Tag Archives: entrepreneurship

Start-Up Dilemma 9: Board of Directors/ Advisors

23 Jun

board-mtg-cartoon Credit

A problem I have been seeing very often of late (more now when I meet many start-ups as mentor/ advisor, than when I ran my own) is – when should I appoint a Board? How many people? What should I offer them? Will they be interested? I thought time (after a big gap) to write another “start-up” series post, which answers the following questions:

a) What is the difference between Board of Governors/ Directors and Advisory Board; more importantly – when do I apooint one vs. the other
b) In general, at what stage of my start-up do I appoint one
c) Why/ what are the benefits of appointing one
d) What is a good number of people to have in the board
e) What do I have to offer them as compensation.
f) In return, what do I expect from them? How often do I contact them? Can I formalise this receivable?
g) How do the answers for the above change if my start-up is product vs. services vs. Non profit? Or if it is Indian vs. not? or if it is a Lifestyle business that I want to build to scale, vs. one I want to get valuation for, and exit sooner rather than later.

I have to confess, since I am by no means an expert, I ran a small survey amongst current and past entrepreneurs who have run various start-up organisations all over the world. It was a diverse group, though not necessarily statistically significant. I will include findings from that survey as we go along – disclaimer – use those findings as anecdotal only πŸ™‚

Board of Directors vs. Advisors:

This is a great article defining the different types of boards and their roles. And this is another good read on the difference between Advisory board and Board of Directors, and how to utilize them!

Basically, when you start out, an advisory board makes more sense – and obviously, you could run your org for-ever without needing a formal Board of Directors/ Governors, until you seek and get investment.

Even with the advisory board, I see start-ups in the western world, who have now seen the whole culture closely, feel the need to acquire, and actually leverage advisory boards much sooner than those in India (where it’s typically a bunch of smart techies, who have a super idea, (or sometimes just think they have), and want to create the next google). Also, as a corollary, or atleast a parallel, start ups who have been conceived to make lots of money very fast, go “by the book” more often than those that are being set up as lifestyle businesses.

Right Reason

Reason for Appointing BOD

As my own little survey showed, in the beginning, many start-ups, specially if they are either small, or the Non profit type, choose friends and family in the Board of Directors – generally just to suit legalities in certain countries e.g., in India, a Pvt. Ltd. company needs 2 Directors.

But, ideally, Board members need to be recruited for more than just statutory requirements. As this article talking about the mistakes that companies make when recruiting BOD says, Board members can be great resources who provide support, knowledge, and access to unique professional networks.

vijayamritraj

And indeed, as my little survey showed, the right competence or skills, and the ability to get contacts – either to potential clients, or to potential recruits, is the other big reason for Boards of Directors to be appointed. The next reason is obviously just the name-value, or reputation of the person (My husband recently got offered a seat in a Board of Directors, where one of the other guys was Vijay Amritraj (and ofcourse, I told him – “say yes, say yes” so I can maybe hob nob with him at some dinner stuff πŸ™‚ ))

Slide4

Not surprisingly then, when one looked at the average and top-2-box analyses for reasons, the ability to get contacts, and give advice, top the charts.

No. of Members

No. of Members in BOD

My survey respondents seem to like the number 3, maybe because most of them are really small and new set ups. Per the article above, Fred Wilson from Union Square Ventures thinks a board of five members is ideal. He recommends no more than 7 board members (two founders, one to three VCs, and one to two other industry professionals).

I would agree that get the founders (no more than 3 – 3 being the magic number as per my earlier post on optimal no. of co-founders), get one or two “real” advisors with complementary skills that you REALLY need, and get one well connected industry person/ celebrity – who should be your business development/ recruitment channel person. The rest is superfluous — which, effectively means, that your choice of VC/ investor should also depend on then who will they put on your board, and which of the above roles can you get the investor appointed Board member to play.

Compensation for Board of Directors

Obviously if friends and family, one wouldn’t offer anything to the board. But, the commonest remuneration seems to be Equity – I have heard amounts ranging from a low of 0.25% to an average of 2% and a high of 5% to be parted with for Boards. This good common sense article talks about the difference between an advisory board and the board of directors, and also has some good sound advice on compensation.

Benefits to BOD

My survey showed that just the position was what most start-ups offered their advisors/ Board members. This is probably also because at the stage they are in, in most cases their BOD members are friends and family.

Issues with Board of Directors

Issues with Boards of Directors

While, my survey seemed to indicate that the founders weren’t really facing any problems with their BOD members, I assume that’s because they weren’t being utilized effectively! In most cases, the problems arise due to not being able to get time and attention from your directors/ advisors. You may expect to be put in touch with channel partners, or a new recruit, and the Director doesn’t, or is unable to do so!

In my experience, the best way of making sure you do get the value you expect out of the Directors is to use them as individual people, rather than a full fledged board – i.e., seek a fixed slot one on one meeting with the folks (say half an hour every two months)- set that expectation upfront, send agenda in advance, and just be focussed on getting your questions answered!

This old article provides some good advice on care and feeding of Advisors.

Just for disclosure, the profile of my survey respondents is as below:

Profile

Incidentally, for my friends running Non profits, the answers to the same questions are not substantially different – as a look at this article shows

I think I should end with providing a link to an old but fantastic article – which will put a lot of answers in perspective, and contains a lot of wisdom, including in the comments after!

Hope this was useful. Right in tell me your experiences!

exec board

How opposites attract, or, what makes a successful partnership

12 Jan

Two interesting things happened to/ around me this year-end: a) My husband turned 50 (we had a lovely celebration with family and friends). b) I completed two years of retired life.

Got me thinking even more about something that has been occupying my mind lately – which is, what makes good partnerships work.

A few facts:
1. My husband and I are the quintessential Venus and Mars couple.
– He wakes up early, I sleep late.
– He likes to always have the last word in an argument, even is it is pointless; I abandon an argument after a point – either because I believe everyone is entitled to one’s opinion, and it’s better to agree to disagree; or, because while I dont agree, I think this is a never ending exercise and keep my smug self satisfied feeling inside me…
– I like to sing, he is stone deaf; and therefore ….
– He likes the lyrics in songs, I like the drumming, the guitaring and the melody
– He is an amazing cook, my kids eat food cooked by me under duress
– He drinks whisky, I adore beer; he doesn’t touch sweets, I could make a meal out of them
– He reads financial thrillers and political satires, my favourite stuff is trashy romance; he likes blood and gore in movies, I am a hard core romcom addict
– He loves to network physically, I pride myself on maintaining steady email with …some people….some of the time…okay, steady-ish……..
– He is the financial wizkid and therefore manages all household finances – yes, even files my taxes; I plan all household schedules etc, ….we cd go on and on.
(This ofcourse may just be called efficient division of labour…but still…the fact is…chalk and cheese)

2. In a partnership of four in our startup, we had
– One alpha female, the driver of the enterprise, the one who always had the highest ambitions, who was most ruthless at delegation, the best seller, the face to the market
– Then there was the manager par excellence, the process person, the task oriented champion chaser-up who excelled at any job thrown at her at the right time and with precision perfection, the creative personna;
– There was the maverick trouble shooter brain of the enterprise, Mr. Client Man, always bending over backwards to please the client – and actually anyone who browbeat him,
– And then there was me – maybe exact fourth quadrant locus to all 3 above.
(Read here for an earlier view on the magic of co-founders for a start-up.
(this ofcourse may just be called efficient core competency matching, but still…the fact is…chalk and cheese)

So, what emerges? The sheer contrast of the elements of the partnership.

And that is what today’s blog is about!

One look all around you, and you see contrast everywhere!

Nature abounds with contrast –
– Everyone with atleast 2 children will tell you they are 180 degrees different always! One is the athlete, the other is the dreamer; one the carnivore, the other the vegetarian; one the sledge hammer the other the sensitive introvert (ofcourse in this matter opposites do NOT always attract)…for that matter what is the generation gap between parent and child but a study in contrasts?

symbiosis Credit
– Symbiosis is the phenomenon of persistent biological interactions (most often mutualism) between different species, that is seen in clownfish with anemones, lichens with tress and many other organisms

magnetism1 Credit
– It is common knowledge that opposite poles in a magnet attract, and like repel. This fact actually gives rise to many natural and anthropogenic phenomena – including, as an example, digital music that revolutionized consumption! of music

– Good story telling always means a good side and a bad side – if there is a Ram, there is a Ravan; a Harry has a Voldemort; Dorothy has Elfaba, Mufasa has Scar….and on and on….This article from Huff Post about storytelling using opposites is a good read on this

– And ofcourse, every good (or at least worthwhile) partnership has elements of “venus and mars”. Whether it is sparky temperamental brilliance vs. plodding dilligence (Sherlock and Watson/ Poirot and Hastings); or master strategist vs. executor (Chanakya and Chandragupta Maurya); or a typical good cop- bad cop routine followed everywhere and all the time in the world when negotiating/ interviewing/ dealing!

This feature becomes especially important when one is running something together – that partnership – one of co-founders at a start-up I sometimes feel is better/ worse/ deeper/ stronger whatever – than most marriages or sibling-hood!
This Article on some successful entrepreneurs and why their partnerships work makes for a good read on this…

The video below shows the different types of partners one chooses and why:

Dr. Helen Fisher talks about 4 personality types in men, and how figuring out which type you are informs the partner best suited for you. She talked about four brain systems that are linked to personality (not intelligence, but temperament):

1. Estrogen (pro-social/empathetic), “The Negotiator” – sees big picture, great verbal skills, imaginative and great people skills. These men often choose Testosterone types to be attracted to.

2. Testosterone (analytical/tough minded) “The Director” – analytical, logical, direct, decisive, tough-minded, good at math, computers, mechanics. These men go for their opposite — such as the high-estrogen type who is more big picture.

3. Serotonin (cautious/social norm compliant) “The Builders” – orderly, respect authority, traditional, conventional, conscientious, cautious and social. These men go for women like themselves who are also traditional.

4. Dopamine (curious/energetic) “The Explorers” – risk-taking, novelty seeking, optimistic, restless, spontaneously generous, creative, quite liberal and flexible. These men gravitate to women who are just like them, they want women who are also Explorers.

So the questions that arise are:
– Is it true? If “opposites attract”, then how do “birds of a feather flock together?”
– Does it need complete opposites to make a relationship work?
– What does it take to build success when partners are alike? Is it more work? Less?
– In case therefore one is in a partnership with “similar” people, does one of them have to change? Should the ego centric dominate the other?
– Why is it that there is only one “alpha male” in a pride of lions amongst many mates, and why don’t those mates kill each other?

Of course, as with any theory, there are many ‘counter theories” to this one too, and ofcourse anecdotally you and me could enumerate many instances to disprove the one above. One such article on opposites not really attracting is worth reading. And this article apparently gives advice about similarity being good for longevity in marriage.

I guess the answer really lies in – where do similarities lie, and where the differences. In basics/ broad moral/ ethical/ philosophical/ business values, it is probably good to have general agreement – and then if operational/ executional values and styles differs, it actually works better. (At least saves one from getting bored – so, differences makes for interest, but similarity for the glue in the relationship)

Having said that, I would think one has to WORK at every relationship – establish dos and don’ts, strengths and weaknesses, and embrace the difference while being secure in the similarities.

Which really means, if I were to shift the lens around on Manoj and me,

– (He wakes up early, I sleep late) – He can get the kids to school while I can help them revise for their exams
– (He likes to always have the last word in an argument…..) – While there aren’t continuous arguments in our house, atleast there are no fights!
– (I like to sing, he is stone deaf) – I get an audience when I do sing
– (He likes the lyrics in songs, i like the melody) – We both like music
– (He is an amazing cook….) – We are all foodies, and Thank Gawwwd, we get fed gourmet food often!
– (He drinks whisky, I adore beer) – We both like our drinks!
– (He reads financial thrillers and political satires…) – We both like books and movies, just different genres
– (He loves to network physically, ……..) – We are both ‘people” people!
– (He is the financial wizkid) …Our household runs smoothly, with no interference from non core folks πŸ™‚

What say? I think I’ll end by showing you this lovely story of opposites staying together

StartUp Dilemma 8 – What’s the Magic Number of Founders?

16 Jan

Entrepreneurship is a bit like marriage – you get married (willingly that is) either because you really like a person and would like to spend the rest of your life with him/ her; OR (seen less often in the western world, but very common in India) because you feel that this is the right time to get married (for whatever reason – biological clock and the need to guarantee perpetuity of race/ the desire to not live alone/ the pressure society is putting on you to find your soul mate/…).

Entrepreneurship also, very often hits either because you have an idea/ (or many ideas) that you really think will allow you to rule the world; or, because you want to start ‘something” on your own (“something” is undefined – and you are open to trying many of those). (Click here to read an earlier post on the right age to be an entrepreneur, and some segments of those!).

To take the corollary further, choosing co-founders is also a bit like marriage – you basically either know someone really well already, and are used to doing things with them – so they become a natural part of whatever you embark upon. Or, you kind of mount a hunt for someone who has what you need – it could be the code/ the BD contacts or skills/ the Ops knowledge/ the charisma/ and ofcourse the money!

So this questions often gets asked – how many co-founders should I have? Should I have any at all? How many is too much? And, how do I go about looking for founders.

Founder fin

Sometimes, (rarely though) this meeting happens a bit by chance – like it did for us. Debjani had a skeleton of an idea, her boss said – go for it; she knew Shoma of old, and said – OK, you want to try working from home/ in your pyjamas for a few days an hour, Shoma said yes; they figured they needed someone who India better, asked a neighbour if she would join, Asha said – not me, ask my friend (me); I was at a loose end and just getting bored with parenthood, agreed to meet Debjani and Shoma for a coffee (was in a hurry as had left 2 year old at home), listened to “idea” for 5 mins, figured there was no downside, wrote their numbers on the back of a tissue paper; Debjani figured now that we had 2 in India she needed one in the U.S. – asked her old friend Kyung if he would join – he was at a loose end too, said yes – EmPower was born!

And, for obvious reasons, while it turned out well for us, that is so not what you should bank on (co-founders falling into your lap pretty much).

So, start from the top – solo? (Obvious advantages – you are sole master, can control your destiny – have no one to blame, and ofcourse, get to take all your winnings home…) Actually, there are both pros and cons to being a solo founder, but in balance, it is better to have a team than not.

I can recall one successful Indian entrepreneur in the analytics field who did it alone (actually roped in his wife later) – but he got many advisors and early angel investors – and kept adding to his core management team who were all equity holders that helped him build his company – he’s done it really well. But he I think is a minority. (Though, to be fair, some examples of successful companies with one founder are Dell, del.icio.us, Facebook, plentyoffish)

Two? Sure, gives you a shoulder to lean/ cry on, a sounding board, and added expertise (in general, one is client facing, and the other is the techie/ content person). But, what if you have completely divergent views on a critical topic?

Hence, as a tie breaker – Three? Looks like VCs prefer 3. An old, but interesting article shows empirical evidence for the magic number to be —- yeah yeah it’s stat so it has to be weird —– 2.09 :). Also, this article on the “unicorn club” – i.e., those with Billion dollar valuations in recent years, seems to show that 3 is the magic number…

I agree – 2 to 3 is a good number. But, in our case, 4 worked well mainly because we were a cross border organisation – the market was primarily in the U.S., and development in India. So, both geographies needed the shoulders to cry on/ lean on – and sometimes bitch to, (about the other 2 πŸ™‚ ).

Ofcourse, the more founders you add, the more “noise” from fighting interpersonal battles emerges, and ofcourse, your share of the pie keeps getting diluted.

On this point, what do u do when u feel one is not pulling weight, or if you have a clash. Most startup failures are attributable to founder clash. Zuckerberg’s arguably ruthless treatment of his “co-founders” has been made famous in the movie The Social Network (watch this clip at 1.23-ish). Most people suggest a parting of ways is the best – if not the most pleasant option. Speaking for myself, we couldn’t do it ever. Not that we had major clashes, but there were times when one of us suggested that they just couldn’t work with someone else – and the others would step in, and say – “Hey, we started as a team, we will finish as a team, come what may”. Maybe not wise, in retrospect; but certainly easier to live with our own consciences – clearly, we are no Zuckerbergs πŸ™‚

On the search for a good co-founder, this article is a good read, and has a few good examples. A further few interesting tips on hiring non-technical co-founders can be read in this article

Finally, I think there is no magic number honestly, it is what you feel the need for/ can make happen. If you feel you need skills in areas you cannot provide, and can find the “right” people for it, for sure, go ahead and look. What is important is that they should have complementary skills, and the right chemistry.

Even the “unicorn club” analysis shows that Ninety percent of co-founding teams comprise people who have years of history together, either from school or work; 60 percent have co-founders who worked together; and 46 percent who went to school together. But, teams that worked together have driven more value per company than those who went to school together.!

I think the defining opinion on this topic can be found in the following article.

So, don’t spend too much time over thinking this problem – it IS an important one, just like marriage, but, do what feels right to you – the money will follow πŸ™‚

StartUp Dilemma – 7 (How Much Smoke is Permissible For My Screen – or the new 2 Ps)

8 Aug

vc strategy

(Credit: Nasscom for startups)

I was talking to a young duo today – they are techies, working on coding a product for the Legal Industry. Product is maybe 60% ready, and they are beginning client conversations seriously.

Ofcourse, they’ve done the checks for attractiveness of the product right from the beginning, with friends and family. They also have a quasi “beta product client” who is using the product and giving feedback. And, they are making all attempts to demo their product to as many folks as possible.

They are an exceptionally honest bunch – they had a couple potential clients who were interested in their initial pitch; but most interested in a particular feature. When asked, “can your product do this now”, they said no, but we can do it in the next version….result – client lost interest as need was “here and now”.

Brings me to the familiar dilemma – how much smoke screening should one do on one’s existing products/ services, to enable client acquisition.

I think most startups work this way – you have an end vision, you create some capabilities, you have belief in what you can do, and the rest you “wing”…

I think in all my time at EmPower (> 8 years) not ONCE did we say NO to a client. We built almost all our services from scratch. With the exception of maybe the first division we started, where atleast we had some rudimentary skills at execution, we knew zilch about the others – we created 2 additional service lines, and then a product/ tech platform because our clients led us that way. But, when asked by the client – “can you do this” – our answer was always, “sure!”. This, by the way, ofcourse the market facing/ bizdev guys said – but invariably the ops teams – who often didn’t have a clue on HOW – backed up the bizdev folks!

The funniest/ goriest example (depending on which side you are) of this strategy was when we were considering starting our “pure play analytics” services. Now these were adjacencies to services we sold, and as we considered growth, almost a no – brainer to branch out into. The clients were common, the need was common, so it was really obvious. Our problem, it did need “specialist” skills – which we didn’t have, and were not necessarily ready to pay for, BEFORE we figured we would get traction.

So, after a fair amount of work, we did get a meeting with a senior analytics chap in an organisation – and, reasonably impressed by our pitch, he threw us a “pilot project” – a problem he was grappling with, that he said – “lemme test you on”.

Good news right? Wrong! We had no idea how to do it! In our usual way, we scrambled to “figure it out” – (by the way, I always feel that an alternative title for “entrepreneur” is “figurer out” – Imagine saying I am Sangita Joshi, Chief Figurer Out at EmPower!). So, we dug out our stats books, went to the net for quick tutorials and got one of our smart analysts to figure it out etc.. but then, someone hit upon the bright idea that since anyway we were looking to hire analytics experts eventually, let us start right now, and give this problem (disguised of course) as the “interview test”. It worked well for a while – we tested and interviewed scores of people and were able to glean a fair amount of knowledge this way. ofcourse, then the bomb burst – we got a call from our client who said – I understand you guys have given my problem out to someone else??? (One of the interviewees belonged to another company who had ALSO been given the same pilot problem, and they told the client). Much grovelling later, we extricated ourselves from the situation. Result – THAT was NOT when we started our analytics division!

But we also have success stories – our Information Support Services Division started again by our telling a client – ‘YES we CAN!” – which was borderline truth only. (The good part in processes is – yes, most people can – it’s not rocket science – the question is – can you do it WELL/ BETTER than others/ with expertise!) We hired, trained, set up and executed a project requiring some 100 people in a matter of 3 weeks – it involved a LOT of midnight oil burning, many palpitations and a fair amount of despair – but that division with the single client ultimately became our first/ biggest engine for scale, our excuse for better facilities, the reason for our acquiring a “second facility” via an outsourced vendor (read older post on this here), and probably an important reason contributing to a successful exit.

Similarly, when our first large client (one of the top five pharma companies in the world) came to us to outsource their entire media monitoring for their 29 brands – we were some 15 people, and had NO idea how we were going to scale to execute. But execute we did, and that client still remains with us.

So, what then is the answer – should one/ should one not smokescreen? At what point do you draw the line? If you are scrupulously honest, do you run the risk of never acquiring a client? But on the other hand, will you ever have a product/ service that can satisfy all clients’ needs?

StartUp Doubling Up
(Credit: Nasscom for startups)

Lets take a step back – first of all, serial entrepreneurs apart, the minute you decide to go on your own and begin a “start-up”, you are walking on (for you) uncharted territory. From being an expert in your field of specialisation/s, you become a wearer of multiple hats – owner, boss, mentor, coder, program manager, HR specialist, facilities manager, Finance guy, funds raiser, business plan creator, marketer, sales person, motivator. Its highly unlikely that you have done much/ any of this work before. So what makes you take the step? The belief that you can do it, right? You believe in a promise, and have sufficient confidence in your abilities, and your own judgement of your abilities, to know what you can manage/ how much you can stretch/ and, even more importantly, what is outside of the bounds of possible for you! You sell this promise to your recruits/ the angel funder/ VC whatever, and anyone of your friends and family who want to/ need to know, and are interested! Remember, you are the “figurer out”! (reminds me of the famous Beatles song )

…Lend me your ears and I’ll sing you a song,
And I’ll try not to sing out of key.
Oh I get by with a little help from my friends,…..
Mmm, I’m gonna try with a little help from my friends.

lux beauty promise

Secondly, and this is something I realised after many struggles with my conscience on – OMG, we are telling lies, we are selling fool’s gold to clients, we have NO idea how to do this etc etc…that, business, specially transactions, are ALWAYS done on PROMISE – so, when you buy the Lux soap, you do believe (or want to believe, in the “promise” of film-star-like-beauty). This means, that most clients REALISE that you may NOT have all the answers to their problems – but they invest their confidence/ time/ money in the belief – that YOU will be able to GET them their answers/ “figure them out”. So, its their belief in the PEOPLE, not so much the product or the service. (There, Promise and People – thats the 2 new Ps!)

Thats why, any investor, asks for the TEAM composition first, before even asking for the product description! As they say, “there are no new ideas, only new ways of making the idea work!”

Does this mean you sell all air? No, ofcourse not! You DO have in place your “minimum viable product” or service – this is the core set of capabilities that satisfy the bulk of your vision, and, as per your best knowledge, satisfy the bulk of your client sets’ needs. What defines this MVP? aaah – it depends – and it would be really presumptious on my part to answer that!

But beyond that, ALL business works on versions/ enhancements/ upgrades what have you – now, some lenses may call it smokescreens, but you are allowed your kinder version :). I remember, when the CEO of the company who acquired us was talking to us founders during the due diligence phase, we told him – “we never say no to a client” – he said, “oh, we’re in the same boat then”. The interesting thing was, and this is a 1.6ish bil USD/ 60Kish people company, remember; he said “our clients know we screw up very often – but our clients also know we have the ability to fix it”!

As all advisers to startups say – “its not important to get it perfect; its important to get it done!” Which means, baby steps is the way to go – as long as you TAKE those steps! (See my earlier post on goals and baby steps) Which then translates logically to, are there scenarios when your steps are short of what your client wants? And the answer is – “of course!”. So, should you turn opportunity down? Duh, why on earth would you do that?

As for squaring it with your conscience, even Yudhishtira, the Dharma Raj, “lied” for a cause! It is said that, for that lie, “Ashwathama hatha, narowah kunjarowah” (Ashwathama is dead, I don’t know whether it is man or elephant) which he told his Guru Drona, and the latter half of which was obliterated by Krishna loudly blowing the conch; which also led to Drona giving up the will to fight in the Mahabharata, Yudhishtira was taken past Hell on his way to Heaven!

So, Smoke screen or your version of the truth? What say?

drona ashwathama

Start Up Dilemma – 6 (Do You Hire Sales People Sooner, or Later)

31 Jul

rainmaker

Last week I met up with an ex colleague who is now running a startup in the research and analytics space, with play largely in the U.S. He happens to be fortunate in that he is part of a larger, fairly well known group who wanted to spin off this entity.

He’s been in existence just under a year, and has surpassed the goals he and his corporate board had set for year 1 – revenue, people, profitability! Those folks are now really bullish on the business, and want to accelerate the pace.

His dilemma was – is this the right time to hire specialist sales people? Not being flush with funds (obviously), probably the best he can afford is like 70 – 80K-ish dollars – that doesn’t get him rainmaker sales people (there are very very few of those anyway!)! But is it money well spent? Atleast the guy is in the same geography and can pound the streets/ walk the hallways and start getting traction!

My advice was a strong, heartfelt NO! Its a little funny actually, because if you read my earlier post in this series on when to offload other support functions, it was earlier rather than later!

So ofcourse at the heart, the solution is right – specially in offshored plays, it is critical to have sales folks in the same geography – just the physical proximity, the cultural nuances, and ofcourse the rolodex is the all powerful tool. Many offshored start ups solve it by hiring sales folks in the offshored/ delivery centre (cheaper πŸ™‚ ) and making folks travel. Wrong move! In fact, in Europe and Asia, it is disadvantageous to not have same region people – you cannot build trust and credibility without native folks!

But, the solution is also not, hiring specialist sales people in the geography.

I did a rough analysis of our history here (and I admit it may not be the correct benchmark – one man does not n army make and all that) – but here is where it netted out (over an 8 year period):

Sales Force Efficiency

(Disclaimer : Impact analysis is not very scientific)

The hit ratio of success was not great – and the amount of time spent briefing, searching, shortlisting, recruiting just outlandish! (don’t get me wrong – we wouldn’t have been able to build our company without the ones who did well, but this is just to show hit ratios!)

So what works?

There is nothing that works as well as “doing it yourself”. The vision, the fire in the belly and the sincerity that emerges from the founder’s personna – is unmatchable! Also, your desire to make it work is that much harder, so you will stretch yourself – sometimes unreasonably so (but then, thats part of an entrepreneur’s life, right?). In my own company, we were really lucky that of four co-founders, 2 were based in the off-shored location (and hence took charge of operations and solutions development) and 2 were based in the client geography (and thus were “natives”). It was a win-win situation, and, our best salesmen was actually one of the co-founders!

But, you ask me:
i) “We are selling offshored products/ services – You just said two minutes ago it is imperative to have presence in the geography”
ii) “We are tech people – we can code, we are not market facing – how do we get the smarts to manage that?”

Both really valid questions. My answers :

to ii) first – it is a good idea to rope in a person with market facing skills as PART of your founding team – so, part with some equity – but then his/ her stakes in the venture are very high. That then makes sure that you are, in essence, “doing it yourself”

Another thing that you should do – is arrange channel partnerships. Your channel partnerships, if done right, with complementary folks – sometimes freelancers almost – takes care of the networking/ rolodex/ native face issue. In our case, our biggest revenue grosser accounts came from partners. Ofcourse, taking from the point made earlier – the channel partnerships will only get you entry, the pitch HAS to be made by YOU – After all, as I said in another earlier post, We are ALL Sales People, or need to be! (More so if you are an entrepreneur! ).

And finally, acknowledging that sales is a matter of sheer numbers, you have to invest in an offshored “calling team”. These are young, fire in the belly type sales people (start with one) who can call and arrange meetings to supplement the partners, and block your calendars when you DO travel to the client geographies.

This means, the money that you would struggle to eke out to the (actually-not-so-well-paid-though-for-you-its-a-lot-of-money) sales guy is better spent on travel – your travel!.

The situation does change if you get funding – one of the uses of external investment is always sales investment – and understandably so – your investor WILL want to see escalation in growth and the ONLY way to do that is to (again mathematics) have multiple feet pounding the client doors!

So, you ask the question – when then should i hire specialist sales people? My answer – when you can afford the good ones:)

In this context, I always remember what the founder of a very successful offshored analytics company told us (he was a single founder – had no partners, but did get funding early on – and then successively with larger frequency). He did not, till fairly late in his entrepreneurship journey (and his company was a substantial size by then) hire any specialist sales people. His quote was “Jo founder ka khoon til til jalta hai, woh aur kisi ka nahi jal sakta – tou hum log hi convincingly sale kar saktey hain!” Translated, this means – only the entrepreneur’s blood boils bit by bit for the need to make revenue – no one else can do that job with greater conviction!.

Well said, Sir, and I fully agree!

StartUp Dilemma 5 – Office/ Second Office Timing

12 Jul

office locations demo

A couple of months ago, I received an invite from Anand of Persistent Systems – they are opening a new delivery office in Bangalore (their first one was in Pune), and it was party time!

It reminded me of the pressure we faced from our largest client to open alternate delivery locations. (they were like 15 – 25% of our total size at various parts of our life cycle; they were also responsible for pretty much kick starting our third service division – and for enabling scale in our ops. The flip side of all of this was, they had us by the sh$rt and curl*@s, and knew it – so would behave accordingly).
Anyway, every year, we would renegotiate the contract – every year he would force us to drop prices – to be fair to him, he did align it in most cases with scope drops – By the end of 5 years, we had dropped the like to like price by nearly 80% of original. (for a refresh of pricing dilemmas of startups, look here)

This client actually forced us to make automation efficiencies, staff more innovatively, find smarter methods of research, manage people inventory better, work a pareto on the deliverables.

But every year he would also tell us – you guys are in an expensive place. You need to set up shop in a lower cost location – I hear 3rd tier cities in India have costs that are a third of your costs – that’s the only way you can get me prices lower than China (uggghhh that dragon – imagine, even in services!!!)

And we would hold off on this because – well mostly just because πŸ™‚ – but a) we all had lives in Bangalore – and knew that ecosystem b) the scale of the clients ops that we could potentially hive off into a smaller location wouldn’t have justified the cost of the setup c) we wouldn’t have had the control – and as most of u know – for owner managers, this “C” word is super important (it is certainly a two edged sword, but atleast in my mind, and for the beginning stages, has far more advantages than it has disadvantages). Not that we didn’t scout out a few locations – we tried Hubli, (small city close to Blore – basically because the head of that division was based there (he subsequently set up his own set-up and is reportedly doing really well)); we tried Jaipur – again, an ex employee was working remote from there – I even tried Dehradun – where my in laws live – one vacation was spent evaluating the SEZ space, talking to principles of Business Schools and Engineering Colleges there to check out the supply situation!

What we finally did incidentally was work out a hybrid solution – we outsourced a bit of the business to a vendor in a smaller location in a satellite town of Bangalore. The ills and wells of that decision are maybe the subject of another post – there were both aplenty! But what that did help us do was, a) tell client we “listened” to you, and b) stave off the profitability pressure in this largest client.

The question therefore is – at what point does a startup get another location. (Well, I would assume it technically doesn’t remain a “startup” any longer πŸ™‚ – but still!). Allied to this, when does a startup establish offices in other cities? Ok, let me back up a bit – as I started writing this, I realised the REAL start-up question is – when do I get an office? (not so much the second office)

So, for the longest time we were working out of our houses – it was the co-founders first, then a couple other people – all remote. We would use the coffee shop at the Leela (a nice swank location) for the bigger meetings – when we needed to look larger than life :), and the Cafe Coffee Day (Indian Starbucks equivalent) for the regular meetings.

However, we needed a real address to register the company. So, we took on a business centre – a fantastic pay-as-you-go – incubator space where we had a tiny 8 ft by 8 ft office visited once in a while by one of us.

This changed the day a client suddenly decided to “visit our facilities”. I’ll never forget the shock we got when he sent us an email saying – so should I take a tram or a train to get to your office? (In those days, with the state of Bangalore roads being what it was, it would take more like a bullock cart to reach that business centre!!) Ofcourse, when the client visited, we essentially pretended the entire business center as ours, showed him around the swank state-of-the-art video conferencing center, the lovely (blank) offices, the training rooms, and he went home a happy man!

Evoma_Conference_Room

But with operations expanding rapidly, and more importantly a fixed predictable cash flow, we decided to start renting our own office – this we did when we were some 5 people (by now bursting out of the small business centre room) – and were looking to hire 5 more. More importantly, we were hiring freshers straight out of college, and it was important to them that we have “an actual office”. Finally ofcourse, the scale we were beginning to look at dictated that the business centre option was becoming a little expensive on a per seat basis. So, we moved to our first office.

During the evolution of our company till we exited, we actually `occupied 4 different premises, and if you count expansion within the same premises along with moves, had 7 or 8 “moves”. But, as you read above, we didn’t really expand into a “second” location ever! I have to say however, that the ultimate office that we were in, probably played a large part in “impressing” our investors when we finally did our transaction. It was a great deal – nice location, very modern glass-and-chrome, many many loos (BIG bugbear in all our earlier offices! πŸ™‚ ) and a super rent! So, we owed maybe a cple fractions of multiples of valuation to the office premises πŸ™‚

empower office

Now, for Sales – ofcourse, you don’t need offices, only travelling salesmen! Geographically, if u have a “western” client base (i mean west of the globe in general) , it’s easier to do business as a startup if u are also “western”/ hv an office in one of those locations – even here, the U.S. is easier than countries in Europe/ UK – for them, local offices are always a huge reassurance when they are doing business with relatively smaller entities. Ofcourse, as you acquire size, it’s probably prudent to also acquire premises. In our case, we never did acquire an actual office in the U.S. πŸ™‚

But service/ delivery locations? (Applicable obviously only to large people based enterprises) – the reasons you would have another location as a small size company is – if your client wants some ON site work – even there in most cases you would use client locations – but maybe window dress it and call it a virtual office there – this would in general be another country. Assuming you had choice of location, you would maybe start in a center where you have decent infrastructure, decent demand, and decently low costs. But most importantly, in a startup scenario when you have so many moving parts to deal with, you want to fix as many of those as possible in your advantage – so, most importantly, you would choose a city where you had a degree of comfort – either you know it/ or you know people there really well/ or you live there etc. By the same logic, when you start in another center – only say because your supply of manpower is running out which means you started in a small place to begin with – you would choose a place where you/ the person you hire to run it – in general NOT a complete outsider but someone who knows you/ your system well enough and is also halfway proprietorial towards it – is comfortable.

The good news is, while when to start a first office is a critical question – and the answer is, do it when a) your client needs it, b) your employees are too many and c) when you have the cash to support it.; when to start a second office is not a decision that a startup often faces – if someone is forcing u to do it – try the kind of route we took πŸ™‚

This is kind of closely linked to the decision of a consumer product company to start a second brand. See an article I’d written on it a while ago….

As for us, after we did get the “hybrid” solution in place for our largest client, the whole rigamarole started again when we need Asian language related services for the same client! – we were fulfilling those out of India – quality wasn’t the greatest and it wasn’t the cheapest – the pressure started to get an office in China/ Singapore/ Philipines – wherever to beat the Dragon! Thank God we got acquired at roughly the same time – by someone who did have offices in China and Philipines…may this be your fate too (if this is what you want!) Amen!

StartUp Dilemma 4 – Pricing; OR How to Make Sure You Get Full-ish Value For Your Product/ Service

4 Apr

B2B StartUp pricing

Was reading a blog a couple days ago – this is a consultant who is rightly advising folks to never sell their services for free. As a corollary, one of the 2 newspapers we take, had a front page story on Infosys’ altered pricing strategy. (the other newspaper had a headline on how women now menopause in their 20s – you can see why I perused the Infy article with far greater interest :)).

Brought me to a big dilemma we faced as a start-up – how to price/ how to get client to value your product or service enough/ can you raise price of a service one you set a benchmark to it.

Infact, when we got acquired that was one of the first strategic tasks the new management set before us – raise your cash ring/ increase your profitability/ get us better EBITDA – (as if we didn’t know we needed to do it :))

The issue is – when you just start off, you ofcourse want to acquire clients – this is true whether you have a product or a service. You in general either have a slightly differentiated product/ service – so yours is better/ faster/ cheaper/ does more things than before – or your product/ service is doing something that’s very revolutionary/ disruptive – i.e. no one has done it before. In the first case, the client may be more or less satisfied with their incumbent provider – and if they don’t have an incumbent provider – they have not been convinced of the need for your product/ service. In the second case, if no one has ever done this before, they again either don’t need it, or will not believe that you can do it.

In all cases, the proof of the pudding to a certain extent will lie in the eating. So, you WILL need to introduce some element of promotional pricing – whether it be packaged as a beta client who is pretty much using yr product for free – but in this case atleast with attendant benefits that accrue to u; or introductory offer/ trial offer. Once your client likes your product, or service, you work next at making it more and more indispensable to her – and then I guess raise the price. This is why shampoos offer free satches/ food companies offer free tastings (I LOVE to visit supermarkets etc on weekends only because of all the yummy free food πŸ™‚ – my kids are now as bad as I am/was!). In a related way it also why Gillette prices razors low, and blades are where they skim the cream. But trial/ sample has been an entry strategy for FMCG products for a long time.

food tasting

Talking of betas, when we were trying to develop an NLP engine for our Social Media platform, we contracted another start up to develop it for us – we were in a slightly “4-yr-old-is-bigger-than-1-yr-old” type of “elder brother” syndrome fashion, their beta customer. I think we got a LOT of value out of them – just as they got a LOT of thinking out of us. And yes, despite having got them (or them having got us) to a point of really good results that we felt we could use in our platform, we never ever allowed them to raise their prices on us! Talk about arm twisting!

So how can you apply “sampling pricing” to B2B products/ services. We had a way around it – for our service which was ongoing – needed everyday/ every week or every month, and therefore could have annuity type engagements, we offered a 3 day/ 1 week trial – for that trial time period, we wd give our clients a taste of the service – we worked it like the full service. Our conversion rates for trials were very high – hence, our sales teams had a great weapon in their armory. Of course, the few instances it backfired on us was when the client needed that β€˜essential” service ONLY for that week and took advantage of the trial – but these were fewer. The success of the conversaion also lay on the fact that the targeting and sales pitch for even the free trial had to be very careful – the client had to have “skin in the game” – they needed to invest time and energy going through our output and feeding us back – everyday. When that didn’t happen, we knew the trial wouldn’t convert into an ongoing engagement.

Where this did not work however, was when the purchase was likely to be one time – so a piece of research on a specific problem say. This piece of work, once executed, would not be done again – if you gave it free, you essentially had a huge opportunity cost in not being to make money from that product/ service again.

And thus here is where we had the typical start-up problem – in a bid to convince our client/ to get them to start becoming a client/ and to prove to them we could do this, we would invariably end up pricing low – way lower than the true value of the output was. (What decided true value – good question – benchmark what top of the market guy would charge for comparable output – if you have no benchmarks, get proxies. If completely unheralded category – figure out how much its worth it to the client – what is the “cost of abstinence”) Client would buy/ LOVE the results – but then in their mind set the price band at that β€œlow” ballpark. So that future requests came at the same ballpark (hey – u guys charged me 50K lst time, how can u say this is 100K now!) And that wd be a vicious cycle – made much worse when you realized that the same client had switched jobs, and at the new company – good news – wanted you to come and bid for a project; bad news – remembered you had charged the low/ breakeven price the last time and then weren’t able to jack it up.

In a product, the scenario is easier – specially if u sell a licence version, you can threaten to cut off licence/ revoke passwords etc once hooked (that’s why it is generally more profitable to run a product company – apart from the fact that you make one product and sell it multiple times, you also know that once your client has your product, cost of switching is high, and your licence/ royalty fees goes on for a long time) – so you could even have an escalating price menu. (not if you are beta though – as evinced by our NLP vendor situation)

So, coming back to the dilemma yes or no to “free/ trial” price? My answer – actually I don’t have a great one (given that even after acquisition we struggled with this). But, I can enumerate scenarios in which it makes sense to sell free trials/ price low:

Product_Life_Cycle

a) Evangelized product – You need to prove the very efficacy of the product category – in PLC terms, its a category at the introduction stage (you milk it at growth and early maturity – by late maturity you are in the Infosys state – fighting to uphold revenues/ market shares in a commoditized environment)

b) Recurring service – like FMCG/ our daily reporting service, the use cycle is short/ frequent, once bought it will need to be bought again. So, you can β€œbait” the client (not traditional “bait and switch” usage here i might add) with examples of your work, and then withdraw the service if they don’t pay.

c) Competitive market – When you don’t really have a clear differentiator (well, ideally then you don’t have a business being a startup πŸ™‚ ) in the idea – maybe only in the execution of it, or in the commercial structuring; you give the client a chance to “eat the pudding” for the proof of the eating

d) Large potential client – entry in your roster

In most of these scenarios, you have to be clear you are stating upfront that this is trial pricing for a limited time period only – maybe you even use artefacts like price cards per wish list but give stated/ obvious doscounts for stated/ obvious benefits.

Reminds me of an old boss Rajeev saying (for a very different product category) – when would you advertise your price – we are talking mainstream advertising for a semi durable product – a) either when you have a really low priced product – so u want to say β€œlowest price/ unbelievably low price”; or, when you have a really high priced one – and the price then is part of the indicator of the value of your product – so, like a lot of the posh/ snooty real estate projects now say – “if you cant pay over a million dollars, don’t even think about looking at this villa housing project!” In either case, your price is making a statement!

Read also an old interview about the 5 Rs. )(10 cents now) price point and its utility for FMCG products in India – I think this has become 10 Rs. now actually)

Having said that, when it comes to the crunch – i.e., the fight between getting revenues on yr ticker board vs getting higher commissions for higher sales (kind of like the “singles vs. sixers” problem in cricket) – it takes guts n balls to not remember the few additional salaries you will be able to pay with whatever the client is willing to give you; and really dig your heels in for the true value of your service!

It is a brave entrepreneur who manages to get his/her wish list price even 30% of the time with the first few clients πŸ™‚ – so, if you manage it, kudos! And if you don’t, try try again πŸ™‚