Genesisism

From Scratch to Something to Bigger to Giant

2011-07-10T17:18:00.002+05:30

Dear readers

All posts are my independent thoughts. Please don't take anything for granted. This is not an advisory column. I am just sharing my experiences and learning.

It has almost been more 1.6 months. Today also, I fee that I am just starting up.
However, I have come across various moments during my journey when I was thinking, "Are we growing at the pace we want to", " I am not satisfied with the pace. I want speed". After encountering such moments, I became very impatient and lost focus. So, even if, you are growing slow, keep up your nerves. And focus on building your business. It is a long term haul and there is no hurry!!!! You have to earn your success over time and so, celebrate your small goalposts. As they say, "success is not a destination. It is a journey".

So, the statement to remember is "How do you eat an elephant"? The answer is simple. Bits by Bits. And you will also wonder that things don't happen to be as fast as anticipated. Things take their time. So, let events happen and patiently wait. That is why they invented the term, "perseverance".

Building is a discovery process and a process of gradual "value appreciation".
When you start, you are valued at zero because ideas are dozen a dime. Then, down the line, say 6 months, after you validated your business idea, your company is valued at some 10-12 Lacs. Then, another 6 months, your company is valued at 50 Lacs (market will tell your real valuation. And another 6 months, your company value crosses a crore. So, it is a continuous process of value appreciation.

If one is able to see this trend, one should be satisfied that worth is increasing with time & efforts. And as put up by CEO, HCL, one fine day you wake up and you are CEO of a billion dollar company. So, enjoy your journey, respect your friends, family and employees who are there with you during the journey and create something worthwhile.

Thanks
GP

BEWARE

2011-03-03T22:25:00.006+05:30

This post is meant for young and wanna be entrepreneurs. it is very important that you meet the right kind of people in Indian Entrepreneurial Ecosystem. "Ecosystem" is now a buzzword these days in conferences/seminars/Start-up Events/etc.

I hate to tell you this, but there are a lot of "Bozzos" there out that are taking advantage of your lack of know-how about Entrepreneurship. Some people have built businesses around "Preaching Entrepreneurship" or . And guess what I wonder how many of the preachers are themselves entrepreneurs? Have they built some worthy businesses? So, if somebody wants to give you some Gyan, ask him/her bluntly, "Have you done it before"? In fact, I would do it. Beware of Such People!

If you wanna learn about entrepreneurship, then do entrepreneurship- Go and Start a small business or organization. You always don't need to start from Level-5. Doing is the only way to learn. Do, make mistakes,learn fast, act and move forward.

If you want to learn from other experiences, please learn from "Real On Ground Entrepreneurs". These people don't come on the surface. In nutshell, meet real people, not fancy dressed beings claiming themselves to be entrepreneurship evangelists. Meet the Right People.

Cash is King

2010-10-29T23:41:00.002+05:30

Lesson of the day for all those entrepreneurs, who have misconceptions about cash flow.
A Banker's Mantra:

Revenue/sales/turnover is vanity
Profit is sanity
And
Cash is Reality

Goldmine on Salary and Equity

2010-10-07T00:01:00.004+05:30

This article is authored by Sameer Guglani, Partner, Morpheus Venture Partners and can be found on his blog: http://www.guglanisam.me/. This post is a goldmine of knowledge on "Salary and Equity".

To go the article, click here

For readers convenience, I am publishing it here. All credit to Sameer!!!!!

In the beginning of a startup there are just the founders. They do all the work - making / selling / admin / HR / cleaning / finance - everything. With their enormous passion and never ending energy they start moving the wheel. They make the product / launch it / get some traction / start getting some orders and so on. Once the work load increases to a point there is need for more hands & heads. Since they have launched / been covered / have made progress - less people look down upon them and some even show interest in working with them. Through their efforts they manage to find some passionate guys ready to come on board. (Read here about What to look for in startup interviews?). So far so good. Now comes the tricky part. What should be the salary and equity for the new team members?

Salary

You need to find folks who are ready to work for much lower than market salary. Folks who value the other things they will get much more than money, things like - learn lot of cool stuff / work on hard problems / have loads of fun / work with uber smart folks / etc
To begin with it’s great if they agree to work for "survival salary" for a year or until the company either raises money or starts earning enough to pay him / her more than survival salary
Look for people who lead a fairly simple / bootstrapped lifestyle and don't have too many commitments. Specially stay away from folks with housing loans
I think INR 15-25K a month is a good range to think about
When you make the salary commitments you should ensure that you have enough cash to take care of overall expenses for next 10-12 months or more
Budget for other expenses like - Computer / Phone / Work area / misc expenses for each employee
If you can hire people who bring their own laptop - that is a bonus

Equity

Equity should be decided depending on
Stage of the company
Potential impact on the employee on the future of the company
How much cut is the guy taking on the cash side (this should be compensated)
A good thumb rule is to think 5 years in future
Assume that your company is acquired for a reasonable amount
Calculate the return which that guy will get via sale of equity
Now estimate the market salary of the guy 5 years from today
If in the 5th year he can make 5-6 times his annual salary via the equity sale - its a decent deal / anything higher is off course better for him
Read PG's excellent article on how much equity is the right equity
Overall you should designate a certain number of unallocated shares as the ESOP pool. These shares are not yet issued but have been allocated as employee stock - to be issued overtime
Typically startups keep 20% as employee stock option pool
Vesting Schedule
Equity offered to startup employees is not just for joining but for long term contribution to the company
Hence you pro-rate the equity over this period of time called "Vesting Period"
Normally this period is 4 years. But in special cases it can be brought down to 3 years
You also need to think about the minimum period the person should work for the company for making a decent contribution
This is called "Cliff" and is normally 1 year. You can be flexible on the duration but its strongly recommended that you have the cliff in the arrangement
If the employee leaves (or is asked to leave) before completion of the cliff period he / she will not get any equity in the company
So lets say you plan to hire a guy X for following terms
Equity - 4%
Vesting Period - 4 years
Cliff - 1 year
This means that you will give X 4% equity for working in the company for 4 years. But you expect him to stay for minimum 1 year
Let’s say 4% translates to 4800 shares
Total vesting duration in months is 48 months
Every month that X stays with the company he becomes owner of 1/ 48th of 4800 shares - which is 100 shares
Now the cliff kicks in, X needs to complete the cliff period of 12 months to receive any shares
So if he stays for 13 months, number of shares = (4800/48) *13 = 1300
But if he stays for 11 months, he gets ZERO shares - since he did not complete the cliff period
Additional equity
In some case companies give additional equity to employees later on as a performance bonus or as part of promotion
Each equity grant should have separate vesting schedule
Share price
In most cases startup employees are only expected to pay the face value of the shares and even that is reimbursed in some form
But at later stages companies calculate the share price with the help of their CA and offer the shares the employee for a heavy discount or subsidy
Paperwork / Agreements
Setting up a formal ESOP plan with help of a good lawyer would be too expensive for a bootstrapped startup - hence it’s a good idea to do that after you raise series A or start making decent amount of revenues
For a bootstrapped startup, you should mention the amount of equity and details of vesting schedule in the employment agreement
At the time of issuing shares you enter into share subscription agreement with the employee - where he / she only needs to pay the face value of the shares
Deciding later
In many cases people like each other and start working together without finalizing the equity %
Leaving it totally open could be a bad idea - since expectations could be totally mismatched and that could become a big headache
If you do want to defer the decision on the number, make sure that you discuss
Exact time after which equity will be decided
Range in which the equity will fall
Your expectations from the employee
Best way is to start with a firm number slightly on the lower side and if things turn out good you can always grant more equity
Ankur raised a point while reviewing the draft of this post that some times the employee will ask you back the question - Why are you guys keeping 95% and giving me only 5%? Obviously guy is not able appreciate to or realize the difference in the contribution of a Founder and an early employee. Here are some of those reasons, which quite often remain invisible to the employees:

Founders take the maximum risk while starting a company
They quit their job not to join an existing setup but they quit with nothing in hand
The startups are literally created in heads of the founders - its their DNA that the startup carries - they have the maximum impact on its outcome and the equity should reflect that
The initial days are the hardest for every startup and there is very little to show - so at that point almost no one wants to join them - during that period its the founders alone who toil and create - employees mostly come later
An employee has the flexibility to leave the job whenever they want and move on to a new job. Founders don't have that option - they need to stay with the company thru thick and thin. (In theory they can also shutdown or leave - but in practice its very difficult)
Founders also make the initial capital investment in the company and add more capital in most cases / they max out the credit cards / bring personal laptops / run office from there home / bring stuff from home to run the office and many such contributions
Founders work for zero salary for quite a long time
Founders normally setup ESOP of 20% out of which other employees are also given equity grants - so they are really are not keeping 95%
Most employees want to do specialized jobs around their core area and stick to it - so that they continue to build their job career. Founders do not have any such choice - irrespective of their backgrounds - founders need to work in every department and do what ever it takes to keep things moving and it also involves junior most jobs like - bank work / cleaning / delivering orders / making tea / pretty much every thing
A founder's career and reputation is attached to the outcome of the venture / he is the one who worries the most / looses the most sleep - the buck stops at him
As a founder -If you find a guy who can match you to a certain extent in above listed aspects - you should surely give him more equity or even bring him on board as a founder. One of portolio founders did this very recently - brought a guy as first employee with 9% equity / found that the guy can bring a lot more value and invited him to join as a co-founder with same amount equity as the first founder
As a founder - its also important that you draw the line at the right place. If you find someone really good for a particular role, but they bring no additional value and this person expects a much higher equity than what seems fair - Dont worry about it - just let them go. If they can not respect your contribution - they are anyway a wrong hire
As a potential employee - if you don't see founders with the kind of commitment and qualities mentioned above - don't join the startup

Gordon's Greed is Back

2010-10-05T23:13:00.000+05:30

By: Vikram Sheel Kumar/Forbes India
Thanks to the biochemistry of the brain, it is not always dominant
Source: Forbes

Economists are pretty convinced they have you figured. You are rational and self-serving. You are Michael Douglas as Gordon Gekko in Wall Street who asserts that greed is good. Each of your desires has a utility function that you optimise in making a decision that leads to more wealth. Stop reading now and you will win lots of money. You stopped at lots.

These assumptions have formed the basis of free market economies professed by Jon Stuart Mill and Milton Friedman who believed markets are driven by rational and predictable actors. But is that a good picture of you? Are all of your economic decisions simply governed by the greed to earn more? Let’s play the ultimatum game to find out.

I have $10 that I can share with you in any way I choose. If you accept my offer then we both keep my proposed shares. If you reject my offer, neither of us sees any of the money. What would you do if I offer to give you $9 and keep only $1? Naturally you will accept the offer. Smart; we are now both better off.

What would you do if I offer you only $1 and propose to keep the balance $9? Studies suggest that you would reject my offer to penalise me for my stinginess. What happened to your rational and self-serving self? A greedy robot would leave no dollar on the table. The conclusion is that while greed may influence behaviour, it is constantly kept in check by
other forces.

In the ultimatum game, it is injustice that faces off with greed. A Princeton neuroscientist Jonathan Cohen had subjects play the ultimatum game while the respondent — you in our game — was being scanned using functional MRI (fMRI) technology that shows dynamic brain activity. He found that when given stingy offers, the anterior insula that is associated with negative emotions was active. Rationally, greed would ensure no money is left on the table. This study demonstrates, however, that greed is only part of the puzzle. It can be trumped by other emotions such as injustice that was observed in Cohen’s study. This gives us hope.

A quick buck or a thrill of the pursuit typifies greed. In the case of the sub-prime crisis, potential home owners were offered adjustable-rate-mortgages. The mortgages had attractive introductory rates, but could increase over time. Rationally, you would reject these mortgages given their long-term risk and uncertainty.

However, greed drives you to value immediate benefits to an extent that you ignore potential future costs. A Harvard economist, David Laibson, has coined the term “hyperbolic discounting” to explain this trait. Laibson and colleagues performed fMRI brain imaging of subjects who could choose an average offer with immediate benefits or a better offer with delayed returns. Those who chose the offer with immediate benefits showed increased activity of their emotional areas of the brain.

Greed is fuelled by dopamine, a busy hormone. Apart from keeping greed in business, dopamine’s influence extends from voluntary movement to your involuntary sex life. The anticipation of a reward shoots off dopamine that makes you feel good. In fact, it makes you feel so good that often if you actually win the award, you feel a let down.

The big lessons from neuroscience are that while there is a biochemistry of greed, decisions are not made simply on account of greed. The timing of the reward, notions of injustice, and apathy that sets in when the race is over work to influence greedy behaviours. Understanding these further may bring greater balance to Wall Street and levers to control
its Gekkos.

The author is a columnist for Forbes India.

VC's Bullish on Non-Tech Startups

2010-09-14T09:43:00.001+05:30

Article Source: Mint

Click here

Do you know: My mentor is a VP

2010-07-28T14:30:00.003+05:30

Sammer Guglani of Morpheus Venture Partners recently sent me this great article on "Mentorship".

How a wanna be entrepreneur, who is obsessed with Titles, can get into the wrong mindset.

Follow this link: http://rvivek.com/

Are you a White Cow?

2010-05-25T21:15:00.005+05:30

This is a Guest Post authored by a WIP (Work in Progress) young and dynamic budding entrepreneur from IIT-G. Aniruddh, has done a start-up in Renewable Energy space and sharing his views on "Starting up". You can contact him at link2ani@gmail.com.
Gain real insights from real ground zero entrepreneurs.

No? Are you sure you’re not the white cow? 99 out of 100 people in this world are. Well, look again, go check yourself in the mirror. Are you still sure?
Looks can be deceptive. we see literally hundreds of white cows every day, we even eat with them, walk with them, talk with them, share jokes with them. Confused?
Well, our beloved ‘white cow’ as described by marketing guru, Seth Godin, is the average man, common man, aam aadmi, call him what you may. As Seth notices, suppose you’re driving down a highway .You see a cow grazing by the field. Nobody stops and looks at a cow and says “Hey look, a cow! “. That’s the truth, cows are everywhere, hence they’re invisible. Likewise, average man is invisible. Average man is boring. Average man is well, average! Our average man does not like to take risks, he likes to play it ‘safe’. He likes to go with the flow. He thinks that by doing what everybody else does, supposedly one day he’ll become better off at doing them than others. He thinks if he can’t do anything, nobody can especially you. YOU, the reader of this article, you is a future Ambani, Mittal, Gates, Buffet. You is a shining star of India. You is the next big thing. He usually will show high self-esteem about the work he’s doing. He will think anybody taking a risk is the biggest fool he’s ever met and will smirk, laugh and criticize your ideas. That’s the average man. He can come in many forms, maybe your teachers, friends or even parents. But ‘ You’ should not care about the world , rise over all this and move on.
Well, in today’s world,’ being safe’ is the riskiest thing to do with your career. Well, among other things this is one of the biggest lessons the recent hush-hush in the financial world has taught us. According to thousands of people who lost their jobs, they had one of the safest, best jobs in the world. Who wouldn’t kill for a job at the Wall Street at a top-notch firm where billions move from one place to another everyday! But we all know the consequences.

To be successful, one has to learn to take risks early in life. Risk taking capability reduces with age, hence the earlier the better. You win some, you lose some. But here’s the deal. The more risks you take, the better you learn how to manage them. That’s what entrepreneurs do; they take risks AND manage them. India, and the world, in general needs more entrepreneurs. We don’t need more average men; there are already a lot of them. About 6 billion to be precise. Well then, do I mean we don’t need scientists, artists, rockstars, politicians, lawyers? Of course not. We need. Infact, I say ALL successful people are entrepreneurs. Don’t believe me?

Let me explain.
Entrepreneurs are people who do what they love, they break new grounds by being innovative, they live by their own rules, and they do something that is useful to this world and do it to perfection. It’s a way of life. For example, Great scientists are just like business people who build great products in the form of their theories that have a profound effect on our knowledge of the world. Likewise, other people.

Take another example of Mahatma Gandhi; he was an entrepreneur according to me. He had a great idea to change the world (freedom of India) for millions of Indians(customers).He went against the market forces (Britishers) and build great products(like Quit India Movement, Non-Obedience, Non-violence, Non-cooperation) which he advertised( through local newspapers started by revolutionaries, by holding seminars and conferences).He built a great team(Pt Nehru, Subhash Chandra Bose, Sardar Patel, Gopal Krishna Gokhale etc.).With such a business strategy, people of India finally bought his products (yes, they finally bought his ideas), which led to the greatest victory ever in the history of India.

Lets talk about this concept in the context of creating great companies that change the world we live in. So the first big question comes, why this?

Well, like I said being risky is the new safe today.Furthermore, its a lot more than that. You set out to create a change in this world, a positive change. You will be known by that years after you are gone. Entrepreneurship is the tool with which you can create this change. You see a problem that’s bothering people or you see an area where you can improve the life of people around you. That, my friend, is the Holy Grail of entrepreneurship. That is the golden goose, the opportunity! You can either kill it by ignoring it, or use it to make billions! Let’s not forget, it’s not about the money. This is a trillion dollar advice. You make making-money your prime motive and you dig your own grave with your own two hands. Great companies are build to make meaning, they make our lives better and that’s exactly what you should look out for. As simple as it may sound, many people forget this basic principle. You make something that is of great value to people and they will be more than happy to pull out their wallets and pay you! Make meaning, Money follows!
When is the right time to do it? Now, is the right time to do it.

Well, you say you are young, just a recent graduate, you don’t have an experience in the industry, you don’t have the money, oh, and you forgot, the best of all, you don’t have an MBA. How can you even think of doing a business. Right?
Not a problem!

Recent graduates make the best breed of entrepreneurs, speaking statistically and generally. You’re well networked, you’re young, you’re enthusiastic, you is the only person you have to feed, there are no spouses and thank God, no kids .Moreover you live amongst technology. There’s no better place to find a team than here. And frankly, once you get caught in the corporate web, you’ll find that life way too ‘safe’ to leave it and start anything from scratch .Well then, do I mean everybody should leave everything else including job at Schlumberger/MS or PhD at MIT/your favourite MBA from IIM A ? No, ofcourse not, that would be a sin by many peoples’ standards. But the point here is, are you doing it for the money or do you really love it? “Oh, I don’t care, all I care about is money! After all, now even Govinda says Money hai to Honey hai. Why should I trust you over Govinda? “ Well, trust me, if you are not excited by the idea of working in oilfields in the scorching heat in a no man’s land , or if the prospect of working with cutting edge technology in closed labs with weird LCD displays and a plethora of buttons around you, doesn’t excite you, don’t go for it. It’s not that fun after all.”And money? How am I supposed to buy a Lexus before my classmate does?” Well, just look around more people have gotten rich otherwise. Money is everywhere. Chances are that if you do something you like, and you do it repeatedly to perfection, you’ll have more Lexus than your classmates.

Second obstacle that comes is the experience in general and experience of your industry. One thing, EXPERIENCE IS OVERRATED! You are going to learn more by trying to setup a new business from scratch than your counterparts sitting in cubicles writing codes. You call that experience? That’s wasting time, frankly. It’s adding no real value to you. You don’t learn by typing around, you learn by going to the streets, talking to real customers, who are going to pay you for your cutting edge software or your next big product or your new life-saving drug. That is where you learn the nitty-gritty of the trade. You learn how a great product is developed, you learn what people want and what they don’t want, you learn to negotiate, you learn to sign deals, you learn to manage your finances. Business is largely about people. When you learn how to deal with people, half the battle is won. It can’t be done in cubicles, by definition. That is what is called experience. It’s kind of a blessing in disguise, not having an experience. You have a clean board, you can see for yourself what works for you and what doesn’t. Sure, you can and should take advice, but that should be it. When you make a mistake, it’s your neck on the line, not your employer’s. You learn faster when it’s your business. It’s your baby, won’t you care? Ask yourself, where you will learn more.

As far as MBA is concerned, what a person learns in 2 months while “trying” to setup a business is far more valuable than the 2 years spent in classrooms. That is the whole point of it, when you do everything yourself, you learn accountability, responsibility and best of all leadership, the three most important pillars of your professional life. There just isn’t a better way to learn these skills. Education is not a bad thing, not at all. But one should know when to get it, why to get it. Brushing up your skills with an MBA after you have some real world solid experience and networking will go a long way in making your case stronger than sitting in MBA classrooms right after your graduation, where you don’t know the basics of how a business is done.

MBA is not there to teach you how to do business, it won’t, it can make a good business person better. That’s it.

The last and often the most daunting problem that you might face if you walk this route is raising capital for your venture. Where do you get the money from? Is it really that tough? “I’ve heard a majority of start-ups die before their second year and that’s mostly due to lack of funds!” Well, I’m afraid to say it’s in fact the fact. A majority of people who start out forget the other principles I discussed about before, some die off simply due to bad decision-making and other due to lack of funds. But that should not deter our vision. People who set out to make money leave all hope at this stage, but people who set out to right a wrong continue.
There are a lot of good opportunities to raise capital. Govt of India provides funds to young entrepreneurs with promising ideas under a scheme called TePP. One of our alumni, Natasha Sodhi, founder of Yellow Fourier Technologies, is one such person. Other than that, various banks throughout the nation are increasingly making investments in the sunshine sectors of our country. Apart from that there are our good old venture capitalists and angel investors or private equity routes. One of our alumni, Raghu Khanna, founder of www.cashurdrive.com was one such person. Apart from that, one of our alumni, Sachin Bhatia, along with a few others opened Drishti Soft Solutions with a initial capital from their own pockets(called bootstrapping) and are currently looking for venture capital to scale up. People often use a mix of various paths to raise capital.
When you set out to change the world, small problems like these often come along. That’s where risk management comes in. One should learn to mitigate it as much as possible.
Now that being young, inexperienced (with no MBA in Finance) and penniless are no longer a problem, we can move on to how to go about actually doing this!
Well, there have been complete set of books written over it. I’m going to try to sum it all up in a few lines here:
1) Find the problem, it’s the golden goose.
2) Conceptualize a product/service around your target customer that will solve the problem.
3) Go to the market experts, concerned professors, potential customers to fine-tune it and know if people really want it. If yes, in what quantity, how much are they willing to pay for it?
4) Build prototypes, give them away for free and let people test them and let you know how good or bad a job have you done.
4.5) Appoint a advisory board comprising of people who know how to do the business: technical, legal and operational aspects. Ask them nicely to be your mentors. Give them a share of your profits. Good Samaritans are not a minority in India!
5) Use the satisfaction reports, advisors and prototypes to finalize contracts with dealers, suppliers, customers and raise capital to scale up.
Following these steps should help one take off! But then, easier said than done. There can be no guarantees to avoiding failures. They will happen. But one should learn and move on and never stop. That’s the biggest lesson.
There’s a joke which goes like:
“One entrepreneur is explaining to another how he got into business. “I was afraid to go out on my own, but my former boss gave me a jump start by telling me the most encouraging two words in my life. One day he came into my office and said “You’re fired.” “
Well, one shouldn’t wait for that day. Should one?
A person has his whole life to be average, for once, try to do something out-of-the-box, surprise yourself, challenge yourself. Entrepreneurship is living a few years of your life like most people won't, so that you can spend the rest of your life like most people can’t. So go ahead, start thinking today. Don’t be afraid of failures. Don’t be safe like other 99% people around you, get up and get going. Safe is stupid. Safe is boring. Safe is average. Safe is risky.
And as Mark Twain put it nicely,
“Twenty years from now you will be more disappointed by the things that you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover “.

Please let me know your thoughts in the comments section below.
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What is my share

2010-05-22T20:43:00.002+05:30

Here are a bunch of guys trying to change the world. But, how do these people are rewarded. The answer for a start-up is quite obvious- Equity. So, if there are 4 people in a start-up, what is the share of each one? Pretty simple, huh :25% each. Each one gets 25% of the company. Actually, it is a very lame calculation. It is not at all justified.

If the first person in the company, who came up with an idea, assembled the team to work on the idea, how much credit will you give to him? Nothing or some decent proportion. These days, the pre-money valuation of companies is zero. But, yet nothing starts without the step taken by the first founder. So, idea has a value. It may also happen that the same person works for more than a year to give the idea a solid shape. Otherwise, how will he convince others if he doesn't know the bits and bytes of his idea. So, time and effort invested is some worth.Isn't it? All ideas are not revolutionary and game changing. Gurbaksh Chahal's post, The Billion Dollar Idea or the Billion dollar execution illustrates the importance of execution. He says,

"What’s more important? The idea or execution?
Most people might be confused and think all it takes to be successful on the Internet is a great idea. That’s completely untrue. It’s actually all execution. Let’s take a look at some key examples of some the biggest Companies/exits:

* YouTube: $1.65 billion merger with Google. Idea = share video. Execution = make it simple and consumer friendly.

* Google: $180 billion market cap. Idea = search engine. Execution = creation of a better ad targeting platform and consumer brand for just search.

* Yahoo: $40 billion market cap. Idea = portal/directory. Execution = creation of the most successful online destinations and starting points for consumers worldwide.

As you can see – there basic ideas didn’t make the company’s successful it was all execution of their respective business plans. So, if you’re an entrepreneur – focus less on just the sheer idea you have and more on the execution of getting it off the ground, making it scalable, and then profitable.

You can also get lost on where to start – so always start everything off by asking yourself “what is the lowest hanging fruit?” And remember, don’t focus on the billion dollar opportunity from day one…it’s a step up play. Baby steps.

Another key lesson here is – you don’t necessarily have to start a business that’s entirely different. That actually makes it harder. You end up having to reinvent the wheel and focus more proving the concept rather than on your overall execution. Innovation can always happen after you’ve reached parity…"

I have been trying to research about the Equity Split criteria. I was doing it because, I am sailing into the same boat to take the decision regarding the equity distribution. I found two interesting posts that I would like to share. For any startup entrepreneur, it is like a Holy Grail. Follow the links here:
http://www.andrew.cmu.edu/user/fd0n/35%20Founders%27%20Pie%20Calculator.htm
and
http://www.usmansheikh.com/finance/equity-splits

Weighted Average is probably one of the ways to do the equity split. Every business will have its own set of factors that are to be given the right weight. Some factors could be: Idea Development, Time, Money (seed capital), Commitment, Experience and Domain Expertise (include credentials. It varies from business to business what factor weighs the most. Time is obviously top in my list. Some businesses are really capital intensive, like, engineering projects or manufacturing. Seed capital really holds weight in such businesses. There are some ventures in which team expertise is most important, example: R & D, Finance and Analytics. It depends upon your business.

If you find some add-on or better information, feel free to add to this article.
Regards
Gurpawan

Lead like the great conductors

2010-05-02T12:51:00.000+05:30

Here is a wonderful TED talk on leadership by Italy Talgam.
Click here

GP

Agile Entrepreneurship

2010-05-01T00:01:00.000+05:30

This post originally appeared on Finer Minds. It is authored by Mike Reining.

"A few years ago, my friend Vishen and I decided to embark on the craziest adventure of our lives. We started a company together. We had no plans and no money. All I knew was that I wanted to go into business with this guy. We both loved technology, so an Internet business made sense. MindValley was born. Today, we’re a multi-million dollar company, and one of the world’s leading online publishers in the field of personal development, and we did it with no bank loans and no venture capital.

I wake up every day with a profound sense of gratitude because I’m building an incredible company with some of the brightest people from around the world. I truly get a kick out of watching the MindValley team evolve and grow. Moreover, I get to share my passion for personal development with remarkable people from every corner of the planet. Life is pretty darn good.

But what I want to share with you today are my thoughts on something I call Agile Entrepreneurship, which I’ve broken down into 10 Rules for You. These rules are based on personal lessons and insights I’ve learned as I’ve built MindValley up to where it is today.

In a nutshell, Agile Entrepreneurship is about launching businesses faster and significantly reducing your odds of failure. It’s about making your business successful, so you’re free – free to do what you want, when you want, where you want. Really, it’s about doing what you love and making money while you’re doing it.
10 Rules of Agile Entrepreneurship
Rule 1: Get the Right People on the Bus

Putting your team together is one of the single most important things you need to do as an entrepreneur. You need a team of truly outstanding people. You need A players. And you’re going to want to emphasize learning and experience to get them on board. Great people want to be challenged. They want to learn and grow. Strange as this may sound, money is rarely the top priority for them. If you offer a better and more dynamic work experience, you can get great people without having to pay ridiculous salaries. In addition, if you’re looking for another founder, try to find someone who will compliment your weaknesses. You don’t need another YOU. What you need is someone who excels at things you’re not so good at or don’t enjoy.
Rule 2: Know What Mountain to Climb

This rule has to be one of the most valuable lessons I’ve learned (and perhaps the most painful). If you and your team don’t know where you’re going then it will be impossible to reach your end goal. How can you possibly achieve your goal in the shortest amount of time, with the least resources, if you’re not clear about what you want to achieve? If you want smart people to follow you, they need to know where you’re going. At one point we had a jumble of different project going on, without any real coherence. Not good. We’re much better now. We have a vision, a mountain.
Rule 3: Always Think Like a Marketer

Sales is not a dirty word. Marketing is not a dirty word either. For a long time, I had this belief that if I put a great product out into the world, people would magically flock to it, and, of course, they’d go tell all their friends about it too. All my education is in business – I have a BBA from the University of Michigan and an MBA from Stanford – and I was NEVER taught the art of selling. No sales classes at all. I’ve observed MBAs generally look down on sales. But, if you want to be a successful entrepreneur, you must pay attention to sales and marketing. It’s that important. Remember, if you believe in your product, there is nothing wrong with getting it to as many people as possible.
Rule 4: Ideas do NOT Matter, It is Execution that Counts

Ideas are so much fun, aren’t they? I could just sit around a whiteboard all day with my team hatching new ideas. Not a surefire way to keep the dough rolling in, though. Honestly, anyone can have a good idea. It’s execution that counts, and this is the hard part – getting organized, putting the pieces together, hammering out the details. This is what matters. At the same time, don’t get planning paralysis. I lean more towards the Ready, Fire, Aim approach. Execute quickly, early and often. Tweak Later. And remember to celebrate every milestone – successes and failures!
Rule 5: Set BIG Goals

You need big goals. If a goal doesn’t excite you and make you a little nervous, you need to think bigger. Moreover, your team isn’t going to be inspired or motivated by wimpy goals. Too many people toil away on the planning part and never really have the end goal in mind. Goal first, strategy later. You need to visualize your goals every day. Use a vision board to help you do this.
Rule 6: Know When to Push and When to Let Go

Getting from point A to point B is never a straight line. Sometimes, along the way, you’ll figure out that it’s not even point B you’re after. It’s point C. Time to stop climbing one mountain and head up another. Other times you know exactly where it is that you want to go, but your approach isn’t working. It’s time for a new line of attack. The point is to take a step back and get perspective every once and a while. If you can clearly see that what you’re doing will get you up the right mountain, by all means push. Just be open to letting go, if you have to. Not everything you do is going to work. Yes, this sucks. It’s no fun. Clean yourself off and get back in the game. And please learn from your mistakes. There’s nothing worse than watching people make the same mistakes over and over: “To keep doing the same thing while expecting different results is the definition of insanity.”
Rule 7: Learn to Love Systems, Processes and Numbers

Once upon a time I was a corporate guy. I worked at the Boston Consulting Company and then at eBay. When I started my own company, I believed I had freed myself from the tyranny of systems, spreadsheets and KPIs. I learned the hard way. Systems, processes and numbers are the core of a well run company, especially one that can run on autopilot. Now we automate one business (website) at a time and spend our time looking out for the next big project. We now have a nice system for rolling out a website each month. Also remember to measure and test everything. When the business is your baby, your heart can be in it too much. Numbers won’t lie. Last thing: make sure everyone in the company knows the numbers – nothing is more empowering than showing them the impact of their efforts.
Rule 8: Work ON Your Business not IN Your Business

What exactly does this mean? It means you should be constantly delegating. If you’re still buying the cookies for the office when you have a staff of more than 20 people, as I was doing two years ago, you must STOP. Everything that is required to RUN your business should be delegated. What you should be doing is coming up with new ideas, innovations, products, markets, etc. You should be taking in the big picture and diving in and out when your direct attention is required. Stop micro-managing and trust people. If you really don’t trust your team, you need to get new people on your bus (See Rule 1).
Rule 9: Always be Learning and Experimenting

If you’re not growing, you’re dying. The most successful people do three simple things: 1) They always learn new things; 2) They always try new things; and 3) They never give up. A fellow joined MindValley about a year ago, and he brought with him such a hunger for knowledge it completely changed the company. Now we encourage staff at MindValley to spend 10% of their time on learning and developing their work-related skills. Doing this will change your company. The person you had a meeting with last month will be a different person than the one you meet with this month. I don’t want to work in a boring place, so this emphasis on learning and experimentation keeps things hopping.
Rule 10: Do What You Love and Love What You Do

Follow your heart. Cheesy, but true. Don’t listen to your Dad who wants you to be an engineer. Stop taking advice from your Mom who thinks you’d make a great lawyer. If it’s your calling to open a scuba diving shop in Panama, go for it. If you love it, you’ll probably make a good living doing it, and you can visit home any time you want. You only have one life. What point is there in living it for someone else? When you’re doing what you’re supposed to be doing, it doesn’t really feel like work. From my experience, it feels more like a game. There are so many people out there trapped in this idea of what life should be: 9-to-5 for forty-something years and then a few years of retirement. Life is about experiences and giving back. Take stock of your natural strengths and what you enjoy doing, this will help you carve out a life of joy, abundance and success."

What customers want

2010-04-24T00:07:00.000+05:30

What customers want

Why MBA's often make crappy entrepreneurs

2010-04-18T22:39:00.000+05:30

"VC' don't give a shit about research packed PPT's. Do you have paying customers?"
Read this: Stu Wall Blog

Smartest Indian Entrepreneur

2010-04-04T23:11:00.001+05:30

This post originally appeared on Forbes.com and written by Sramana Mitra.I hope, you enjoy it.

Entrepreneur Marc Benioff is afraid of him. Venture king Mike Moritz wants to invest in him.

You have never heard of Sridhar Vembu, founder and CEO of AdventNet, the company behind newly launched productivity suite Zoho.

Vembu is a low-profile guy if there ever was one. He is also cheap as hell. Yet, of course, you know that among entrepreneurs, frugality is a virtue. A tremendous virtue.

Vembu has stretched this virtue to extreme limits, and added layers and layers of creativity upon it. The result? A 100%, bootstrapped, $40-million-a-year revenue business that sends $1 million to the bank every month in profits.

Doing what? you might wonder.

Selling network management tools, to be precise. But with a unique twist. Vembu employs 600 people in Chennai, India, and a mere eight in Silicon Valley. Imagine what that does to his cost structure!

Not only that, in India Vembu's operation does not hire engineers with highflying degrees from one of the prestigious India Institutes of Technology, thereby squeezing his cost advantage.

"We hire young professionals whom others disregard," Vembu says. "We don't look at colleges, degrees or grades. Not everyone in India comes from a socio-economic background to get the opportunity to go to a top-ranking engineering school, but many are really smart regardless.

"We even go to poor high schools, and hire those kids who are bright but are not going to college due to pressure to start making money right away," Vembu continues. "They need to support their families. We train them, and in nine months, they produce at the level of college grads. Their resumes are not as marketable, but I tell you, these kids can code just as well as the rest. Often, better.???

With that rather unique workforce of 600 engineers, Vembu has not only built an excellent, cash-cow, network tools business, but he recently launched Zoho, which is getting a lot of buzz in the Web 2.0 community.

Why?

Well, Zoho does everything that you would do with Microsoft Office. It also has a hosted customer relationship management service that is free for very small companies and only costs $10 per user per month for larger ones. It competes with Salesforce.com (nyse: CRM - news - people ), which charges $65 per user per month.

Marc Benioff, chief executive of Salesforce.com, has made an offer to buy Zoho for an undisclosed amount. Benioff seems appropriately nervous, since Salesforce.com's sales and administration costs are high, eating up most of his earnings. Can he afford to compete if Zoho undercuts him at such a dramatic scale?

Vembu has turned Benioff down.

Many venture capitalists want to invest. Vembu's situation is one that every entrepreneur dreams of. You don't need money. VCs are chasing you. Freedom is delicious, and Vembu knows it.

Vembu has a very exciting opportunity ahead of him. What the Chinese have done in manufacturing, he is showing that the Indians can do in software: undercut U.S. and European software makers dramatically. Not in information technology services. Not by body shopping. Vembu has done something few Indian entrepreneurs have been able to achieve--build a true "product" company out of India. This is not a head count-based business model.

A brief primer would perhaps help put things in perspective. "Product" companies build once and then market and sell the same thing multiple times to multiple customers. "Services" companies that do custom software development have to use "bodies" to do customer-specific development over and over again, with limited leverage. Theirs is a head count-based business model. Recently, popular software-as-a-service companies have come up with the model of "renting" software over the Web, thereby offering "products" as "services" while maintaining the scalability advantage of products.

Vembu has first done a network management product. Then he has done productivity suite Zoho as a software-as-a-service.

True, Vembu is a rare species in India these days. As far as I know, he's one of the very few entrepreneurs who has been able to execute on the premise of building software "products" and/or software-as-a-service out of India. He has a big vision, and so far, he has executed flawlessly.

Watch this guy!

The Dream

2010-04-04T12:55:00.000+05:30

Recently, I finished reading the book. It is one of the best books I have ever read on entrepreneurship. Especially, if you are starting up and an Indian, it is a must-read. Gurbaksh has compiled all his learning in a succinct manner at the end of the book. Don't miss it.

3P's of Entrepreneurship

2010-03-24T13:31:00.002+05:30

Video on 3P's at Stanford E-Corner: http://ecorner.stanford.edu/authorMaterialInfo.html;jsessionid=00B1A69E0E2E31919C1EB92DA1E8E09B?mid=2363
Description:
People, passion, perseverance. Former AOL CEO and Chairman Steve Case describes these words as the bedrock of successful entrepreneurship. Heading into what may be a "golden era of entrepreneurship," he says that he relies on the "three p's" as assessment tools to help guide his direction and goals. When all of the three parts are in balance, an entrepreneur can achieve success like that of AOL; when they aren't, you get the failure of the AOL-Time Warner merger.

Skin in the game

2010-02-25T20:06:00.004+05:30

Dear readers,

First of all, apology for writing after a long time.
I wanted to write this post to highlight the importance of "Perseverance".
It is one of the most important trait that an entrepreneur must have. It is just very easy to pronounce this single word. But, it really takes skin the game to hold on till things get better and better and better.

Well, honestly, the market on one side is really very nasty and mean. On the other side, lies the greener grass: high rewarding market. It is very easy to give up when things go wrong. And feelings of having a King-Style Lifestyle daily haunts an entrepreneur: get a good high paying job in aborad, get settled, have fun with friends and family. This is the comfort zone. And then comes the wave of creative force and feelings: let us build this company, let us change the world and of course, wealth. I have learned from a lot of entrepreneurs that startup is a long haul, a marathon. There is no short cut. If you have the balls to stay in the game and maintain a fresh perspective everyday, you are made for it. As they say, there is only a fine line between passion and comfort.

From my most recent experiences, I learned that just to have enough patience and putting yourself at stake creates opportunities and surprises. It is not about how hard you hit. It is all about how hard can you get hit and stand upright. Entrepreneurship is a game of inches, not homeruns. I read this quote on Morpheus Venture Partners website and thought of sharing it with all of you.

“It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.”

Theodore Roosevelt
“Citizenship in a Republic,”

Stay Hungry and Stay Foolish

Thanking you for reading. Please send your feedback for more healthy conversation. Please comment.

Start 2010 by Good Reading

2010-01-20T20:05:00.001+05:30

A must read for all starters
Click here
GP

Institutional Business vs. Jugaad

2010-01-20T18:45:00.003+05:30

First of all,
A great happy new year to all readers.
Recently, I came across this TED talk that talks about Jugaad.
Mark Emanuelson shares a concept he learned more about at TEDIndia:Jugaad.
So what is the key to success in India? How does a country full of big constraints like poverty and creaking infrastructure still manage to grow so fast? The answer is what some call “Jugaad".

To understand more about Indian consumers, listen to this
http://bit.ly/8lVCYw

Thanks and Regards
Gurpawan

Customer Centric Concurrent Business

2009-12-23T12:28:00.006+05:30

Hey, I am writing this post to stress on the importance of product/market fit. Product fit is very critical from point of view of marketers and product development team. I would rather call it as Concurrent Business. Concurrent business means that product development is more comprehensive and incorporates critical business functions simultaneously, specifically, marketing and technical. In more traditional business language, you can call it as a blend of market research and product development.

No wonder! a group of techies make a product. They claim they made a great product. Then, after few months, they don't see enough traction and the final words, "We built something that no body wants". Is it really easy to kick off start-ups from the ground? Do you really think that you have made something that is really game changing? Can you gain some immediate traction and in turn, earn some revenue.

For example, you have built a feature Y in your product X based on your brainstorming and intution. However, when you take this product to the actual user, he says, "I don't need it". Then you feel frustrated and think,"I have spent hours of time and energy in building this feature and this person doesn't need it. May be, he is immature enough to understand what I have to offer or he is not the right target audience." Then, you also think that my target customers have to be educated so that they understand the feature. If you are ignorant, you would probably say, he is a fool!

One thing is sure that customers are everything. You are trying to outsmart your own customer. Beware! your customer is not fool! but, you are! If you would have put some effort in understanding what the customer needs and likes, you would have saved your time, effort and money. Some companies call this process as Customer-centric.
I define it as a concurrent business, where product development involves customers, technical team, marketing, sales and your intuition & brainstorming. I am sure, you don't want to be in a situation of grind where you just say, "we built something that no body wants".

What really important is to entail feedback from your early adopters in the process of product development. Just capturing requirements is not enough! It is an iterative process. Build a great relationship with your early adopters and incentivise them. Sometimes, it is not easy to find early adopters. If it is too hard, then probably, you have not thought enough before starting your business. Product must be directly proportional to your potential customer. One thing is sure that if your sales people say, "Product is real hard sell", then your product definitely needs more development or idea is crap. Accept the facts and reality. Face it.

How do you ensure the product market fit? There are a lot of metrics one can put to measure product/market fit. One such powerful metrics was highlighted by Sean Ellis in his most recent interview at Venture Hacks. He says that if 40% of the people you survey for product feedback claim to be disappointed in case your product is absent from the market, your product is ready to accelerate in the market. I strongly recommend to listen to this podcast. Click here

Thank you
GP

Systems and Coffee

2009-12-15T21:54:00.002+05:30

If you have not read, High Performance Entrepreneur by Subroto Bagchi, you are seriously missing something! Well, guess what, this post is dedicated to highlight the importance of Big Picture Thinking.

I really learned a very hard lesson during my attempt to kick off my second venture. It is always not easy to replicate success (as I thought after getting some success in my first one). It is very critical to remove inefficiencies from the system, if one wants to create a performance oriented organization. I had the notion that it is the people, who make the company. Well! I was wrong! It is not the people, but the process. Focus on creating a series of processes called system and fit people into it. If one of your good people leaves tomorrow, you don't have to worry. System exists and somebody else will take the place. Lesson: Make a system driven company rather than a people driven company. Systems stay, people leave

Most entrepreneurs, every day, face problems: never enough time, or money, or people. Some entrepreneurs face even more dire constraints: old businesses, new competition, or falling prices. Sometimes it?s so tempting to roll over, and give up.

Weathering the storms, being able to look beyond a crisis and maintain freshness of thought to find a way out, to spot the opportunity - hard to do. But certainly one of the keys to successful high-performance entrepreneurship, believes Subroto Bagchi. He calls it "big picture thinking."

Subroto Bagchi, one of India?s most successful entrepreneurs and co-founder of Mindtree Consulting, believes that high performance entrepreneurship is all about tapping an opportunity behind an inventive thought. He has examined some clear successes to see where those thoughts originate.

In particular, Subroto shares the story behind one of India's best known leisure brands: Cafe Coffee Day. How many of those sipping the brew, chatting with friends at any one of the 300-plus outlets across the world, know that Cafe Coffee Day has its roots in potential failure?.

Subroto recounts, "Siddhartha's family comes from Chikmagalur in Karnataka, and has grown coffee for generations. Siddhartha studied commerce in Bangalore and while doing his Masters in Mysore, left his studies midway and took a bus to Mumbai. There, in a departure from the family occupation of growing coffee, he started trading in stocks and made money, and got drawn to the world of investment in a big way.

Eventually, he returned to the family business but was not happy with the size of their ambition. He wanted to make it really big. Over the years, the cultivation grew from a few hundred acres to 10,000 acres!.

The reason for the growth was partly driven by his desire to increase the cultivation, but in part it was because traditional growers were fed up with the fickle coffee prices. Many coffee estates were up for sale. As with any other agricultural crop, coffee-growing is a lot of hard work. The coffee requires year-round care: you raise it from a seedling to a berry-bearing shrub. You irrigate the plants only when it is needed, and to exactly the rightly the right extent. You shade them and keep wild animals at bay. After the crop is harvested, you get to know that the international coffee market has a glut and no one wants to buy your coffee even at the cost price. The cycle became so unpredictable that many growers just gave up.

Estate after estate started closing down. An EI Nino, thousands of miles away, could decide a coffee grower's future in India. Siddhartha started buying up coffee estates that were going out of business.

At the same time, Siddhartha was feeling helpless?how do you carry on with a business in which you have absolutely no say regarding pricing? When he looked at the basics of grows about 120 million bags of coffee every year. The price of that crop is approximately $7 billion. But when the same bean is retailed and becomes coffee in your cup, the value becomes $100 billion! The grower cannot determine his price, but nobody ever has gone and haggled over the price of a cup of coffee anywhere in the world. You pay whatever the person at the counter asks for.
Siddhartha thought to himself that instead of moaning about EI Nino and international coffee cartels, the thing to do was to chase the $100 billion opportunity and not the $7 billion problem. He called in his advertising agency and they heard him out, but cautioned him against retailing coffee. They said, and rightly so, that the coffee market was growing at a mere 2 per cent annually. The mom-and-dad-two-kids in a south Indian home were actually even reducing their coffee intake. To Siddhartha, however, that was not the market.

He wanted young boys and girls in cities and towns, college-going teenagers, to drink his brew. He wanted them to come and hang out in bright, fun places where they could drink their choice of coffee, watch music videos, snack on a piece of cake or a sandwich, and check their e-mail.

In 1993, cafe coffee Day was born to the tagline 'A lot can happen over a cup of coffee'. Today, the Cafe Coffee Day chain has 302 outlets in sixty-five cities and towns all over India. While coffee-drinking in homes was either coming down or stagnating, Siddhartha saw coffee becoming a 'lifestyle' drink. More than just the brew went into the creation of the Cafe Coffee Day enterprise. This is what is called the big-picture thinking."

"The germination of an idea can happen in solitude and may not seem workable to people around you, but if you strongly, passionately believe in it with a big picture perspective, then you can certainly make it happen," concludes Subroto.

What Makes an Entrepreneur? (1/11) – Tenacity

2009-12-15T16:53:00.000+05:30

What Makes an Entrepreneur? (1/11) – Tenacity: "

This is part of my new series on what makes an entrepreneur successful. I originally posted it on VentureHacks, one of my favorite websites for entrepreneurs. If you haven’t spent time over there you should.

I wanted to also post the series here to have it as a resource on my blog for future entrepreneurs who stop by. I wanted to get the conversation going in the comments section around each topic because I think as much value comes from the comments section as comes from the original post (as I noted in this post: Comments are the New Black). And so I’ll elaborate on some of the topics more than I did in my VentureHacks post to try and make it worthwhile for anybody who read it over there.

One of the questions I’m most often asked as a VC is what I’m looking for in an investment. For me I’ve stated publicly that 70% of my investment decision is the team and most of this is skewed toward the founders. I’ve watched people who went to the top schools, got the best grades and worked for all the right companies flame out.

So what skills does it take to be a successful entrepreneur? What attributes am I looking for during the process? Having been through the experience as an entrepreneur twice myself I have developed a list of what I think it takes. This post covers the first out of 10 that I’ll write about.

1. Tenacity – Tenacity is probably the most important attribute in an entrepreneur. It’s the person who never gives up – who never accepts “no” for an answer. The world is filled with doubters who say that things can’t be done and then pronounce after the fact that they “knew it all along.” Look at Google. You think that anybody really believed 1999 that two young kids out of Stanford had a shot at unseating Yahoo!, Excite, Ask Jeeves and Lycos? Yeah, right. Trust me, whatever you want to build you’ll be told by most VC’s something like, “Social networking has already been done,” “You’ll never get a telecom carrier deal done,” or “Google already has a product in this area.” You’ll be told by the people you want to recruit that they’re not sure about joining, by a landlord that you’ll need a year’s deposit or by a potential business development partner that they’re too busy to work with you, “come back in 6 months.”

If you’re already running a startup you know all this. But some founders have that extra quality that makes them never give up. At times it goes as far as being chutzpah. And I see this extra dose of tenacity in only about 1 of 10 entrepreneurs that I see. And if you’re not naturally one of these people you probably know it, too. You see that peer who always pushes things further than you normally would. What are you going to get further out of your comfort zone and be more tenacious? It is really what separates the wheat from the chaff.

I once had a debate with a prominent VC on a panel. The moderator asked the question, “if an entrepreneur writes an email to a VC and doesn’t hear back what should they do?” This VC responded, “Move on. Next on the checklist. He’s not interested.” Without much thought I shot back, “That’s the worst advice I’ve ever heard someone give an entrepreneur.” Doh. I almost couldn’t believe I had blurted it out, but what came out of my mouth was so heart felt that it just rolled out.

If you fold at the first un-returned email what hope to you have as an entrepreneur? As an entrepreneur people who aren’t going to respond to you and it’s your responsibility to politely and assertively stay on people’s radar screen. You no longer work for Google, Oracle, Salesforce.com or McKinsey where everybody calls you back. You had no idea how important that brand name was until you left it behind. Your customers don’t care that you went to Stanford, Harvard or MIT. It’s just you now. And frankly if you went to a state college in Florida you’re at no disadvantage in the tenacity column. Persistence will pay off.

An example

When I launched my second company I was new to Silicon Valley. I had spent the previous 11 years in Europe and Japan. My company was relatively unknown. We were launching a cloud-based document management into a space that was increasingly being called Enterprise 2.0. It just so happened that there was a conference coming up run by a guy named Ismael Ghalimi, a very well respected software executive who also was keeping a blog at the time for companies in the space.

He was having his first ever conference and people from the who’s who of VC firms in Silicon Valley would be attending. There were also press and other senior executives from the sector. I got my friends over at Lewis PR to give me an introduction to Ismael, who kindly invited me to present at the conference. He sent me the schedule and I was to speak on the second day in an afternoon session in a break-out room. Ugh.

I wrote to Ismael requesting that I be on in the first day and in a panel on the main stage with Om Malik, Shel Israel, Rajen Sheth (from Google), Karen Leavitt (WebEx) and Ismael himself. He wrote back and told me it wasn’t going to be possible. I emailed him back with my bona fides and made the case again. He, being the nicest guy in the world, very politely told me it wasn’t possible. I had a friend email him and tell him what a great panelist I was. I called Ismael directly. I came up lots of reasons why I was the perfect fit. He said he would think about it but that the stage was already crowded. “Yes, but you don’t have any startups on the stage. I think it would make a better balance.”

I asked him to breakfast to talk about it. I know he didn’t really want me on the panel but I knew it was too important for me in gaining recognition. I walked the very fine line between pushing the boundaries with my chutzpah but not crossing the line. In the end he relented and this was a very important session for me in building out early awareness for Koral. The picture above is from the actual event courtesy of Dan Farber who was writing for ZDNet. And in the end I became quite good friends with Ismael, whom I miss since I’ve moved to LA.

For those who know me well know that this is just a normal day in the life of Mark Suster. It’s not always pretty, but it’s part of my DNA. I can’t help it. And it’s one of the things I look for in entrepreneurs I evaluate. Some companies don’t push hard enough. Others cross the line. I wish I could tell you some formula for the right amount of chutzpah but I’ve always said it’s a bit like art – you know it when you see it.

Some related articles for you if you haven’t read them related to tenacity:

- How to follow up with a VC

- How to build relationships with a VC

5% stake with $170mn company valuation

2009-12-14T16:52:00.002+05:30

Do you think a startup can make you rich? You might have given a thought! I wonder, I would have joined mint.com for 5% equity that was sold for $ 170mn and 5% of 170mn ....Man..I can buy a matching yatchet

If you don't learn about equity dilution now, be prepared for a shock. Understand stock dilution before you sign your employment agreement and you'll be happy you did.

Let's say, for example, that you signed up to be COO of a startup company and the CEO founder offered you 5% of the company. The CEO says there's no funding in the bank yet, so you'll have to sign up for a low salary -- $50,000 per year.

But he assures you that he's had conversations with venture capitalists
and there's a sense that if things go right, the company might one day sell for $100 million.

Hmmm, you think. 5% -- not bad. If we sell this thing for $100 million, I will walk away with $5 million.

WRONG!

Your math failed to take into account stock dilution. That's the effect the issuance of new equity shares has on the existing shareholders.

Let's go back to our example and see how stock dilution works in action.

You take the job and get 5% of the company.

Odds are you don't get it all at once -- it's probably subject to a vesting schedule and it might only be stock options -- but that's not really relevant to our equity dilution lesson.

How much is 5% of your pre-funding company worth?

Not much. In fact, until there's a funding round you don't really know what it's worth.

A funding round is important to entrepreneurs and their employees because it's a milestone that values the underlying stock of the company.

So, let's say that a year after you've been working as the COO of the company, you and the CEO are finally able to land a funding round.

The funders says they will give you $700,000 in capital for 35% of the company.

What exactly does that mean?

It means that the total valuation of the company after they put their money in will be equal to $700,000/.35, or $2,000,000.

In VC terminology, that's the post-money valuation. The pre-money valuation is therefore $1,300,000. That's the post-money valuation minus the value of the cash that is coming into the business as part of the funding round.

So, after the funding round, the valuation is $2,000,000 and you had 5% equity in the company, so now you're equity stake is worth $100,000, right?

WRONG!

Equity dilution knocks down your percentage stake in the business.

Here's how equity dilution works in this scenario.

Let's say there were 1,000,000 issued shares prior to the funding round. In order for the new investors to get a 35% equity stake, they need to be issued new shares.

How many shares?

It's a simple algebra problem. Let x be the number of new shares that need to be issued. The equation becomes:

x / (1,000,000 + x) = .35

Solving for x implies that 538,462 new shares must be issued to the investors.

The math says that it should be 538,461.5 but there's no such thing as half a share so we round up. Believe me, investors won't round down. If there's something on the table to be taken, they will likely grab it.

So, now the total number of shares in the company is 1,538,462. What your percentage equity stake in the company?

Well, you were allocated 5% of the 1,000,000 shares so you had 50,000 equity shares before the funding round.

After the funding round, you still have 50,000 shares.

So, now, your diluted equity stake in the company is 50,000/1,538,462, or 3.25%.

How much is it worth?

The answer is simply .0325 x $2,000,000. That's your percentage equity stake times the post-money valuation. As it turns out, your stake is worth $65,000, not $100,000 as you might have thought.

If the company were to sell for $100 million now, after the first round of venture funding is in the bank, you 3.25% stake would be worth $3.25 million, not the $5 million you thought you'd get before you learned about equity dilution.

Notice that there was an easier way to figure out your post-dilution equity stake. You gave away 35% of the company in the financing round, so your 5% was knocked down by a .65 dilution factor -- that's what you got to keep, in effect. So, 5% times .065 gives you the 3.25%. It's the same answer, but it's a quick way of calculating the effect of dilution on your equity stake.

Mind you, this is just your first round of dilution. If the company has to do a second round and gives away 40% of the company to new investors, then you've got to knock your 3.25% equity stake down by a .60 dilution factor. After that second round, your ownership stake will be down to 1.95%.

Is that good or bad? It depends.

If the post-money valuation on the second financing round is $1 billion, your stake is only worth $19,500,000. Not bad!

If the post-money valuation on the second round is $2,500,000, then your equity stake is only worth $40,950. Given the salary cut you took to get in on the action for this startup, this is a pretty miserable scenario.

Adding insult to injury is the fact that your equity stake's valuation is not real -- it's just a paper value. In a startup company there's usually no liquidity unless there's an exit event of some kind -- for example, maybe the company goes public or the company is sold to an acquiring company. At that time, you finally get to know what your stock is really worth.

What's the moral of the story?

Well, for starters, you can see that somebody who doesn't understand equity dilution is going to be overly optimistic about their likely take in a startup. They may be more willing to take a lower salary than they should be, or more willing to take a lower equity stake than they should be.

Now that you understand equity dilution, you won't make that mistake. You'll properly evaluate potential outcomes and likely funding scenarios and their dilutionary effect on your stake.

Based on your equity dilution analysis, I hope you'll make smart decisions. Good luck!

The Self Aware Founder – Tough Route?

2009-12-14T16:37:00.000+05:30

The Self Aware Founder – Tough Route?: "

A CEO’s job, like any leader’s, is a lonely one. The CEO of a startup is especially lonely. He’s expected to manage finances and investors, the board, motivate employees while dealing with recalcitrant ones, engage with, influence and grow relationships with key customers, partners, suppliers and industry players. The CEO needs to be emotionally strong to deal with all the pulls and pushes. And has to always present a sunny disposition even when times are difficult.

It is a job that requires enormous confidence and humility. Confidence to keep executing towards the goals of the company and humility to keep learning and unlearning. Not surprisingly, these are uncommon traits that only the more successful CEOs have. Rarer too is the desire to know one’s weaknesses and the willingness to work on improving oneself.

Self Aware Entrepreneur

I was therefore delighted when I recently received an email from a CEO saying he wanted an honest appraisal from me of his leadership. He had commissioned a 360degree appraisal of himself to understand his limitations and how his leadership style is perceived by others around him. He had set ambitious (audacious?) goals for his company and believed that the market presented the opportunity to realise those goals. He was also humble and more importantly, displayed amazing self-awareness, in realizing that he did not possess the capabilities and qualities necessary to lead the company towards those goals. And he wanted to understand what those limitations were.

How many of us do or would do the same? Our egos would come in the way, our insecurities and fears would prevent us from an honest self-assessment. CEOs who aren’t self aware tend to be insecure and in extreme cases become delusional surrounding themselves with sycophants and yes-men. Constructive feedback on capabilities, need for improvement and development of inter-personal skills especially in groups need maturity and self-awareness to appreciate and internalize

Obviously, there are different types of leaders. Some self-aware and others not quite. To become an objective evaluator of oneself including one’s behaviour and values is not a trivial task. It requires one to be conscious, serious and committed to transformation. One has to first manage oneself effectively before one can manage others and/or a business, let alone transform them. Self-awareness, self-esteem and confidence are required to do this; they’re connected and entrepreneurs tend to implicitly know and react to these concepts in practice. It leads to people being honest with one another, acknowledging that they don’t have all the answers and that they’re keen to learn from outside. It is OK for the CEO to say, “I don’t know” but it is not OK to be defensive or otherwise to be a “know it all”. This results in the CEO’s credibility getting enhanced and his points being respected. Such credible honest behaviour also creates an organization with low levels of politicking. It ensures that one doesn’t become judgemental about events, situations and others. Learning to listen and marshalling the facts and data before arriving at a decision therefore become far easier to achieve.

The first step in problem solving is to recognize there’s a problem and then to identify the source(s) of the problem. Only then can any problem be resolved.

Daniel Goleman, whose studies and practice of meditation in India decades ago played a crucial role in his developing the celebrated theory of Emotional Intelligence, describes self-awareness as a critical competency of high achievers. Being self-aware, they realise their strengths and weakness and are comfortable with the realization. They surround themselves with the appropriate talented and competent people who then fill in the gaps, so to speak.

The result? A well-rounded, competent, complementary team consisting of team members who’re comfortable with each other and with the company’s goals. There’s no dissonance with regard to values, objectives and action.

As the saying goes, all bottlenecks are at the top of the bottle! And self-awareness has to start from the top of the organization.

What do you think?

_______________________________________________________________________

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay (at) jumpstartup.net. The views expressed here are his own.

The article first appeared in FE and is reproduced with author’s permission.

img credit

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The Self Aware Founder – Tough Route?

Rocket Singh Salesman – Can Startups Really Hire Him?

2009-12-14T13:21:00.000+05:30

Rocket Singh Salesman – Can Startups Really Hire Him?: "

I just watched Rocket Singh Salesman of the Year movie and couldn’t help, but related to one of the articles earlier published @pluggdin (Ethics, Startups and the case for being ‘Practical’).

First a little bit about Rocket Singh Salesman movie.

The movie is about Harpreet Singh Bedi (Ranbir Kapoor), an average student blessed with charming personality. After trying out his luck with MBA, he decides to get into sales and surprisingly, he actually cracks it. But after a certain point in time, question of ethics come in – like any sales person, he needs to decide between ethics and ‘practical’ aspect of business. While what he does is a no-brainer, the movie takes the cake with great sense of humour and honesty.

Rocket Singh Salesman of the year

Reviewing movie @ pluggd.in isn’t something I am here for (heck! they won’t let me do that), but being a startup in mobile vas space, we have faced similar ‘ethical’ challenges and wanted to share my experience with the entrepreneurial community.

To give you certain context, we build vas services and without operators we are like fish without water. Operators do not care to speak to small companies like us and one needs to really pursue them for a meeting (that’s where Rocket Singh’s persuasion skill helps).

What sometimes works is when you show them some “real-but-somewhat-fake” big numbers, when you show them ‘big names/advisors’ in your company advisory board (who are just name sake and have allowed us to put their names in our presentation for percentage equity) – and even though we feel a little ‘unethical’ about this, this is how business seems to work (yes, we cracked one deal and will announce the details when the timing is right).

Coming back to the movie, Rocket Singh Salesman of the Year is an awesome feel-good movie, but if you are a startup/small business, do think whether you want to hire Rocket Singh as your salesman.

Extracting from another article (Startups and the ‘Blurred’ line of Ethics – Where do you draw the line?), there are enough examples from Silicon Valley where companies like YouTube/Orkut have crossed ‘that’ thin line of ethics and practicality – and like it or not, it has worked for them.

——-

Case in Point – YouTube’s Growth

If you thought YouTube’s initial success was purely a result of UGC – get ready for a shock.

The tipping point actually came from Lazy Sunday, a hilarious Saturday Night Live skit (from NBC Univeral) which exploded on the Web in January 2006, generating over 5 million views for Youtube.

Lazy Sunday @YouTube

Even though lazy Sunday was available on iTunes (on subscription basis), people hopped to YouTube for free videos. And that set the viral growth for the product.

Was it legal to put up a subscription-only video for free on the Internet? Did YouTube ever tried track down the piracy? Not actively.

They essentially followed the “wait-till-we-get-DMCA” approach, and it worked. It did set the traffic numbers and adoption right.

—–

Infact, once you start a company you actually outsource a lot of unethical practices to service companies – for example, the bribe one needs to pay for registration (well, you can always waste time in getting it done yourself) is actually outsourced to a CA (who sells a packaged service).

What I am trying to say here is that businesses do have their notion of ethics and sometimes it’s really a difficult choice to choose between ethics and practical solution.

And if you have Rocket Singh as the salesman, you might lose out to your competitor who is far more practical and has a ‘cozy’ relationship with clients (call it short-sightedness, but I do get goose bumps every month end, when I have to figure out how to pay salary to my employees)

Question to entrepreneurs – what has been your experience doing business with big clients?

100% Ethical or somewhat practical?

Note from Ashish – Guest article by Ashwin, whom I have known for several years (and seen his struggle with operators) and trust him for his experience.

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Rocket Singh Salesman – Can Startups Really Hire Him?