Netneutrality & the fairness for innovation by OTTs

Here is a great rendition of what the evolution of #netneutrality” needs to be and fairness to OTTs with protections against monopoly. Applies equally to the Internet here in the US!
Courtesy: Drs. Rohit Prasad & V.Sridhar, IIIT Bangalore & the debate around NetNeutrality


The debate around and the #Netneutrality is very interesting and how startup founders and ordinary citizens are engaging is very fascinating. Proud of you young India for your activism!

As per an article published on NDTV titled “IIT Faculty, Startup India vs. Zukerburg’s Free Basics”,Facebook says that Free Basics (the main thrust of is aimed at bringing free Internet to millions of poor mobile phone users in rural areas. The package offers free news, health, and job articles from partners along with a text-only version of Facebook.

Even TRAI or the Telecom Regulatory Authority of India is actively looking into this from a regulatory point of view to see that the Internet has fair access for all and content/app. developers have equal opportunity/access to deploy their products & services.

Netneutrality activists say Zuckerberg’s plan violates the principle that the whole Internet should be available to all and unrestricted by any one company. They see it as a Trojan horse being used by Facebook to control access to the Internet.

Content provided by Free Basics is available free to mobile phone users, but they have to pay for other content – described by critics as “differential pricing” which results in a “tiered Internet” instead of providing a level playing field that allows innovation and startups to compete with established corporations.

So what is the truth?

The bottom line seems to be that some content access and apps seem to be bundled with Free basics on the Facebook branded phone which will be available free to folks in rural India.

In an editorial for the Times of India earlier this week, Zuckerberg wrote, “Instead of wanting to give people free access to basic Internet services, critics of the programme continues to spread false claims – even if that means leaving behind a billion people.”

As reported by The New York Times this week, on India, “the program offers free Web searches using Microsoft’s Bing service but Google searches incur a charge.”

So it appears that most of the content that is already freely accessible on the Internet will be  available free to the Free Basics service patrons including the text version of their app. So far it seems to be fair. The quarrel seems to be for the app developers (startups and established ones like PayTM, FlipKart and others) who may lose out to these patrons because the Facebook branded phones may not accept downloading their apps. Its a legitimate concern.

As this is being framed as a #Netneutrality debate, it should probably be understood in the
context of what Facebook and their carrier cohorts like Reliance and Airtel can do to create a monopoly.

Here are a couple things:

1. They (Facebook) could ban free downloads of outside apps. to their “branded” phones
2. The carriers could prioritize Facebook traffic from Free basics (Facebook) phones on their data networks through available & new QoS (Quality of Service) mechanisms.
3. Once they acquire critical market share among the rural areas, Facebook could charge app developers to deploy or release their apps like the equivalent of Google Play Store (Android) or Apple Store (iPhone).

So as long as Facebook promises this kind of openness for app developers and the carriers don’t make preferential treatment to Facebook traffic, #Netneutrality can be maintained. In the absence of this, which is very much possible depending on how Facebook plans to make revenue in this market, TRAI or any other Internet regulatory authority needs to be able to monitor this for any violations.

To help TRAI, there needs to be a way to monitor this traffic!

Maybe this could be good “startup” idea to develop technology similar to “network security monitoring” (deep packet inspection) of malicious traffic on the Internet. But this idea is dependent on knowledge of vendor networks (network equipment gear) that carry most of the traffic on the Internet today.

Any takers?

It will be unfair to ban Facebook or their Indian carrier partners to provide this service subject to they NOT violating their promise in letter and spirit!

Of course as we say here in America, TRUST but VERIFY!


Six essential things to consider for a business plan!

In light of the findings at the recently concluded iSPIRT Roundtable at Mangalore. There is nothing to get disappointed if your team did not get shortlisted. There is always a next time as long as you improve your business plan and think about how to be a market disrupt-er or your category leader.

Here is something to consider for your business plan if you have already not done it.

Have you thought about this?

  • Who is your customer?

Think about a “persona” for your product or service. This means a “typical” customer who might buy your product and what they would do with it.

  • What can you do for your customer? a. k.a addressing “Pain point”

The next thing is connecting with your customer by addressing a pain-point they may have and developing a solution for their problem with your product/service.

  • How will your customer acquire your product?

The next thing to consider would be they ways in which your customer would get your product. In the case of “software” one needs to think about perpetual “licenses” or the more recent cloud enabled offerings which are “subscription” based or mobile app downloadable formats with “freemium” & Ad enabled models.

  • How do you make money off your product?

Think about a business model of how you make money off your wares and make it worthwhile for yourself and your potential investors in the future. As many would say its not enough if you have a mobile app which can be downloadable by many but a real business behind it like Uber or Ola cabs!

  • How do you design and build your product?

Here think about Design Considerations like programming languages/dependencies (technology) that assures scalability of your product/service, user interface (UX design) that appeals to your customer, or ease of acquisition/use and some key assumptions that can be quickly, cheaply, effectively tested in the market. Identifying your “beachhead” market to target is “Key”!

Don’t forget the importance of  developing a high level product specification and modify this through the primary research and inquiry process as you go along building your product.

  • Lastly, How do you scale your business?

Think about if your product is a market disrupt-er as was envisioned by Segway Inc., the developers of the Human Segway Transporter, an electric vehicle with two wheels. Their plan was to make this the next “big” revolution in transportation in an urban setting. Apart from having design issues for stabilization, the product had acquisition and storage challenges to be universally adopted by many in urban areas of the US. But a little know company called “Hubway” captured the imagination of the urban residents by their modified bicycle with not only their design but also the operational model of making it easy to acquire, use and store the product.

Note: See pictures –

transporter1 transporter2

Hubway paid particular attention to storage of the device in bike racks at various locations for example in a City setting and make it easy to acquire it by just presenting a credit card in a vending machine type of access but also return it at other locations like what one would do with a rental car. This enabled them to capture significant market in the US.

While doing this don’t forget to have fun and as they say “fail fast” and “pivot” often!

Good Luck.


Dymystifying Valuations & Investors – an opinion from an entrepreneur!

Valuations often have seemed to be a “Black Art”, but they seem to be crucial in determining your strategy for outside investment!

Are they really? How is the early stage entrepreneur going to decide what is reasonable?

Some other questions that routinely come up in the mind of entrepreneurs:

1. How does the process of creating value effect me, my co-founders, my team & investors?
2. How do I maximize value for everyone?
3. How do I get the best valuation in case of an exit?

Entrepreneurs need to understand how money works and see the world from the investors world.

One of the area VCs in the US once described to me this scene sometime back, just after their firm had decided to invest in the start-up:

“There was a lot of interest in this company, and the founders had a fair amount of leverage. They used every ounce of it to extract a higher valuation,” he said. We kept saying that our firm would bring a lot more to the table than money, and that the mentoring, strategic advice, network resources, and political capital we could offer were almost unmatched.”

“The founders however set all that aside and made it about the money. It left a bad taste in our mouth. The deal was still worth doing—barely. But we have less of an equity stake in the company than we would ordinarily want, and given all the other portfolio companies that need my attention, I don’t feel any obligation or desire to give these guys additional assistance.”

The point is that the founders undervalued the non monetary value resources the VC firm had to offer, or they assumed that mentoring and strategic support would inevitably be available from the firm. Given that the negotiation for money and term-sheets is a high stakes exercise with various emotions and personalities
present in the mix, one should not forget that the document at the end lays out how much equity and control a VC will have in return for its cash is all about assigning rights, carving out protections, and haggling over claims to future returns.

So these negotiations are fundamentally about picking the right long-term partner and forging a relationship that can survive the inevitable disappointments, resolve the unforeseen conflicts, and monetize the mutually earned successes to come.

Now as a management consultant, I have tried to put these dynamics into some of the mistakes and solutions of how to avoid them in this blog.

At the end of the day, term sheets can be difficult to understand, and you may need help determining what the various provisions—liquidation preference, anti-dilution protection, pay to play, drag along rights, vesting schedules, no-shop clauses, and so on—imply for your current and future rights and obligations. At the very least, you should contact other companies in the VC firm’s portfolio to find out what was negotiable, why they made the choices they did, and what terms were the most consequential in the months and years after the deal.

So try to check out various VCs and see who you can work with, who has done investments in your space (target market you address) and what it has been for others to work with them.

“Remember you are looking for a partner for the long term and people who you work with will matter in terms of bringing value to your startup especially

the non monetary type!”

So here are some things to consider –

Understand your leverage

One of the thing is the more alternatives you have which means number of other VCs who are interested in your startup, it gives your more leverage. Try to use this to fight for the terms that are important for you. Sometimes one common problem is running out of cash since its hard to forecast the burn rate, and too little willingness to give up equity. As a result, you may fail to take in enough money during early rounds of funding. So look for someone who is willing to fund subsequent rounds or offer bridge loans without significant dilution of founder equity. Its better to negotiate this during the first round of financing when you have numerous alternatives and could command a better price. Many founders have discovered that doing a slightly bigger first round than seems necessary—or perhaps negotiating an acceptable formula for future bridge loans at the outset—can pay off in the
long run: It’s bad when you have few options, but considerably worse when you are running out of options and out of money!

Its okay to look at the long-term goals of the VC partner and take the time to understand what the other side cares about and hope for from their investment which includes accepting money in installments tied to milestones with no dilution in equity.

“So don’t just focus only on your own options.

Understanding the other party’s interests can give you leverage”.

Strive to maximize thrust for win-win situation

Imagine you are the verge of closing a big financing round at the end of the month. When you pitched
last month, the business was gaining momentum and you are on target for all your financial projections. Since then, a major customer deal you were counting on falls apart, and a key employee is on the verge of leaving. Question would be if you would have any legal obligation to reveal this situation, probably not, but imagine you picked up the phone and revealed it. Maybe you think they may re-negotiate the terms of the deal. But most often than not, VCs would reward you for your honesty since they would like to put a premium on your trust! They would value your upfront gesture of delivering bad news as you would deliver good news to them!

Another thing would be around terms, to comparison shop, and to use whatever leverage you have to renegotiate the deal. Its all okay as VCs expect you to ask for better terms, but not after you have given your word on an agreement. The VC world is small and they all keep cross checking on each others deal flows all the time.

“In VC relationships, as in any long-term partnership,

It’s much easier to build  trust than to rebuild it.”

Focus on value and not valuations

If you’re selling your house, for instance, you might not even meet the buyers, and despite issues such as inspections, financing contingencies, and the closing date, the selling price is far and away the top priority. In this case focusing on a single, top-line number sometimes makes sense!

But in case of accepting someone’s money at a startup, the signed contract is the beginning of the relationship, so its a mistake to focus too narrowly on price and not enough on drivers of long-term value. Its like when negotiating a job offer, for example, people tend to obsess over the starting compensation, but factors such as geography, responsibilities, prospects for learning and advancement, and even length of commute can have a greater impact on their enduring happiness and success.

More than one VC has identified this shortsighted emphasis as founders’ biggest mistake.

“Entrepreneurs focus too much on valuation and not enough on control,” one VC told me. “It’s amazing how much control founders are willing to sacrifice in order to obtain a $4 million valuation instead of $3.5 million. These numbers don’t matter much in the long run, but the impact of diminished control can last forever.” The tendency is especially remarkable when you consider the passion most founders have for what they are trying to create, for their company’s mission, and for their vision of its future. Once founders have sacrificed board control or ceded voting rights on too broad a category of decisions, those decisions are, of course, technically out of their hands. Most VCs are very reluctant to use their control rights to contravene the wishes and objectives of management, but if conflict or a breakdown in trust between management and the board occurs, founders may find themselves severely constrained, if not replaced.None of this means you should ignore valuation—it’s an important consideration. But it’s a mistake to confuse it with value, given that most founders also care a lot about factors such as their role, prestige, self-identity, and autonomy.

“To maximize valuation without regard for non-financial considerations

is to sign something of a Faustian bargain.”

Strive for Understanding not Conflict

Even when control is not the concern, you ought to pay close attention to terms other than valuation; there are additional provisions that can have a huge impact on how much money you’ll eventually see. And if you look at them carefully, the terms a VC firm proposes can help you understand its unspoken concerns and assessments of your start-up’s future.

Well as in any relationship you need to look well beyond the contract and far beyond today. The lessons offered above are targeted toward those who are striving to create strong partnerships with VCs—but they are relevant for anyone negotiating in a world where a signed contract is not the end but merely the beginning.

So folks go develop products & solutions and please don’t forget to connect your wares to a customer persona and a pain-point they may have to resolve and rest will follow!

I will do more posts on understanding terms like liquidation preference vs. participation for example in term-sheets from the perspective of an entrepreneur.

So how do you measure the health of your business?

Business model & “LTV” – Life time value

  • Develop the business model that is “realistic” by clearly defining revenue sources, keeping the interest of customers and shareholders
  • Match pricing consistent with revenue streams/goals
  • Define what kind of promotions/discounts are needed and for how long
  • Consider how this leads into recurring revenue streams (for SaaS businesses) or repeat/new orders for traditional businesses
  • Develop a  “model” for customer LTV that is comprehensive (includes cumulative profits and not just simple revenues)
  • Show how LTV will evolve both short and long term

LTV defined – what is the “Value” of an acquired customer?

  • In early stages probably first year Profit could be computed as expected revenues minus expenses (to develop the business)
  • The second and third year it needs to be more realistic with real revenues plugged into the numerator
  • The CC (Cost of Capital) is an estimate of what it costs venture firms to invest in a business. The rate ranges from 35 to 75 based on the risk profile of the entrepreneur(s).
  • The “t” is the denominator indicates # of years as in year 1, 2,3 etc.

GTM (Go-to-market) & CoCA defined

  •  Develop a CoCA or some call it CAC (Cost of customer acquisition) model for your product/service. Its different than LTV.
  • The GTM should include model of lead generation and closing sales (choice of models like direct, indirect, use of outsourcers, online etc.)
  • Map the sales process (sales funnel) to the different people/parties involved from lead generation to closing to collection of money. This might vastly vary based on the type of business you develop.
  • State clearly assumptions you make as the leads move through the “sales funnel”. Its important to get “hunters” involved in the early stage of the business
  •  For the CoCA calculations use – marketing and sales costs, make reasonable assumptions of life of customer, retention rates, and closure rates. Exclude COGS and other fixed costs
  • Map how GTM will evolve over time – short, medium and long term
  • Explore and define where the use of word of mouth (WOM) falls (if any) in the overall GTM. Very important.

CoCA Calculations:

How do you figure if the business is “viable” via CoCA/LTV?

Courtesy: HubSpot

  • SaaS businesses LTV:CoCA ratio needs to be atleast 3:1 and time to CoCA recovery less than 12 months for it to be a viable business.
  • For SaaS businesses the CoCA needs to be anywhere between $1 – $3 per customer
  • As regards unit economics – customer churn should be between 3.5% to 1.5%

What do you track particularly for SaaS businesses?

  • For SaaS businesses – track LTV, CAC, LTV:CAC ratio, CAC recovery etc.
  • The are many more parameters to track. More later…..
  • Importantly track revenue churn vs. customer churn. Why are they different?

Imagine customers paying per month $10 for “basic” services and $100 for “bundled” services (upsell) & you had 5 of each in the early stages. If you lost 2 customers after couple of months, the customer churn would be 2. Imagine losing both customers in the basic category, then your churn is only $20. But if both are from the bundled category, your churn is $200. Big difference.