Sunday, May 26, 2013

What's your excuse?

I've been a businessman almost all of my working life.. I've been selling apparel in USA for close to 10 years, and have travelled here multiple times. But I'd never been to the Bay Area and had never interacted with startups before.

Over the last year or so, I've had the good fortune of interacting and creating beautiful friendships within the Mumbai Startup Ecosystem. I've also had a very slow period of work at my Apparel company which I've been retooling for a while. Hence I haven't travelled to the USA in the last 3 years or so - which is a very long time.

On my recent trip here, I had a rather different perspective than previous trips. Now that I've had a lot of exposure to startups in India, and am in the process of building out my own startups, launching 2 new businesses, and advising / consulting with other startups for fulfillment in India, my perspective was of a startup founder, not a small businessman.

So this was my first trip to the Bay Area, which is like Hollywood for Startups (I've been staying in LA for the last 10 days so forgive the cliches / comparisons). And I noticed a lot of interesting factors here that may or may not completely resonate with most of the startup community either here or in the USA.

Before I start on my rant, a few caveats:

- These are my personal observations, and the evidence is extremely anecdotal in nature.
- I am referring to startups that rely on either transactions or subscriptions for revenue.
- I am not a big fan of advertising-based startups simply because they need tremendous scale to be profitable. Those are also the Outliers in the current scenario.
- I am not deriding anyone. I'm just pointing out some facts as I see them.
- I am not discouraging startups from following their gut / instinct / path / etc. 


1. So the first point I want to make is that I dont understand the difference between a startup and a business. Dave McClure pointed out in his answer to this Quora post that the difference between a business and a Startup is that a Startup is trying to find out what it's product is, who it's customers are and knows how to make money. Thats a beautiful explanation, and in my opinion, without these 3 things, Nobody should even start a business, let alone ask for other peoples' money before testing their concepts.

2. The era of making mistakes with other peoples money (OPM) is dying fast. It's still prevalent in the Valley, but only for great entrepreneurs and some kick ass teams who have the confidence of Seed Stage Investors / Angels. Debacles like Color are ensuring that even previously successful entrepreneurs don't have a paved road to fundraise and "figure it out".

3. Raising money is harder than ever, even at the angel stage / seed stage where money seems to be "plentiful". Startups are struggling to put together seed rounds 6-8 months after demo days. Eeveryone's unduly worried about a Series A, but the fact on the ground is that Nobody seems to be able to raise the early stage / seed round they need without:
a) A clear cut revenue model 
b) A road to profitability (if not cashflow positive yet) 
c) Strong customer insights
d) A great execution capability and 
e) Operational experience (to avoid crashes while scaling)

4. Distance matters. The surprising fact is that whether you are in L.A. or Bombay, it is all the same to VCs / Investors in the Valley. Angels and Investors will not invest in startups outside the Valley. As Mark Suster puts it in his blog post here, Investors are not inclined to invest in startups they cannot oversee. And the truth is raising successive rounds of capital is tougher even if you've raised your 1st round of capital, if you're outside the Bay Area.

5. Investors don't care about your company enough to save it. Investors are turning more and more "ruthless" about the funds they deploy. Don't expect investors to put good money after (what they consider) a bad investment. Even if you can show them the promise of better execution, fewer errors and a road to EBITDA profitability, increasingly their stance is that if you haven't figured it out with your Seed Stage funding yet, you probably won't be able to figure it out down the road. They'd rather cut their losses and walk. 

6. You need to be self-sustaining. Lifestyle businesses are not unsexy. In fact they show that you have the chops to run a business day to day without external help or funding. They are happy to see you slug it out for 8-12 months before they feel you can be funded for scale. They dont want to subsidise your losses. They want to double down on your ability to replicate a profitable business model. Angelpad's latest lineup are all B2B cashflow businesses. The message is clear: Get profitable with your Seed Round or chances are, you will die. COGS (Cost of Goods / Services) is no longer an irritant. Operational Streamlining cannot be postponed. Increasingly a lot of startups who have learnt to stay lean and grow slowly are being liked by Investors. Maybe Indian investors asking for discipline with funds are not that bad after all.

7. Incubators and Accelerators are helpful. Not omnipresent. Incubators like 500Startups, yCombinator, Angelpad are not a Panacea for early stage companies. These incubators are very clear that they are rolling the dice in backing the companies. Their business model is structured that their incubator fees are paid and are unlinked to their investment objectives. Also, the funding is rarely more than 50,000 - 120,000 USD in equity funding. For a US based startup or a startup visiting USA, these funds are a 6 - 9 month runway. After that? Without a sustainable revenue base and a profitable transaction flow, most of these startups will struggle. 

8. VC is changing, evolving. As this article that was retweeted by many VCs points out, LPs aren't too enamoured by the consistent failure and inability to produce results from VC firms. VC Fund sizes are shrinking, and even though there are still a number of exits that are returning money to LPs, they are not converting into larger size funds that can support a Series A / B funding for a lot of the startups out there for the next few years. What these exits are doing is creating more early stage investors who are able to spread their risk by investing in a lot of startups in the hope that atleast 1 or 2 of them will go ALL the way. Is your startup that one?


There is a huge amount of opportunity and a lot of industries begging / crying out to be disrupted. eCommerce opportunities abound. But that's only if you are looking to do business, not raise money and play the valuation game.

I have heard a number of Indian startups lament the fact that Indian investors don't understand them and they're dying because they're stuck in the Indian ecosystem and that if they were in the Valley, they'd get funded because American Investors "get" what they're doing. But, without a clear goal, and a strong emphasis on execution, it seems that even Valley startups are struggling to grow to the size and scale they dream of.






And if you did make the jump to the USA, and were unable to convert your "startup" into a credible, sustainable, self-perpetuating "business", What would be your excuse then?

utekkare,
Pranay


Wednesday, March 27, 2013

Solving a Real Indian Problem

So I read Fred Wilson's blog yesterday where he starts his post with "So I was having lunch with (insert name of powerful but private startup person here) last week and the conversation veered towards (insert topic of blog here)...

I am proud to say that taking this awesome style desi, I was discussing VC attitudes towards tech-enabled startups in India with Pravin Jadhav and Kulin Shah of Social Discovery Website, Wishberg yesterday. In an animated conversation about the kind of problems tech startups are facing while raising funds, Kulin said that one of the key problems in India, while raising VC is having an offline component to your business. If you have even a small offline fulfillment component to the business, VC / Seed funds are loath to touch you, citing "execution" issues and / or "IP problems".

This, I feel points to a much larger problem, and one that deals with both scale and profitability. In truth, a true "tech" startup is one that invites you on a communications network to test, use and buy it's service online (whether on a phone or a tab or the WWW) and fulfills it's deliverables online itself, entailing no physical touchpoints.

*Incidentally Wishberg is such a startup which creates, constructs and delivers a purely online user experience and leverages your user habits to create virality.

However, in INDIA, if you must think about true global scale, your aim must be to create a Billion Dollar Company (by Revenues). However, Most of the problems that can yield these billion dollar opportunities are dirty, disorganised, fragmented offline markets that have traditionally thrived since over 200 years using paper, trust, and recently telephones to generate, negotiate, close and fulfill business - both on a B2B and a B2C level.

To scale to that level in India, you need to take your eye off that pitiful variable number of Indian Internet Users that varies as per convenience, and focus on the larger picture: Almost 1.1 billion people that are not online yet.

Most of these people have not used technology in any meaningful way (Owning a smartphone is far different from using it effectively). To reach those people, you need to use technology as a bridge, not a delivery mechanism. This makes your startup "tech-enabled" not "proprietory tech". Using tech to enable your business gives you scale, speed, distribution, lowered costs of access and a scalable method to handle 100,000 customers.

Some of the most successful startups today are solving real Indian bottlenecks that have eased up people's lives considerably - Startups like RedBus, MeraDoctor, Practo, Mirakle, PayTM, Freecharge and Suvidhaa have done it at awesome to middling scale.

***Any other Indian Startups that you feel are creating completely new value chains in otherwise fragmented markets, please let me know, I will add them here***

There are still many markets / sectors / industries that are ripe for disruption of traditional practices, where technology can provide that killer edge / advantage over entrenched systems and allow for cheaper, more efficient, completely revolutionary methods of scaling and solving business problems.

utekkare,
Pranay

**Plug Alert: At eVitaran, we are attempting to solve the Tier-2 and Tier-3 apparel / textiles distribution problem for low cost unbranded apparel. **


Sunday, March 24, 2013

Community, Not Numbers.

The problem with everything digital is that ultimately all that seems to matter is the numbers. No thoughts, No words, No feelings, No intelligence. Just numbers. Spew out stats, Reel off metrics, Measure the tapelength of your subscriber base, and voila, you have a PPT. There's relative safety in inane numbers.

Last week, we read about the State of the Indian Startup Union. We read the report, then we read feedback on the report. Then we read feedback on feedback on the report. If you want to read my take, it is here on Quora.

But there is more to life than 41% of Startups in Bangalore and 33% of Startups in eCommerce. There is a network. There is a community. There are interwebs that hold and bind and cement our friendships, our relationships and make us become safety nets for one another. There is a trust, a faith that we will ask for nothing materialistic. We will give of ourselves. We will joke and banter and make complete fools of ourselves. But we will also do our best to be there for the next founder. 
 
When I need help with my company or my finances, I will ask Mehul.
When I need some tech advice I will ask Tushar.
Like when I want to buy a mobile phone or meet other founders, I ask Annkur.
When I want to know whether or not to buy a Financial Product, I ask Ronak.
When I need help on cutting through the bullshit on selling a SAAS to SMBs, I ask Avlesh or Sahil. When I'll need to get a phone service, I won't go to Airtel. or Vodafone. I'll ask Vijay.
When I want to attend or plan an event and colllect money for tickets, I will ping Santosh.
When I will need feedback on what I've built, I will harass Pravin or Noel.
When I need an insight into how a VC *really* thinks, I will ask Kulin or Ajeet.
If I need to go backpacking into the Indian hinterland, I will ask SoumPaul for advice.
If I need to go SkyDiving, I will bully Talvinder into giving me a discount.
If I want to know whats going on in Mumbai, I will go visit Garima.
If I want help with studies, I'll message Samudra.  or Rajeev
If I want my home redecorated, I will visit Shubh.
If I need protection from Mafia, I will go to Kris
If I need help organising a Startup Event, I will ask Deven.
If I want to sell my songs or my articles or my time, I will bother Sampad or Akaash
If I need business cards, I will ask Milap. Or even if I want IceCream.
If I want to hustle for customers on my website, I will bargain with Sameer.
If I ever need to serenade my wife with a singing greeting card, I will ask Divyanshu.
If I need help with just anything fantastically techie, I will bug Anirudh or Siddharth or Sushrut.
When I want to sell to Mobile Companies, I will understand their mindset from Sameer Shah.
If I want to hitch a ride in Mumbai, I will ping Raxit.
If I'm hungry, I will ask Ankita to send me some food.
If I want to listen to Music, I will ask Brijesh or Aditya.
If I need stuff for my pets, I will ask Rana
When I need to get information about MBAs, I ask Kartik or Sameer 
If I need a place to work from for a few days, I will ask Shekhar or Gargi
If I want to sell stuff on the internet, I will speak to Nameet or Nitin
If I have lost my phone, I will implore Sarang to restore them.
If I want to know who followed / unfollowed me on any Social Network (soon), I will ask Nischal.
If I need to share news about me or my Startup, or I need some inputs on a sector, I can talk to Jubin or to Ashish or to Srinivas.

These guys have their hands full, running their own Startups and dealing with their demons. They mostly don't have time to think about mundane numbers and/or statistics.

But we try to make each other's lives easier. Not with numbers. But with faith, advice, connections, and honesty.

utekkare,
Pranay

Tuesday, January 15, 2013

Welcome to the Machine

It stands just beyond arms length. It surrounds us, pervades our life and screams at us from the Newspapers. It is multi-hued, and multi-shaped. It does not have a name or a face or a personality. It roams freely and is not bound by truth or honesty or intelligence or talent. It has no trappings and is yet snobbish. It has no physical needs but still occupies the entire world. It sits lightly on people's minds but is too heavy a concept to teach.

It is the Machine. And the code is Money. The key is Money.

It belongs to the rich, to the moneyed, to the wealthy. It has no emotion, no ethics. It believes not in good or bad, or right or wrong. It believes in power and progession and in the steady, unhindered accumulation of wealth. It dotes not on the journey but on the evident visible results. It has only the spotlight and the stage. No rafters. It is by invitation only and the invitation comes printed on Money.

Crisp, Red 1000 Rupee Notes. Bright, Crinkly 1000 Rupee Notes. In Textile Paper with Intaglio Printing with the smooth ruffle of the edges and the comforting feel of Gandhiji. Stacked in packs of 100, and bound by static free tape.


You can hit it.You could kick it.
You can hit your hammer against it'outer wall.Or even a battering ram.

You can hit your head against it's even flat surface. Only your head bleeds from the effort.
You can smile at it. Or wince at it. Or show your tongue at it. Or ignore it.
You could recite a million sob stories and a thousand outstanding poems. Stage a Play. Act in a Film.
You could paraphrase Freud and expand on Newton. Or invent stuff. Or discover stuff.
You could photograph stuff. Or kill people.
You could get angry and scream at it. Rave and rant and curse and berate it.
You could call it names, tell it it has no ethics, no code; that It has no sense, no business being in business.
You could disgrace it before your friends and peers and family and bitch and moan about it to your boss.
You can write about it in your blogs and swear to maim and kill it if you got the chance.

You despair and cry and tear your hair out.
You can grow old and get hypertension and acidity and stomach ulcers.
You can ask it for pity and ask it to remember old times.
You could stare upwards and ask God to help you overcome it.
Or ask your friends to give you a leg up. But it stretches infinitely upwards.
You could grit your teeth and run faster and sweat and toil all your life.
You stare at the computer screen or you run around your vendors like a headless chicken.
You cajole your customers and beg from your vendors.
You kneel before your partners and beg them for some understanding.
You hope and pray that you dont fall by the wayside before it passes you over.

Because, eventually it will outlast you. That is because You could not crack the code. You did not acquire the key.

utekkare,
Pranay