January 26, 2007

Speed! - By Sanjay Anandaram

At an event last week, I learnt that Nokia produces about 25million cell phones in its factory in Sriperumbadur. This by itself was not amazing but the fact that Nokia went from receiving barren land to setting up a factory to creating a supporting network of suppliers and vendors to rolling out its first phones in 23 weeks i.e. in less than 6 months. Contrast this with the situation in many public projects where large sums of money are spent with nothing to show even after 23 years, let alone 23 weeks! For example, the Bangalore International Airport was first conceived in 1991, the MOU was signed in 1999, the construction work commenced in 2005 and the first phase is expected to be thrown open to the public (fingers crossed!) in April 2008, a good 17 years after project conception! Naturally, costs of constructing not just the airport but also related infrastructure like approach roads have escalated, technology has changed dramatically, and estimates of passenger traffic have had to be revised leading to the ongoing re-design of the airport itself!

There are many other examples of speed (and the lack of it) in other areas as well. There are well documented cases from across the world where speed of ideation, of policy making, of execution, of change, and indeed in all aspects of execution and operations, have contributed enormously to the success of projects. For example, the speed with which mega refinery projects are set up by the Reliance Group and the speed with which the Bharti group executes on its telecom plans are legendary. Not surprisingly, both these companies are lead by entrepreneurial leaders. Of the advantages enjoyed by startups and entrepreneurs against large incumbents speed is particularly interesting. It is interesting because the very form, structure and the mindset in the startup and of the entrepreneur is demonstrated by speed. The larger and well established incumbents have greater resources, greater market presence, and greater technological capabilities and yet are routinely taken unawares by the sheer speed inherent in entrepreneurial mindsets and by startups.

That speed provides competitive advantage is a well-known and fairly obvious management mantra. Yet infusing “speed” into a project does not happen by chance. It comes about through an organization’s ability and capability for entrepreneurial thinking, which in turn can be summed up as risk taking ability, delegation, empowerment, speedy & flexible decision making processes, collaboration within and without organizations, and high caliber teams. However to be able to develop entrepreneurial thinking, an entrepreneurial culture needs to exist in the company. One that fosters the need to anticipate market, business and technology trends, a culture that encourages agility, experimentation and engenders innovation.

“Justice delayed is justice denied” is an oft-quoted maxim that too deals with the need for speed. Sounds simple and obvious, yet not many have succeeded in creating such thinking in organizations especially governmental ones. I would imagine that if government projects are cleared quickly, executed quickly, then even the incentives (official and unofficial) would flow quickly to the stakeholders. In addition, more projects would get executed per unit time thanks to speed leading to ever more incentives flowing rapidly through the system. Yet, we don’t see the need for speed in government and public delivery of services. And the reasons for this are that the structure of government is such that it discourages entrepreneurial thinking. The more centralized the government, the more cumbersome the decision making processes, the more insular the organizational groups, the less is the entrepreneurial thinking. Obviously, issues of incentives, transparency and accountability are critical but, in my opinion, less important than the need for speedy entrepreneurial thinking in government. A look at even the projects relating to national security also bring out the need for such thinking – the projects relating to the Nuclear Submarine (launched in 1975), Light Combat Aircraft (LCA, launched in 1983) and the Main Battle Tank (MBT, launched in 1974) are cases in point.

China has clearly grasped the opportunities provided by the 21st century world. Do we too want to grasp it in this century or will our lack of appreciation of entrepreneurial thinking and speed force us to postpone this deadline too?

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@jumpstartup.net. The views expressed here are his own.

Are you sure you need VC money, asks a VC

VentureBeat has an invited article by Charles Moldow of Foundation Capital on why entrepreneurs should not be seeking VC financing unless they clearly want - and their product idea is big enough in scope - to aim for the "home run".
HotFeature.com has 10 employees and the founders each own 35% of the company. They pitch me on the idea and I agree with their assessment that consumers want and need HotFeature.com. They have raised $1.5M in angel money to date and have given up 20% of the company to investors. They require another $10M to grow their audience and build brand.

Here’s where things get interesting. I point out to the founders that they could probably sell the company today for $20-$30 million and that they would each make $7-10M which is not bad for a few years of work.

If they take $10M from VCs at a $15M pre-money valuation and create an option pool for the next 30 employees (assume 15%), they each now own less than 20%. To make the same $10M, the company must now sell for a minimum of $50M. Achieving this type of valuation is significantly harder, as it suggests that the company has established a brand, demonstrated a business model and proven consumer adoption.

In addition, my partners and I won’t be too excited about a $50M acquisition. This type of exit is not sufficient to ensure superior returns to our limited partners across a broad portfolio of investments-our returns are determined by home runs, not singles. As such, we‘re inclined to push for continued growth, market expansion and additional product development, which adds risk, requires more capital and creates additional dilution for the early employees (not always the win/win I seek).


Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

January 20, 2007

"Entrepreneurs are the ones sleeping on the floor"

Bob Pritchett has a post that helps distinguish managers and entrepreneurs based on an experience of a business owner who deciced to sleep overnite at the office floor instead of paying a premium to get a locksmith repair the lock at a late hour. (Please note the entrepreneur was also resourceful enough to have his wife drop off a bed roll!)
As you grow a business you learn to delegate. You give other people some of the chores you used to do yourself. You become a manager. But in times of crisis you can distinguish managers and entrepreneurs. Entrepreneurs will sleep on the floor.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

January 19, 2007

"Indian cricket needs disruptive innovation" - By Sanjay Anandaram

That cricket is a religion in India is a cliché. That cricket exists as an “international” sport largely because of India is a fact. More people, perhaps, play cricket in Mumbai’s Shivaji Park than there are first class cricketers in Australia. Yet how is it that the country where its been played in for over 100 years, that has tens of millions playing cricket, many more fanatical millions following it, that generates billions of dollars, who’s media gets on hyper-drive when India plays, that provides relevance to sundry has-beens and wanna-bee experts, that has one of the world’s richest sports bodies “controlling” the sport, does not have a world dominating team like the Australian team? Especially when there are only 8 countries in the world really playing the sport! How is it that not one noteworthy innovation in cricket has emerged from India – be it in technology (e.g. stump-cams, hawk-eye, snickometers), team selections (e.g. separate teams for one-dayers and test matches), score calculations (e.g. Duckworth-Lewis system), TV broadcasting, sports kinesis experts (Murali’s doosra had to be analysed in Australia by the experts),and so on? The best balls and bats are not Indian. Even the way the grass is cut (e.g. chess-board pattern seen on overseas grounds) is not innovative!

The answer, in my opinion, lies in the total lack of innovative and entrepreneurial thinking in the way we manage the most popular sport in India. The way we manage any other sport is not even sad. The farce is incredibly tragic and sordid. Just look at the recent Asia Games fiasco. Surely innovations have not originated from India because of a lack of talent and capability. Innovations have not occurred because we have a corrupt, petty, feudal, cronyism, bureaucratic patronage and politically managed system that continues to deal with the country’s number 1 sport. Where even the awarding of TV rights and elections is not without terrible drama. In any business venture demanding customers rapidly drop products that are 2nd rate and produced by inefficient producers and driven by marketing hype. Yet, how is it that we continue to accept the way cricket is run in this country? Are we not demanding consumers of the sport? Does it only take hyper-ventilating media anchors and coverage of trivial off-ground charades to make us forget the dismal state of cricket in India?

In the late1970s, a man called Kerry Packer revolutionized cricket. He set about changing the way the game was played and has been played since. He brought (bought?) the world’s best cricketers to form teams, introduced night cricket under flood-lights, white balls, limited overs, coloured clothing (the fossilized establishment called pejoratively referred to it as pyjama cricket), cheer-leaders, great in-your-face marketing (“Big boys play at night” and “Night cricket is played with two balls” are some of the memorable advertising by-lines from that period), use of technology (including on-pitch microphones and stump-cameras), top class commentators and multiple TV cameras with well-trained cameramen behind them for an incredibly viewing experience for both the in-stadium and at-home viewing public. Kerry Packer was a billionaire Australian media baron (he owned Channel 9 Sports in Australia) and more importantly, an entrepreneur who was not afraid to take risks. Cricket has never been the same since the Kerry Packer era both for the paying public, the TV viewers and for the cricketers themselves.

Isn’t it high time that we too had a Kerry Packer to shock our comatose and moribund system into action? Isn’t it high time that we too had a top class team with an entrepreneurial mindset at the top to change the status-quo? A high caliber professional top management team that has the passion and vision to develop and sustain a set of unique abilities that allows our sports teams to dominate an opportunity. A team that can think big, that does not treat competence as a substitute for loyalty, a management team that understands the needs of modern sport and the importance of science and technology, deploys innovative training and management practices, and can build an efficient and organized development and delivery system of high caliber sportsmen. Is this that different from any other innovative & entrepreneurial venture?

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@jumpstartup.net. The views expressed here are his own.

January 12, 2007

Wise words from the Lehman CEO

Knowledge@Wharton has an interview with Richard Fuld, CEO of Lehman Bros on how he transformed a sagging firm.
First, leaders must understand their business. "Know how the pieces fit," he said. "Read. Network. Connect the dots. Anticipate. Try to limit the surprises; surprises kill you." Leaders who have done their homework make it safe for others to follow, he added. "Leaders earn the right to lead."

...Fuld noted he has been with many of the same top managers for 22 years and expects them to push back when they disagree with him. When he has to make a tough call he asks them: "Does anyone feel this decision would be disastrous to the firm?"

Unlike Bobbie Lehman, Fuld never lets managers who disagree square off directly. The most dissension he will tolerate is an agreement to disagree. "What I need is peace in the family," he said.

Finally, he noted, it is important to lead by example and to know when to give managers lower down in the chain the authority to make their own decisions. "Real power is the ability to empower others," he said. "A good leader brings out the best in others. The real reward is in seeing others' achievements."

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.

January 02, 2007

Beyond Charity: The Case for Social Entrepreneurship - by Sanjay Anandaram

“How many national scale, socially relevant, market oriented, impact making businesses can you name in India?” is a question that I asked at a recent gathering of friends. This is partly due to the fact that the only answer that springs to my mind is “Amul”, partly out of a certain confidence that the other person too cannot name any other business and partly out of a genuine desire to know. This question has intrigued me for some time now. Why haven’t there been many more Amuls in our country? God knows there are enough and more social problems to be solved!

Amul was created by government initiative and by the passion of people like Dr Kurien. It wanted to bring out change in the way milk was produced and distributed on a massive scale. The vision was big, there was passion, there was capital (direct and indirect), there was terrific leadership, sustained and involved engagement with the grass-roots, and the formation of partnerships to create the impact via the business. If we are to get out of depending on the government for everything we have to think entrepreneurial (see first Indipreneur article). So the question can be reframed to: cannot similar and more impact be delivered by engaging and unleashing the entrepreneurial energies of millions by providing the right leadership, vision, management, partnerships, and capital?

After all, how different are the basics from any other vision of a passionate entrepreneurial team? India, according to some estimates, has the largest number of NGOs per capita. Most of them are doing a glorious job in their respective domains, impacting the lives of citizens in localized spheres of activity. But given the size and multitude of problems confronting India a different approach is also surely required. One that unleashes the entrepreneurial energies of the people and dove-tails into the market economy. One that creates financial sustenance if not independence. Entrepreneurship is an acknowledged method of job creation and income (if not wealth) creation.

One such approach is micro-finance. Micro-financial institutions focus on creating micro-entrepreneurs by providing access to micro-credit. While there are mixed reports on the overall impact of such programmes (which have a lot to do with the operational aspects of programme implementation) MFIs as vehicles have the ability to impact very significant numbers of people as the Grameen Bank has shown.

But what if one could create a socially relevant “for-profit” entity with all the discipline and rigour of any market driven capitalist venture? One who’s mantra is scale, growth, brand building, market competitiveness, quality, and so on? One whose sole objective of profit making is to benefit the vast numbers of producer groups that develop the products for the entity that in turn drive revenues and profits?

For this to happen, the following attributes are desired:

a) Focus: Laser like focus and clarity on the objectives of the entity – market facing and social. Example: “We will build a profitable branded national children’s garments business with revenues of Rs 1000 crore in 10 years” is a market focus while “We will positively impact 250,000 producer groups in these 10 years by ensuring that 90% of profits are ploughed back into these groups” is the social focus.

b) Scale: Inherent in the goals above is scale viz, Rs 500 crore, 100,000 producer groups.

c) Transparency & Integrity

d) A well rounded, passionate, relevantly experienced and qualified management and advisory team

e) Measurement systems and processes

f) Leveraging of technology to drive scale and bring in efficiencies

g) Partnerships with providers of complementary goods and services

h) Developing a unique value proposition for its offering based on design, quality, price competitiveness

Interestingly enough, investment capital is usually attracted to profit making businesses that demonstrate the above attributes (see other Indipreneur articles). Making profits is critical because it ensures sustainability of efforts. No one can keep pouring money into ventures without being able to measure outcomes. Profits are a key measure of outcomes. Abandoning the charity mind-set is another key matter. Asking people to contribute for a “good cause” and for the sake of the soul is one thing while asking them to be investors in a socially relevant profitable business is another. But then what will the investors get out of this venture apart from feeling good? What if investors were entitled to say, 6% dividends after the social obligations were met? What if a detailed business plan was made available to investors explaining the business logic like in the case of any other entrepreneurial venture?

I believe that the entrepreneurial energies of producer groups, socially sensitive management teams, and other stake holders will be harnessed for a new paradigm in social entrepreneurship. Capitalism is an efficient creator of wealth while socialism ensures more equitable distribution of this wealth. A marriage of the two is surely desirable but needs integrity, capability, efficiency, and transparency. The good news is that such ventures are already being conceptualized even in India and the day is not far off when we will see the creation of many 21st century Amuls in different sectors.

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@jumpstartup.net. The views expressed here are his own.