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

(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?

(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.

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?

Organisational Culture: Of Shared Lunches; Hired People; Peak Performance and Buyouts

“The soul takes nothing with her to the next world but her education and her culture” : Plato

As I sit at the brink of another weekend, I was thinking about the last one. It was a busy one. But three very distinct things happened, all with a common thread:

a) According to my husband, we had an overdose of culture – we went to watch The Manganiyar Seduction, a fantastic opera like performance of Rajasthani music; went to the Chitra Santhe, a street art festival; watched Matru Ki Bijlee ka Mandola, and started vocal music, guitar and drums classes (the first 2 for me, and the last for hubby – maybe!)

b) Had a chat with other moms while waiting to collect child from drama class – the topic of discussion was schools – and in describing the 2 schools my older daughter has been to – I said – “Prakiya had middle class values, Inventure is more “Hi-Fi”” :). We also incidentally then got sidetracked into a discussion of what kids were reading – I used to read Enid Blyton ad nauseum, my kids find her boring and read Wimpy Kid/ Percy Jackson, Junie B Jones/ Horrid Henry instead (different ages 🙂 ). They also seem to be much more excited about Halloween (prompting my mum to say “everyone has forgotten “Pitra-Paksh” – the Hindu equivalent where you pray for yr dear departed forbearers – and is roaming the streets, weirdly attired, collecting candy 🙂 ) and Christmas, than they are about Ganesh Chaturthi and Onam! And my theory was – a) there is far greater access to “global” material and traditions now, their peer group has all lived in different countries, and, b) while we growing up had a very British influence on us (still colonial hangover-ish maybe), these kids are decidedly American – they watch American TV, read American books, study in American schools.

c) Realised that a bunch of my friends’ updates on facebook were on running, specifically the Mumbai Marathon. I realised how things change – Running is to fitness-among-older people now what Golf used to be a few years ago; just as Rumi is the new Che Guevara, Single Malt is the new beer (alas) and Barbecue at home is the new eating out (I’m sure Weber sales are skyrocketing)

As I said – 3 unrealted things, but got me started thinking on “culture”, specifically “organisational culture”. Also on how one creates culture, how it changes organically, and then how something like an M&A impacts it.

I remembered how in Gillete, where I worked for some 3 years, everyone drank Vodka – because the then CEO Pradeep Pant drank it. In Blow Plast, another company where I worked again for some 3 years, most people sang – so corporate parties would end up with vocal performances…

A nostalgic look back reminded me of EmPower’s early days – a) This was a motley group – 2 consulting types from Booz Allen, 1 ex teacher/ trainer and entrepreneur, but also American; and me. None of us knew all 3 others, some of us hadn’t even seen some of the others. We worked cross geography, hence spent many hours on phone calls and the net. In the beginning, as we hired, it was more – get who-so-ever you can (not to say we didn’t run interviews etc, but it was really a case of being a sellers’ market). Gradually, one saw a pattern beginning to emerge – maybe because of the personality type of the Indian promoters in charge of operations, or because we were based in the south of India – we started seeing a “type” of person being hired – in general middle class, hard working, “gentle”, didn’t necessarily “know” everything, but we felt cd be versatile….
Over a period of time, as we grew, we evolved different departments – and then realised, before we even had a “ONE EMPOWER” culture, we had 2 different divisional cultures! This caused us angst in the beginning, and there was much “leaderspeak” on – hey guys, get together more!, but after a time, we let it be. Even later, we figured we really had 5 microcosms almost within our small company – the 3 operating groups, the what we called “foundation” groups (support) and the market facing bizdev groups. They were very different – look at what a typical Friday evening wd see them doing – ROD wd go in smaller groups of 3 and 4 to the movies – they were always the first to see every new one; BD wd go to a pub/ restaurant; foundation would relax at home with family; MM would have potluck snacks in office (if they did have the evening free); ISS would be working if they weren’t celebrating the topical Indian festival with the greatest pomp and joy! hence, culture – distinct though still a part of the whole!

As a contrast, some interesting cultural nuances came from our being an American Client serving company. The usual language gaffes – “Did you know dump is NOT yr raw research, it is slang for poop” or, “when he says “I have a doubt”, does he mean “I have a question”? Or, the big hoohaa about a poor analyst named “Swastika” offending some sensibilities and therefore having to change her email id; the oft-repeated advice – “Please wait for the guy to finish speaking before you start talking” (SOOO Indian, isn’t it?); or, “even if you have nothing to contribute – ALWAYS show that you have an opinion – thats what Americans respect :)”, the correct way of writing American ppts……

(I’m sure most of you know these – but I thought I’d remind you of some cross-cultural gaffes in advertising that have made history. Enjoy:

– When they entered the Chinese market a few years ago, the translation of their slogan “Pepsi Brings you Back to Life” meant, “Pepsi Brings Your Ancestors Back from the Grave”

– In Italy, a campaign for “Schweppes Tonic Water” translated the name into the much less thirst quenching “Schweppes Toilet Water”.

– When General Motors introduced the Chevy Nova in South America, they weren’t selling many cars. They finally realized that in Spanish, “nova” means “it won’t go”. Sales improved dramatically after the car was renamed the “Caribe.”

– Similarly, much after Ford introduced the Pinto in Brazil, they learned that “Pinto” is Brazilian slang for “tiny male genitals.” Ford substituted the name plates with “Corcel,” which means horse.

– When Braniff translated a slogan touting its upholstery, “Fly in Leather,” it came out in Spanish as “Fly Naked.”

– Coors put its slogan, “Turn It Loose,” into Spanish, where it was read as “Suffer From Diarrhea.”)

Ok, so cut back to the whole org culture thing. We were riding along with our sub cultures evident in each group, and yet each group having a great time (it evidenced itself in fixed lunchtime groups – btw, “Senior management” often got criticised for the particularly LOUD lunch sessions we had!”; in hanging out together post work; sending jokes to each other…) but MOST importantly when we recruited fresh people. I will NEVER forget 2 instances that exemplify this – one, where we hired a really senior ops guy from JPMorgan Chase, who wore a suit when he came in first day, spoke about seat utilization as his first large mandate (we were 100 people for heavens’ sake!) , and said a cheesy “HULLOOOO all” when he entered a room – he lasted all of 5 days (and on the 5th, sneaked off home after sending a goobye mail) and another, when we interviewed a really senior, really well qualified Editor from Frost and Sullivan, who came across as very competent, but all wrong for us. To one man (or woman) we voted her not fit! (By that time we had learnt from the earlier episode!)

But see, interestingly, the minute we got acquired, the whole dynamics changed – everyone in our by-then-400-people strong company kind of banded together, with a common protective wall almost, and started asking existential/ culture oriented questions that really came down to – “will we be comfortable in this new culture” (I like to think many of these fears were unfounded, and most people have now found their groove – even though the cultures of the 2 companies, while they had many common values (and that was why we even agreed to the takeover) did have differences – ofcourse they had!. We did lose some people alas – the one statement that I keep remembering most often is “I would have stayed had you not sold the company!” 😦 , but kept most!). But the point was, all the sub cultures that existed prior to the M&A kind of merged into the larger one! Was it because of this “threat” psyche?

I don’t claim to be an expert on org culture – just read up a few things just now 🙂 – and they all made sense.

First, the definition: Wikipedia told me, Ravasi and Schultz (2006) state that organizational culture is a set of shared mental assumptions that guide interpretation and action in organizations by defining appropriate behavior for various situations. At the same time although a company may have its “own unique culture”, in larger organizations, there are diverse and sometimes conflicting cultures that co-exist due to different characteristics of the management team. A-ha!

The theories are also interesting:

Hofstede’s says: The dimensions of culture are:
The Power distance: How much of “lordly distance” do the bosses keep from their subordinates (our lunch groups admittedly were “senior management” but I’d like to believe we participated wholly together in peoples lives and work!

Uncertainty Avoidance: How you cope with the future. First a startup with low visibility into revenue streams, then in an evolving space so limited view of the future, and finally in an M&A situation – I would like to think we kept our folks well informed, and with a full view of what the uncertainties were. In addition, we involved them in the steps taken to mitigate this uncertainty

Individualism vs. Collectivism : Harmony amongst personal and organisational goals

Masculinity vs. Feminity : Good or bad, it was an org run by 3 women 🙂

Long term vs. short term orientation

Only yesterday, I also read a McKinsey article on an Organisation’s “Meaning Quotient” (you may have to login). This spoke of people, and organisations, displaying “peak performance (equivalent to what sportspeople call – being in the zone) – that can be achieved by maximising its MQ.

I think what really makes for commonality of culture (then leading to better performance, and more importantly, happiness) are:

– Serving a common cause (specially if you are creating something new like in a start-up)
– Being with PLUs – “People Like Us” – Its important to have a comfortable eco-system around you. (could be shared history or just similarity in attitude)
– Ability to use/ exploit skills and resources – Be useful/ use your training – atleast some parts of it
– Opportunity for gain – personal and/or professional – better work/ better money/ better faster responsibilities/ promotions..
– Higher Order Things – Serving society/ your country/ being change agents..
– And finally, EmPowerment (we didnt name our compay EmPower for no reason!). Its what Mckinsey called “writing your own lottery ticket”…

If you look at it, org culture has parallels with India – one country, many many sub cultures. As someone said, Because when you have millions of people with this kind of need for gratification, and the culture is saying that it’s possible for everyone to satisfy all of their needs and desires all of the time, there are obviously going to be clashes – clashes of ego. All these fragmented forces straining against each other – water dispute/ racial slurs and hence movie bans/ territorial wars/ separatism…but, when threatened by an outside force – will they come together? (Just like all our divisions united – to create and display the common EmPower culture under what folks thought was “threat” – it wasn’t really). Rather, put differently, WHAT will make our diverse sub cultures to come toegther and show the unity in diversity that we keep talking about?? Does anyone have any idea? Not me!

Making Exponential Money – Build Buy or Break Companies?

“Making more money is a noble pursuit” (anonymous)

For most of my generation as for me, “Pretty Woman” was the defining romantic movie – the corporate head honcho falling in love with the street girl is true fairy tale stuff. But one scene from that movie that stayed on in my mind for a long time, and resurfaced from time to time was when Julia Roberts tells Richard Gere – “so, you dont build anything, you actually break up companies and then sell the parts – like selling stolen parts of the cars”.

I’m sure all my investment banker friends winced at that scene – after all, the shipyard that Gere was “breaking up and selling” was tremendously devalued, and selling it off did make financial sense! Infact, this in essence is what makes for “abnormal returns” for most organisations – buying, selling, piecing together different parts of different companies. My husband’s company – and I’ve seen them for the past 10 years now – have made far more money buying and selling pieces of themselves and other companies in various sizes and forms than they have made by writing software — and they are purportedly a banking software product firm ( a market leader at that!)

I was reading some stuff about “differential accumulation” – which said that companies make exponential, i.e., above normal rates of profits in the following ways – by increasing “breadth” or “amalgamation” – which means hiring or buying out more employees (remember you buy out employees also when you undertake mergers and acquisitions) ; or by increasing “depth” – which could mean you work your employees more (cost cutting is one manifestation of it); or you could increase prices beyond your competitors (stagflation). Whichever way you do it, you essentially leapfrog the “growth stage” of your organisation and create exponential wealth.

But, how do PEOPLE make more money – i mean exponentially more money – abnormal rates of money? I remember my friend Adi – who is a C-Suite exec in a telecom major – coming over a couple of years ago, and saying – “i’m tired of the low ROI on my effort and my brains. Yes, i make much more money now than i did when i graduated from B School (omg, nearly 20 years ago even back then!!!) but i also have many more years of experience and i put in many more much more intense hours than i used to back then — so, its really “sweat” money — i want to now make “sweet money” – extraordinary money!

He looked hopefully at me and said OK, so you turned entrepreneur, maybe you’ll do it! At that point of time, this was laughable (if only i hadnt felt like crying) – my ROI was probably negative! I slept like 3 hours every 48, was completely bogged down with making ends meet ie paying rents and salaries, was earning zilch myself, saw my kids once a week, and they had nearly started calling me aunty!

Over several mugs of of Mallya-brew, we figured it was probably true — entrepreneurship was one of the ways to make extraordinary money. But this unfortunately didn’t happen during the journey as an entrepreneur – but at the exit – so when you sold out, or you IPO-ed. It’s true btw that economic growth of a country/ area is highly correlated to the abundance of small entrepreneurial firms in that geography! The only other way we could think about was – when you traded – i.e. you made money for your company, and by virtue of commissions, you made some for yourself (I still think the roi there isnt high either! – think of the high burnout rates)

Soon after, i was visited by another entrepreneur in the same space as my company was – this was a potential investor so we were being nice to him. We weren’t quite in the sell-out stage yet, so he was doing a bit of selling himself about why we should consider joining with him and his company. He said – you guys run a cool operation here – i can see it. On your own, you will achieve your 30 – 40% CAGR over 5 years – you will make your 30% EBIT (yep, we were in the KPO space – highly profitable!) – you may even sell off and make more money. But then, he told us about his co-founder – “Rishi is one of the few people who can do this “funny money” thing – ie, he can add 2 and 2, and make it 10, nay 20! and THATS how you will make “abnormal money” – he was again, a-la- Pretty woman, referring to deal making really – the ability to break up pieces/ structure deals differently, add non traditional pay offs, and hence catapult the company to non linear growth phases.

Its another matter that we did plod on doing our 28 hour days for another couple years after that. Even at the end, when we did sell, i dont really think we made exponential money – if you compute opportunity costs of the 8 1/2 years of low/ no salary @ 28 hour days, we probably didnt even break even.

But, as i reflect on those 8 years, i think i’m much richer now than i ever was – i touched nearly a 1000 families (amongst all employees, vendors, partners); hopefully made their lives richer (well, they all got married/ had babies/ bought bigger cars/ bigger houses 🙂 ); i built an asset in a space where none existed- outsourced social media analytics; i laughed/ cried/ swore/ failed/ tried again/ thumped backs/ celebrated…and i did, in my own small way, make a contribution to society!

So, in answer to the original question – can you make abnormal MONEY if you are entrepreneur? maybe…
can you create abnormal CAPITAL (human/ social/ mercantile) if you are one? Oh yes!

Ask Richard Gere – as he went climbing those stairs in pursuit of Roberts with flowers in his teeth!