Posted on

Bootstrapping, not an excuse for being cheap #BootUpINDIA

I witness the scenario on both sides of the table.  A startup provides a solution to a problem; solves it elegantly. And makes it seamless for its users. They use a few other products too – that solves some of their non-core functions elegantly. They grow out of its free usage, but they don’t pay.

And they sit and break their heads, day in and day out as to why on earth,  many of its heavy users not converting. I too do wonder why.

Karma, is a bitch.

We don’t negotiate with the entity that provides the electricity, nor the ISP who provides the pipeline, nor the bank who keeps our accounts, or the lawyer who manages our legalities, or the accountant who keeps our day sane. Why then are we being partial to teams solving our operational headaches with tools they built, burning midnight oil? Especially if its a tool that does its job and is a revenue expense for you.

We don’t bicker about the sunk costs, but are cutting corners on the revenue expenses. You understand how that makes no sense whatsoever right?

If you really want to throw around bootstrapping as an excuse, take a lower bandwidth plan and save costs. Buy a Dell or a Lenova and not a Macbook Pro (or one with a retina display). Keep a feature phone, nor a smart phone. Work out of your bedroom, and not a fancy office. Print your business cards on modest paper, and at your corner print store, rather than throwing around Moo cards; catch the train or the bus instead of flying around or travelling in luxury. After you’ve followed all this, if you still are short, then use a hack – use google docs, notepad, or one of the many free tools out there which do the job, will make you put in twice in amount of work and time – because it looks like time is the only currency you have. If your time is precious and you value it, and you are a growing business, then you have no excuse to be a cheapo.

You can spot a good team, by their ability to differentiate, what’s their core competency, where they can make a difference, and what is non-core and can rely on dependable tools, and pay for it.

Next time, you look at the conversion funnel and ponder why your customers are not converting, make sure you are not looking at a version of you on the other side. Bootstrapping, and being a cheapo, are two very different things.

Posted on

The Business of Accelerators

Accelerators are in the business of creating Startups – or atleast taking the first bet. Its a startup of startups; Which means, everything they talk about as risk, in venture capital nicely gets bundled up and will get put on the head of what is the accelerator.

Going back to the basics, Now depending on which accelerator you are involved with, there might be two or three key milestones that they would provide as value:

  • Spit Polish your Pitch in a matter of weeks and put you in front of a lot of Investors and hope one of you becomes a hit (Usually this model also involves accelerating a lot of companies in one go)
  • Have an Alumni or a Brand that can give you early traction, and mentors who can give you an overview (working with a startup to dig deep will take a few weeks usually)
  • The hands-on accelerators that will work with a handful of startups, but will dig deep, have a few dedicate personnel whose job would be to help you eliminate market risk (have a product, but there is no market) and also help with Go-To-Market strategy, setting up a board, advisory etc. Thats really a deep dive model and most accelerators wont touch that route with a ten foot pole – we at the Startup Centre, however love doing that kind of stuff.

 

Depending on what level of support you are getting, the duration of the programme will vary, but you get an idea. All of them, in someway will put some money in, quite honestly that would be the easiest (valuation of the company is the lowest and shares are cheaper comparatively – it makes sense to do it).

Thats the Pledge, if you can call it.

The Accelerator Model, no matter how sexy it may sound is a very very complicated and fragile model. It throws the firm in the side of the entrepreneur than the VC. The VC gets rather hefty (or sizeable) management fees of the funds they manage (usually 1-2% of what they manage divided over 7-10years) and the managed fund sizes are usually in the three digit millions, so that usually covers for operations. Accelerators on the other hand, even if they have a fund, owing to the nature of making small bets, the fund size would be small and the management fee, so to speak, usually covers the legality in managing the fund. Nothing more – Yes there is hefty legal fees involved in auditors, lawyers and stuff when you manage a fund.

And the accelerator has the cost of infrastructure (if its provided), the man power, operational costs, and travel where they go around meeting companies. All of this comes from a very very thin shoe string budget in most cases.

That’d be the turn.

Now, are they making a sacrifice and killing themselves over a cause. Not at all. But however, the upswing for an accelerator is in that small amounts of equity that they are taking in. If you are a banker by any chance and can do a little bit of excel sheet math, you will realize that the Approx 10%  that is taken (out of which usually 70 – 80% belongs to whoever brought in the capital also called LPs), is very small and if the venture goes through two rounds of funding or so, will quickly become a 1-2% play (which is the “carry” that the accelerator makes – sameway a VC fund makes money)

Which means, in order for the accelerator to say make a million in a company (and it usually takes about 3-4 years to think about any reasonable exit, in most cases way more) the company has to be valued, literally, at a billion. The chances of building a billion dollar company? Well, the US has 20 companies that are listed and 40 companies that are privately held, who are billion dollar companies in the last 20 years. close to 30,000 companies get funded in the US per year, so you can see the odds.

What you get is a fantastic community. You work shoulder to shoulder with entrepreneurs and pushing them to be their utmost best, because quite literally you make money only when they do. Some accelerators – if they are short termed, will go the mass model way (put 30 – 40 companies in a batch), raise the valuation by 1x or 2x and want to dump it on someone else and go to the next batch. They make less money, but over volume, they make more.

Not sure, if that is a model that is exciting for us, personally. I’d rather be associated with one or two companies that stand out, and perhaps stand the test of time – solving real problems.

Honestly though, if anyone were to ask me if starting an accelerator was a good Idea, its not. Its hard work, but if you love working with entrepreneurs, this is the best place to be. Its a lot of community building, lot of hard work, with not much money to hire talent – a lot of lonely hours, but along the way you also have the possibility of building a few amazing companies.

That’s the Prestige.

PS: Most wont make it.
Posted on

Are you a Tech Startup? You are part of a Fraction

Fraction

I remember this TED talk by Hans Rosling as he echoed the sentiments that I’ve heard working closely with Market Research firms:

Even with quantitative data, you have to be careful because as much as they are hard numbers, they usually are averages of two extremes – and the markets are full of extremities.

Truth is, if you follow (just) the numbers and build a product, you might end up with something that half convinces one group and slightly lures the other but never raging fans – in short, you build a product that is average.

Which means, that in order to improve a system, its not necessarily the most effective way to measure the system has a whole, you have to look at the individual parts of it and see which part of it is inefficient and work on that as a unit, rather than the whole system.

Organizations, love to club “Entrepreneurship” as one big whole chunk of gooey and that is very misleading.

I came to realize this working for a few years with IIT Madras, and interacting with the government and realized two things – their priorities were on cutting edge technology (patentable, and hence hard core sciences – some of which were a few layers away from direct commercialization) and the other was employment. If you think about it, it fundamentally comes down to the two priorities any government would have – security (economic and physical) and job creation, which are the key elements to a society, everything else is incidental.

How does technology entrepreneurship play into all this? If you are not building patentable technology (but an application – Yo! to the dudes and dudettes building Twitter 2.0) and if you do not have an intent to hire the masses to come work for you, you really don’t factor in anywhere at all.

That’s why when I read articles and the entire social media sphere going abuzz about the government plans t0 create 10,000 startups, and trying to force fit technology startups into that equation, I cringe, because thats like tryin to get a rhino into a bride’s wedding dress.

“According to a recent planning commission study, India needs to support nearly 10,000 scalable start-ups by 2022 to provide some level of sustainable job creation to the 140 million potential job seekers entering the workforce over the same period”

Some rough estimates say that there are close to 24 – 32 million (I know its vague but vague is all we have, because nobody has actual data) small and medium enterprises. Most of them are spread in the 1200+ Industrial clusters in India. When the government says “Startups” that is the ideal target they have in mind. It is none of the 350 odd brilliant, fraction of the whole equation demographic at all. The image in the mind of the government and policy makers when they say “startups” is someone who can be part of that 140 million job creation scheme of things – which means its the labour industries first, followed by manufacturing, followed by vocational skillset based organizations, followed by service companies (IT and Hospitality), followed by Research and development. You and I, don’t factor in at all.

The Key is to recognize that, before writing a post saying that things are sweet and sour. Truth is that the Tech Startup Ecosystem is on its own. And it survives on its own. It is nascent, very nascent and things are as crazy as the wild wild west. Not all entrepreneurs know what it takes to be in India and be building a business here, most of them complain that they are born in the wrong country, and most others just whine that this is not the valley. Some others are fooling themselves into believing that we are somehow there.

So steps to take:

1. Organizations like TiE have seriously lost their focus, gearing further and further into general entrepreneurship (so is CII, and FICCI and etc), rather than having a focus – when they are positioned best to help, but are just wiling away.

2. Understand that there is no such thing as an ecosystem yet, there is a landscape and like cattle there are some startups and enablers around. When my CA knows why a tech startup which has no “machinery” is valued at a crore, and all he sees is four guys and their laptops, then we have made the first step in building an “ecosystem”, not yet.

3. Building the Tech Startup Ecosystem, will take a concerted effort, by not the govt, or by one or two people, but by many who share this vision and are willing to play a non-zero sum game. Think beyond what you get (right now).

4. Our early successes will come from companies that will move out of India, go to the valley and succeed. Hopefully some of them will find a reason to come back and become that corridor. So don’t grumble when some of them leave, if they come back we should involve them. Israel’s ecosystem was built that way. There are ways to accelerate it, but that goes back to point (3) about a concerted effort. Investors will have to think beyond just deal flows, technology companies have to think beyond getting startups on their platform, and entrepreneurs have to think beyond just getting funded as their agenda.

5. Stop thinking small, and incorporating in India because of Patriotic reasons. Be global, incorporate where needed and keep your options open. Leverage all the exposure you can get. You are not competing with that startup down the road, you are competing with your counterpart globally.

6. If you are a startup, stop wasting your time in ecosystem stuff, there are enough of us around who have made it our mandate, if you really really really want to help, succeed amazingly well. There is very little replacement for what a success like Flipkart, Mobme, Webengage, Freshdesk, FusionCharts, Visual Website Optimizer, Tenmiles, Orangescape or a like can do.

Suceess breeds inspiration, while all the enablers can lay the roads, its entrepreneurs succeeding that really lights up the runway.

So don’t crib. Leverage India for what its worth. You can build amazing businesses here, but it will require getting your hands dirty. In short, be resourceful and make the most out of it. We are on our own.

You can leave comments here.

Posted on

India has a drought – not of Investors, but Customers

I came across this rather misleading article by a New Investor in town, that India has a Series A drought. I think its a bit sensationalist and misleading and drinks a bit of his own coolaid and shifts blames on others, but I’d agree with the article on one count – Yes there is a drought.

I am going to start this off on the right foot. This whole venture funding phenomenon is about at the best 15 years old in India. Whenever i sit with the guys who really understand business and even remotely talk about the things we talk about – they give me a dazed and confused look. You know why? Venture capital is nothing more than a bank – a bank which specializes in lending to private companies. I cant think of a single self-respecting business man who built his business based around what the money lender thinks he should do. If Startups today are talking about funding – as their only big milestone – there is no one to blame but the loud-mouthed investors who have positioned themselves to be the focus point for these early stage entrepreneurs.

Now coming back to the topic. We see the following happening in India:

1. Compared to 7 years ago, everyone knows what a Startup is.

2. Mainstream media has accepted Starting up as a perfectly acceptable choice of career – they are dedicated shows and show hosts who think they are celebrities.

3. Almost every well known Investor (Startup Bank) has an office in India.

4. Angel Investment is on the rise and its raising angels in the country right now. I seem to be bumping into more angels than Entrepreneurs sometimes – its scary.

5. The Govt causes a fuss from time to time but predominantly has stayed out of what they dont understand.

So What’s missing?

Are there great ideas? Yes

Are there great teams? Yes

Are there great products getting built with world class UI? Yes Yes Yes, andYes

Are teams bootstrapping/saving up/ getting a bit of money to get off the ground? Yes

Is there ample Series A happening? Yes, but Not Yet at scale

Are there exits happening? Not Nearly

Read the Complete post here

Posted on

Demo Days: Obsolete. Over-Hyped. Disaster

If we were going to let the cat out of the bag, so to speak, comparing accelerators, here is my biggest gripe about “Accelerator Models” – Demo Day.

For the fortunate, who aren’t aware of the Process, this is how it goes. Applications open, Teams submit their applications, Interview processes later, teams are picked, brought onboard and after a 12 – 16 week Programme (depending on which accelerator you are part of), you are building off that first version of the product and then comes D-Day, Demo day when you launch your product, Introduce the Startup, and get funded so that you can move forward. Except that there is one glitch. The funding never happens. Nobody I know of has gotten customers at these D-Days, and nobody is wowed.

You could have glue stuck wings on the entrepreneurs and pushed them off the cliff instead.

Sadly, D-Day is a critical aspect that a lot of accelerators acclaim, is their USP, and that is going to come bite a few entrepreneurs in the ass sometime. Unfortunately. Its not just me saying this. Sameer and Nandini have been saying this for years.

India is Different

Demo Day works. It works in the Valley. A bunch of accelerators put up their startups, and there is someone to come look at these companies and see them for their potential rather than what they are a the moment. At the stage that these accelerators are putting up, all they have is a product that is ready to go for launch, and that is only going to get you one answer “Interesting. Keep us posted on how it goes”.

There is no one here in India who will take you at that stage and take you forward.

For those who understand this space better: You ideally want someone who can drop a 100-250K USD (with a valuation of roughly 1 – 1.5mn Valuation) on the startup to take the company from there. But thats precisely it, they want a “company” not a product built in a scurry. I havent met any teams in the Demo Days of most of these accelerators who can even justify (with data) why they think the product will work.

The Pivot is on you.

So If D-Day is the day when you launch, and I presume it will take the entrepreneur another 30-45 days before they realize that the product is not taking off – nobody is using it, let alone pay for it, what happens? Then comes the decision to Pivot vs Persevere and its the hardest decision on an entrepreneur. Except, guess what. You have already “graduated”. And whatever you pivot on, you’ve lost the opportunity of Demo-day to gain audience. You are as good as a team which was never part of the accelerator in the first place. I know how draining that is on an entrepreneur – we wouldn’t wish that he goes through it alone. Thats why we take our time and go through it in six months.

Direction vs Speed.

Something we’ve been saying for quite sometime. You might want to know where you are heading, before you start setting yourself on fire with Jet fuel. Do you even have a product that the market wants? Without it, Where-my-friend are you “accelerating” to? :) Find your Direction first, in terms of the industry, domain, and problem you are addressing and the solution to it. Thats direction. Then, figure out how fast you want to go and how an accelerator can help. (though most accelerator models seem to be Product accelerators than Startup Accelerators)

Product vs. Startup

There are essentially three steps. Picking an Idea that you want to work on and building a prototype. Its Okay to build multiple prototypes of multiple ideas and figure which one “sticks”. But once you see the data, let the numbers guide you, and make the decision to build it out as a product. Once a product, see if it makes sense to build a startup around it. There is a reason why we modelled ourselves in three stages.

Product acceleration is not equal to startup Acceleration. You shouldn’t be giving equity for inputs that you get towards a product (which might pivot dramatically) – atleast, not so much as what typical accelerators charge.

Is it important to give Young Startups a Platform? Absolutely. We ran Proto.in for years. The key however is to know what stage to unveil them at. Demo Day, as it stands in India today in India, is a disaster.

FootNotes:

1. The Process of building a company in India is still very much bootstrappish – Unless you are an entrepreneur with a track record of execution. The Norm is that, you are rewarded for results you show. PS: There is nothing wrong with that. But its here to stay and its important to acknowledge that and work around that, rather than being in Denial land.

2. The Startup Cuve of a Startup In India is very different from that of a US Startup. “Demo Days” are to replicate the “Techcrunch Initiations”. Answer honestly, does it? It does create a blip, but is it really a launch?

A Rough Sketch, if I were to map out the Startup Process in India Mapped against Traction vs Time would look like this – against the US Counterpart:

Assumptions:

a) The Startup Didnt have to Pivot. Fact: Most Startups will Pivot 2.5 Times.

b) The Startup survived competition, were able to find their value kernel and pivot for scale.

c) Also assuming that this startup did Marketing from Day minus 150 before the product launched. Otherwise, traction would be 0 till demo day when there would be a just a few curious bites, and no solid engagement. Situation, in reality, would and is much worse.

Cross Post from the Startup Guy’s blog