March 02, 2015

Under Promising & Over delivering is for Amateurs?!

Clearly, our entrepreneurial ethos and role models are going through a massive generation change. The quotes from Infosys founder N.R. Narayana Murthy that entrepreneurs in the 1990s took to heart included:

``Under promise and over deliver. Investors respect this.'' (On why Infosys gets the kind of valuations it does) 

"Revenue is vanity; profit is sanity; cash is reality"

and

"PSPD: Predictable, Sustainable, Profitable and De-risked"

Cut to 2015. Mukund Mohan, Head of Microsoft Ventures, writes:
Amateurs under promise and over deliver. They are the ones I hear always complain about valuations. They fail to realize that the “professional” entrepreneur friend they have is growing at an insane rate, but they choose to only compare “valuations” and dilution.
And what do the "Professionals" do to make "investors chase them"?
Professionals over commit and outperform. They are the ones that get the best valuations and are diluting very little. They push their entire team to crush already high expectations. They dont heed the “research” that says that it does not pay to over deliver. They crush their metrics on all accounts and deliver growth that’s off the charts.
The times are indeed changing. What do you make of this?

 Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private company transactions, valuations and financials in India. Click Here to learn about Venture Intelligence products that help entrepreneurs Reach Out to Investors, Research Competition, Learn from Experienced Entrepreneurs and Interact with Peers. Includes the Free Deal Digest Weekly Newsletter: India's First & Most Exhaustive Transactions Newsletter.

January 18, 2015

The Science and Art of Finding a Co-Founder

Extract from INSEAD Prof. Vissa Bala's article in the Economic Times:
While complementary skills and social capital matter, it is good to remind ourselves that the entrepreneurial journey is fraught with uncertainty. When times are tough and there is no light at the end of the tunnel, the founding teams that persist and press on regardless are the ones with shared values. So it is critical that your co-founders are as passionate as you are about the opportunity or dream that you are pursuing; that your co-founders share with you the same convictions about what your venture stands for and how you build it.

...Shared values make it much more likely that the founding team builds chemistry and trust; these elusive qualities are essential so the team can handle the pressure cooker environment of a start-up. You have to ask yourself: Can I survive being in the same room together with this person for 72 hours at a stretch to handle a crisis, without biting his or her head off? Because if there is one thing we know for sure about building a growth venture, a crisis that will require long hours at work may be lurking around the corner, just when you least expect it.

...Given that it is difficult to find a co-founder who is a perfect match on every criterion, it is often better to run with a 'good enough' match and execute a founders' agreement or a shareholders' agreement to govern the principles of the relationship.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private company transactions, valuations and financials in India. Click Here to learn about Venture Intelligence products that help entrepreneurs Reach Out to Investors, Research Competition, Learn from Experienced Entrepreneurs and Interact with Peers. Includes the Free Deal Digest Weekly Newsletter: India's First & Most Exhaustive Transactions Newsletter.

November 07, 2014

Why Indian Companies Are Smart to be "Short-Sighted" and "Risk Averse"

Extracts from the brilliant article by Dr. Ajay Shah:

Let us start with short-sightedness. The best firms in India are able to borrow five--year money at around 13%. At 13%, a rupee five years from now is worth 54 paisa today. A rupee ten years out is worth 29 paisa today, and a rupee twenty years out is worth 9 paisa today. In contrast, a rupee next year is worth 88 paisa today. With this kind of discounting, it is not surprising that projects that yield returns next year (i.e. 88 paisa today for each rupee of profit) are very attractive when compared with projects that yield returns 10 years from now (i.e. 29 paisa today for each rupee of profit). This difference -- between 88 and 29 paisa -- is striking. In a world with high interest rates, being short-sighted is rational.

...What about risk, and the willingness to undertake risky projects? Modern finance teaches us that when firms are able to issue equity into liquid and efficient capital markets, the risk premium that they face is driven by the `beta' of the company's stock against the index. The long run historical rate of return on Nifty is around 21%: this is also the long run historical cost of capital that the typical firm faces. A firm that has a beta of 1 against Nifty has to plan on giving a return to shareholders of around 20%. If the future is discounted at the rate of 20% per year, it makes sense to look for cashflows in one or two years. It also makes sense to look for less risky (i.e. low beta) projects. In a world with a high cost of capital, short-sightedness and a lack of venturesomeness are rational outcomes.

...If you believe that this economic reasoning explains the bulk of the short-sightedness that afflicts India's firms and managers, then there is an extremely optimistic implication: it is not very difficult to change this behaviour. If we make a transition into an environment with low inflation, low interest rates, and low risk premia, then that would give us a whole new breed of risk-taking, far-sighted firms and managers. The management gurus would even write books about the new generation of Indian managers who have developed a `new culture' of doing risky, far-sighted projects.

Dr. Shah also highlights how the solution to this "cultural problem" we Indian entrepreneurs have can be achieved through through a combination of financial sector reforms, pension reforms, fiscal strengthening and capital account convertibility.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private company transactions, valuations and financials in India. Click Here to learn about Venture Intelligence products that help entrepreneurs Reach Out to Investors, Research Competition, Learn from Experienced Entrepreneurs and Interact with Peers. Includes the Free Deal Digest Weekly Newsletter: India's First & Most Exhaustive Transactions Newsletter.

November 06, 2014

How ICICI Bank's K.V.Kamath learnt from an air hostess and a bellboy

From Charles Assisi's column in Mint:
...why is it a stewardess on Jet Airways greets each passenger who gets on board with a smile? For that matter, why is it if a guest asks for directions at any Ritz-Carlton property, they aren’t directed, but led to where they want to go? Everybody, from the bellboy to the hotel manager, follows the rule. 
The stewardess at Jet Airways told Kamath’s colleague their research on passenger behaviour indicated that when greeted with a smile, people lower their guard. For instance, if a flight is delayed or the meal they expect is not on board, as a thumb rule, most people take it in their stride. In the absence of a smile, even minor deficiencies are viewed as offensive, people get boorish, and their behaviour permeates to others on the flight, making it a harrowing experience for the crew. At Ritz-Carlton, the key Kamath observed is empowerment. A bellboy is empowered to take time off from whatever it is he has been assigned to do if a guest walks up to him with a request.  
Having studied both these cases closely, Kamath took a call and introduced the idea of lobby managers at all ICICI Bank branches. Trained by professionals from the hospitality business to greet customers with a smile, they ask around if anybody needs assistance, and help make their dealings at the bank easier. “It’s a soft skill we picked up because we were curious about the workings of those in the hospitality business,” says Kamath. 

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private company transactions, valuations and financials in India. Click Here to learn about Venture Intelligence products that help entrepreneurs Reach Out to Investors, Research Competition, Learn from Experienced Entrepreneurs and Interact with Peers. Includes the Free Deal Digest Weekly Newsletter: India's First & Most Exhaustive Transactions Newsletter.

November 05, 2014

"Trust the hoodie, ditch the suit" and Why "Brahmin's Coffe Bar" aces "Chez Nous"

If you are an entrepreneur who would not have the patience for snooty waiters and difficult to translate/interpret menu cards, you might have some interesting takeaways from this article by Paddy Padmanabhan in Swarajya based on an analysis of the ratings of Bangalore restaurants. Extracts:
Peter Thiel, billionaire founder of PayPal and the first ever outside investor in Facebook, talks about this in his new book Zero to One, and offers some interesting theories. He talks specifically about the spectacular boom-bust of the alternative energy industry in the US, especially solar, which was decimated in the 2009-2010 period by cheap Chinese products that were subsidized heavily by the Chinese government.

He proposes that the solar industry’s woes were brought on by CEOs who were sales guys in suits who had no idea about the technology and even less about the hard questions that needed answering for the business to be viable over the long term. He clinches his point with an interesting visual contrast between Brian Harrison , the urbane, grey-haired and immaculately suited CEO of the now defunct Solyndra on the one hand , and a jeans-and T-shirt clad Elon Musk, head of luxury electric car-maker Tesla.

...Whether we like it or not, there is inbuilt bias that most of us carry when it comes to highly subjective qualifications like reliability, prestige, and quality. Beware of these biases the next time you pick a restaurant to take your family out for dinner.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private company transactions, valuations and financials in India. Click Here to learn about Venture Intelligence products that help entrepreneurs Reach Out to Investors, Research Competition, Learn from Experienced Entrepreneurs and Interact with Peers. Includes the Free Deal Digest Weekly Newsletter: India's First & Most Exhaustive Transactions Newsletter.

September 08, 2014

Why it maybe a good idea to (slightly) undercompensate your best people

If increasing pay doesn't work to motivate and retain your best people, what will? Try paying them less advises Atul Jain, CEO of US-based analytics firm Teoco. Extracts from the Business Line article by Teoco country head Srinivas Bhogle:
The gratitude that you think you’ve earned after giving a hike or a bonus fizzles out very quickly. Within a matter of weeks the employee begins to take his ‘new’ compensation or incentive for granted.

...instead of slightly over-compensating our employees, we slightly under-compensate them. If this sounds crazy, hear how Teoco’s CEO Atul Jain explains why it might work. He says, “Assume that I’m the CEO, and let’s see it from my perspective. I see the under-compensated employee as offering me more value. I’m therefore always a little more cognisant of his concerns and requirements; and my sense of fair play forces me to offer him the more challenging or lucrative projects. So he usually ends up getting much better projects and learning the harder part of the business. This experience, over time, makes him progressively more worthy and valuable. It’s just the opposite with someone who is over-compensated. I know that he’s giving me relatively less value, and, if I’m required to cut down my numbers on some project, his is likely to be the first head on the chopping block.

...Last year, some of our smartest youngsters went away when bigger companies enticed them with bigger compensation and bigger promises; but a year later some of them are desperately keen to return – because they find that they were either on the bench, or forced to handle the legacy support of a big-paying customer with no new learning opportunity on the anvil. They eventually figured out that in the first half, or first third, of their career a bigger opportunity and exposure is far more important than more money.  

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private company transactions, valuations and financials in India. Click Here to learn about Venture Intelligence products that help entrepreneurs Reach Out to Investors, Research Competition, Learn from Experienced Entrepreneurs and Interact with Peers. Includes the Free Deal Digest Weekly Newsletter: India's First & Most Exhaustive Transactions Newsletter.

August 03, 2014

No 3rd "Flamemail" Rule

NEN's Srikrishna has provides a simple rule to nip flame wars conducted over email in the bud (emphasis mine):
Most back-and-forth email stinkers or flame wars are preventable and many times seem downright silly or petty. Yet they seem to pop up all over the place with near-despairing regularity. Flame wars, particularly between colleagues, is a huge emotional sink, sapping productivity and motivation. This is even truer when the parties involved are in the same office. It is to overcome these that we’ve formulated a simple rule – yep 1 single rule to prevent email flame wars.

The No 3rd email rule Simply put this rule states, if one person has sent an email (#1) and a second person has responded (#2) and it’s clear that they are not agreeing, or not happy – there should be no 3rd email sent. Instead the two parties should talk in person (sometimes this only requires swivelling in one’s chair) or pick up the phone, if not in the same office.
Think about it – most email flaming starts due to one of two reasons:

public questioning, accusation or challenge (real or perceived) by usually the sender
outright misunderstanding by one party (usually the reader)

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private company transactions, valuations and financials in India. Click Here to learn about Venture Intelligence products that help entrepreneurs Reach Out to Investors, Research Competition, Learn from Experienced Entrepreneurs and Interact with Peers. Includes the Free Deal Digest Weekly Newsletter: India's First & Most Exhaustive Transactions Newsletter.