Tag Archives: VC

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™‚

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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

StartUp Dilemma 2 (When to take investor money/ Bootstrap or Fund)

22 Mar

startup cartoon

So i heard yesterday about this group of really smart people – with great pedigrees, who are collaborating to start an online business in baby products.
I think because of the pedigree and the smartness, they got a million dollars in funding.
Now, 6 months after raising the money, it’s sitting in the bank – and they don’t know what to do with it. To top it, their investors, who got large amounts of equity fairly cheap, now are looking to “grant” their second round of funds – and the founders are faced with dilemma of not wanting to part with more equity!

Classical case – strikes at the heart of when to get funding/ what kind/ multiple sources or single etc etc…(Came across a nice article on the different kinds of funding/ when to use/ typical funding cycle etc here for those looking for some advice)

In the interest of full disclosure – I have to state here that in our company – (not technically a startup – I recently figured that in common jargon, startup is used for a tech product company – though wikipedia seems to vindicate my earlier definition; and mine was a services set up) – we deliberately and by conscious choice stayed away from investor funding, though many came calling, for 8 years, at the end of which we made a strategic transaction.

As we saw it, the reasons we would have wanted money/ the triggers which made us even think about money were:

a) Sales Headcount: When we were about 3-4 mil in revenue, and wanted to scale the business exponentially – we figured sheer legs in the markets would help. Plus, none of the 4 of us founders were core Sales People ( i reaised after i wrote it – that i had capitalised the sales people! telling, i think πŸ™‚ ) by profession really – certainly not of the B2B variety – so it would have been nice to have rainmaker salesmen (yeah yeah, i know there are only about a cple hundred of those in the world πŸ™‚ )

b) Technology infusion: We had started as a very manual services oriented media research and analytics firm. However, being in the right place at the right time helped – since we discovered and rode the social media bandwagon; and that helped create a nice niche. Only problem – this was a very tech heavy field – in the beginning we worked with bits and pieces of shelf bought platforms – but we soon figured that to create proprietary IP we really needed some software – even though we would always be the “software aided human services” side of the spectrum. This needed money – more cash than regular working capital

c) Operations facility – Like all garage mode set ups, we had had fairly unglamorous working areas – (as one prospective/ wannabe strategic investor long ago told us when he came visiting – “i can see that you run a lean facility” – being euphemism for – “gawwwd, this place sucks!”). But this was less pardonable for us than for many others since we were in the people business – and that too in Bangalore, which has many spanking glass and chrome offices! So it wasn’t a product company with potential payoff for a very few like minded people; but a services set up. And, because we were pretty much pioneers in the outsourced space for media research, we couldn’t hire from other places – we were home-growing our talent – but it did mean that other places could poach easily from us when they wanted to develop these same services – with the lure of better moolah, but also better working facilities. (As one employee told me when I was trying to explain lack of ACs in every room – ma’am, pls don’t say we are a startup – you are not one any longer, and even if you are, we dont really care!). So, while it wouldn’t have ever been the main reason to get money, if we did get it, we would have liked to get some nice work space πŸ™‚

EPR office

d) Again, while not the primary reason, there was a part of us that said that if we did get some kind of financial transaction going, we founders may like to cash out to some extent – after all, our skin in the game was really the opportunity cost of our salaries for a long long time – and it would hv nice to have some money for a change…

e) To us the most attractive reason to get into any kind of partnership actually was not so much the money as the channels it would open to us – it was such a new area that to convince clients that this was a viable means of solving their problems just took sheer facetime/ calling and contacts…

See some other folks’ reasons for why formal funding makes sense here

But, we stayed self funded and therefore away from even progressing talks to next rounds due to the the following reasons:

a) First of all, since we were a services ie not capital intensive company working in an offshored model, we didnt really need money to run ops – we had started with a fairly variable cost model (see earlier post), and almost before we had started had a “sponsor” client – so we were positive cash flow from day one.

b) We were already 4 partners so had smaller portions of equity plus some we had carved out for senior members – so we were a little averse to the idea of giving away more equity – i have to confess that here there were minor differences sometimes in the way the 4 folks looked at it – with each of us placing different values on equity vs. expertise πŸ™‚ but we managed to reach consensus

c) Most importantly, it was for us an issue of control – we had trouble enough navigating the waters of 4 masters – imagine the scenario with more bosses added on! As Debjani once said, we are on a fast enough treadmill – if we add an investor we will have to jump hoops and land on a faster treadmill! At that phase we were getting combined amongst all of us maybe 10 hours of sleep a day – the post money scenario made us shudder!

See another entrepreneur’s summary of his experience here

So, to come back to the issue of start ups who do need money – whether because it’s infrastructure (though the cloud has made that so much easier/ cheaper now) or marketing (again, thanks to social media and the like, there are low cost options available now) or enable next round of growth by creating/ adding to facilities or just to tide them over bad times; be very careful that you do need the money, and what the trade offs are before you go ahead and ask for it. Also, ofcourse everybody will advise you on the pitfalls of getting funding – read here for some more. Add to that the fact that nowadays, with facebook fall from grace, apparently VCs are getting wary of funding en masse, specially affecting Series A funding – see here

Which basically then comes down to the following:
There isn’t necessarily a surefire formula for success – the foremost thing is to focus on creating your product/ service, and selling it – if you can do this to a threshold level without extrenal funding, so much the better. Remain true to why you became an entrepreneur first, and what that means to you – is it messing around with code in your garage; managing many people; selling your dream to a potential client, or hobnobbing with the suits (looks like my prejudice is coming through, doesn’t it? πŸ™‚ ) – the best thing to do is go by your vision – if you really want the money, in general if yr idea is good and ur team if good, you’ll get it some way…..Go figure!