Archive for October, 2013

VC Firm Branding – What matters?

NVCA facilitated a recent research around what matters in a VC firm brand – both what entrepreneurs value, versus what VCs think is important.

Note that this is a US based study. Overall the study reinforced the importance of VC firm brand, but highlighted the differences in what entrepreneurs value (entrepreneur friendly, trustworthy, collaborative, value add) versus what VCs focus on (thought leadership, hands-on). Third party recommendations and word-of-mouth amongst entrepreneurs matters. Entrepreneurs seem to be far more influenced by lead partner reputation and next by firm’s reputation (where as VCs think of those and portfolio reputation as relatively balanced triad). Message for VC firm and partners – develop your brand in line with what your audience wants; Be out there.

It will be interesting to get perspectives from entrepreneurs in India on where their views might be different. For example, the whole incubator/accelerator phenomenon in India is extremely “hands-on” and entrepreneurs seem to appreciate it (or is it just lack of choice?) How are the influencers in emerging market like India different from those in a developed market like US?

Opinions?

Should start-ups pay for Mentoring or Advisory services?

This has been a much debated point in various forums and is a question that plagues start-ups all over the world. Having taken part in numerous such discussions and understood different points of view, I felt that this would be a topic that would interest first-time entrepreneurs in India.

So, should a start-up pay for mentoring services?

In most cases, a mentor is someone who has successfully set-up, run and exited businesses, probably several times, and is now looking to give back to society by sharing his/her experiences with others wanting to do the same. Monetary considerations do not play a big role in such engagements. Some equity stake at some stage may be considered. Therefore, the common refrain is that a mentor should not charge for his services, as the concept of mentoring is to work with and evolve people, be it the CEO/Founder or some of his key people. A mentor works with people to help them understand their environment, evaluate options, identify with issues that affect them professionally and personally and generally act as a sounding board to help the person/s become more effective in, both, their professional and personal life. That is the basic concept of mentoring. It is more person-specific and for the mentor this is an opportunity to share his/her life experiences, successes and failures, and give back to society to help others become more successful.

Ofcourse, in the course of the mentoring he/she could share business ideas and experiences that could have an impact on the business itself. But the primary purpose is to help the individual get more effective and aware. If the start-up gets to be a success, then at that time the CEO/Founder may think of sharing some of that success with the mentor, if it is felt that the mentor played a significant role in the success story.

This is quite clear and I have heard enough people from across the globe expressing similar sentiments. Then why the debate? Why is the mentor still looking for remuneration for his/her services?

The problem lies with confusing the term ‘mentor’.

The young enterprise is looking for someone to help overcome its inexperience in running a business and putting in place business strategies that will help take the company to the next level and achieve short and long term business objectives. This is the primary objective of the start-up.

But unfortunately we do not have so many success stories to mentor the entire start-up community. Plus, even the one’s looking to mentor start-ups, can handle only that many and no more. So the wannabe ‘mentors’ looking to offer exactly the services that the start-up is looking for are actually Business Advisers. Not mentors. A business adviser in most cases does not come from an entrepreneurial background, but brings years of experience, skills and knowledge to help the business achieve its short and long term business objectives.

Now the million dollar question. Who should a start-up engage with – a mentor or business adviser? In the absence of so many mentors, the start-ups have no choice but to work with Business Advisors, who call themselves mentors, which is a very good thing as most first-time entrepreneurs are looking for the business experience that they lack, since most of them do not come from a commercial or marketing background. Since most are technology start-ups, in most cases the CEO or Founders are from a technology background lacking the background for running a business.

Working with an advisor is extremely critical for a start-up as they will help to significantly improve the chances of success and reduce wastage of time, effort and money by bringing their experience to the table and helping to anticipate all the typical mistakes that start-ups make and provide that objective external view point. Therefore earlier the better. Preferably at the ideation stage itself. Most start-ups have to pivot at some stage because they did not try to establish that product-market fit at the ideation stage itself. They did not ask themselves those critical and mostly uncomfortable questions, probably because it did not occur to them or it could have meant going back to the drawing board. An advisor could be of great help here.

So, should a business adviser be paid for his/her services?

Ofcourse, Yes. Such services have to be paid for because the adviser has invested years gaining that experience and this experience and knowledge has significant value. They are offering their service to monetize that experience and knowledge and is also probably a source of living. This cannot be expected to be offered for free. Ofcourse, there could be multiple engagement models that they could discuss and agree upon, which could also include retainer only, equity only or a mix of retainer and equity. That is left to the comfort level of both parties. Most important, the entrepreneur needs to consider this as an investment and not an expense, as this engagement is expected to have long term impact on the business.

Continuing to look for a mentor, just to avoid such investments, could mean losing precious time and money. Start work with an adviser at the earliest. Every start-up CEO is running around just to generate revenues, atleast enough to pay the bills. The sooner this happens the better it is and one way is to engage with someone who can give you those critical inputs that could pave the way.

As Peter Drucker rightly said, ‘The purpose of business is to acquire new customers’. It is one thing to have a great idea, but an entirely different ball game to get a paying customer for that idea. Getting a paying customer, for a start-up, is easier said than done. This is the challenge for most start-ups and that is why they need Advisers more than they need Mentors. This is my considered opinion.

The author, Srikanth Vasuraj, is a Business Consultant focused on helping start-ups to grow. He can be reached at +91-98454 78585 or srikanth@nodiva.co.in . Please visit www.nodiva.co.in for more information.

 

Pricing Strategy for Start-ups – Value Based Pricing

Apart from dealing with the unknown factor and building credibility, pricing is one other hurdle that most start-ups find hard to overcome. How much to charge? Am I overcharging or am I leaving money on the table? Questions that plague every entrepreneur.

When it comes to pricing, a simple cost-plus strategy may not work because it’s dependent entirely on your ability to produce cost-effectively. Then how do you fix your margins? Will the final price meet customer approval? At the end of the day the customer will only pay the price which he believes is value to him.

This whole process can be made easy if you have correctly identified what your product does for the customer, ie. What value does it bring to him? Build some metrics around this value and convert the same into actual monetary benefits that the customer will derive from it. You will then be able to convince both, the buyer and the user, who in most cases are not the same person. More often than not, the user, who derives the functional benefits, ends-up not convincing management only because he is not able to convert the benefits into ROI for the company. What will the company get for the investment? This is what the CEO or CFO would be interested in. This conversion of benefits to financial numbers will help to push your product from a ‘Good to have’ to a ‘Need to have’.

Let me try and enumerate this with a Use Case.

Company ABC has built a Process Automation solution to enable the customer to bring in business process efficiency. Business processes could include internal processes like on-boarding an employee, financial approvals, HR approvals etc. or external processes like sales process, dealer management, vendor management etc. Through process automation the solution promises to bring about repeatability, scalability, on time and within budget performance.

There is Prospect X who is in the business of setting-up retail outlets for retail chains, which is a repetitive process requiring a high level of planning to ensure that all stakeholders deliver on time. They follow a set process which involves interaction between various groups including real estate agents, interior designers, interior execution company and warehouse for finished goods to reach the store before opening.

The big pain point here is that the outlets are never opened on time. This obviously results in incurring dead rent (rent paid beyond the target opening date, which is not budgeted) and loss of revenue for the period of delay.

The process automation solution of Company ABC promises on-time performance by ensuring that each stakeholder completes his/her task on time through a process of pre-emptive alerts, reminders and escalations. Any task that needs to be completed in a particular timeframe is captured in the process map as well as the name of the person responsible to complete the task.  The moment the details are entered a task mail is sent by the system to the concerned person and this mail will remain in the ‘Inbox’ until the task has been completed, ensuring the person does not forget. Based on pre-set criteria, the system will also send alerts and reminders to the person’s mobile to make sure the person does not forget the task. In case the person still misses the deadline, an automatic escalation mail will be sent to his superior. Alerts and reminders are meant to ensure the person does not forget and escalations are expected to instil the fear that the boss will know of any slip-ups and be made accountable. Over time people are expected to fall in line and tasks completed on time at very stage in the process.

The team at Company ABC went about first understanding the typical process that Prospect X followed for each store opening, the delays at each stage of the process, typical reasons and bottlenecks. They also got a feel for the expense incurred for each store opening towards dead rent and the average revenue loss due to the delays.

This way they could safely presume a 10% reduction in delay per store using their solution and knowing the store roll-out plan of the customer for the year, they were able to quickly compute the savings that the customer can expect in Year 1.

Company ABC then fixed a price derived from the savings and were able to convince Prospect X to invest by projecting the ROI. The price gave value to the customer as well as good margins to the vendor.

So it is important to understand the value that your product brings to the customer and convert it to tangible and measurable benefits, based on which you could then arrive at a price that the customer would bite. You would have then created the ‘NEED’ for your product.

The author, Srikanth Vasuraj, is a Business Consultant focused on helping start-ups to grow. He can be reached at +91-98454 78585 or srikanth@nodiva.co.in . Please visit www.nodiva.co.in for more information.