Archive for the 'Musings' Category

Criticality of getting product roadmap right in early stage ventures

Published by Andy Narayanan on July 20, 2010 in General and Musings.
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This is a cross post from my blog. Thought it might be relevant to share it in this forum. 

It is common knowledge that the success or failure for a new venture is primarily dependent on three factors – market, product and team. Entrepreneurs are traditionally good at identifying a market need and hence the two potential areas of fatal failure that one should watch out for are team and product.  In this post, I discuss the importance of getting the product roadmap right.  

Many of us would have heard of or had experience with ventures that collapsed because they ran out of funding before they could complete product development or released an over-complicated product that users could not understand or, released products that fell way short. The common underlying cause for failure might not always be the product itself, but rather the way it was rolled out and its inability to meet user expectations specifically at the time of its launch or release.

User expectations from a product are always dynamic and continuously changes with time.  In fact, one could draw a chart on how a user expectation varies with time. Initially, users (typically a small number) expect the product to address their core ‘pain points’ along with some ‘nice to have’ features, while taking into consideration any constraints that they might have. With time, expectation increases significantly (with more number of users) with need for more ‘nice to have’ features.  I call this the expanding ‘band of user expectations’.

To be successful, it is critical that the product roadmap be aligned with the band of user expectations (like Company B indicated by the green line). Deviating from it spells potential doom. In the example above, Company A attempts to deliver a complete product at a very early stage and ends up over engineering its product and potentially leaving its users confused. Considering that startups have limited resources, it unlikely that a company like this would have enough funds left in the bank to develop the next version. Company C on the other hand adopts a ‘throw it and see if it sticks’ approach and falls way short of user expectations. Both are not helpful scenarios.  

Companies that successfully align their product roadmap against the band of user expectations typically adopt a hypothesis-driven approach to product development. They test which features are desirable for their users, and aggressively seek feedback about their product and its features.  They also constantly iterate on development to ensure that their product fits well within the band of user expectations. Of course, there might be some companies like Apple that will exceptions to this kind of an approach, and are well capable of telling their users what they need. But 99.9% of the startups would be well advised to take structured approach to product roadmap.

I look forward to hearing your thoughts and experiences on this topic.

Angel Funding Framework - some additional viewpoints

Published by Andy Narayanan on April 3, 2010 in Musings.
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There is general consensus that entrepreneurship is on the rise in India, even though it is one of the most difficult propositions. Compared to their counterparts in other regions in the world, Indian entrepreneurs face more challenges that are ingrained in the social and economic conditions that are unique to India. One of the big challenges is the lack of availability of early stage funding from angel investor groups.

Several reasons have been given for why it is the way it is – lack of capital, lack of quality ventures etc. But in my opinion, the absence of a sound angel investment framework/structure relevant for Indian conditions might be the underlying problem. I say that for two reasons. One, there has been a shift in investor mindset across venture stages. VCs have moved up and very few play in seed stage funding and angel investor groups of yesterday are the new seed investors. Hence, angel investing frameworks of the past might not be relevant for the increased size and scope of investments required for today. Two, the range of angel investments being made today is very broad, between 10 lacs to 2 crores. The investment economics and risks are totally different at the two ends and I am not sure if the existing framework is scalable across the entire range. Traditional terms like investment multiple in equity ownership etc, that work in the west, will have to be adapted.

I had a few thoughts that I wanted to share with the group here and get feedback. First of all, the range of early stage investment (10 lacs to 2 crores) is too broad and needs to be broken down. A clear distinction between very early stage bootstrapping and angel group funding is required. Capital requirements under, say ‘x’ lacs should be done through boot strapping with friends and family and funding requirements above ‘x’ from angel groups (I personally think ‘x’ should be 40-50 lacs, but I am curious to hear other opinions). I think this is necessary because, only then the effort and cost associated with raising capital through angel groups would be justified along with return expectations for the angels themselves. Angels would also draw comfort from the fact that the entrepreneur has persevered to get the company off to a decent start before seeking funding and this reduces investment risk.

Second, the funding framework needs to change to address typical concerns that potential angel investors have. In my opinion, Alok’s framework which includes convertible debt instruments is a great starting point and could be a win-win. Ventures that need and are looking to raise a reasonable amount of seed capital (> 50 lacs) will be amenable to the debt terms in the framework, while the angel group ponies up a larger investment, but gets better terms on the deal at a lower risk. I think this could be a model that could attract more high net worth individuals to become angel investors and potentially increase investment size as well. Entrepreneurs will benefit from availability of increased capital and bigger funding size.

I understand that the above model still does not address the capital needs of entrepreneurs who need 10 lacs or so to get their company of the ground. But I am hoping that over time as the angel investing becomes attractive and the angel community grows, it would encourage a new breed of angels to take a higher risk in investing in “idea stage” companies with lesser capital. Comments and critiques are welcome.

Die another day

Published by Alok Mittal on March 17, 2010 in Musings.
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Very interesting post on why “fail fast” philosophy might be ill-founded. I think partly this mantra is open to interpretation - if an idea is not working, do you wish to spend $10M on it and then realize it, or quicker? In the manner that this article refers to it, its valuable to learn and adapt, rather than to give up. In the manner perhaps originally intended, you dont want to dig too deep a hole before you realize you are in it.

Part of this mantra owes its origin to environments where staying alive is expensive - think high burn startups! One of the key levers I believe exists in the Indian market is to survive at very low burn rates, or even turn cash positive while still experimenting with the core idea. Secondly, many times, the key risk being taken is the timing risk - essentially how fast the market adopts a solution - think about all the dotcom startups that rejuvenated 10 years later. In this construct, the ability to survive and wait it out is even more important.

In the kind of opportunities described above, persistence is perhaps the biggest virtue of entrepreneurs. At the same time, the ability to adapt and improvise is the key to making progress. Like many other contradictions of entrepreneurial success, this balance between conviction and flexibility is the key.

Funding for Real Innovation in India! UNAVAILABLE

Published by Sanjukt K. Saha on November 26, 2009 in Ecosystem, General, Ideas & Companies and Musings.
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If you look carefully at the blue fish in the water below, you can discern INDIA written faintly on the body. Well it is not a fish but India’s first indigenous designed Autonomous Underwater Vehicle (AUV). I have a story about it for you.

I first met Ammar in Delhi after he reached me through the India Brand Equity Foundation. I travelled to the Delhi College of Engineering campus and met the larger team of 8 students.  You should have been there with me to see the kick ass energy this team has. They have gone ahead and built a 4th generation AUV that has been the only Indian participant at the prestigious annual competition hosted by the Space and Naval Warfare Systems Centre, San Diego.

They have not won yet. They lost to the Israelis and the Americans. One reason - the US team has the support of an entire fab for the circuitry right inside the university. The DCE team was building it themselves on a circuit board using a solder.

The kind of applications for such a thing is amazing. It can travel 2km on its own. Can identify objects. Follow a path intelligently. And all onboard, right from the power to the brain. Applications range from security to fish patterns. In any other country, they would have received funding, or would have been kidnapped by the armed forces months ago. In our case, this team is struggling to raise a fund of just Rs. 20 lakhs to buy equipment.

They footed my bill at the College Canteen! So I got them over to meet a couple of international angel investors who were speechless after the meeting about how they were able to see something like this without an NDA. It would be very difficult for the team to raise professional funding as the IP is university controlled. The Dean of Research, Dr. R.K. Sinha is wonderful and has got the Institute to be more outward looking but for those benefits to reach innovators within will still take years after the IITs first get their act in place!

So what happens in the meanwhile? Ammar and his eight muskeeteers will graduate in a year and get picked up by some software company. VCs will continue funding social community startups. Angels will never get to know.

I wonder how we could change it. We have adopted the AUV DCE team as our mascot. I am speaking to every friend, every one I know to get these guys 20 lakhs over one year. If any of you can help, and it is not only money that they need but equipment in kind and mentors, please get in touch with Ammar and the team at auv@dce.edu/9873999040 or me at sanjukt.saha@onebillionminds.com.

At One Billion Minds, we are trying to see if team like this need not go a begging.

Is Micro-Funding a New Trend to Come?

Published by Vijay Anand on August 27, 2009 in Musings.
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A lot of folks seem to be very curious as to what I am working on, since my stepping back from Proto.in. Well, quite a bit actually and on some rather serious stuff. Serious as cash, infact. One of the major concerns that has been on my mind is the scarcity of capital in this market.

I am absolutely with the camp that believes that if there are quality companies, then capital will find its way. But we also know as part of most of our risk mitigation strategies, making a leap into a market with no safety net or partners makes it a really serious gamble - even for some of the most well-versed entrepreneur to tread in. I strongly believe that unless we enable some capital to flow, we are not going to see much of a difference in the number of quality startups that spring up, and inevitably the number of startups that get funded/get recognized, and the number that make an exit. This cycle, as you know is recursive.

So What have I been obcessing about? I’m focusin on three aspects and I think all three aspects are crucial.

  1. The mechanisms for loans from banks to become accessible for startups/SMEs
  2. An effort to bring together the Angel Investment Community, educate them and help them engage in an effective manner
  3. An effort to fix the “broken VC Model”

The First and Second are fairly straightforward and I promise to come back to you with some better news soon. But this is primarily about the third one.

I think the third one warrants a closer look for a simple reason. People have been claiming as long as for the better part of the decade that the VC model is broken and there seems to be no heed to that warning. Whats worse is that given that India couldnt be farther away from whats happening in the Silicon Valley in terms of similarities, the model is a force-fit one (There are some better models in Israel, Singapore etc). If you’d understand how a VC firm works, its primarily a specialized bank which runs on a management fee and bonus paid with the return on the investment. The overheads of running such a team is so high, that the only viable way for most firms to operate is to increase the fund size, which sets the ball rolling on them getting into a soup not able to invest in early stage no more, and the next thing you know they are either full-fledged in growth stage, or are in growth stage and are disillusioned about being an early stage investment firm. Suddenly working for a VC firm or being one doesnt seem so glamorous, does it? :)

What we need in India is essentially a firm which is capable of dispensing funds as low as 50 Lakhs to a crore (I am consciously keeping figures in INR to make it a point that we arent in dollar land and the rules and requirements are different here) - which can operate at lower costs, and can also manage a sizeable portfolio.
Continue reading ‘Is Micro-Funding a New Trend to Come?’

Who is an entrepreneur?

Published by Sanjukt K. Saha on August 15, 2009 in General and Musings.
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Do not stare at this picture for too long! Just out of a really late night discussion with a colleague at One Billion Minds.

What is your word?

Who Owns The Company?

Published by Vijay Anand on June 17, 2009 in General and Musings.
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Once in a blue moon, this situation repeats itself. The board of a company along with the stake holders and investors are pushing the entrepreneur towards a direction and he/she is really not liking it, and tries the ownership card. “This is my company, and I do have the best in mind for it”. Nobody usually reacts to those words, but technically one could throw you out for making statements like that. I’ll start with who doesn’t own a company - Its the entrepreneur.

Whoever sold you the romanticism that being an entrepreneur meant being your own boss, was clearly lying. You really never escape the chain of command and reporting structure so easily - not in a civilized society. So Its no wonder that things don’t span out as they say. As an employee you might be accountable to your boss, but as an entrepreneur you are accountable to all of your clients, stakeholders and employees. And every one of them holds you responsible to have the answers and do your best - that’s no different from being an employee times ten. Think about it.

So here’s two things you must know. It is crucial to understand this because this sets the context to understand a whole lot of things that happen through the course of the company.
Continue reading ‘Who Owns The Company?’

Coming Unemployment Problem

Published by Navin on April 22, 2009 in General and Musings.
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With roughly 55 percent of India’s population of 1.2 billion made up of people aged 24 or younger, India was viewed as a country with a massive demographic advantage. Unfortunately, the global slump has turned the advantage into a big disadvantage.India’s economy will probably grow at the slowest pace since 2003 as a global recession cuts overseas orders and domestic demand wanes.It is is expected to expand at less than 6 percent in 2009-10, after recording average annual growth of more than 9 percent in the previous three years.

Here are few sectoral news snippets I read recently (and my translation pertaining to employment)

” Industrial production growth has already decelerated to -0.5%Y during the three months ended February 2009 from a peak of 13.6%Y in the quarter ended January 2007 “

TRANSLATION : Manufacturing jobs are in a disarray. Less additions (or no additions) are seen in 2009-10

“Banks were aggressive in disbursing credit at unusually low rates to marginal borrowers at cycle-peak GDP growth, they are now facing a rise in non-performing loans (NPLs). Expect banks to remain risk-averse, resulting in credit growth slowing to below 10% for 2009 -10″

TRANSLATION : Banking and Financial Services jobs are going to have lowered additions in 2009-10

“None of the IT services firms is hiring and Wipro is not an exception. We will not be hiring till demand picks up. While we will honour all offers that we have made to campus recruits in 2008-09, there can be some delay in bringing them on board,” said Pratik Kumar, EVP - HR , Wipro

TRANSLATION : IT sector is now a weakling. No new additions required for 2009-10

This academic year more than 1 million people are expected to graduate from colleges (in india).  Their employment opportunities are grim in the near future.

Starting Up in a Downturn

Published by Sanjukt K. Saha on March 21, 2009 in Ideas & Companies and Musings.
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Downturn? I have only realized it much later after turning entrepreneur in December 2008. Nothing seems to have changed. March is busy as usual for clients when one rationalizes that business would start flowing in from April! Clients on the other hand are as difficult to make part with money beyond the idea honeymoon as before.

Nothing has changed. Would you agree?

One of the things that has changed perhaps is the time that entrepreneurs have on their hands. True in my case at least, it is a genuine pleasure to write again on VentureWoods after a long time. Many friends are now willing to share war stories, helping a new entrepreneur like me to tread warily on the path trodden well and hard before me by the faithful.

I was speaking with a close friend about how to hire, he is poised to raise a double digit million round for his business - yes, who said capital has dried out. You normally meet one set of people who are entrepreneurial and want to take the risk of working with you and then they want equity. Sadly, you quickly get into a position where you have options alone. In any case, if you are not a co founder does it make sense to join a startup still ready to offer equity? I would say not. A startup who still has equity to offer to a non founder has not got its act together yet. And the single digit equity that is then available is not really commensurate with the value the recruit is bringing in or from his point of view, doesn’t really cover his risk.

Anyway, we were talking about the second set of people who are not entrepreneurial and know exactly what they want, a function in an interesting new venture - consulting, marketing, sales - and we came to the conclusion that such perhaps are the best hires for a new startup who doesn’t have any more equity to hand around.

I am not taking his advice though. In my career over the last 10 years I did well with taking on fresh people out of college, asking them how much they wanted, adding a random premium on it and then combine that with a responsibility beyond their years. My experience - forget equity, ownership - young people treat this as their opportunity of a life time and what they lack in experience, just fast and quick, cover with their sheer hard work and enthusiasm.

Amar Bhide wrote an interesting history of McKinsey. I have read it again and again for just one thing, how a founder can vision what his company is going to look like years from the start and how to put into execution things, and balances that complement and support each other to achieve that vision. Recommended.

Ah yes, I started One Billion Minds - a powerful new prize led innovation platform connecting Corporations and Non Profits to students in top universities worldwide able to solve problems in Design, Engineering, Science, Computer Science, Business and Social Innovation.

It was indeed a lazy Saturday, downturn or not!

Why Not A Political Startup

Published by Shashank on December 3, 2008 in Ideas & Companies and Musings.
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Given the mess that our political system is in, I wonder why professionals have not seriously looked at creating a political startup. Present service providers have been providing low quality services for decades in what really should be a buyers’ market given that we are a democratic country. People have been crying for a better deal but those who can make a difference seem to be indifferent.

The present political parties are beset with the following problems which in turn have resulted in a loss making entity called India.

1. Corruption at the highest levels of governement and the bureaucracy
2. Short sighted decisions based on electoral concerns
3. Putting self (i.e. power) before national interest
4. Nexus with criminals and businessmen
5. Low level of education

These are all surmountable if the political party consists of highly motivated professionals who run the show (and the country) like any well managed company which treats the shareholders (citizens in this case) with respect.

The founders will require a transformational mindset.

The opportunity is huge and so is the required investment. Are there any VCs/Angels willing to invest in a political party startup which will function like any professionally managed company and provide a clean and effective government?

I would love to be part of such a startup. We owe to ourselves if not to the country. If anyone in this community of entrepreneurs is interested do let me know.