May 28, 2009

The Importance of Growing Up - By Sanjay Anandaram

Startups thrive in an environment of chaos where multiple tasks are done, undone and re-done often times guided by just a leap of faith. Decisions are taken in quick time without long (boring?!) meetings typically by a small team of extremely committed and passionate people. Systems, processes and procedures are considered inhibitors to their competitive advantages of speed and innovation.

But as the startup grows, the lack of systems and processes start inhibiting growth; indeed, the company can implode before long without adequate attention and focus on having and implementing systems and processes. These processes and procedures relate to every functional area of the startup and these functional areas cannot scale, operate efficiently and effectively without the right systems. And the management team cannot manage the growth of the company if they cannot measure and track activities, people, money, time, contracts and documents among other things.

As the startup matures, expectations from various stakeholders only increase. For example::
- Does the CEO know the sales, receipts and payables position of the company on a daily basis? Does he have visibility into the cash-flows of the company for the foreseeable future? Are receivables being tracked age-wise and managed? And payables? Does he know what are all the deposits that the company has paid, to whom and when they’re due? What’s the policy for transferring money and issuing cheques?
- How are departmental and company performances tracked and discussed? How often?
- Does every employee have a job description with a clear position on the organization chart? Are employment contracts in place? Is there a hiring, firing, performance appraisal and management, promotion, training, compensation and benefits system in place? What is the system for dealing with employee travel and entertainment expenses? Is there a new employee induction programme – so important for ensuring the comfort of every new hire?
- How is customer service organized, tracked and measured? What’s the system for dealing with refunds and returns?
- What’s the effectiveness of marketing? ROI on campaigns?
- How’s sales organized and measured? What’s the incentive structure for direct and indirect sales?
- Are all the assets of the company documented (including intellectual property) and physically verified? Are maintenance contracts in place for say, the computers? What’s the inventory situation?
- Is there a system for authorizing travel, approving expenses, investments, payments and the like?
- Are there contracts governing partnerships and vendors or are just handshakes and phone calls substituting? Are these contracts still active or do they need reviving? Do the contracts need to be renegotiated keeping in mind the changed circumstances of the company?
- Are statutory requirements being complied with – board meetings and minutes, registrations and licenses, taxes, filings with various regulatory and statutory authorities?

All too often, startups do not pay attention to the need for creating the soft infrastructure within the company for growth. It is not surprising therefore to see most startups flounder after achieving initial success. The capabilities within the company need to be continuously enhanced if the company is to reach subsequent levels of growth with each level being built on a strong foundation. Stronger the foundation, higher the levels. The foundation in turn is determined by the company culture and the quality of the people. The culture must value discipline, diligence and data. Discipline to ensure that systems and procedures are implemented and followed; Diligence to ensure that the systems are continuously working as they should across the company; Data to ensure that the quality of decision making goes beyond pure leap of faith.

Making the transition is not easy. Juggling growth, investments, customers, partners and investors takes up time and energy – systems and processes therefore take a back seat. And then one day, there’s panic! The management has lost its grip on the business with no idea of the finances, customer, employee and partner issues. The company is ripe for an implosion.

However, as with all things, timing is critical. In addition, different systems are required for dealing with different stages of growth. But what is always required from day one is the realization that systems and processes are critical elements of soft infrastructure for the startup.

To realize and to act requires the startup CEO to start thinking like a grown up CEO.

What do you think?

May 20, 2009

Private Equity and Venture Capital investors, who have invested over $2 billion into Healthcare & Life Sciences (HLS) companies in India over the last five years, are keen to step up the pace of investments in this industry. Over 42% of PE & VC investors surveyed by Venture Intelligence, a leading research firm focused on Private Equity and M&A deal activity, felt there was a strong opportunity to tap the market for healthcare services in semi-urban and rural areas.

The investors also identified Diagnostic Services, Medical Devices / Equipment, Hospital Chains and Wellness Products and Services as their favorite sectors for investments within the HLS industry. The detailed results of the poll will feature in the Venture Intelligence “Private Equity Pulse on Healthcare & Life Sciences” report to be published next month.

Click Here for more information.

May 05, 2009

CEOs contesting polls: Conflict of Interest?

Julius Caesar the great Roman emperor divorced his wife Pompeia as he considered his honour and position compromised because Pompeia was indirectly associated with a trial for sacrilege. He explained that his wife should not only be free from sin but from suspicion. Given the state of our political system, this kind of requirement seems laughably quaint. But if the system is to improve, keeping this principle in mind is crucial because it is a pre-requisite for good governance in the political as well as the business spheres.

In the last Indipreneur column, I had talked about the need for more entrepreneurs to enter the political sphere. But, and there always are buts, this comes with a significant caveat. The caveat of suspicion of “conflict of interest” becomes therefore especially applicable to those entrepreneurs who’ve decided to be in public service. Our courts which enjoy enormous credibility amongst other institutions in India have a well established system in this regard. Recently, in the case of Ajmal Kasab the Mumbai terror accused, judge Mr M L Tahiliani debarred lawyer Anjali Waghmare from defending Ajmal Kasab on grounds of conflict of interest since she had accepted the legal brief of a surviving witness in the Mumbai attacks.

It would be rather unprecedented for a CEO of a startup that’s in the process of finalising its initial funding to suddenly declare that he would be involved in another venture in an altogether different area and that he or she would be able to do justice to both adequately. Both the existing startup and the new venture call for passion, active and intense hands-on involvement if they are to truly deliver on their promise. The new venture will require the CEO to spend over a 100 days a year in another city and spend an enormous amount of time catering to a totally different set of stakeholders than in his startup. On what basis can the respective stakeholders believe that the CEO will deliver on the promises in spite of the enormous pressures and constraints? Now, what if the new venture was politics and that the CEO was standing for elections with the hope of becoming a Member of Parliament?

Stakeholders want to see focus and be confident that the person in charge is concentrating on delivering the best possible results for them. In addition, people around the world frown upon the CEO having multiple interests especially when there’s enormous potential for serious conflicts of interest issues to arise.

Good governance requires interested parties to recuse themselves from being involved in any situation or decision that can cause a conflict of interest. For example, can a CEO be part of the committee that decides on his own compensation? Can a CEO be involved in writing his own appraisal or that of a subordinate who’s a relative? Should a CEO do business with a company run by family member or a very close friend? If so, what should be the safeguards? Is the relationship at an “arms length?” to address concerns of conflict of interest and prevent suspicion? Increasingly, companies are realizing the virtues of being transparent and above board. Entrepreneurs in politics will hopefully bring about the much needed impetus to the issue of good governance. An issue that cannot be overstated. Therefore, they need to set the standards for the rest of the political system to follow.

Mr Rajeev Chandrashekhar is well known as the founder Chairman of BPL Mobile. He’s a Rajya Sabha MP from Karnataka and currently Chairman of Jupiter Capital which has interests in infrastructure (transportation, logistics, utilities, aviation, electricity), defence technology and media. His company is developing the first non-metro greenfield airport in Karnataka at Hassan. Mr Chandrashekhar is backed by the BJP the current government in Karnataka.

Mr Vijay Mallya Chairman of Kingfisher Airlines is a Rajya Sabha MP and on the Parliament Consultative Committee on Civil Aviation.

Captain Gopinath founder of Air Deccan (merged with Kingfisher Airlines) is now the founder CEO of Deccan Express Logistics which is in the process of raising Rs 300 crore in initial funding out of a total estimated Rs 1000 crore over 3 years. The business of logistics and air-freight involves central and state government regulations. Captain Gopinath is a Lok Sabha aspirant.

There are potential conflicts of interest in the above cases. Shouldn’t the principle of Caesar’s wife be applicable? Can the CEO do justice to two sets of diverse stakeholders (employees and investors in one and the general public in the other) without compromising one or the other?

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings 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 The views expressed here are his own.