Archive for October, 2010

1M/1M Strategy Roundtable: Convert Potential Competitors To Partners

At today’s roundtable we saw three very nice businesses, each with pilot customers, and each working on real problems. At the end of the session, each left with specific action items. 

First up today was Antonio Lucena de Faria with ActionFlow from Portugal. Antonio has a portfolio of web based business process management applications for small businesses with 10-100 employees. Antonio has 100 trial customers at the moment, and is looking to figure out exactly what his company positioning is going to be.  

I asked him to speak with his 100 trial customers and understand at a granular level exactly what problem each of them is trying to solve by using his product. I also asked him to come back and discuss the findings with me, and I will help him position the company. 

I also advised Antonio to defer his investor road show and even customer acquisition programs until this basic positioning exercise is in place. 

Then Cristina Soviany presented IDES Technologies from Belgium. IDES is an analytics enhancement for fraud prevention systems addressing the credit card fraud market. It works well with other fraud detection systems like FICA. Cristina currently has a couple of large customers in pilot mode, and is starting to show metrics on how much improvement IDES can deliver over existing analytics engines.  

I advised her to get one or two reference customers out of her current pilots, and then start charging the follow-on pilot customers. There is no reason why she should do the pilots for free once she has a bit of credibility established. And these pilots will pay for her early bootstrapping phase.  

Then, she can start doing partnerships with fraud management system vendors and use their channels to sell, perhaps. All this, could, potentially, be done without external financing. And along the way, if necessary and appropriate, she can raise financing with a vastly more validated business. At this point, financing discussions are premature and are likely not to yield success. 

Rick Holdren and Rohit Saxena then discussed Medi-Code, an integration solution for small hospitals (up to 150 beds) and small physician practice groups ($5-$20M annual revenue) to connect with Accountable Care Organizations (ACOs) as a requirement of the healthcare regulatory changes coming in 2012. Rick is looking at Medi-Code as an investment opportunity from his angel group, and Rohit is the entrepreneur.  

I advised them to do a thorough segmentation and competitive positioning for the healthcare practice management system market. The competitive analysis they showed me was missing the most relevant players like eClinicalworks and Office Ally, both companies that I have profiled in the Entrepreneur Journeys case studies series. Instead, it had Epic, which only sells to large hospitals and practices, and is therefore not even relevant. 

In addition, I took Rohit through a discussion on a possible OEM strategy that could result in a significant revenue ramp relatively quickly. The key take away from that discussion is: convert potential competitors to partners. If possible, of course. 

And finally, I also took them through a discussion on why this is not a business that can be funded, but rather can be a highly lucrative cash business. And a very large one at that. 

I started doing my free Online Strategy Roundtables for entrepreneurs in the fall of 2008. These roundtables are the cornerstone programming of a global initiative that I have started called One Million by One Million (1M/1M). Its mission is to help a million entrepreneurs globally to reach $1 million in revenue and beyond, build $1 trillion in sustainable global GDP, and create 10 million jobs. In 1M/1M, I teach the EJ methodology, which is based on my Entrepreneur Journeys research, and emphasize bootstrapping, idea validation, and crisp positioning as some of the core principles of building strong fundamentals in early stage ventures. In addition, we are offering entrepreneurs access to investors and customers through our 1M/1M Incubation Radar series. You can pitch to be featured on my blog following these instructions.  

You can listen to the recording of this roundtable here. Recordings of previous roundtables are all available here. You can register for the next roundtable here.

Angel investments in India – miles to go

Over past few years, angel investments have picked up in India, but the wide gap between quantum of angel investments and later stage investments remains. Some sense of where we need to head – For US,

The data from the University of New Hampshire’s Center for Venture Research show angels invested $8.5 billion in the first half, a 6.5% decrease over the first half of last year. They backed 25,200 entrepreneurial ventures in the first half, 3% more than the same six months in 2009. (Get the survey results here in PDF format.)

The number of active investors was 125,100 individuals, an 11% drop from last year’s first half.

Fly angels, fly!

1M/1M Strategy Roundtable: Bootstrapping Comes In Many Flavors

At today’s roundtable, we had some very interesting discussions on creative bootstrapping. I am always fascinated by how innovative entrepreneurs get when faced with resource crunches.  

First up today was Justin Beck with PerBlue, a mobile and social gaming company that makes the iPhone and Android game Parallel Kingdom that has been in the market for a couple of years. PerBlue develops and markets its own game, and today, is at about a $35-40k per month run rate from 200,000 users.  

Justin is looking for a more efficient customer acquisition model, and my suggestion to him was to look into using distributors, instead of trying to do all the development and then also all the distribution himself. With limited resources, this is a tall order, and it seemed to me that Justin’s heart really is in the creative. 

One of the members of the audience asked a question: Is the gaming space too crowded? Well, yes, and no. Is the movie business too crowded? Is the book business too crowded? Yes, but various titles find various kinds and sizes of audience still, and I believe that gaming will go the same way. Today, I think gaming is still in its infancy. I talked about the lack of interesting stories in games today … something that could add a much more sophisticated dimension to games. 

Then Aaron Dormer presented Social Affect, an Australian company trying to help retailers provide e-commerce solutions. Aaron’s business concept assumes that Australian retailers who have not really adopted e-commerce much yet, will essentially outsource their online storefront to Social Affect. Aaron wants to provide the service on commission, and assumes that the retailers will do the pick-pack-and-ship.  

I think both assumptions have problems: commission-only is a dangerous game. How is Aaron going to cover his substantial costs? And retailers without adequate skin in the game may not have enough incentive to make this a success. 

Finally, I am queasy about the assumption that retailers will fulfill their part on the merchandising and logistics side adequately, because other than catalog companies, most retailers do not have the infrastructure to service consumer orders – packing, shipping, inventory management. 

Next Laval Bhatt with Trinity Business Solutions discussed his fledgling consulting company in India offering business requirements analysis and a set of other services to IT consulting companies and a variety of other segments. Laval is a good business analyst and has so far been “leasing himself” to do this work for certain clients. He is thinking about other services, including corporate training, and he is also looking at multiple international geographies. Finally, he is wondering if he can raise money for this venture. 

Well, investors do not fund consulting companies, so this business will need to be built organically. The summary of my advice to Laval was: Do not spray and pray. You cannot scale this business by being so all over the place. Choose one segment, one service, and one geography.  

Vinod Soman then discussed D-Logic Inc. Vinod wants to raise a significant amount of money to buy out an IP vendor that sells semiconductor interconnect IP, and offer value added services around them. The IP vendor does about $2-3M/quarter, but the market leader is EDA giant Synopsys.  

In my opinion, EDA is not a space that can attract investment today. The TAMs are much too small, and the M&A activity is very small. I recently wrote an article on this topic, calling all EDA entrepreneurs to build $5-$10-$20M cash businesses that are self-financed, bootstrapped, and built organically. Read EDA Entrepreneurs: Build To Enjoy.

I also advised Vinod to look at the NimSoft case study in which the entrepreneur Gary Read started off as a VAR and eventually bought the company whose product he was reselling. Read Creative Bootstrapping to a $350 Million Exit. 

I started doing my free Online Strategy Roundtables for entrepreneurs in the fall of 2008. These roundtables are the cornerstone programming of a global initiative that I have started called One Million by One Million (1M/1M). Its mission is to help a million entrepreneurs globally to reach $1 million in revenue and beyond, build $1 trillion in sustainable global GDP, and create 10 million jobs. In 1M/1M, I teach the EJ methodology, which is based on my Entrepreneur Journeys research, and emphasize bootstrapping, idea validation, and crisp positioning as some of the core principles of building strong fundamentals in early stage ventures. In addition, we are offering entrepreneurs access to investors and customers through our 1M/1M Incubation Radar series. You can pitch to be featured on my blog following these instructions.  

You can listen to the recording of this roundtable here. Recordings of previous roundtables are all available here. You can register for the next roundtable here.

VC Market Dynamics

Interesting article on some of the market dynamics in the global venture capital industry. The author points to some of the corrections that these long term dynamics are making to the model (such as super angels, survival of funds, founder liquidity etc). Central point – venture investing is a competitive market, and the model adapts in response to market forces. Having said that, it adapts very very slowly!

1M/1M Strategy Roundtable: Professional Investors Do Not Invest In $20 Million Markets

At today’s roundtable we had some intensive discussions around market sizing and its impact on financing. You have heard, I am sure, that venture capitalists only invest in very large market opportunities – $500 million to a billion. But you have, perhaps, heard less specific discussions on what angel investors are looking for.  

Well, some angel investors are looking for exactly the same thing as what VCs are looking for. Mike Maples calls it Thunder Lizard Hunting. In other words, these are angels looking for billion dollar opportunities as well.  

But there are others – many others – who are looking for smaller opportunities, playing in the sweet spot of $50-$100 million market opportunities. These are areas that may be gaps in the portfolio of large companies, and are perfect for M&A deals in 3-5 years after building enough validation and $10-$20 million in revenue. By definition, the capital investment needs to be relatively low such that the investors and the entrepreneurs all make a healthy return on investment. Nicola Corzine of the Band of Angels Acorn Fund discusses this at length in our interview with her.  

So, please note the TAM Analysis is a vitally important aspect of building any financing strategy. As I take you through today’s roundtable pitches, you will see this come up over and again.  

First up today was Chak Onn Lau with Foldees, a Malayasian crowdsourced greeting card company. Chak has been able to get a couple of distributors in Singapore to buy his greeting cards designed by a community of artists, but is struggling to find a steady, repeatable model. He is also struggling with the pricing structure, because until he can get to volume printing, the cost per unit is way too high.   

Well, my advice for Chak is to focus steadily on a worldwide list of greeting card distributors using Telewebsales and Sales 2.0 methodologies – in other words, don’t invest in travel and in-person sales, but try to close as many deals as possible by phone and the web. [On this point, I recently did a great interview with Dave Fitzgerald, EVP of Sales and Marketing at Brainshark, who describes his Sales 2.0 process in detail. I highly recommend that all of you read the discussion. While you may not have the budget to spend $500k on Sales 2.0 technologies, there are many nuggets that will help you build an efficient, repeatable sales process.]  

Chak’s budget is very low. He needs to generate enough profit so that he can grow organically and build his business systematically, and without expecting a lot of outside financing.  

Then Raymond McGlamery pitched the O-Port, a guitar and drum accessory company based in Houston, Texas. Raymond has built a nice business through efficient distribution deals and will do about $250k in revenue this year. Raymond is wondering why he cannot attract financing.  

I asked him several times what exactly is his TAM (Total Available Market). To be very specific, I am interested in bottom-up TAM, not some big industry number of billions of dollars. I want to know how many customers exist out there who would be likely buyers of the O-Port products, at what price-point, and what does that add up to? Is that a 20 million dollar market? 30 million dollar market? 300 million dollar market?  

Well, I could not get a clear answer. What I did get was that in four years, O-Port was going to be a $10 million company. Okay, what percentage of the market does that represent? 10%? 25%? 68%?   

Without a crisp analysis of these numbers, investors cannot assess the market opportunity and their potential for making returns.  

Next David Sarna with Hendon, Stamford Hill & Co. presented Bokér/1 – perhaps the most compelling of today’s presenters. David is an expert in IT capacity planning and has already sold a company to Computer Associates in this arena. Today, he sees the opportunity to do a Cloud capacity planning company. He thinks, that with $1M in investment, he can make this business successful. He is willing to give up 33% of equity for this $1M investment.  

I feel that it is not at all necessary to give this much equity up at this stage of the game.David should use his credibility in capacity planning and convince a dozen customers to pay him consulting fees to solve their capacity planning problems. He should then bootstrap his product development by using the consulting fees. Again, referring back to the Finisar case study I often teach on this topic, bootstrapping using services is a very effective way to build companies.   

Yes, I am sure David’s venture is eminently fundable within a few months. The question I am encouraging him to explore is whether or not he SHOULD take money just because he can get it.  

Ladies and gentlemen, ownership matters!   

Lee Wright then discussed Ma Mi Skin Care, a skin case company that was completely all over the place. I asked her not to spray and pray, and focus on her core, differentiated products – stretch mark and c-section mark removal creams for new mothers. There are 110,000 monthly search queries looking for ‘stretch mark(s) removal’. This is her core market. Through SEO and mommy blog PR, Lee can tap into this market. But she needs to drop her tendency to “expand”. Now is not the time to expand. Now is the time for laser sharp focus.   

I started doing my free Online Strategy Roundtables for entrepreneurs in the fall of 2008. These roundtables are the cornerstone programming of a global initiative that I have started called One Million by One Million (1M/1M). Its mission is to help a million entrepreneurs globally to reach $1 million in revenue and beyond, build $1 trillion in sustainable global GDP, and create 10 million jobs. In 1M/1M, I teach the EJ methodology, which is based on my Entrepreneur Journeys research, and emphasize bootstrapping, idea validation, and crisp positioning as some of the core principles of building strong fundamentals in early stage ventures. In addition, we are offering entrepreneurs access to investors and customers through our 1M/1M Incubation Radar series. You can pitch to be featured on my blog following these instructions.   

You can listen to the recording of this roundtable here. Recordings of previous roundtables are all available here. You can register for the next roundtable here.

Dreaming a Startup? – Join us at NASSCOM Product Conclave 2010

Starting up is not easy. You have to wear a hundred different hats at the same time. Building team, product design, coding, testing, marketing, selling, finance, admin, HR and everything else that comes along the way (or in the way). Does the very thought of this deter you from setting off on your dream journey? Does it push you back to your 9-to-5 tryst with that big company with fancy buildings, where you are a resource known by an ID rather than your first name?

Consider again. There hasn’t been a better time to be a part of the Indian product scene. The industry is gathering momentum and is expected to grow to US $12 billion by 2015. VCs are more confident than ever of investing in Indian product companies. The brightest minds are bored of doing mindless jobs and are looking to work on “real projects” that add “real value” to the ecosystem. IT consumption in domestic market is growing by leaps and bounds. More and more mentors are willing to spend time with startups to make them the next big success story. Internet and mobile are becoming key-enablers in reaching out to markets which you never knew existed, and most of it for free. So what are you waiting for?

Come and hear from people who have been there and done that, validate your idea with industry experts, participate in un-conference sessions, understand lean startup models, learn about the new opportunities that exist in the market and network with VCs & angels….come, feel the pulse of the Indian software product industry. All of this at the

NASSCOM Product Conclave, the Mecca for Indian product companies, on 10th and 11th November in Bangalore.

As Guy Kawasaki points out, “The hardest thing about getting started is getting started.”

See you in Bangalore! – Go ahead and register before 10th October to avail special discount.

Early stage technology investing – analysis

Interesting discussion here on issues around early stage technology investing in India. Many valid issues that have been discussed there. I particularly like the perspective around “distribution” being a killer app in India – but more on that sometime later.

Earlier this year, we analyzed the investments made by 11 early/growth funds in India (across 144 companies and 156 rounds of investment) to understand how those companies were doing – clearly a qualitative exercise with subjective judgment around what is headed north versus south.

That data led us to believe that the case for stage diversification is far stronger than sector diversification. The success rate on pre-revenue early stage investments (call them seed) seems very low, in the 15-25% zone. Once you get to some revenue, or some profitability (at time of investment) the success rate seems to climb above 50%. The 3x fall off between the seed stage versus post-revenue early stage investments doesn’t seem to get compensated by valuations available at those respective stages. This doesn’t say that we won’t do seed investments – just that there needs to be enough diversification, and the bar on seed stage investments needs to be really high.

Broadly speaking, IT investments (Internet, VAS, software) seemed to underperform BPO/KPO/consumer services etc. However, that was partially because the seed stage investments were biased towards IT than others. On a stage adjusted basis, IT seemed to generate as many successes as others, perhaps with a potential to actually outperform on exit value, due to often higher multiples commanded by those businesses.

Of course, the debate of how innovative these IT companies/investments really are is yet another dimension. Short of that, we are continuing to find the broader early stage technology investing landscape interesting.

1M/1M Strategy Roundtable: Try To Get At Least $2M Pre-Money In Seed Round Valuation

At today’s roundtable we had some interesting companies and a lot of fund-raising discussions, and I will review them shortly. Before I do, however, I want to talk about a thumb rule that I’d like to propose to entrepreneurs about raising money. 

Bottom line, early stage equity is very, very expensive. So at any point, if you are trying to raise money, and you are hearing from investors that you are too early and have too little validation, it may be a good thing.  

As a thumb rule, try to get enough validation so that you can get to at least a $2M pre-money valuation before raising equity capital. Sub-$2M pre-money, it is better to bootstrap. If you have to raise money, try to do so as convertible notes. That is debt financing that converts into equity at the Series A valuation once the price for that is set. [I believe Jeff Clavier and many other seed investors are in agreement with me on this issue.] 

Also, extremely important is that you need to raise enough money to be able to reach the next major milestone.  

So with that preamble, let us look at today’s roundtable companies. 

First up was Siobhan O’Brien with OnTrack Imaging, a medical diagnostic imaging venture catering to the horse owners and trainers market. As Siobhan rightly points out, horse owners spend enormous amounts of money dealing with various injuries. Her diagnostic imaging camera and related software, priced at $45,000 per unit, she says, would bring unprecedented capabilities to the vets and trainers for practicing preventive medicine. The equine diagnostic equipment market adds up to over a billion dollars, and Siobhan wants a piece of it.  

Our discussion today was largely around her financing strategy, and one of the key milestones that I probed her on was: what does it take to get a validated customer?Well, it turns out that with about $900k and 12 months, Siobhan can get to paying customers. 

She has been toying with raising $350k, $2M, so on and so forth. But the right funding strategy for her is $900k-$1M, potentially from angel investors or small funds. We will work on that with her. 

Then Liana Thompson pitched Trendy Loot, a very early stage deal site for low-end jewelry. Liana has just launched three weeks back with a list of about 5,000 customers from another e-commerce business she owns. However, her list has not been converting very well, and she came to ask if she should add further traffic generation programs such as Linkshare and ShareASale. She seems to have good relationships in the blog and media world for the lifestyle products category, and I thought that she should first harness those before spending money on the performance marketing services like Linkshare. 

However, there is a much more significant question here: why is her list of 5,000 not converting? I asked her to call up 50-100 from that list and ask for feedback from those customers. There is no point in spending money to drive traffic to the site until she figures out why the site isn’t converting. 

Next Igor Protsenko presented Profitero, an enterprise software product for helping retailers with price comparison and optimization. Igor’s focus is large retailers, and he has had conversations with a couple of them in the UK. I have to say, I am not convinced about this business opportunity because I did not see a sufficiently thorough competitive analysis. Doesn’t Retek have anything in that product category? Igor did not have an answer. 

Rajan Chandi then discussed HirePlug.com, a Facebook application to help large employers manage referral hiring. Rajan has interest from a variety of large enterprise customers, and I have a CIO whom I will introduce him to, who is looking for this solution. I like the idea a lot, and believe there is a big company to be built around it. 

Rajan, however, needs to negotiate his early customers better. He seems to be worried about server costs and such and is trying to do high dollar value deals without reference customers. I advised him to close six brand name accounts as 6-month or 12-month deals so that he can rapidly show value and ROI, even if that is at a discount. As long as the deals cover his infrastructure costs, he should not be worried. 

A lot of money can be made with this product, and Rajan needs to build it without any outside capital – that is, with customer money – that is, with revenue – for a long while yet.  

Last up, Todd Clark with Value Of Insight Consulting, Inc., a consulting and publishing company for the pharmaceutical industry that already has a $500,000 a year business. Todd knows the business of publishing highly specialized data and research in the pharma domain very well. He routinely sells $20,000 deals to corporate clients. Now, he has a new business idea in providing clinical trial data and research in Oncology, and is wondering if he should raise money. He wants to provide online subscriptions, and additional tools on top of his data services. 

As we dissected the business, it became clear that this is at best a $5-$10 million business opportunity. Not something that VCs or angels invest in. It is, however, a great opportunity to keep building a larger, and highly profitable lifestyle business. I encouraged Todd to keep building. 

Folks, I want to go on record to say that I love lifestyle businesses, and I love to support entrepreneurs in building highly profitable lifestyle businesses. I know Silicon Valley and the MBA types look down upon lifestyle businesses. Well, I don’t. Build to Enjoy is a strategy that I am very much in favor of. [Two case studies worth reading in this context are eClinicalworks and ClubPlanet]. 

I started doing my free Online Strategy Roundtables for entrepreneurs in the fall of 2008. These roundtables are the cornerstone programming of a global initiative that I have started called One Million by One Million (1M/1M). Its mission is to help a million entrepreneurs globally to reach $1 million in revenue and beyond, build $1 trillion in sustainable global GDP, and create 10 million jobs. In 1M/1M, I teach the EJ methodology, which is based on my Entrepreneur Journeys research, and emphasize bootstrapping, idea validation, and crisp positioning as some of the core principles of building strong fundamentals in early stage ventures. In addition, we are offering entrepreneurs access to investors and customers through our 1M/1M Incubation Radar series. You can pitch to be featured on my blog following these instructions.  

Recordings of previous roundtables are all available here. You can register for the next roundtable here. 

The Future of Search (Wall Street Journal)

It was Sunday and we were planning to go out for ice cream. I recalled someone talking about Cocoberry, a frozen yoghurt chain. I searched for “cocoberry” on Google and saw the link to Cocoberry’s page on Facebook.


I visited the page and saw numerous comments by many of their satisfied customers. I could also see that they recently opened a store near my home. The decision was made. We had a great evening.

Similarly, I was looking for details about the movie “Dabangg.” I was amazed to see the results shown by Google when I typed in “dabangg.” The first result provided me with a list of cinemas by location along with the timings for the next shows. The next result was a news story about Dabangg beating Aamir Khan’s “3 Idiots” in gross earnings on the opening day.Scrolling down, there were results with images and videos related to the movie.

Finally, a live Twitter stream with real time (i.e. tweeted a few seconds ago) reviews and opinions.

Within minutes, it was clear to me that this was a must-watch movie. I also knew the places and times for upcoming shows.These examples clearly show the direction in which search is heading:

1. We will see more social media channels (e.g. Facebook, LinkedIn, Twitter, blogs) among top results on search engines. In other words, what others say about you will be more important than what you will talk about yourself.

2. Search engines will continue to throw up the latest and real time information. Again, the searcher will have access to better results.

3. Depending on the location (or if location-specific keywords are included in the search), results on search engines will vary. That’s another logical shift to provide more relevant results to the searcher. For example, searching for “pizza in new york” on Google, I get 569,433 businesses listed on Google Maps.

4. The results will include a mix of media (i.e. images, videos) beyond pure text. This will further add to the quality of the results.

In addition to the fundamental changes above, there are a few other big changes happening in search:

1. People will search for information beyond search engines: YouTube is already the second-largest search engine after Google. Similarly, Facebook is increasingly taking a share of searches online.

2. Search has already gone beyond your computer: Search on mobile devices (cell phone, iPad etc.) is gaining popularity and will continue to do so. For example, Twitter CEO Evan Williams wrote on the company blog recently that mobile usage of the site has gone up 62% in just over four months and 16% of all new Twitter users are starting out on mobile devices.

3. Search is instant now: With the launch of Instant Search by Google, the speed and the quality of search results will undergo a dramatic shift. And instant search is no longer limited to Google; a Stanford student, Feross Aboukhadijeh, has launched YouTube Instant to search videos on YouTube instantaneously. It was interesting to see one of our videos start playing automatically the moment I entered “Digital Vidya” in the search box on YouTube Instant.

What does it mean for businesses that want to be found by their customers when searched by relevant keywords on search engines? Will it create new opportunities for businesses to be discovered beyond search engines? What new techniques and tools should a business adopt to win in this new search paradigm?

I will answer the above questions in my next article on social search. Feel free to share your thoughts, other relevant experiences and related questions in the Comments.

This article was originally published at WSJ’s India Chief Mentor

Deadlines – UnPluGGd Nomination and Attendee Registration

UnPluggd is scheduled for October 30th (Bangalore) and we will bring India’s most promising technology startups to the stage.

But beyond that, the event will also bring in some of the most inspiring talks from entrepreneurs who have successfully managed to build a great technology business from India (for reference, take a look at the last event videos).

Dropping a quick note to share that that nomination deadline(link) is October 7th and if you are a tech startup, you cannot let go of this opportunity to demo your product in front of India’s VC/angel investos/early adopter community.

For those who are planning to attend the event, we have an early bird offer (use the coupon ‘EARLYBIRD’) which ends October 10th. Use this link to grab your tickets right away (use this link).

For any clarification/information, please get in touch [ashish at pluggd.in or pratyush at pluggd.in].