October 31, 2008

Underdog Advantages - By Sanjay Anandaram

The young CEO of the young company showed me an email from one of his senior team members. The email had a ring of anxiousness around it:
“ With so many big players now entering the market, I don’t know what we can do. All our customers will leave us. The bigger companies have more money, are far better known than us, have a national presence and have so much more experience. I think we should seriously look at an exit”
The company was a little less than two years old, had raised about Rs 2 crore about 18 months ago, the team had an average age of 26 and was one of the first companies in its market segment. I asked the CEO what he thought of the email and whether others in the company too felt the same way. He didn’t tell me what he thought but he was clearly perturbed. Others in the company too felt that it would be an uphill battle for them from now on and becoming martyrs in a battle with the incoming larger corporations didn’t appeal to them. The CEO was undoubtedly disappointed and upset at the loss of “fighting spirit”, “entrepreneurial fire” in his team. But he believed in what his company was doing, every experience in the last two years had convinced him that his company was rendering a much needed service to customers, existing players in the market had recognized his efforts and had approached his company for partnership and customers were writing in to say that they loved what his company was doing.

But he was also pragmatic, if nothing. He too didn’t want to become a casualty in any war with the bigger companies. But he wasn’t going to quickly fold up and go away at the mere possibility of the larger companies entering “his turf”. After all, there was a lot of emotional energy and belief that had been poured into the company in pursuit of a vision.

Lots of startups and companies are confronted by such moments of truth that determine their future course. It is the strength of leadership and the courage of conviction that is tested in such moments. Obviously, a healthy dose of pragmatism is mandatory – living to fight another day is a better strategy than foolishly dying on the battle field. Where pragmatism ends and irrational faith begins is a line that man has tried to fathom since time immemorial, but there indeed is such a line and the specific circumstances determine where and how it is drawn.

Was the startup therefore all just worth nothing now that the market landscape was changing with the entry of the larger players? Did the company really have no options or any weapon in its armour? Did the company really believe that it would never have any competition?

Every startup has its own set of cards to play with, though many just don’t realise they hold these cards! Here are some of these cards:
  • The startup has no legacy and heritage to lose. Therefore, the company can try radically new things without any fear.
  • A niche opportunity (e.g. a geography or a customer segment) may not be attractive for a large company to focus on but can be very attractive for a startup to conquer and build a beachhead on.
  • The entire top leadership team can be mobilized to attend to problems which cannot happen in large companies due to the bureaucracy involved.
  • Speed of decision making and execution are one the biggest advantages that a startup has and should use
  • Flexibility in operations again a function of speed and lack of bureaucracy. Doing whatever course-corrections are necessary to achieve the goals. There’re no policies and long meetings to decide on any changes
  • Lower costs of operation
What do you think? Can you come up with some more advantages that a startup enjoys vis-à-vis the larger companies?

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.

October 22, 2008

Interview with NEA-IndoUS' Vani Kola

NEA-IndoUS Ventures has had a busy 2008 announcing investments in eight companies across sectors such as publishing outsourcing (PreMedia Global and Pressmart Media), software for educational institutions (Idenizen), online services (Seventymm), Communications Tech (Connectiva Systems and Bay Talkitec), Financial Services outsourcing (Basiz Fund Services) and waste recycling (Attero). Venture Intelligence’s N. Sriram spoke recently to NEA Indo-US Ventures Managing Director Vani Kola to learn more about the firm’s latest investments. The full version of this interview is to appear in the next issue of the India Venture Capital Report.

Venture Intelligence: Tell us more about Attero Recycling. Has this kind of business been VC-funded elsewhere?

Vani Kola: It’s the first of its kind in India for sure. This business is pretty much in existence in many countries in Europe but I cannot confirm whether they have been PE or VC funded. We are excited about this investment as India doesn’t have a proper solution for e-waste management. Nor do we have a proper recycling system for the e-goods that we use.

VI: You seem excited about outsourcing opportunities in the publishing industry. What is driving your interest in this sector?

VK: There are certain industries where the cost models are going through radical changes just like it happened with the IT industry. Publishing is one such space. Even with the advent of online news and online consumption of information, publishing still has a strong role to play. The cost models have changed fundamentally that India, as an enabler in the publishing industry, will continue to grow as a destination, much the same way as IT did. We are glad that we are early in that trend.

VI: Isn't selling to Indian educational institutions a tough business? What excites you about Idenizen?

VK: I agree that selling to educational institutions in India is difficult just in terms of how they adopt these kinds of solutions but we also understand that there is a need for different kinds of solutions in these institutions. What excited us about Idenizen was that they pioneered a very interesting business model. It is such that there is no cost to the educational institution at all and the benefit accrues to students if they pro-actively adopt next generation technology and solutions. The offer that Idenizen makes is that “we will bear the investment cost of setting up the solution for you as a college and if your students derive value from it, they will subscribe to it”.

VI: How does your investment in Basiz Fund Services correlate with the current environment for hedge funds in the US? Is this a play on their being forced to outsource more, given the tougher investing and fund-raising environment?

VK: It is similar to what we were discussing about publishing. Fund management companies in the US are facing cost & skills crunch. Cost cutting is where the arbitrage with India can be very effective. There are many companies in India rendering general purpose financial accounting services for companies in the US but Basiz is providing specialized accounting services to fund management companies.

VI: Given the turbulence in the airlines sector, how you do view your investment in Via?
VK: Via’s market-share in the overall pie is small and it has got ample scope to grow. Even though there is a slowdown in this aviation sector, there are people to be served who are always on the look out for cheaper airfares.

VI: Given Vinod Dham's background, we expected NEA-IUV to make some semiconductor-related investments. Can we expect any investments in this sector in the near future from your firm?

VK: It’s a sector that interests us, but we have not yet found any interesting opportunities. If we find interesting investment opportunities, we have no problem in considering it.

October 20, 2008

Growing Knowledge - By Sanjay Anandaram

It is fashionably said that we now live in a Knowledge Economy. Where value is created not by gaining access to proprietary information or by political wheeling-dealing but by better utilizing in-depth knowledge of a subject, market and process. Ideas and innovation are key and central elements of this economy.

Now how do ideas and innovation emerge? They emerge from insights and observations. From asking questions and challenging assumptions. From imagining possibilities. Insights generally come from individuals while ideas are developed and shaped by groups. Innovation usually requires an organization of some sort to deliver on ideas. It is therefore critical that each individual learn to be insightful and be able to ideate in groups for innovation to occur. Only a prepared person recognizes when opportunity or serendipity knocks on the door. Preparation, in turn, implies that one must be aware, informed and knowledgeable.

How does then the current financial and economic crisis around the world affect us in India’s entrepreneurial ecosystem? What are the different options ahead of us? What can we do to deal with the situation?

We must first be aware there’s a problem. We must then be able to assess the likely impact on our businesses and then group together to generate ideas – hopefully innovative ideas – to not only survive but prosper when the conditions improve.

One cannot be aware, informed and knowledgeable if one doesn’t read, introspect, discuss and debate. Through this process ideas and innovation emerge. Now the big question: How many of us really read? And I don’t mean this in a facetious or in a facile manner. Reading not simplistic headlines that reduce knowledge to the equivalent of instant noodles. For example, how many of us read about and try to understand the economic landscape of our industry? How many of us read to understand the technical issues in depth? How deep is our understanding of issues that concern their industry? In addition, how much do we read about and how aware are we of the broader environment – markets, customers, technology, regulatory and legal aspects, processes and subject domain areas? Do we read case studies of different businesses, understand entrepreneurial experiences and journeys, observations and actions by investors, learning about investment matters and so on.

Ideas come from multiple sources and being widely read certainly helps a big deal. In a larger sense, to abstract the learnings to create transferable and usable models and templates, to apply experiences from one area to another, the ability to see things as multiple shades of gray and not just black and white, to understand nuances, to avoid making simplistic assumptions, to have a historical and socio-cultural context since these are very important requirements to be able to “see” and appreciate the possibilities of innovation around.

Without knowledge and awareness, our focus tends to be on the transactional, on the here and the now. Our focus will be on treating everything as an unnecessary cost without being able to distinguish investments from costs, assets from expenses. We cannot develop long term thinking and strategies. And without long term thinking, we will continue to muddle through and somehow manage to do things without getting the full benefit of the value creation. And this muddling through, in turn, will ensure that we will not be able to build businesses that can truly take advantage of the knowledge economy.

There’s an interesting Chinese proverb that says:

If you want 1 year of prosperity, grow grain. If you want 10 years of prosperity, grow trees. If you want 100 years of prosperity, grow people.

We, in India, have created a billion plus people. Now we need to grow them to become insightful individuals who can develop and shape ideas and play important roles in the creation of the innovative industries. Growing people requires an investment in knowledge and awareness creation.

Can each one of us in the entrepreneurial eco-system decide to start reading?

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.

October 07, 2008

Symbiosis business plan competition

Symbiosis Institute of Business Management is running a business plan competition for working professionals and startups.

This event seeks to provide an opportunity for working professionals/start ups to pitch to venture capiltalists for seed funding. Participants are given an opportunity to present their B-Plans to an eminent panel of venture capitalists for a period of 8 minutes.

The winning teams would get :
- Funding of Rs. 5 crores
- 30 minutes to present before the core team of Seedfund in Mumbai.

Participating Venture Capitalists :

Seedfund | NEA-IndoUS Ventures | IndiaCo Ventures Ltd
Indian Angel Networks | Canaan Partners

For more information Click Here

October 05, 2008

Understanding the Critical Factors of your Business - By Sanjay Anandaram

In the late 1990s, a large number of internet entrepreneurs emerged in India, spurred no doubt, by the successful acquisition of Indiaworld by Sify. All of these young entrepreneurs were convinced that they had the makings of the next Yahoo or Amazon (Google wasn’t that big then!). With very impressive looking web-sites the only thing missing for success, in their minds, was the money. Almost everyone who started an online business in that period believed that THE critical factor for business success was in building a really good web-site which would generate traffic (eyeballs) which in turn would lead to advertising revenues and then the magical acquisition!

But hardly anyone survived that era. And the very few that did, are doing rather well. All those who’re still around and flourishing realized early on that having a good looking web-site wasn’t the most critical factor for the business since the reality in India was rather different. PC and Internet penetration was very low and broadband was unheard of; fulfillment of online transactions had to be managed through a complex network of vendor and supplier relationships, online advertising revenues were mythical and internet payments weren’t going to happen because apart credit card penetration was abysmal and the infrastructure to process payments online wasn’t up to the mark. Therefore they figured out two things - an alternative mechanism for generating revenues and the need to also have an offline or physical world presence. Building a web-site was the easy part, ensuring reliable service and fulfilling customer needs was a very different kettle of fish indeed.

Fast forward to 2008. There still are a lot of consumer internet sites that haven’t internalized the lessons of ten years ago. A lot of startups are also chasing the same dreams in the Mobile Value-Added Services (MVAS) area.

Lets take another example from the last 12 months. Realising that travel was going to be a hot sector, this company invested heavily in acquiring state of the art vehicles. They then launched a web-site and unleashed a marketing blitz that included very attractive prices and options. Sales started booming and the vehicles were on the road all the time. The vehicles started developing small problems which then became big problems. The company had not invested in creating an auto workshop to cater to matters of minor repairs and overhauling. Every time a problem arose, the vehicles had to be sent to the manufacturer for checks and repairs, replacing parts, tuning and the like. Naturally these resulted in delays leading to vehicles being off the roads and very high costs. The company now realizes that having its own workshop, mechanics and spares leads to far lower costs and much faster vehicle turn-around times.

A fast food company decided to be different from the competition by focusing on the guaranteed delivery of its food within a certain number of minutes of an order being placed. Else, the customer received the food free. They then advertised this heavily and soon enough orders started pouring in. The company poured its energy and resources in meeting its promise of guaranteed delivery within the promised time. Given the conditions in India, the costs of ensuring this started mounting. The company invested more in planning its delivery routes, restaurant locations and in technology. It was able to, in general, honour its time commitment. But then sales started slowing down. Upon researching the reason, they found that most customers didn’t like their fast food anymore. The company had focused so much on its logistics that it had ignored the fundamental reason for its existence, namely quality and tasty food! In addition, those who were ordering the food were those customers who weren’t very profitable to the company since they ordered low margin items.

It is important in each business therefore to understand what the critical factors for success really are. Many times, the reasons that appear to be attractive are just mirages while the “unglamorous” activities of the business are the most critical. It is important therefore to really understand this and spend time and energy in ensuring that these activities of the business are built on a solid foundation.

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.