  • Inflexibility in the Contract – Competing on price does not allow for acquisition of other technologies, products, or people to make the overall effort more efficient and effective. Especially in product companies, a smaller competitor may have developed a product that fits in well with your offering when integrated properly.
  • Tight Margins – Murphy’s Law happens! Key people may leave, unforeseen things may happen at a company. Competing on price and tight margins can turn a marginally profitable opportunity into a loss-making effort.
  • Compromises future people and product development – The margins you make are not just for profits. A large portion of the margins are the monies you have left to be used for continued development of the people you have, or continued product research and development. Competing on price may force you to cut down on these strategic investments.
  • Sets up the wrong dynamic with the customer – The best time to set up a proper dynamic on Pricing with customers is right at the beginning. If you get the contract because you competed on price you have already set up a terrible dynamic. You may never be able to recover from this later on.

Steps towards Competing on Value

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Competing on Value is a careful, long journey and requires faith, patience and a lot more hard work. But when set up correctly, and if the value is proven with a handful of customers, scaling up to a larger customer base is easier. Here are some absolutely essential steps towards Value-Based Pricing:

  • Calculate and Have Ready, Demonstrable Value – First principle of Value Based pricing is to understand, calculate and have ready at your fingertips, your Value. Return on Investment (ROI) calculations, Pay Back Periods, Projected Total Cost of Ownership of alternative solutions are all necessary for you to demonstrate Value.  You need to have them ready even in your initial presentations. Tell them how you may appear more expensive than their other alternatives, but demonstrate how your solution will save them money, effort and time in the long run.
  • Differentiate your offering and Value – Make sure you have defensible intellectual property either in the form of patentable technology or at least a large body of complex code that will take a competitor a long time to figure out and develop. Companies underestimate the value of time in these comparisons. That’s why large software product companies routinely make the buy decision to acquire a smaller, nimbler competitor that provides a part of their overall solution rather than develop it all from scratch themselves.
  • Highlight your plans to add even more Value –  Share some of your future people or product development directions with your prospects and customers. Demonstrate how your plans will enable their investment in you will benefit them in the longer run even more. This will also have the added benefit of getting you feedback on what’s critical for them and what’s not. You will be able to fine tune your own future directions before you spend money on them, a kind of Lean Fine-Tuning!
  • Demonstrate Thought Leadership, don’t be in reactive mode – Whether you are providing software services or software products, thought leadership is a terrific way to demonstrate and provide added value. If you are doing Big Data Analytics products, share with prospects and customers, the thought leadership kinds of activities you are doing in that area. They need to look up to you as an informed, thought leading business expert; not a service or a product supplier. Those are the tools with which you add value.

Competing on Price is a losing proposition. Nobody wins and all competitors including you will be in a downward spiral with that strategy. On the other hand Value-based Pricing when done correctly can facilitate a longer term, mutually beneficial partnership with your customers. When done correctly, it enables you to defend and build your business with your customers and help grow your company in the process!

Price is what you pay. Value is what you get – Warren Buffett

 

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Processes in Start-ups! Can’t live with them! Can’t live without them! Seven ways to address this!

Processes in start-ups are like the proverbial Men or Women – “You can’t Live with them! You can’t live without them!”.

Striking the right balance between having processes and not having them is an Art, not a Science. Getting them right in a start-up means all the difference between a surviving and thriving one, and one that chokes on itself either through chaos or rigidity!

When it is just the founding team and a small, tightly knit team working closely together, you don’t need a whole lot of processes. Everything just gets done informally by someone picking up the slack and doing it. It is when you reach a critical mass of 20 or more employees, fast growth or rising revenues that you suddenly need processes for everything. Not having them brings chaos, confusion, loss of goodwill with critical early employees, clients or customers!

At the same time, I have seen start-ups emulate large corporations too soon, and load up on process in the beginning, become rigid, and drive away good employees, valuable clients and customers. Right in the beginning when things looked so promising, and that’s not good either!

Whether it is Software Development Methodologies, Sales or Marketing, Customer Support or Human Resource management, processes become necessary with size. Keeping processes in control and making them work for you, rather than you working for them is the key!

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Forms are the first signs of processes that show up and they are the bane of most start-ups! Like a form designed for an impromptu conversation proposal above!

Pixton_Comic_6_Reasons_Processes_Fail_by_OperationsBlog2Processes fail for various reasons. Start-ups cannot afford to have processes fail! In large corporations, there is enough margins and cash flow, ( Of course, when they are doing well) that they can afford to absorb all kinds of process experiments, and failures before something works correctly! Start-ups need to get them right the first time! The margin for process failures is very thin! You cannot afford to waste any money, especially when you are on your way to revenues, and you are burning angel investments or hard-to-come-by venture money!

Luckily technology provides software product start-ups with various tools that can be leveraged. They can have the cake and eat it too! Here are seven such technologies that every start-up needs to look at seriously in rolling out processes smoothly and inexpensively, for the most part!

  1. The Internet: Web portals have enabled organizations business processes from order entry to logistics to customer service to be performed from anywhere, anytime by their employees. In some cases, these organizations are making these portals available even for their end-customers on an around-the-clock basis, making it very convenient. A good question to ask in any start-up while rolling out any process “Is there a way, the Internet can increase the process cycle efficiency for this business process?”. There are no excuses for not leveraging all kinds of Software As A Service (SaaS) sites from Software Development management to Customer Support and Service! Zoho, ChargeBee, Explara, FreshDesk, BaseCamp, etc., are all companies that any software start-up should explore and integrate in their processes!
  2. Wireless Connectivity: Can we wireless enable the people that form part any process?  Can that delivery guy record that delivery using an application and data connectivity through his smartphone?
  3. Automated Workflow Systems: Automated workflow systems cut down the time, work items wait in a queue for processing. Many business processes suffer from wasteful physical movement of paper from desk to desk. When a piece of paper reaches the next destination, it waits behind other work items that arrived before it. Automated workflow systems can keep the work items moving, raising alerts if work items have been waiting for too long a time, re-routing themselves to others if someone is busy, etc. They also provide visibility into exactly where the bottlenecks may be in a business process, enabling sane Lean process improvement efforts to smooth these out. At a time when cloud-enabled workflow systems like Orangescape are available locally in India, there is simply no excuse!
  4. Scanning and Digitization: Computing and computer storage have become so inexpensive that many organizations scan and digitize most official documents that come in as paper. These may be legal documents or invoices from vendors of services, supplies, or raw material. Thereafter, it enables the circulation of these digital versions of these documents rather than wasteful movement of physical paper across the company. Digitization also enables processes to move geographically long distances effortlessly, enabling employees from geographically dispersed office locations to participate in the same workflow, for example.
  5. Service-Oriented Architectures: If an organization is using the most up-to-date transportation companies to handle its shipping needs, it can initiate a delivery from it own corporate applications seamlessly. These shipping companies have made their backend software systems accessible to any organizations’ software systems using service-oriented architectures (SOA). The SOA technology enables software systems in the same or disparate organizations talk to each other and exchange information automatically, without any human intervention. Many large corporations have realized enormous gains in process cycle efficiency in their supply chain business processes by allowing suppliers’ and customers’ software talk to their backend software systems using SOA. By enabling automatic exchange of data between organizations’ computers in an electronic form, SOA eliminates wasteful and time-consuming exchange of paper and redundant entry of data in to multiple computer applications.Checking out your local logistics vendor and seeing if you could integrate your order management system with their logistics systems over the Internet is something to be explored early on!
  6. Document Management Systems: Document management systems allow an organization to execute business processes that require collaboration across geographies, and even continents. They allow two people in different cities or countries to work collaboratively on a business process by making sure the changes they make are done in an orderly fashion and nothing is lost during the collaboration. Document management systems allow the check-out of documents for editing and require checking them back in once they are done. Thus changes made by different people on the same document are not lost. In many business processes, this has the potential of eliminating waste due to motion and most importantly the quality of the collaboration involved. In the absence of such systems, more time may be expended in sending documents back and forth by e-mail and coordinating changes made to the same documents by different people.
  7. Online CRM Systems/Self-Service FAQ Systems: Many organizations have placed customer relationship management (CRM) systems online as part of their web site. A customer can login and create a trouble ticket online for a support or service request instead of talking to a customer support representative on the telephone. Many organizations are using self-service frequently asked questions (FAQ) sections on their web sites where customers can see if their problem has been faced by other customers, and what the solution was, in those cases. These systems enable the speed up of customer service and support processes. FAQ sections on company web sites may even eliminate service or support calls if they answered their questions or solved their service or support problem. They are convenient for end customers since they are available on the Internet, around the clock, providing even better service than when done manually by telephone. Make the client/customer do the work! Many times they may not mind since they can do it 24/7 in their pajamas and don’t need to reach a human being to serve themselves!

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Processes in start-ups can only be rolled out after a great deal of thought, especially, “is it absolutely necessary?”. But once it is deemed necessary, these days technologies and especially inexpensive, SaaS based offerings make it easy for them to implement them and make them work very effectively!

You can live with them, after all, if you know what you are doing and find the easiest, most effective way of doing them!

Excellence is a continuous process and not an accident – A.P.J.Abdul Kalam.

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6 Steps to prevent your Product from becoming multiple Applications! All in Cartoons!

Somewhere along my long software engineering career, I sat one more time rolling my eyes and clucking mentally that one more product is about to become a series of applications! We are about to create multiple code line monsters that will be demanding and expensive to maintain! Yet, this is what happens in reality in most “Product Companies” that start out with the greatest of intentions but devolve quickly into a morass of effort and expense! Do not mistake me! This is a great problem to have and solve! If you have that many clients wanting your product you are in terrific shape to begin with! You just need to manage it carefully. How do you prevent this from happening? Here are six steps to make sure that this does not happen! All in cartoons! After all, a picture is worth a 1000 words!

1. Nothing can substitute for a proper Product Management Function

All features needed for a client need to go through Product Management. Engineering should not be setting the priorities! Product management can always balance Sales’ priorities with Engineering capacity. Not impossible! Somewhere in the past we have used the rule “If one client requests it, it goes into the Wish List. If two clients request it, it goes into the next release. If three clients request it, it goes into the next build”. But nothing is worse than promises like these. And a proper product management function, run well, can prevent it.

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2. Always separate the Product piece from the Consulting piece

If only one client requests something, it is always good to separate the product from the consulting piece. And make sure that the product has callable features that accommodate the consulting piece separately. Like through an Application Programming Interface (API) or through Service Oriented Architecture (SOA) to make it even more robust. Otherwise your whole product ends up like this

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3. Create new features out of useful Consulting Pieces

This is the challenge for Product Management. They should always be on the lookout for generalizing client consulting requirements and make them new but customizable features. Consulting requirements that work for client A hardly work for client B. However with some thought and ingenuity, you can generalize the requirements so that it is not only useful for A and B but also other future clients. It will be more code than you usually write as an application, but once done properly, can be reused for many, many clients in the future!

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4. Minimize Custom Code and Maximize Product features

Over a period of time, one of the worthwhile goals a software product company should have is to minimize custom code and maximize product features! No one really knows the exact requirements for a product unless you roll it out to at least 3 or 4 clients. You realize that you don’t need 50% of the features you thought were hot and you don’t have 50% of the features that clients truly need. This is the process of finding those out! Nothing wrong, but it is just part of the process! However, you need to formalize that process and work that in to your product release schedule. If you think this is crucial for On-premise software, you should try Software as a Service (SaaS) offerings! Even more of a challenge to get features generalized into a bunch of admin settings for a SaaS offering! One more reason to minimize custom code and maximize product features! Like here.

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5. Find and groom Consulting Partners to do the customization

Writing custom code for clients 1 through 5 may be fine but you need to get out of the custom code business. For startup companies it is always tempting to take on as much consulting revenues as possible, especially when it helps greatly with cash flow. It will smother and kill you, as I have seen it in too many companies myself! It’s a honey trap! Find and groom consulting partners that will do the custom code development as early as possible and get out from the applications business. Requires diligent testing, documentation and training. The sooner you do this, you will come up for air and get on with your future major version releases of your product. Also, from a fund raising perspective, if you look more and more like a consulting company, you have less of a story with investors, especially VCs. Consulting companies do not fit their investment profile too much!

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6. Re-Architect the Product every few years! It’s inevitable, especially if you are successful

Software products become like the cartoon in point #2 above. It is inevitable! You have a preliminary architecture, you keep adding features, pretty much with duct tape and baling wire. It is then and only then you realize how you should have designed the architecture in the first place. Plus, every five years or so, you have a whole new set of advances in software engineering methodologies, languages and tools. It pays to completely re-architect your product from the ground up! It also goes with the observation that your product has a whole lot of features you need additionally and a whole lot of features that go unused by your clients, anyway. Step #5 buys you this breathing time to go off, have a few off-site meetings and re-think how your product is structured. Plus never forget that you need to migrate all your old clients to this new one, too! Crucial!

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Successful products evolve! But not without a lot of thought into the process of getting there! Without careful, considered forethought and planning, they can come back as a whole set of applications that can smother and choke a product company!

Software is a great combination between artistry and engineering – Bill Gates

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All I know about Product Startup Recruitment…I learned from the movie Moneyball!

Today, I was watching Moneyball, the movie for the third or fourth time! Every one of those scenes and dialogues was a lesson in recruitment that every product startup could use! I have used them and they have worked for me in fantastic ways! What better way to learn lessons in startup recruitment than watch a highly enjoyable movie with fantastic actors like Brad Pitt and Jonah Hill!

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Having lived in Silicon Valley in the early 2000s, on the East Bay, having seen some of those Oakland Ace home games myself in person,  and having followed the A’s improbable victories in the media with my mouth open in astonishment, it could not get any more real and personal!

The movie starts out with the New York Yankees having a budget of $120M for player salaries and Oakland Aces having a budget of $40M. And the Yankees are stealing the best players the Oakland As and other teams too!

Sounds familiar? Competing with larger companies with deeper pockets for your employees?

So how do you compete and win? That’s the premise we start with.

Billy Beane: Aaahhh! The problem we’re trying to solve is that there are rich teams and there are poor teams, then there’s fifty feet of crap, and then there’s us. It’s an unfair game. And now we’re being gutted, organ donors for the rich. Boston has taken our kidneys, Yankees takin’ our heart and you guys are sittin’ around talkin’ the same old good boy nonsense, like we’re selling deeds. Like we’re looking for Fabio. We got to think differently.

Let’s start with that! As a product start up company when you are ramping up, you are not a rich team, you are not a poor team, fifty feet of crap, and you are lower than that, given the lack of resources, especially if you are  bootstrapping! You may have star technical co-founders but you may need a larger team. Everybody cannot be a chief.  You need foot soldiers! You need to think differently!

Peter Brand: It’s about getting things down to one number. Using the stats the way we read them, we’ll find value in players that no one else can see. People are overlooked for a variety of biased reasons and perceived flaws. Age, appearance, personality. Bill James and mathematics cut straight through that. Billy, of the 20,000 notable players for us to consider, I believe that there is a championship team of twenty-five people that we can afford, because everyone else in baseball undervalues them.

So goes a quote early on in the movie!

People are overlooked for a variety of biased reasons and perceived flaws. Age, appearance, personality.  Top tier schools have all been picked clean. Look for overlooked people. Look for that unusual project in their resume. Ask the candidates about their passions and hobbies. You may be surprised with those gems that others overlooked. Tier 2 and Tier 3 schools  will have those people who did not make it to a top tier school for whatever reason. Their parents may have been sick during their high school final year. They may not have shown enough interest at that time to make good  enough grades in their high school year to get into a top school. They will be so grateful that you have confidence in them and are giving them another chance!

This does not mean you lower standards regarding technical competencies and knowledge. Test and interview for those as you would anybody. Look for those unusual people that are good but your mind rejects unconsciously because of age, appearance or personality!

How could the A’s  keep winning games against bigger and well funded competitors with a team made up of rejects and undervalued players? The key word here is undervalued!

Peter Brand: Billy, this is Chad Bradford. He’s a relief pitcher. He is one of the most undervalued players in baseball. His defect is that he throws funny. Nobody in the big leagues cares about him because he looks funny. This guy could be not just the best pitcher in our bullpen, but one of the most effective relief pitchers in all of baseball. This guy should cost $3 million a year. We can get him for $237,000.

Look for those Resumes that look like people who throw funny! Extraordinary interests in a variety of tools, languages and approaches. You want a start-up team that has breadth and depth. That candidate who gets so dogmatic about Java or Objective C or Ruby on Rails and thinks that everybody else is stupid to think of any other alternative is a problem waiting to happen! It’s a person who has not learned the difference between one tool and a toolbox full of tools. You need a carpenter who knows when to use exactly the right tool, not an operator of a single tool!

Peter Brand: Okay. People who run ball clubs, they think in terms of buying players. Your goal shouldn’t be to buy players, your goal should be to buy wins. And in order to buy wins, you need to buy runs. 

Figure out what you need as outcomes from the team members, not the function. You don’t need programmers, you need products that work. You don’t need Customer Service representatives. You need satisfied customers. You don’t need s sales team with a Director of Sales. You need Sales! Focus on how they have achieved these things in their past life. Look beyond the resume. Talk to them!

Finally, don’t second guess yourself! Explain the mission of the start up  and ask the question – “Do you believe in this thing or not?”

Yes. Watch the movie Moneyball if you want to know how to do recruitment for your product startup company!

 

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If you want to do something, don’t over-analyze it! We do mostly Series A Funding! Helion Ventures #ThinkInvestor

ThinkInvestor is iSPIRT and ProductNation’s new initiative to serve as a catalyst between Venture Capital firms, Angels, Angel Networks and Entrepreneurs. It is to go beyond brochure ware and dig deeper into the whole life cycle of a typical investment; from introductions, funding, styles of on-going engagement, to exits. And in the process, capture their views on global and local trends, and the entrepreneurial ecosystem in India. This interview is done with inputs from Shashi Bhagnari.

think-investor-helionHelion Venture Partners is a $600 million venture fund focused on India with offices in Bangalore and Delhi. The company is an early to mid-stage investor in Indian startups in sectors such as Enterprise software, Internet, Mobile, Outsourcing, Retail, Education and Financial Services. In a conversation with iSPIRT, Helion’s Alok Goyal, Partner, talks about the company’s funding strategy, evaluating projects and making the right investments.

Tell us about the company’s background. What is its focus? What is your current fund? What is it looking at?

We formed the firm in 2006 with four founders that included Ashish Gupta, Sanjeev Aggarwal, Kanwaljit Singh and Rahul Chandra. Besides our team of analysts, our CFO doubles up as an operating partner for finance. We also have an HR advisor who works closely with our portfolio companies. We recently got someone in Product Management from Google to help portfolio companies. We are now a group of 15 people and have our offices in Gurgaon and Bangalore in India.

We focus our investments on early to mid-stage ventures, investing in technology-powered and consumer service businesses in sectors like Outsourcing, Internet, Mobile, Technology Products, Retail Services, Healthcare, Education and Financial Services. We have done about 60 investments so far.

In our current fund, we have raised about $250 million. The focus of this new fund will be divided between technology side and tech-enabled consumer investments. We will continue to look at Internet services like Makemytrip where we invested earlier, taxi services like TaxiForSure etc.

What’s your strategy on verticals? How do you characterize them?

Within e-commerce, we are bullish on Internet-only brands and marketplaces. For example, YepMe–a Web only brand focused on tier two and tier three markets. We have also invested in a venture called ShopClues which is an eCommerce marketplace.

Within consumer services, we have invested in consumer facing travel ventures like TaxiForSure. We have also made an investment in a company that makes planning travel experiences much easier. We have also funded a housing and real estate venture, Housing.com.

What stage of investment are you most interested in? Seed funding or later stage investments?

We are mostly the first or one of the first institutional investors in the company. Our sweet spot would be Series A or Series B funding. I would imagine 70 to 80 percent of our investments are in Series A. We invest between $10 to 20 million over the lifetime of an asset.

Any interesting investments you have made recently?

We had been looking at investments in the healthcare sector for a while now. We have recently invested in Denty’s, a chain of dental care units. This Hyderabad based company focuses on dentures, jaw replacement and other high end dental care treatments.  We have also invested in the area of enterprise mobility, in a company called Rapid Value that provides services in the area of mobilization of enterprise applications. Another recent investment is Linguanext, which has created a unique technology for language translation. It allows Independent Software Vendors (ISVs) and enterprises to translate any application from one language to another without any changes in the application itself.

How do entrepreneurs get in touch with you? Is there a defined process they need to follow?

Entrepreneurs are at the heart of the venture capital eco-system. It is as much or more of our job to find entrepreneurs than they reaching out to us. In fact, we use a lot of our bandwidth to get to reach out to entrepreneurs.

Entrepreneurs are most welcome to reach out to us directly. There are two ways entrepreneurs typically get in touch. First is through our personal network. Second way is through bankers. We also like to make ourselves visible in forums and events so that entrepreneurs can reach out to us and we can reach out to them.

We also have a strong outbound program through a team of analysts.

What is your due diligence process? Is it specific to all?

We view around 1500+ business plans each year. The process is similar for most. Usually the first meeting takes place with one of our analysts, unless it comes from personal contacts. Different analysts focus on different areas and they all gain a good idea after the first meeting, which is then followed up with another meeting with one of the partner(s), to understand the business better.

Due diligence for us is more Market Diligence. We also do primary research, secondary research and make reference checks. After we are through with the entire due diligence, we invite the entrepreneurs to present their business plan to the whole team.  If the partnership is positive, we issue a term sheet after which financial/legal due diligence cycle along with documentation is completed.

The entire end-to-end process is completed within a month and a half typically.

How do you interact with your entrepreneurs? Is there a process outlined for this?

Investment is not only about money. We have developed reasonably strong relationships with our entrepreneurs which begins when we start the process of due diligence. We have both formal and informal interactions on a periodic basis.

In the early stages, face-to-face meetings are held every quarter, in addition to monthly calls. But outside of that, we do not interfere in their work at an operational level. But entrepreneurs reach out to us whenever they need help. For instance, if they need clarity on product direction or to connect with other prospects, they contact us. Those interactions are in fact, quite regular. However, I personally find myself being in touch with them on a very regular basis.

Do you have any avenues where you meet your portfolio company CEOs informally during the year?

Yes, we are doing this once a year. We have also started to form groups now. For instance one group that focuses on product management can share tips with portfolio companies in that area.  We also reach out to our portfolio companies through webinars.

Tell us about your recent exits? What do you think of the climate for exits in India like?

We are just an eight years old entity, so there have not been too many exits. Our first was an IPO exit from MakeMyTrip when they went public. We also exited redBus when it was acquired by Naspers. Then we got out of Amba Research. We are hopeful that the market climate in the next few years will get a lot better for favorable exits.

What excites you about entrepreneurs these days, and what is it that you like to see in them?

In all my discussions there is a general belief that the quality of entrepreneurs has gone up significantly. We are also seeing a whole class of entrepreneurs moving back from the US. We are seeing a generation of entrepreneurs starting their second ventures now. Their scale and thinking is different, very bold.

What we’d like to see is stronger talent in Product Management. It is relatively more difficult in India compared to a place like the Bay Area. We are also not seeing as many deep technology assets. What we are seeing are more applications based and light IP based businesses from India. Over a period of time, I have no doubt that India will create more deeper technology companies as well.

What advice would you like to give young guys who want to start a new venture?

You should ask yourselves if you have the entrepreneur inside you or not. If you are over analyzing, you are probably not. An entrepreneur has to be “foolish” enough to purse the dream besides being passionate about it. If you want to do something, don’t over-analyze it. The important thing is the ability to take the plunge.

Entrepreneurship is not a solo sport; but a team sport. You need to find complementary capabilities in others. The bottom-line is that you should be able to pull together a team that has complimentary skills and the same passion to do it.

A startup is successful because it is focused. Defining that focus is important. Startups succeed because they choose a specific market segment or a specific problem or a specific customer set etc. and serve that market better than anyone else.

Lastly, it is important to be close to the market. You need to continuously listen, learn and act with agility. It is important to be able to iterate quickly. 

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The redBus Founders on Motorbikes Story! Interested in India Domestic Consumption Start Ups! Seedfund #ThinkInvestor

ThinkInvestor is iSPIRT and ProductNation’s new initiative to serve as a catalyst between Venture Capital firms, Angels, Angel Networks and Entrepreneurs. It is to go beyond brochure ware and dig deeper into the whole life cycle of a typical investment; from introductions, funding, styles of on-going engagement, to exits. And in the process, capture their views on global and local trends, and the entrepreneurial ecosystem in India.

Seedfund is an early-stage venture capital fund, with operations in Bombay, Bangalore and New Delhi. Seedfund was founded in 2006 by Bharati Jacob, Mahesh Murthy and Pravin Gandhi and the team has grown to include Paula Mariwala, Sanjay Anandaram, Sarabjeet Singh, Shailesh Vickram Singh and Tarana Lalwani. All Seedfund team members have been entrepreneurs at some point or the other in their careers. Seedfund investees include AFAQS, CarWale, Chumbaka, EduSports, Fetise, Frontier Markets, Healthizen, Heckyl, Ixsight, Jeevanti Healthcare, Jeeves, Level10 Comics, Lifeblob, myDentist, Nevales Networks, Printo, redBus, RupeeTalk, Sportskeeda, ThinkLabs, Uhuroo and Vaatsalya.

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ProductNation sat down with  Sanjay Anandram, Venture Partner of Seedfund for this interview.

Here’s what we heard :

What is Seedfund? Tell us a little bit about your fund, stage, investments you like? How are you structured? What’s your current fund? How far along are you in your current fund?

The name Seedfund implies only seed funding but really is a seed or early stage fund that likes to get in early and stays on through multiple rounds of funding. We can invest up to $5M in a company. The sector is India Domestic Consumption – anything that the Indian consumer spends money on; financial services, entertainment, travel, hospitality, healthcare, education, etc,. We are structured like a regular VC fund. Our first fund was a small $15M fund but our second and current fund is $55M. The first fund is nearing its end of life and the second fund is about 2 years and 10 months old.

How do you get to know companies and entrepreneurs? What’s the best way for an entrepreneur to get in touch with you?

Sanjay-AnandramWe are less driven by broad trends than by the specific opportunity and the category we find them in. In many cases, we have invested in companies that created a whole new category. For example, when we invested in redBus, there was no category called Bus Ticketing Services but they created one! Our investment in Vaatsalya created a category called Hospital Chains for Tier 2 and Tier 2 towns. Our investment EduSports created a category for Physical Education Services for schools. Sportskeeda is a Sports Online Community site. All these have been started by people completely embedded in that space.

We have a large network and many companies and entrepreneurs we get to know through referrals. We also have a number of companies approaching us directly also. I started in 1999 an online magazine aimed at entrepreneurs. In 2002 I started one of India’s first VC fund called Jumpstartup. Since 2006 I have been associated with Seedfund as a venture partner. All of this means that we have been long enough in this space to build a large network and get to know people. That’s how we get a lot of referrals and many of them come in directly as well, through email for example.

How long does it take for you to do the due diligence process? What is your due diligence process?

At the stage of the companies we are dealing with, there is usually not a lot of due diligence we could do because many of our portfolio companies create their own categories. That said, we place a few phone calls to check out the space a company is in, any competition they may have. Apart from the usual things like checking out the team, sometimes, we may need to clean up existing company structures if they have involved a lot of friends and family investments. Sometimes companies need time to pull things together for us to do due diligence. All of these typically take from about 3 to 5 weeks time.

What kinds of interesting new categories are you seeing in India? Exciting business models, technologies?

There are two ways to look at the categories we see – one could be the mode of delivery – cloud, mobile, SaaS, etc. The other is along verticals that correspond to consumption of the Indian consumer – financial services, education, healthcare, entertainment, travel. The interesting companies we are seeing deliver something faster, better, cheaper to the Indian consumer in these verticals using one of these delivery methods.We are not seeing a lot of fundamental technology advancement plays from India. We are seeing  more innovations in Business Models, throwing together unusual methods of delivery being the innovations.

Although we are focused on the Indian market we have invested in a company like Heckyl that provides financial analytics that includes social media targeted towards brokers and traders. This company has international markets in its scope.

We are very excited about Chumbak, a designer, a brand and a retailer that does India designed Motifs and colors. They have a presence in Japan, have retail stores also in addition to the online one and growing extraordinarily well. Chumbak is creating a brand new category for Indian designed, Indian made products. 

AxisRooms is a one of a kind cloud-based start up in the hospitality industry. It enables an exchange for price and inventory discovery to bring together agents and consumers in the hospitality industry with hotels in real-time. Till now there has never been a single place where all travel agents, consumers and hotels can interact, transact business, and get contracts done.

Sports advertising market is about $800M in size and growing at 25% per year. Sportskeeda is right in the middle of this market to serve consumers with a multi-sport content and community platform. Jeeves is a portal for in-warranty, extended warranty and out-of-warranty appliance repair in India.

What caught your attention about redBus? Any stories or interesting pivots you want to share about that company?

There are a few remarkable things about redBus. They proved that you can build a large company in a very ethical way, focusing only on the Indian market, and building a strong consumer brand without splurging money on marketing and advertising. They also proved that it is possible to create a category by co-opting all the players – the bus operators, consumers, ticketing agents and the Government. It wasn’t easy at all; they had lots of roadblocks but they overcame all those! They made a high-end service possible for the end consumer and at the same time, made it transparent to the bus operators how much money they can make by using redBus, and where their weak points were with consumer feedback. Now a lot of the bus operators’ growth is tied to redBus’ growth and vice-versa, a symbiotic relationship! It was a very unorganized, unprofessional, not transparent business. redBus made it a transparent, democratized one!

Here’s an not often mentioned story about redBus: It was one of those early days when they were selling 30 to 40 tickets a day which was really, really small.  As happens in small start up companies the co-founders were helping man the customer service phone lines one evening. They got a very angry call from a customer whose Bangalore to Mumbai bus was cancelled and he was stranded in the middle of nowhere with his luggage! It was late at night and Phani, and one of his other co-founders got on their motorbikes and met this irate customer where he was. From there they took him and his luggage on their motorbikes to Bangalore airport, bought him a ticket on a late night Air-India flight to Mumbai and saw him off! Although they were not directly responsible since the bus operator was the one that cancelled the bus, they took it upon themselves to make sure that their customer was treated right! The customer reached Mumbai, wrote them a nice letter thanking them for their service and has been a loyal customer since!

Another remarkable thing about redBus is their commission structure for the tickets they sell for large bus operators and smaller ones. It has been the same and they have resisted lowering it for larger operators that bring them more business or increasing it for smaller operators that don’t bring them that much! It is always a standard transparent one for all of the operators. They have done this in spite of intense pressure from larger and smaller operators alike! Over time everyone understood the value of a transparent, consistent commission structure.

The point I am trying to make is that it is possible to conduct business in India this way – ethical, fair, transparent and consistent!

Once you have invested in a company, what’s your engagement model? How do you interact with these companies?

It’s informal and easy-going (but not at all lax). We focus more on helping the portfolio companies build their business rather than manage from spreadsheets. We focus on strategies and tactics for the company; hiring, customers, business model tweaks, what would the next round of financing look like, partnerships they need to create, what kinds of mentors and advisers they need to bring on board, etc,. We see ourselves as partners rather than investors who write a check, and disappear.

There are formal board meetings with the companies on a pre-arranged calendar. Beyond this the informal interactions are all driven by the entrepreneur needing us to help with something. We share interesting anecdotes, articles, meeting minutes, etc,. Apart from these, we do have CEO meetups a few times a year where they share problems, solutions, experiences, lessons learned, especially in the areas of hiring, sales, etc,.

Let’s move to exits! How do you help them prepare for exits? Do you prepare them for exits?

We believe that you build a good company the exits will suggest themselves automatically! CarWale built a good business around a portal for buying and selling new and used automobiles. The German group Axel Springer and the India Today group did an acquisition.  With redBus we were out raising funds when the Naspers group came along and acquired it.

There is no general preparations for exits. Our responsibility as investors is to see the company grow and if they grow well, exits will happen automatically.

What are your thoughts on what’s happening in India? Advice for entrepreneurs and start ups? What’s your advice for people leaving stable jobs for start ups?

There is a lot of activity in India currently. However, we advise entrepreneurs not to get too excited after reading TechCrunch and things happening in Silicon Valley! You need to be excited about opportunities that happen in India! There are enough problems to be solved right here. The customers are here, you can build partnerships here. It is important to be grounded and present in the market for you to build something worthwhile.  It is possible to build big,  interesting companies, businesses right here in India. But for that to happen, you really need to understand the customer problem you are solving and why they would write a check for your business. A lot of youngsters get excited about what’s going on in Silicon Valley. But you should be spurred by customer problems here, not what’s happening in some other market.

You don’t do a start up because you want another job. Not for sex appeal or the glamour! You do it for the passion. You do it because you want to do it! You may need to get used to downsizing your life significantly. You may not have the same compensation and others things that go with a stable corporate job. You may need to deal with social pressures because your friend continues in a corporate job and has bought a brand new house and a Mercedes recently! I have written extensively about these economic and social pressures, why should you be an entrepreneur,  and should you be an entrepreneur. When your passion to go out and do something is greater than the analytical assessment of all these costs, you should do it! You will have to deal with a lot of emotional issues such as self-esteem.

Think of all the possibilities! Don’t let constraints come in the way! It is easy to blame the ecosystem, the lack of money, VCs, Angel Investors, etc,. This question is like asking Is it possible to climb Mt.Everest? Yes. It’s always possible. The key questions are what is required to make it happen? You need to be physically fit, you need to know the lay of the land, you need to have people who have knowledge and experience with doing it before, you need to have the right equipment, a timeline that is suitable and all other resources for such an expedition to succeed. You need to lay all of these in sequence and execute and in 18 months or so you may be on top of Mt.Everest. Constraint based thinking make us give up too soon when you lack one or more of things that are needed. Entrepreneurs use possibility based thinking to address and overcome these limitations one way or another. That’s the difference!

What’s your take on companies getting Mentors? When should they look for one?

Before answering this question it may be better to get some terminology defined correctly since people tend to use words rather interchangeably.

A Consultant is one you bring in to solve a transient, bounded problem. How do I put in an IT system? How do I do Risk Assessment? How do I design a compensation plan?

An Adviser has a longer term strategic and functional objective. What should my IT Strategy or technology be? How should I be doing my marketing?

A Mentor is a like a coach helping them become better. 

In Mahabharata, Krishna tells Arjuna to aim and kill Duryodhana below the waist. That’s a Consultant!

When Krishna give Arjuna advice on how to kill Bheeshma, he’s an Adviser!

Before the battle, Arjuna asks Krishna how he could kill his cousins and grandparents in battle. He’s very conflicted about this. Krishna’s advice then is Mentoring!

It depends upon what the entrepreneur needs. Mentors are needed for high level coaching type of advice. Not for finding customers or helping with this or that. You need to be sure that the problem you have needs a Mentor, not an Adviser and definitely, not a Consultant!

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Ideas are NOT dime a dozen! At least good ones! Building an Innovation Culture! #ThinkBig

Ideas are dime a dozen! It’s all in the execution!

So goes the popular wisdom. Indian start-ups and accelerators keep talking about identifying problems and solving them. True. There are great companies like redBus.in that were built using this approach. However, there are other great companies like Twitter that were not born out of any urgent problems that people had. They developed a short-form, real-time, instant broadcast mechanism that found a thousand uses such as having quick conversations, fighting for freedom around the world, and distributing links to articles, pictures, etc,. Such is the power of ideas that go in directions you never even anticipated. The main point is that ideas are important whether they address well defined problems or someone thinks “Wouldn’t it be nice if….”. They may all lead to innovation that helps start ups scale quickly!


I had written about  this subject almost two years ago in two articles here,  in the same forum – Is your company dependent on Innovation? Grow the right Culture First! The rest will take care of itself! and  Is Software Innovation an Art or a Science? It’s Artful Science or Scientific Art! . Since then, the Indian product ecosystem has come a long way and has seen examples of great exits happening because of innovation. It may be time to enumerate different steps that start-ups could take to make sure they are building an Innovation Culture.

Wikipedia has an excellent definition of Innovation – Innovation is the application of better solutions that meet new requirements, in-articulated needs, or existing market needs. This is accomplished through more effective products, processes, services, technologies, or ideas that are readily available to markets, governments and society. The term innovation can be defined as something original and, as a consequence, new, that “breaks into” the market or society. A definition consistent with these aspects would be the following: “An innovation is something original, new, and important in whatever field that breaks in to a market or society”.

Now you can see why software product companies need to build a culture of innovation. It is key for their differentiation; essential for raising investment money, attracting bright employees and building unique intellectual property.

So how do you exactly build a culture of innovation? Here are popularly recognized steps:

Articulate a Mission and a Vision for the company rather than just end-products – Pixar’s goals were to reinvent the animation industry. Facebook’s mission is to give people the power to share and make the world more open and connected.   Google’s mission is to organize the world’s information and make it universally accessible and useful. This does not mean that you encourage your employees to come in and do random things. It just sets up a framework to view existing and future products and draws the lines within which they can innovate.

Hire people who are curious in addition to having the capabilities you need –  Innovation cultures cannot be built with people to whom it’s just a job with a paycheck or people who have very narrow interests. Those kinds of people will do extremely well in services companies where a team needs such focused people on some narrow task as part of a larger team. Software product start up companies can afford only so many people and they may need to wear many hats especially at the start of the whole effort. So if you want to build an innovation culture, you need to hire people who have diverse interests and generally curious about many things. Innovation happens more often at the intersection of many interests than in a single focused discipline.

Encourage Ideas  – This sounds like a truism but it is one of the most difficult things to do in start up companies, especially with co-founders or management with strong personalities. The first time an idea from an employee is overruled or ignored may be the last time that employee speaks up with ideas again! The founders/CEO need to establish encouragement of new ideas from day 1 or it will be too late for this to happen.  It is easy to be busy with being busy in a start up company and not take the time or recognize new and good ideas as they come up in conversations and encourage them.

Encourage Autonomy – Encouraging autonomy is another way of encouraging new ideas. In fact it may be an even better one than soliciting them in company forums. Someone who is expected to produce results rather than dictated steps to get to the desired results may come up and implement new ideas themselves.  Accidental and autonomous innovation is just as good anything that goes through formal processes.

Recognize and Celebrate New Ideas – Public and private recognition of new ideas  is an essential step in the building of an innovation culture. Man does not live by monetary incentives alone and they may be the least important ones! Start up companies may not have a lot of money to pass around for new ideas, but you could have other incentives such as small stock option awards that motivate good employees even more.

Build a Culture where Failure is not a Stigma – The Anti-Portfolio pages of the VC Firm Bessemer Venture Partners is a great example of celebrating failure quite publicly! . It names the partners who, for whatever reason, passed on some investments that went on and made it big! The message they are conveying mainly is not that these people screwed up, but to encourage taking more risk! In a software product start up, public recognition of the fact that some people tried something, even if they failed, builds the confidence that it is OK to try new things. Fear of failure is something that stops many employees dead in their tracks and they keep new ideas to themselves.

Encourage Big Thinking and Small Experiments –  Start up companies cannot afford not to think big and may not be able to afford large experiments.  They can, however, encourage small experiments that can validate the big thinking. These experiments ought to be encouraged and employees given the time and encouragement to pursue them.

But innovation comes from people meeting up in the hallways or calling each other at 10:30 at night with a new idea, or because they realized something that shoots holes in how we’ve been thinking about a problem. – Steve Jobs

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We invested in Ezetap, the Square for Emerging Markets! Mobile, Internet, Payments interest us! AngelPrime #ThinkInvestor

ThinkInvestor is iSPIRT and ProductNation’s new initiative to serve as a catalyst between Venture Capital firms, Angels, Angel Networks and Entrepreneurs. It is to go beyond brochure ware and dig deeper into the whole life cycle of a typical investment; from introductions, funding, styles of on-going engagement, to exits. And in the process, capture their views on global and local trends, and the entrepreneurial ecosystem in India.

AngelPrime is a Seed-stage fund that sits between incubators/accelerators/angels and large VC firms. Started by serial entrepreneurs, Bala Parthasarathy, Shripati Acharya & Sanjay Swamy, Angelprime believes in getting deeply involved with the companies they invest in. They have been serial entrepreneurs that understand that entrepreneurship is a long and lonely journey and having multiple minds spend sleepless nights on the business dramatically increases the chances of its success.

ThinkInvestor-AngelPrime

ProductNation sat down with  Sanjay Swamy, Managing Partner of AngelPrime for this interview.

Here’s what we heard :

What is AngelPrime? What’s your Stage, Focus and typical investment sweet spots?

We are a group of serial entrepreneurs and we bring the perspective of an entrepreneur to our fund. We are very seed stage and we are hands-on investors. In the early 70’s  in Silicon Valley, VC firms worked side by side with entrepreneurs building their companies. Later on, they evolved to become more of financial investors. India now is somewhere in the middle. However, we believe in working side by side with the entrepreneur in building companies. We help our portfolio companies in product definition, building teams, building products, getting them validated in the market and building a global strategy if needed. There are Angels and Incubators that may invest in the order of a few lakhs. Typical early stage VC firms may do $2M to $5M and do 8 to 10 deals a year. We are in the middle, and we can dedicate a lot of time to the companies. We have bandwidth only to do 3 or so highly curated deals a year.  Our typical investments have a broad range,  from  $100K to a $1M. Our sweet spot is $400K to $600K.  Our focus is Technology-led Start ups, Mobile and Internet, Financial Services and Payments. All three founders of AngelPrime were volunteers with the UID program in India and so we are very interested in Identity related start-ups. We are seeing a lot of companies in the healthcare space and have invested in a recruiting start-up. Most important thing for us is how much value can we add.

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What’s the best way for an entrepreneur to get in touch with you? What works and what does not?

Referrals are still the best way to get in touch with us. However, we still get to know entrepreneurs and their companies through email. One of our portfolio companies HackerEarth, we bumped into at a conference! We are also finding early stage incubators to be a rich source of deals. We have found interesting companies at incubators like the Microsoft Accelerator, GSF India and Morpheus. We find that the deals we come across at these places have gone through some level of curation already, with something of a team in place, and some limited level of product validation already done. These are the kinds of referrals that we like! Typically we are the first institutional money and we are also the larger lead in a seed round.

How long does it take for you to decide on investing? What is your due diligence process?

The first thing we assess is the caliber of the entrepreneur; we look at the scrappiness of the entrepreneur and the typical two person (or so) team.  If the members of the team are similar in backgrounds, that’s not necessarily a plus. We are looking for teams made up of people who are complementary in backgrounds but work well together.

The second thing that’s important is the size of the market. This is not something you can create. It is what it is, but we assess how the entrepreneur is wanting to go take a piece of that market.

Coming to the due diligence process, we try to move very fast. We don’t believe in stringing the entrepreneur along but sometimes additional market validation may be needed. Typically at this very early stage, very little has happened that we can do do due diligence on.  However we look at how the company is structured and clean it up if we think it can create problems downstream.  We make sure that the founders, vesting schedules, CAP structures are all set up properly.  We look at the legalese and make sure that’s all good. We are very strong believers in clean and simple Silicon Valley style term sheets. No funky clauses; our liquidation preferences are usually 1X, non-participating.

Typical timelines for a decision have been as fast as 24 hours where the company is ready and it’s in our sweet spot. Sometimes we may need to go do some research on our own before a decision. Sometimes it becomes a question of our learning an area as well.  Due diligence and paperwork takes about 3 weeks.

Once you have invested in a company, what’s your engagement model? How do you interact with these companies?

There are two ways we interact with our portfolio companies. The first one is the formal weekly or bi-weekly meeting. More interesting is the informal interactions we have. We have a co-location space in our office where many companies situate themselves at this stage of their development. It helps us to have a number of water cooler-type conversations with them. We learn about new things and we also provide our advice as relevant, and asked for by these companies. We tell these companies that we can take on a variety of roles for them all the way from mopping the floors to wearing a suit and meeting with bankers with them.

There is another way to look at this hand-holding, in three phases:

1. Experiments: We help them in do a series of experiments both in the technical approach, and also with the business model. These days the cost of doing experiments is very low and the cost of not doing them, very high!  For example, in payments,  is it a per transaction fee or a subscription model? The cost of doing A/B testing these days is not much. Many times we  end up learning something from the entrepreneurs,  when they push back and say “this is today – this is what works unlike something five years ago”, because they may be  closer to the market.

2. Narrowing Down: The second phase is the weeding out of those experiments that failed and narrowing down the business and building the team for “scale-hacking”

3. Scaling: The third phase is scaling the business and in parallel preparing the company for the next round of funding. We address questions like – Do we raise additional monies here in India or the US and help facilitate introductions to suitable investors.

What are some of the exciting companies in your portfolio now? Exciting new business models?

Ezetap is a company we incubated, invested $5ook initially. It is a very exciting company where we took a very different approach than Square. We designed and developed the hardware in India instead of the usual approach of going to China for it! We took an Apple-esque approach to keeping all of the hardware and software development in house. The business model is also not a per transaction fee model like Square but a SaaS based subscription model. We raised a $3.5M Series A round from Social+Capital. Chamath Palihapitiya brought in other investors like Peter Thiel and David Sacks in this investment. Ezetap has gone on to raise another round from a consortium of Helion Ventures and Berggruen Holdings who are very well connected in Europe.

HackerEarth is a company that has put a nice business spin on TopCoder!. They are providing a very useful solution to the problem of sifting through 100’s of resumes in India to find those few programmers whose skills are  excellent! HackerEarth has solved this problem with some clever algorithms that automates this sifting process. Top companies like Adobe, inMobi and Symantec are using this solution for their hiring. The two founders are from IIT Roorkee, in their early 20’s and are phenomenal in their speed of implementation of ideas!

We have invested in another company in the Mobile Wallet space that we have not yet announced. This was also founded by two young entrepreneurs whose ability to execute is phenomenal, have boundless energy and ultra capital efficient! We have invested in another company, SmartOwner. SmartOwner is a company that allows individuals to invest in highly curated real estate deals for investment purposes.

ZipDial is not technically part of this fund but I am a co-founder, and we all individually are investors in the company. ZipDial makes clever use of the “Missed Calls” phenomenon in India where a call is made but never completed by mutual agreement. ZipDial piggybacks various kinds of actions – marketing, customer service, etc. You could send marketing messages or customer service can send back a message about being very busy now and other suggested times to call. Political parties in India like the Congress and BJP are using it for increasing engagement of voters. Out of AirTel’s 200M customers, only 60M or so have ever sent a text message. Text messaging literacy is not that high but number literacy is. They can dial numbers easily. By dialing a number toll-free (since it is a missed call), you can get feedback or information. For example, a market survey ZipDial missed call sends back a question about your MLA’s performance. It sends two or more phone numbers for each of the possible responses. You just do a missed call to the right one and it is done! This is a completely India-based business model but the funny thing is that the founder is an American, Valerie Wagoner! ZipDial was rated #8 in FastCompany’s most innovative companies!

What kind of advice would you have for someone interested in becoming an entrepreneur, especially from a stable job like at a services company?

There are some very great fortunes to be made in the entrepreneurial ecosystem. I think we need more people willing to be early employees in start-up companies. The risks look daunting but the rewards, especially in India could be huge! Get out of your comfort zone and take some risks! The opportunity cost of not trying is very big! The technical challenges involved in putting together an innovative start-up that changes people’s lives, could be rewarding in itself.  You get to conceptualize products, test them in the market and if it works out, watch it scale. If it doesn’t work out, you can always go back to a safe job.

A lot of entrepreneurs hesitate to say that they are in it for the money. Culturally, we are not yet attuned to this but there is no shame in it! Secondly, we are not accustomed to failure and fear the stigma attached to it! We don’t celebrate failure – the best lessons are when things go wrong!

Exits are crucial for Product companies to have money come in through the front door as investments. What are your thoughts on what’s happening in India?

There have been very good exits like  Little Eye Labs and the Redbus, The Little Eye Labs was a good technology company exit and Redbus took a dis-aggregated market and consolidated it nicely. MakeMyTrip had an IPO exit. There were also a number of exits that were not talked about – VentureInfoTech was a $100M+ acquisition by a european company. Prizm payments was acquired by Hitachi for over $275M. For technology companies,  Silicon Valley still seems to be the destination. Services companies are being acquired by European entities. Considering returns,  we need a little more patience in India. Things take longer but have started happening.

We advise our companies to think they are building houses as if they are going to live in them! People will come to buy the house at the right price if it is built right!

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8 Lessons for Start-ups from Genghis Khan!

I could not put down Conn Iggulden’s five volume, historical fiction series on Genghis Khan and his successors all the way up to Kublai Khan, Genghis Khan’s grandson. Genghis Khan was of course, brutal in his conquests and annihilated those that opposed him. It was the 13th century and building empires was the name of the game at that time.

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Just to get an idea of the scale of Genghis Khan’s conquests and the extent of his empire, here’s an animated GIF of the growth of his empire.

Mongol_Empire_map

 

You can see that from a small nation in Mongolia, the Genghis Khan empire grows and grows in all directions and by the end of the 13th century, Genghis Khan’s successors have split the whole empire into their own Khanates that they ruled.

Genghis Khan’s approaches, strategies and tactics hold quite a few valuable lessons for start-ups, and entrepreneurs! Here are eight such lessons:

1. Empires can be built from bootstraps!

Genghis Khan (Great Emperor) was called Temujin before he was given that title. Temujin was the ultimate bootstrap! Yasugei, Temujin’s father dies when he is poisoned by a rival tribe when he is the leader of his Wolves tribe. A treacherous second in command to Yasugei leaves Temujin, his brothers, and his mother with nothing in the deep freeze that is the Mongolian winter. They could have all died due to exposure to cold and hunger. Temujin, even though he is the third son in his family, keeps them all alive by killing marmots and what little wild life they could find nearby and hunt with crude bows and arrows they fashion from sticks. From there, he builds a tribe of his own and this empire building does not stop till it extends from Russia in the West to China in the East, Mongolia in the upper north to Afghanistan and Kabul in the South. Yes! Empires can be built from bootstrapped companies. Oracle and Microsoft were ones! In fact, they were not even the first in their categories at the time they were bootstrapped!

2. Give your people, a Mission! Don’t give them just products to build!

Temujin had the unenviable task of uniting a variety of constantly warring, nomadic tribes in Central Asia into a single huge army, and conquer other lands. The Western Xia and Jin dynasties (modern day China) had looked down upon all these tribes for centuries, and played one against the other, always keeping them down. Genghis initially tried to reach out to Ala-uddin Mohammed, the Shah of the Khwarzemid empire to his East (modern day Iran) in friendship wanting trade. The Shah again looks down upon Genghis as the leader of vile, nomadic, godless tribes and a nobody. He sends him back the head of the Genghis emissary. Genghis makes these multiple insults the fire in the belly of all of the nomadic tribes with a common mission  – To show them all that they are a single people, mongols and not to be trifled with!  Startups may have products they build at any time but there is always a larger mission, some profound disruption that they want to effect! facebook’s objective is not have a social network but to give people the power to share and make the world more open and connected.  Google’s mission is to organize the world’s information and make it universally accessible and useful. Genghis’ larger mission was to  teach the world to take the Mongolian Tribes seriously! What’s yours?

3. Organize in small, empowered teams! Unify command but delegate responsibilities to carefully selected true leaders!

Genghis Khan commanded armies that had many hundreds of thousands of soldiers. But they were organized in small teams with leaders respected and selected by the members themselves. Ten men were organized into an Arban.  Ten arbans made a Jagun, a unit of hundred men. Ten Jaguns made a Minghaan, a thousand. Ten Minghaans made a Tuman of ten thousand soldiers. A tuman was led by an Orlok or an Eagle (equivalent of a field marshal). The leaders of these units were always informed of what Genghis Khan wants very precisely (always asked to repeat instructions back when verbal!) in broad terms but were free to make decisions locally as they see fit! For their time, they had fairly sophisticated communication mechanisms. Every 25 miles across 3000+ miles of their empire they had relay stations with messengers and horses, ready to go. They pioneered the use of flags to signal high level decisions and during the night used fire signals for it! Time and again you see how this agility of decision making helped them defeat armies much larger than themselves. In the battlefield, larger armies were unclear as to what they needed to do, waiting for decisions to come down the command structure only to be defeated by empowered but much smaller groups of Genghis’ soldiers! Product companies, especially growing software start-ups can learn a lot from this! Development teams larger than ten people suffer from communication problems and slow down a lot. Break down groups of tasks into self-contained units that can be done by smaller teams but coordinated as a whole.

4. Embrace Diversity

As Genghis Khan’s empire expands to include the Chinese in Western Xia and Jin, Tibet and Islamic Countries to his West, he needed to make his empire more tolerant of religious and linguistic diversity. Genghis Khan makes diversity and inclusion part of his modus operandi. This helps him make use of the diverse skills that the Chinese and the Muslims bring towards his own goals, simply because they all have different approaches to solving the same set of problems! Nothing could be more applicable to entrepreneurs or start-ups! Highly capable people are found in every group (the classic Normal Distribution or the Bell Curve). Embracing diversity and hiring the best people in multiple distributions help you put together a superb team. Rather than hire people that are available locally, reaching out and hiring people from multiple remote locations help you assemble this diverse group of people. Diversity also helps you bring in people who had have different life experiences, see problems differently and come up with more creative solutions than a homogeneous group of people who may all think alike!

 5. Merit over all else!

Genghis had a mix of next-in-commands, some his brothers, many others, he picked up over time simply because of their abilities and treated them all alike. Tsubodai is one such person who catches Genghis’ eye because of his skills in the battlefield. Tsubodai rises all the way to the position of an Orlok or Field Marshal. Genghis sends his sons to be trained by Tsubodai, completely under his control, with no questions asked. Merit is the only thing that matters to Genghis Khan. Founders may have been with a start-up since the very beginning,  They may need to perform their functions along with people hired for other leadership positions because of their sales, marketing or product management expertise. At that time merit should be the only thing that matters.

6. Recognize other skills and utilize them appropriately!

Genghis Khan realizes that one of his brothers, Temuge is too soft and weak to be a soldier and a commander. However, he recognizes that Temuge has very good organizational skills and makes him the administrative and logistical commander. Temuge capably organizes food and shelter logistics for the various invasion campaigns that Genghis takes on. Food and Shelter are more important to huge armies than weapons, especially in the cold plains in Central Asia! Great lessons for start-ups. As they grow, some key people may outgrow their responsibilities but may be more suitable for other crucial functions within the company given their skills. They could contribute in previously unforeseen ways!

7. Look for things that can disrupt you when you are disrupting someone else!

The Khan dynasty flourished with their superior expertise with the bow and arrows!  They were disrupting armies larger than themselves purely by their grace and skill with which they let loose deadly arrows every six seconds, from a fast moving horse, while standing up on the stirrups! However, the Jin dynasty to the East was making increasing use of gunpowder, cannons and muskets!  The Khans realized how deadly and disruptive these new technologies could be in warfare and how bows and arrows are useless against them!  They immediately create experimental regiments, bring in Jin expertise and waste no time in assimilating these into their methods! While you are happily disrupting some industry with your start-up, be on the look out for something that could disrupt you! Are you sure there are none at any moment?

8. Size Does Not Matter! Strategy Does!

Genghis Khan repeatedly takes on armies much, much larger than his own. Everytime he defeats them not with head-on battles but with clever strategies! The Khan army retreats feigning defeat, only to be surrounded on two other sides by his divisions that pop up suddenly, circle them on all sides, cuts off their retreat and slaughters them. They invade Hungary and Russia in winter when they don’t expect them! They attack the Shah’s elephants with arrows in their legs, making them crazy and run amok trampling their own army! Great lesson for startups that are disrupting a market that has established and large competitors. Like Genghis’ enemies, competitors may be large, decision making slow to react to disruptions. Size does not matter, clear differentiation and strategic disruption can help you beat even the largest competitors! So if you are not #1 in your category, what is your differentiation? What are your strategies?

Genghis Khan’s history has always been told by those he conquered and not surprisingly, shown him only in a bad light! Common-sense informs us that for him to gather, coalesce, keep in line, and motivate huge armies like he did, he must have had superb management approaches. He could not have achieved his empire much less manage them for a century, if he did not! However books like Conn Iggulden’s and Genghis Khan and the Making of the Modern World are bringing to light many of these positive aspects of his rule. Importantly it provides start-ups and entrepreneurs useful lessons to learn from!

Make good better. Good is our teacher, and so bad is wrong – Genghis Khan

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We do Cross-Border Investments! Domestic E-Commerce and E-Retail too! Nexus Venture Partners #ThinkInvestor

ThinkInvestor is iSPIRT and ProductNation’s new initiative to serve as a catalyst between Venture Capital firms, Angels, Angel Networks and Entrepreneurs. It is to go beyond brochure ware and dig deeper into the whole life cycle of a typical investment; from introductions, funding, styles of on-going engagement, to exits. And in the process, capture their views on global and local trends, and the entrepreneurial ecosystem in India. ThinkInvestor- NexusVPNexus Venture Partners invest in early and early growth stage companies across sectors in India and US. They are a team of successful entrepreneurs with extensive investing and operating experience, who love to get their hands dirty. They understand the unique challenges faced by entrepreneurs and know that it takes teamwork and exceptional execution capability for a company to succeed. Their partner companies have access to the entire Nexus team in India and Silicon Valley for help in recruiting talent, forging new alliances, opening doors to new customers, shaping strategy and connecting with best-of-breed executives, advisers, co-investors and board members.

ProductNation sat down with Sandeep Singhal, Co-Founder of Nexus Venture Partners for this interview.

sandeep singhalAvinash Raghava of iSPIRT and ProductNation thanked Sandeep for his, and Nexus VP’s outstanding support and encouragement for the upcoming InTech50, a platform where Indian product companies showcase their arrival on the global landscape at the Leela Palace in Bangalore, April 9th  – 10th, 2014! More information on this event is here!

Here’s what we heard in the interview:

Tell us a little bit about Nexus Venture Partners – The size of your fund, stage and focus.

Nexus Venture Partners is a $270M fund. We are on our third fund and our funds are of the typical 10 + 2 years extension lives of venture funds. In each fund, the first half of the ten years is spent finding and funding companies, and the second half is used nurturing and finding additional rounds of financing for them. We raised our third and latest fund in March 2012. We are about halfway through the investment cycle for this fund. We are primarily a Series A investor. $2M to $5M is our sweet spot. We do some seed investments if the market is large enough, and the company still needs to think through its technology or market risk more thoroughly. And we are convinced that it is a company we need to support on a longer term basis. We have been involved in a few Series B investments also. These happen in case we missed out at the Series A stage and they took money from somebody else. Regarding our focus areas, we are primarily interested in cross-border opportunities; India based companies interested in the US market or US based companies interested in the Indian market. We are also interested in the retail space in India that is experiencing exponential growth; e-commerce, e-retail or e-commerce enablement companies. We are interested in Healthcare and Education verticals. Eye Q is a good example of our healthcare investment in the Ophthalmology space. We are interested in Hub and Spoke models, especially in Education.  We are also interested in enterprise technologies, mostly software (open source in particular) and cloud based. We haven’t done anything in hardware.

What’s the best way for an entrepreneur to get in touch with you? What works and what does not?

We are known to be approachable. While it is always best to get an introduction, we do respond to emails also. We ask people to send us a business plan if through email. We get a lot of referrals from our portfolio companies, and their founders. A number of these are already vendors to our portfolio companies. We also do outreach efforts like conferences where we meet entrepreneurs and get to know their companies. A number of entrepreneurs are still learning the ropes in India, and we want to help the ecosystem by being a bit flexible on how they reach us and at any stage of their development. We provide them feedback on how ready they are, or are not, for an investment. Sometimes it works, and sometimes that feedback is ignored!

How long does it take for you to decide on investing? What is your due diligence process?

That’s a very situation-specific timeline. In one case, we had an entrepreneur come to us for investment but 90% of their company revenue was from services and was not suitable for us. They however had a plan to switch their company from a services focus to a product focus and kept in touch with me. They had a clear marketing and sales plan to move to a product focus and when they came to us again, 80% of their revenues were coming from products. This took 2 years but is not typical. In some situations, if the company is very early but have a compelling product there is not much you can glean from numbers at that stage. We made a decision to invest in as little as 1 week in such cases. Typically it takes 2 weeks to a month for business diligence and a month to a month and a half for closure. Overall about 2 to 3 months for the whole process. Our process typically consists of Business and Financial Due Diligence.  For the business part, we are looking at four key things:

1. The Team – How good is the management team, are the members complementary to each other?

2. The Market  – How big is the market? What are the pain points in the market? How is this company addressing them? Will the customer pay for addressing this pain?

3. The Competition – If there are competitors in this market, who are they?

4. Capital Efficiency – When would the next capital event for this company be? How long would raising $2M to $3M last for this company and can they get to the next funding event successfully with enough growth?

These four areas would take about 2 weeks to a month to get a handle on. But as they are talking to us, we introduce them to potential customers and see how they do.  The Financial Due diligence for very early stage companies is not very much since the numbers may not mean much at that stage except looking at things like whether they are incorporated properly. If they have a few customers already, then we make sure that audits have been done properly. In India at least, with $2M to $3M investments, we have been a solo investor for the most part. In the US, it has been a mixed bag with more syndicates with other investors.

 What’s your style of engagement once you have funded a company?

We think of our role as a facilitator once we have funded a company. We have never taken a majority position in any company. We are an Active Investor driven mostly by what the entrepreneur needs from us. In the beginning it has to do with strategy and team building. Do they have the best talent available? If not, can we help them get the best talent? We help our portfolio companies with strategy around how to compete better, and grow faster as needed. Most of our entrepreneurs say that we add value on their boards of directors. We help portfolio companies with partner and customer introductions. We make sure that they are done at the right time, and in the right way. Sometimes the company may not be ready as yet for a customer introduction since the product may not be ready enough.

Do you have any formal meetings of CEOs/CXOs of your portfolio companies?

We have shied away from doing those kinds of meetings since it always inconveniences someone, to be away, and at a particular place. All of our CEOs are at our annual Nexus meeting. We end up doing a lot of things one on one. Every company in our portfolio is welcome to interact, communicate, and ask for help from anybody on the Nexus team, no matter who is on the board. This helps a lot since the chances of getting that help is more, with the entire team.Someone in our team may have seen a similar situation or handled a similar problem recently with one of their companies.

What are some of the exciting companies in your portfolio now? Exciting new business models?

All of our portfolio companies are exciting to us. We have had some exciting investments in e-commerce companies like BigShoeBazaar (BSB). On the product side we have had some exciting companies like Druva, Kaltura and Aryaka. Datagres relocated recently to Silicon Valley. Scalarc is an exciting investment in the cloud computing space. All these companies have already gone through the gauntlet of passing technology risks, having the products in the hands of customers and scaling revenues. Pubmatic had scaled quite a bit.

What are your thoughts on exits for your portfolio companies? Thoughts on recent exits like Little Eye Labs or Redbus?

We have had successful exits with 8 of our portfolio companies. all strategic mergers and acquisitions (M&As). All them were cross borders ones also. The US primary market for M&As is still showing a lot of strength, but not the Indian domestic market. I don’t expect things to improve till the elections are over. When it is over, I expect the demand in India for high growth companies to grow rapidly. Nexus Venture Partners does not build companies for acquisition but for public listing! We have found it useful to advice our portfolio companies to have a 5 to 7 year horizon and plan for revenues that will help them have a successful IPO. In the course of building such companies, successful M&A opportunities may arise and if they do well and good! Companies like Nimble Storage or NetApp were built this way and that’s what we advice our portfolio companies! The Little Eye Labs and the Redbus exits are all good news for the Indian ecosystem even though the former might have been an acqui-hire one. Exits like these make corporate development teams abroad sit up and take notice of Indian start-ups!

What advice do you have for the Entrepreneurial Ecosystem in India?

I have four pieces of advice for new entrepreneurs in India:

1. Work on global products – Test your hypothesis globally – Before developing a line of code test out your product hypothesis globally. May be with the help of a friend abroad if need be.

2. Build cross-Border companies from Day One – Focusing only on the India market first and then scaling globally will cost companies 18 to 24 months in time lost. Reduce this time by working with a cross-border co-founder from the start. This is will prove to be highly valuable.

3. Focus on growth and not just surviving – Growth is as important as cash flow. Speed of growth is critical. It takes a lot of confidence to grow quickly even if takes raising more money rather than just focus on cash flow.

4. Be more confident globally – We still see a lack of confidence in Indian companies when considering to go global. No reason to be so!

If someone comes to you from a services company with a product idea what would your advice be?

I would first assess whether this person understands what it takes to build a product and a product company. The services model is very different, The person may be very strong technically. I would still ask them to pair up with a strong product management person that has done proven products for the global marketplace. There needs to be a good marriage between the technical and product management skills. I still see a lot of Indian entrepreneurs come to us with Indian versions of products in the global marketplace, but wanting to compete on lower price. I strongly discourage these kinds of entrepreneurs since the labor arbitrage argument does not take into account the price of on-going innovation. Innovation and differentiation needs to be priced into the equation. You don’t need large teams but you need the best teams. They cost the same whether they are in Silicon Valley or Bangalore! Competing on price makes you compromise on innovation and in the long run does not work!

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Yes! We invested in Little Eye Labs! Lots of interest in Healthcare too! – Ventureast #ThinkInvestor

ThinkInvestor is iSPIRT and ProductNation’s new initiative to serve as a catalyst between Venture Capital firms, Angels, Angel Networks and Entrepreneurs. It is to go beyond brochure ware and dig deeper into the whole life cycle of a typical investment; from introductions, funding, styles of on-going engagement, to exits. And in the process, capture their views on global and local trends, and the entrepreneurial ecosystem in India.

ThinkInvestor-VentureEastVentureast is an Indian VC fund manager with close to $300 million under management. They have a history of investing in innovative businesses across multiple sectors, and multiple stages of a business – from seed and early to growth stages.

Guided by the singular credo “We Differentiate, You Win”, Ventureast has enabled over 60 businesses in Technology, Life Sciences and emerging sectors to become leaders in their individual spaces. The company has a proven track record of investments and exits, aided by a strong founding team which has been with Ventureast for over 15 years and who understand the entrepreneurial ecosystem well.

The Ventureast Proactive Fund, Ventureast Life Fund and Ventureast Tenet Fund II feature a wide investor base (Limited Partners) consisting of institutional investors from across the world.

They were in the papers recently when their investment, Little Eye Labs, was acquired by facebook.

ProductNation sat down with Sateesh Andra, Managing Partner, and Dr. Ramesh Byrapaneni, Venture Partner of Ventureast Tenet Fund, for this interview. Here’s what we heard:

 

What kinds of start-ups are you interested in? What’s your stage of investment and typical investment size?

Sateesh AndhraOur fund invests exclusively in IP-enabled companies. We are interested in Internet and Mobility related plays. We are very interested in enterprise focused start-ups among these. We are very interested in Healthcare and Healthcare related Information Technology plays also. We are interested in companies that address inefficiencies in areas such as Education and Finance with technology solutions. The filter that we use is that these companies address global opportunities in South East Asia, Europe and the US. We found a gap in the Indian VC market between what Angels can provide start-up companies with and Series A venture investors. In our current fund, we invest up to $1M a company. In our next fund we are planning to increase this to $1.5M to $2.0M per company.Most of our investments happen at the concept level; they understand the concept well, there is a prototype, and some early revenue validation.

How does an entrepreneur get your attention?  How does an entrepreneur get in touch with you? What’s the initial process like?

Dr. Ramesh ByrapaneniEntrepreneurs get in touch with us in a variety of ways. We are panel sessions in conferences and some get in touch with us there. We also get introduced to entrepreneurs and start-ups are demo days at accelerators. Sometimes investors in incubatees at these places introduce companies to us. Introductions through our professional links and references are always welcome. Look us up in social media like LinkedIn and Twitter. See who we follow there.  We have  also engaged with entrepreneurs and start-ups that have come in with a nice relevant email. They are all good people to introduce you to us. Our big expectation is for you to know us as an investor before you pitch us! Out initial process is quick. After an initial meeting we would let you know in an upfront and candid way, whether we would invest or not. We provide candid feedback on why we are not investing. Entrepreneurs may not like it but these are only the reasons why it does not make sense for us.

Let’s say you are interested in exploring a company further? What happens next? What are your typical due diligence efforts? How long does it take for an investment?

We have a very strong team on our side that can evaluate the Product Market fit for the start-up we are looking at collectively. It is fairly important to us. In early stage start-ups creating the product is easy. Achieving Product-Market fit is tough. From a Product Management/Product Marketing perspective, we look at the value proposition and how they address customer requirements. At an early stage, start-ups may not have a crystal ball but we still need to see 12 month metrics; Profit & Loss and Cash Flow projections. They need to have a decent idea about these. We also dive deeper into distribution channels, feet on the street. The initial team is also critical. The timeline for investment decisions vary. Some take only 2 to 3 weeks if they already have a lot of traction. Some take 6 weeks and some take 8 weeks if there is a lot of financial due diligence to be done. Companies are doing pivots take longer. If there are regulatory frameworks involved as it happens sometimes with healthcare investments, it may take much longer.

How hands-on or hands-off are you with your portfolio company? What’s your style of engagement with a portfolio company?

This is a tricky question! We are not the kind of investor that drives from the back seat. We don’t dictate that this is the way it needs to be. We ensure alignment. In one of our healthcare start-up companies, post-operative care after a stay in the hospital was important. We got involved in that case and helped arrange things.  We do monitor a simple set of metrics depending upon the company. We monitor the number of product releases, beta customers, etc,.We also monitor how our portfolio companies incorporate feedback they receive.  We don’t give the portfolio companies all of the money upfront. They are done in stages and closely track progress they are making. We make introductions, go on cold calls with the portfolio companies once a month. There are quite a few informal meetings along with the formal ones. We engage with quite a few CIOs and do introductions as appropriate. Our style and approaches are different for different companies. There is no single formula.

Let’s talk about your interest in Healthcare and Healthcare IT Companies. Tell us about some recent investments. What kinds of things are you looking for in this area? What excites you in this area?

SmartRX is an investment of ours that serves post-operative care of patients. Usually after operations in hospitals, when patients are leaving for home, prescriptions are gone over and that’s where it ends. It becomes very difficult to make sure that the patients are taking their drugs properly. Doctors find it difficult to communicate after that with patients and vice-versa. SmartRx ensures that periodic messages are sent to the patient; common do’s and don’ts. Patients can also have small consultations back with their doctors through SmartRX. This is focused on the US Healthcare Market and is related to Meaningful Use Stage 1 and 2 of the Healthcare Reform effort going on currently in the US. The founders for this company were with Microsoft in the US, came back and started this company. To us, domain expertise is key, as in Healthcare and Healthcare IT start-ups..

We recently invested in OneBreath, a medical device company. OneBreath makes portable ventilators that have the same functions as  expensive high-end ones but at a tenth of the cost. One of the founders is on the West Coast of the US and this is targeted towards the global market. We help portfolio companies get the CE Marking so that they can target Europe and other markets if we think FDA approval for the US market may take long.

We invested in Seclore, an Information Rights Management company incubated at IIT Mumbai.  Their solution enables organizations to manage information access policies through the cloud. It enables their clients to manage access to documents across computers and tablets. 50% of their customers are in Europe or the US. It is one of the cool companies to watch for.

HealthHero created a device that resided with the patients, monitored vitals such as Glucose, BP levels etc. Patients can input the readings into these devices, doctors and nurses can analyze this data remotely and get back to the patient if necessary. This is now part of Bosch Telehealth.

We are very excited about the use of Smartphones in healthcare – they are the last mile to patients!  They represent a humongous opportunity! The computing power within Android and iOS devices make possible some radical disruptions.

 Now, let’s talk about Exits. What do you see coming in this area?

The Nest Acquisition by Google shows how much they value vision. Our belief is that you need to create value for exits. With a little bit of luck and timing this will happen! Exit multiples are very important to accelerate exits in general.  The macro trends are very positive! We have seen some exciting exits; Portal Player acquisition by NVIDIA, Qontex, a spin-out from Pramati Technologies was acquired by Adobe , Yasu Technologies, a Business Rules Management System company was acquired by SAP. Healthcare, Pharma and Biotech companies are all seeing momentum right now. We are seeing a lot of investments in cloud based Value Added Services companies; distributed applications and globally relevant!

What about some parting thoughts for entrepreneurs?

Just wanted to reiterate what we are looking for in start-up companies; a strong product management team with strong technical skills, ability to look at things from a customer angle, sales and marketing knowledge, excellent people management skills. We are looking primarily for deep understanding of technology, clear understanding of the customer landscape and excellent program /people management skills!

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Want to get our attention? Talk to the founders of our portfolio companies! – Blume Ventures #ThinkInvestor

ThinkInvestor is iSPIRT and ProductNation’s new initiative to serve as a catalyst between Venture Capital firms, Angels, Angel Networks and Entrepreneurs. It is to go beyond brochure ware and dig deeper into the whole life cycle of a typical investment; from introductions, funding, styles of on-going engagement, to exits. And in the process, capture their views on global and local trends, and the entrepreneurial ecosystem in India.

ThinkInvestor-BlumeVBlume Ventures is an early-stage seed & pre-series A venture fund based out of Mumbai, India. They provide seed funding in the range of $50K – $300K to early-stage tech-focused and tech-enabled ventures. They are proponents of a collaborative approach and like to co-invest with like-minded angels and seed funds. They then provide follow-on investments to stellar portfolio companies, ranging from $500K – $1.5 million.

ProductNation sat down with Karthik Reddy, Managing Partner, Blume Ventures for this interview. Here ‘s what we heard:

What made you focus on early stage investing in India? And your observations of this market?

Karthik Reddy - Blume VenturesAdoption of innovative technologies has always been a challenge in India. Early on we realized that growth has to come from other global markets like the US or Europe. We also realized that there was a huge gap in the venture market in India for investments between $150K and $3M. Our intention in our first fund was to bridge these gaps. They proved to be larger than what we thought initially. The venture market at the top of the funnel (late stage) was very wide, the middle had also widened but the lower end offered opportunities for us. But this market has its own problems – bridging the gap between this level of funding and the next stage. Series A funding of companies has been a continuing problem but we have found ways to bridge these gaps. However, with our next fund to be raised next year, we plan to stick to the same strategy, but with a larger fund.

What has been the effect of exits like redBus.In on the Indian ecosystem? Do you think that this improves the outlook for more early stage investing?

Yes. Exits like redBus.in are good for various things in the Indian ecosystem. If not for the individual exit, more examples like redBus are needed sorely. Typically, companies like those take around 8 years to enter, and exit. The public markets are not good options as yet for exits. We do not as yet have a culture of acquisitions within India. Indian companies don’t do them. Companies like Naukri should really consider acquisitions and grow inorganically. Large companies in the US are beginning to take notice of possible acquisitions in India and have started doing some cross-border transactions.  This kind of ecosystem did not exist but things are beginning to change. We still have a huge need for innovative ideas. Ideas that can get built into $40M to $50M companies and get exits are key to putting the ecosystem into higher gear.

How does an entrepreneur get your attention? What kinds of start-ups interest you? How does an entrepreneur get in touch with you?

We are driven by themes. We are not reactive investors. We are interested in Smartphone/Mobile plays and are not interested in web applications. If we see a plan first addressing a web version of an application we are not interested, but those that go straight to a mobile app will get our attention. Our themes are chosen so that they can grow fast and get to a Series A comfortably. The entrepreneur needs to think like a VC and ensure that whatever they are working on is capable of such growth. Founders of our portfolio companies know our themes best. Get in touch with them, see if there is a mapping between what you do, and what we are interested in. Get one of the founders to introduce you to us after this initial filtering. This way, you won’t waste your time and you will get our attention! We do get cold referrals that go through our associates and it will be a long winded process. If you come through the founders of our portfolio companies it will be faster and it can also make sure that there is a mapping between what you are thinking and what our investment themes are. We get 60 to 70% of the introductions like this, with 125+ founders in our portfolio network.

Let’s say there is a mapping between a start-up company and your VC firm. What happens next? What are your typical due diligence efforts? How long does it take for an investment?

We are primarily looking for leadership in these companies that can survive the long haul of entrepreneurship. Can they survive the first year of marriage, primarily between the co-founders? Do they have 2 to 3 layers of leadership in the start-up, not just a single layer with the co-founders! And are the co-founders super-compatible with each other? We have seen too many founder breakups! We are not looking for problem solvers – people who solve a problem with a technical solution. We are looking for business builders. Can they build a business around it? They are not the same! In 1 or 2 meetings (in 2 or 3 weeks) you can get an idea of whether we want to proceed ahead with due diligence or let you know that the fit between our themes and your business is not there. If you can find co-investors on your own is a positive thing in your favor. The ability to excite other investors is key to us. The ability to line up other clients or customers during this period is important to us. We look for some red flags during the due diligence period – like being very casual about relationships or client opportunities. The fastest investments have been made in 4 to 5 months from introductions. The slowest ones have taken 12 to 18 months. The latter ones are usually because of syndicated investments.

Let’s say a start-up gets funded by you. How hands-on or hands-off are you with your portfolio company? What’s your style of engagement with a portfolio company?

Portfolio companies should consider us a Super-Concierge on Demand. They should be comfortable with knowing exactly when we are needed and come to us. In the early stages they come to us with quite a few problems for advice and guidance. Luckily our founder network usually has many of the answers.  We have a Google group for our portfolio company, sort of a private Quora. This helps solve 70 to 80% of the problems our start-ups face. Someone has come across most of the problems any new portfolio company is facing.  Typically these will be questions like whether to incorporate in the US or not. We are more like a platform than a VC firm in that sense, an 18-24 month accelerator program. We are as hands-on or hands-off with companies as needed. We do take a board seat as a seed investor and invariably meet with each portfolio company in person, at least every couple of months.

Let’s talk about going beyond the early stage funding and getting to the next level of funding and growth.

Series A funding  is becoming more difficult with the bar being set higher and higher. There are only 10 to 12 active Series A investors in India doing 1 or 2 investments a year. With such a thin ecosystem for Series A investing, pitching the wrong partner may mean not getting funded. The other problem is making these businesses 10X propositions for Series A (they are not interested in 5X business plans)  that require these companies to become $200M companies. We do bridge rounds that can get start-ups to get the growth necessary to qualify for a Series A funding. We are planning to raise a larger fund next time so that we can make these kinds of deeper investments.

Do you think it is possible to build a $200M company focused on the Indian market?

Yes. There are some promising areas in India that has that potential – travel or taxi services. Technology solutions like Knowlarity, NowFloats, and Exotel have that potential. The Enterprise market in India is too slow but the SME market in India has the potential to build some $200M companies. That market will also explode only when the smartphone/mobile market in India leapfrogs. The SaaS market, especially when built for a global market could grow a few $200M companies.  We are optimistic overall and feel that lots of opportunities are yet to come.

Now, let’s talk about Exits. What do you see coming in this area?

The subject of realistic venture exits is the one that somewhat dictates what the focus of a start-up should have been. Hoping to get acquired by a company in India is somewhat unrealistic. However, there are a number of companies in the US that have started coming to India to acquire Indian companies and grow inorganically. Autodesk is hiring a person in India to look for such companies, They have done a number of acquisitions already. Unfortunately, the Indian arms of Google and Yahoo are not empowered to make acquisitions.There are some companies like WebEngage and OrangeScape that are focused on foreign markets that could make good acquisition targets for companies outside India.

What about some parting advice for entrepreneurs?

Go outside India for markets. You cannot grow fast enough to raise funding and grow focusing on Indian markets currently. This is true especially if you are a technology play. Someone in Silicon Valley could start 2 years later than a company in India and beat them to it if a company is growing only in India. Grow fast and get acquired!

 

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Yammer is facebook for Business! – Product Positioning and Messaging!

Yammer is facebook for Business! – This was apparently the Product Positioning choice of its own CEO.  The CEO thinks that this is good shorthand for conveying what his product is all about. It could also be meant in a pejorative way. Users could feel that the user interfaces and functionality are too similar to each other, and so may not be too original!

Here is a funny example of bad product positioning:

This product claims that it can not only clean your skin but also gives you a burst of energy? Sort of Dove Soap combined with Red Bull? What else can it do? Increase your brain power and makes all your kids geniuses?

On the other hand, here is a terrific example of both excellent product positioning and messaging together:

http://youtu.be/lpCJ-H0iUzI

If you watch the ad carefully, you will see the words Born in America on the front of the truck and the camera dwells on it for a few seconds before it moves on. Also you see the word Tundra in huge letters on the side of the truck. This is because their main competitors in this class of truck are Ford, Dodge Ram and Chevy.  They bombard the airwaves with ads that claim that they are tough american trucks implying that Toyota trucks are not. So with this one commercial Toyota is trying to message two things.1. that they are tough enough to tow a space shuttle and 2. that these trucks are not only manufactured in the US,  but designed also in the US! Here are some samples of what Toyota was up against:

Built Ford Tough!

http://youtu.be/Bp6wgu3-uwk

Here is the other big competitor for Toyota – Dodge Ram.

http://youtu.be/s4qNhYBp59k

Product Positioning involves broadly the following:

*   The Product Category or the market in which the product will compete. Could be broad ones like Social Media, Business to Consumer (B2C), Business to Business(B2B), etc. or narrower than that,  like Customer Relationship Management (CRM) for Textile SME companies, for example.

*   Defining the Encapsulation or the Attributes of the product that define the Product Space more completely. Could be Status Updates, Images, Videos, Instant Messaging in the case of a Social Media product or attributes like Prospect Registration, Prospect Emails, Contact Tracking, etc in the case of a CRM product for SMEs.

*   Surveying the perceptions of a sampling of prospects, customers and clients about your product or idea or existing solutions from competitors. This is one area learning up on Lean Startups and how those methods are used could be invaluable..

*    Visualizing or mapping where your product stands in relation to others in the market.

*    Determining your current location in the Product Mapping and assessing how well your product fits the market.

*     Making adjustments to your product positioning and features so that you are comfortable with the new Product/Market fit that the changes would bring you.

Documentum is a great example of how a company changed its positioning a few times to become one of the most successful Document Management Software companies. They first started with a custom solution to store, index and retrieve Training Manuals for Boeing. They then morphed into a Document Management solution for Pharmaceutical companies that required a similar solution to manage a new experimental drug’s FDA approval process. They needed a system to store large volumes of data in documents and spreadsheets, index them and make them available through search easily. In addition they wanted a system where someone could check out a document for editing and check it back in when done. You don’t want two people copying a document, making changes independently and over writing each others’ edits. Their next move was to make this a general document management system that could be useful for many other groups of people – like attorneys and paralegals to store and edit filings for cases. Today they are part of EMC corporation who integrated workflow systems with the Documentum document management system to add to its utility.

The above is also a great example of how a “document management system” category could be merged with another category “workflow systems” to create a super category “Collaborative Environments”  to compete with other products like Microsoft Sharepoint Portal.

 Product Messaging involves the following and follows Product Positioning:

*  Following proper Product Positioning, the proper messaging efforts starts with profiling your prospect, client or customer depending upon what your product is. What is the buyer Persona or Personas?

*  What is your product’s value proposition to each of your buyer personas?

*  Evaluating your product’s value proposition. This is one area where Lean Startup methods come in handy again.  Is it as valuable to your customer personas as you think they are?

*  Evaluating your competitors’ messages

*  Crafting your own messaging

*  Testing your messaging

*  Rolling out your messaging but do testing and refining on a continuous basis

Here’s a great example of how Steve Jobs keeps the messaging about Macs, iPods and iPhones very simple and keeps it to the point!

http://youtu.be/of_8iC6P9Cg

Product positioning is critical to a product start-up’s growth and determines to a large extent what your messaging will be. It may be possible to change the positioning drastically earlier in a start-up’s life  but as you line up customers and revenues,  it may become more difficult to pivot. Clean slate approaches where you change the name of the company and the product is also possible and done often!  This is also when you realize that you need one or two other competitors in a product space to make it a proper category! Categories always make it easier to describe what you are doing  and explain what makes you different. Investors are also comfortable with categories since they provide some validation of the product space. If you have competitors, others may have invested in them and so, reduces risk for them!

I learnt the hard way about positioning in business, about catering to the right segments – Shaffi Mather.

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Stay Classy! – 8 Rules for 21st Century Marketing!

As this article is being written, possibly one of the greatest Viral campaigns EVER is being rolled out for the movie – Anchorman 2 – The Legend Continues set for a release date of December 18th, 2013!. It’s a sequel to the 2004 movie Anchorman, a stinging parody of 70’s and 80’s ego maniacal TV anchors in the US!

Stay Classy! – is the catch phrase he signs off his newscasts. This also sets the stage perfectly for what it takes to do Marketing in the 21st Century, especially for product companies!

This trailer already has 4.6 million hits as I write this!

The interesting thing about this campaign is that Will Ferrell, the actor who plays Ron Burgundy has been in character for about a month now and has done various things like do a whole series of TV ads for Dodge! Like this one that already has 3.6 million hits on YouTube.  As a Brand Ambassador he, surprisingly, says dumb things about Dodge but that makes these ads funny, watchable, water cooler conversation and word of mouth material! (The ads are hits in Canada as well as The Globe and Mail attests from Toronto!).

He goes in character to late night talk shows like this one, promoting a fictitious book he wrote about how to survive a prison riot and has a testimonial written by himself on the top of the book! 

Or when two days ago he showed up as Ron Burgundy and hosted a whole 30 minute local Newscast at a local TV station in Bismarck, North Dakota as a co-anchor saying the same dumb things his character would in the movies but in a real live newscast! 

What’s the point of all of this? – The last week or so, they have been getting free public relations worth billions of dollars, all of these being covered breathlessly by every channel and every newscast in the US! That’s Marketing in the 21st Century – Blurring the lines between media of every kind – network, cable TV and Social Media like YouTube, not to talk about these links being tweeted and re-tweeted by everyone that finds these things funny!

Jerome McCarthy’s four P’s – Product, Place, Price and Promotion still capture accurately ALL the different aspects of Marketing but how people make it relevant for the 21st Century is pretty interesting and worth the attention of Product Companies!  Here are 8 rules for 21st Century Marketing:

1. Making the most creative use of Social Media

Most product start-ups these days are aware of and use Social Media like facebook, Twitter, GooglePlus, Tumblr, Pinterest extensively and that’s precisely the problem! You become part of the noise. How do you stand out among all this noise? You do something creative and unusual like the Ron Burgundy campaign above! And it takes a heck of a lot of creativity to come up with stuff like that (may be not to that scale given the nature of many start-ups) and execute for a small start-up. However, you would notice that the above campaign still relies on the inherent virality of social media and word of mouth! The 21st century has made it possible even for a tiny start-up to go viral and get the publicity it needs,  if their campaign is interesting and at the same time achieves the end goals they shoot for!

2. Exploring the use of Big Data for your 4 Ps

Big Data  with respect to product start-ups has much less to do with the size of the data than with your use of it. Do you have data on the Audience, Channels, Content and Yield for your marketing efforts? Audience has to do with understanding your own customer segments. What channels have been effective for you? What Content among the different types of content you use to promote your product has been useful for you? What has been the most cost effective ways in which you have been able to convert or maximize the yield for your efforts? What price points have yielded what kinds of conversions for you? Do you have the data and the charts to track these? It’s never too early to get started with these kinds of efforts!

3. Checking out unusual and creative avenues for learning your customer needs

Are you trolling reviews of your Competitors’ Products yet for ideas on what your customer needs exactly? What do they say is lacking in them? Those are precisely what you need in your product! facebook or Amazon was not the first company in their categories to make it big! Having someone already in the same market as you should not be a deterrent! Here’s The Amazon Whisperer , an amazing example of how a few people built a multi-million dollar company just reading Amazon product reviews looking for the words “I wish this product had….”, then making that product in China and selling it in Amazon to begin with and then expanding to other channels!

4. Using all the 21st Century Creative options available to you for marketing

The 21st Century has made possible the most creative uses of Graphics, Sound, Movement captured in videos with just smartphones or tablets. They can be made  with professional quality with editing software. Your prospect base may have access to broadband at home and if not, very likely, at work! Are your marketing efforts making creative use of these new possibilities? Most product start-ups may have a demo video of their software recorded with screen capture and a voice, up on YouTube. How many of them show a real user telling you their story and show you how their tool solves your problem? Watch this video of a Biometric Identification System in use! Notice how they talk about problems, benefits, problems, benefits, problems, benefits! This is not a Ron Burgundy type funny video but I bet it talks *VERY EFFECTIVELY* to their prospects! So where’s your video that talks about the problems your product addresses and the benefits it brings?

5. Making your content customer centered and not YOU focused

A blog is a must for every product startup – or so they think! It is very useful to convey very broad discussions about the problem you are trying to solve when you don’t have a product ready as yet and you are in say, stealth mode! However, the game changes completely once your product is out and is in use. Not many may be as interested in your technical esoterica, as they are about the problems you are addressing and the benefits your solution brings! The 21st Century has made available such a huge glut of content in many different forms and people have only a sliver of their time each day for all of them, if at all! The content needs to be interesting, current and relevant for them to spend more than a few seconds! Turn them off with your own tech talk, they may never come back again!

6. Having true conversations with your customers, not just one-way communications from you!

Are your Social Media conversations anything like this? They are talking about the untimely death of actor Paul Walker of the Fast and Furious movies.

PaulWalker

 

 

 

 

 

 

 

 

 

 

Redbox defines itself as being in the entertainment business and so sprinkles its facebook presence with conversations like the one above – relevant, timely and engaging! No matter what your product is, there is always a larger business you are a part of and having conversations like the one above is possible if you are creative enough! Resist the urge to talk about your new releases or features all the time! The 21st Century is all about interactions and this is a good example of what those are!

7. Exploring all of the 21st Century Pricing options available to you

With the ability to keep track of demand and supply at any time, it is possible for some products to be priced with Variable Pricing or Dynamic Pricing!  This may not be applicable to all software products but the question of Free Trials vs Freemium Vs Nothing Free Pricing may be possibility with most start-ups. All of them are subtly different from each other, they need to be discussed in detail with respect to your own product, may be A/B tested before choosing one over the other!

8. Creating enough compelling calls to actions to your prospects

Calls to action can be for a variety of things you want your prospects to do – Sign Up for a Free Trial, Request a Case Study, Sign up for a Freemium account and show them a version with limited capabillities, etc. Here are some fine examples of such Calls to Action! And, here’s an interesting article on how to go about designing some, step by step!

The 21st Century has seen the proliferation of variety of new devices like smartphones and tablets. People engage in social media more extensively at home or at work. They are also very handy for anyone making pictures and videos of professional quality. Big Data and Cloud Computing have enabled the collection, analysis and use of massive amounts of data for many uses including marketing. There are many more inexpensive options for cash strapped product start-ups to explore creative ways to do marketing. It’s time to take full advantage of them!

You can buy attention (advertising). You can beg for attention from the media (PR). You can bug people one at a time to get attention (sales). Or you can earn attention by creating something interesting and valuable and then publishing it online for free. – David Meerman Scott, marketing speaker

 

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Bend Me, Shape Me, Anyway You Want Me – Responsive Design in Action!

Bend Me, Shape Me, Anyway You Want Me – Long as you love me, It’s alright! – goes the catchy song from American Breed in 1968. It captures the essence of Responsive Design! Do not make people adapt to your web or mobile experience on various devices.. You make the user interface adapt to the device that is being used. And talk about adapting? Watch the drummer also play the saxophone towards the end! This song was so catchy and appropriate they used it for Flexon flexible eyeglass frames and Gap Stretch Jeans ads!  Let’s enjoy that song first, shall we?

Why is responsive design needed? Let’s start with a simple example of what happens when I access the IRCTC website on my iPhone:

irctc-iphone2

Here the website is not doing anything except display the desktop version in a smart phone with small fonts. I can barely see anything.

 

 

 

irctc-iphone2

I will have to zoom in and locate the login section to login. The web page is doing nothing to adjust to my device. It is up to me to zoom around different parts of a static, same sized page and do my work.

 

 

 

To see Responsive Design in action, I took a good example of how they have done it at worldlife.org, the US web site of World Wildlife Federation. I visited them on my laptop, ipad and iphone and here is what I saw:

First my laptop:wwf-desktop

Next the ipad when I hold it in a landscape mode:

wwf-ipad-lands

Most of the details are still there in this rendering.

 

 

 

 

wwf-ipad-port

In the iPad Portrait Mode the browser adjusts and is able to show more of the screen; all fit within the available screen real estate automatically! Since it’s an iPad, the real estate is still big enough for them to fit everything in.

wwf-iphone-port

Now when I look at the same site through my iPhone Safari browser, the site strips it down to the bare essentials – the logo, the picture of the snow leopard and the two most important links to them – Donate and Adopt.. More of the picture is also visible in the Portrait mode.

wwf-iphone-lands

In the iPhone Landscape mode the picture adjusts automatically all of the elements.

How do we do Responsive Design?

There are many different ways to do Responsive Design and all of them have pluses and minuses – You offer information and functionality only through browsers and make the pages be responsive to the device – laptop, tablets, smartphones or feature phones. Or on smartphones you can create apps that replace webpages or a dedicated mobile website. Initially the whole movement started as Responsive Web Design but the movement has spread to include mobile devices also since users are transitioning a lot of the time they spend doing things on those.. Ethan Marcotte has written a very good book, Responsive Web Design, that outlines a number of techniques to achieve responsive web design:

  • Specifying design elements in terms of percentages instead of pixels
  • Sensing the width or the browser and using different CSS Styles accordingly
  • Extensive use of server side enhancements to enhance the user experience on mobile devices that have narrower bandwidths than an ethernet  or wireless connection at home.

Responsive Design is not a single, monolithic approach. You don’t need to rigidly try to offer ALL of the functionality on every device. Like this blog entry on the facebook developer pages indicates, it can be optimized by different companies for different purposes for different devices.  Luke Wroblewski writes in a compelling way that different devices like laptops, tablets and mobiles have different contexts of usages – some on your sofa at home, some in a hassled situation on the move on your mobile. What you would like to accomplish in those two situations are very different and so your user experience could be limited or more, depending upon this kind of context.

Clarissa Peterson provides a number of additional compelling examples in her presentation here.. If you are worried only about Mobile Responsive Design, the underlying approaches may be the same but the tools may be different. They are outlined here in this article with other references from there. 

As with anything, any approach comes with their own pluses and minuses. This article  – The Truth Behind Responsive Web Design: Is It the Next Great Hope or All Hype? explores some of the minuses in greater detail.

Benefits of Responsive Design

  • Consistent user experience, same URLs on every device
  • Single website/code base to create/maintain for a variety of devices
  • Support for a variety of screens and also future-proof – New screen sizes are automatically accommodated

 

Drawbacks of Responsive Design 

  • Sometimes developing one app for each platform may be the right way to go! And sometimes for News, people prefer browsers over apps!  You may have to look to your own application for an answer. Responsive design may not be applicable if  you decide to go the app route!
  • Not very efficient and can be slow on mobiles with slower connections. All elements may be downloaded whether they are displayed or not.
  • Initial development cost could be more than developing just for a browser
  • Consumers may not necessarily want the same user experience on every device

So next time you design something remember the song – Bend Me, Shape Me, Anyway You Want Me!

Simplify before you suppress. If it’s not worthwhile to show to mobile users, what value does it have to other users? – Ethan Marcotte