September 29, 2009

Are Entrepreneurs "their own bosses"?

From an Knowledge@Wharton interview with Atul Jain, the founder and CEO of TEOCO:
..people sometimes “tell me, ‘I want to be my own boss.’ I tell them that when you become an entrepreneur, nothing could be further from the truth. Every single employee is your boss because if they leave, you have nobody to do your work. Every single client is your boss because they tell you what to do. When you work for a company, you typically have one, maybe two bosses. When you're an entrepreneur, everybody wants to tell you what to do. Your employees will tell you what to do, your clients will tell you what to do, even your vendors will tell you what to do.”

...Part of business success is cost management. We never let expenses get out of line with revenue. The way I explains this is: think of your revenue as an 18-wheeler truck on a highway. It's like a large truck. Then there is another truck right behind it, another 18-wheeler called expenses. Sandwiched between the two 18-wheelers -- revenue and expenses -- is a little Volkswagen called profit. If the revenue truck slows down and the expenses truck doesn't, the Volkswagen gets crushed. If the expenses truck speeds up and the revenue truck doesn't, the Volkswagen gets crushed. I love my Volkswagen. I don't ever want it to get crushed.

...Finally, he says, “Have courage.... It takes a tremendous amount of courage to go into business and it takes a tremendous amount of courage to stay in business. It takes a tremendous amount of courage to stay true to your values because people will challenge them and ask you to compromise them to create a successful business.”

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the Private Equity and Venture Capital ecosystem in India. Click here to learn about Venture Intelligence's products and services for entrepreneurs.

September 18, 2009

Wanted Fools and Angels! - Article by Sanjay Anandaram

Alexander Pope’s 1709 “Essay on Criticism” had these immortal lines “…for fools rush in where angels fear to tread”. He was of course referring to the literary critics of his time and, in his time, implied some one who behaved foolishly rather than referring to a simpleton or someone lacking in intelligence as it does now.

Every entrepreneur, observer, VC, analyst and even bureaucrat will tell you that there’s a severe shortage of true boot-strapping capital. The money required to really start off on the entrepreneurial journey. Friends, family and fools (collectively FFF, rather unfairly but with tongue firmly in cheek) provide the initial emotional and perhaps some monetary support for the budding entrepreneur. It invariably takes more than that to demonstrate the venture is capable of taking off.

Ours is a capital starved country. There’s a huge shortage of investment funds in the country. The shortage is on account of regulation and partly in fact as well. Almost all the money invested by VC funds today is sourced from investors outside the country. This directly and indirectly impacts the size of the fund, profile of fund managers, risk appetites, kinds of deals, time-frame for investments and exits, return expectations and the like.

The venture capitalists would rather fund revenue generating companies with at least $1m to $2m for it to be worth their while and that’s just for the very few. A majority want a company that preferably has a full team, revenues, a working business model, generating cash and is close to profitability, if not already profitable. Of late, a few focused seed stage VC funds have emerged that aim to be the bridge between the FFF and the other VCs. But these are the oddballs. While more seed stage funds will undoubtedly emerge, the truth is that securing early stage funding of between Rs 50L and Rs 2 crore is a serious challenge. Which is what most entrepreneurs are looking for.

That’s where angels tread in. Angels are usually experienced entrepreneurs and successful senior executives who invest their own money (unlike VCs who invest out of an investment pool) in very young companies for reasons other than pure monetary returns. They are excited by the company building process and by the opportunity to learn, wish to mentor, believe in the opportunity, and love the team. They provide valuable business advice, referral networks and, of course with the right angels, credibility. As nature abhors a vacuum, angels have emerged in the last few years. Not surprisingly, this coincided with the success of a few entrepreneurs and companies in the last decade or so. They’ve also formed angel groups like the Indian Angel Network and Mumbai Angels. Organizations like TiE too provide a forum for entrepreneurs and angels to connect with each other. But as with the entire Indian entrepreneurial ecosystem, these are early days and the impact of angels and angel networks is yet to be realized.

According to the UNH Centre for Venture Research and PwC MoneyTree surveys, in the US in 2007 alone, angel capital of $27 billion was invested in 57,000 companies! Contrast this with about $30.6 billion of VC capital invested in 3918 companies in the same year. But even in the US, angel capital while being more readily available is still hard to raise. The Indian Angel Network has 80 odd members, has invested about $3m or so in 18 companies.

Data from Angelsoft suggested that in 2008, there were over 300 angel groups accounting for over 12,000 individuals. These groups syndicate deals amongst themselves and entrepreneurial companies get access to more than one group for raising additional capital.

Clearly, there’s enormous room for more angels to participate and the good news is that with the growth and successful expansion of the Indian economy and companies, more and more educated, experienced and aware potential angels are being created. Forums for these angels need to be created (as they invariably will be) where they can learn, understand, network and partner among each other. The government can pass legislation that makes it attractive for companies and individuals to invest in young companies targeting risky high growth opportunities, that are creating interesting intellectual capital or creating jobs.

It is only with the active participation of a very large number of angels who are passionate about creating successful companies in India will this issue of early stage financing be meaningfully dealt with.

What do you think?

September 03, 2009

Satya Prabhakar on startup hiring and retention

I attended a presentation on entrepreneurship by Satya Prabhakar, Founder & CEO of Sulekha.com, on August 31 at an event organized by TiE-Chennai and the Loyola Institute of Business Administration (LIBA).

I found the points he made on hiring and retention quite interesting.

He suggested entrepreneurs look out for "5Is" for hiring and 'three 4-letter words" for retention.

The "5 Is"

1. Intellect
2. Initiative
3. Industry (ie, Hard work)
4. Integrity
5. Interpersonal Skills

The 3 4-letter words:

1. Work (i.e., its content)
2. Love ("Am I valued and appreciated here?")
3. Hope ("Is this place enroute to something great?")

Entrepreneurs should not allow an employee to settle into a comfort zone and keep setting the bar higher.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the Private Equity and Venture Capital ecosystem in India. Click here to learn about Venture Intelligence's products and services for entrepreneurs.

September 01, 2009

Disclosures and Non-Disclosures - By Sanjay Anandaram

“Here’s a NDA (Non-Disclosure Agreement) – please sign it”, said the entrepreneur. His face fell and he looked almost hurt when I told him that I don’t sign NDAs. It is simply impossible to keep track of the business ideas and plans that get discussed with various entrepreneurs. There are also many ideas and plans that sound and indeed are similar in concept if not in all details. One would open oneself to needless and avoidable complaints about plagiarism and favouritism if NDAs are signed.

So, how does an entrepreneur “protect” his business plan or “idea”?

Every entrepreneur actually believes that his/her business plan is singularly unique and that it will change the world if only capital were made available. While it is important for every entrepreneur to believe in his/her plan, it would be arrogant to assume that no body else has thought about it either.

Most businesses are the types that could be classified as “better, faster, cheaper.” In other words, they take an existing mode of delivering a solution, value-add around this solution by better orchestration of the eco-system, usage of technology and greater operational excellence and deliver “better, faster, cheaper” solutions to existing problems. The real key to their success lies therefore in their ability to relentlessly execute to their plan day after day, acquire customers and be financially viable. There’s little or no real intellectual property in these companies.

On the other hand, there’re a miniscule number of companies that are actually developing fundamentally new business models and technologies that can radically alter existing value propositions to customers. These types of companies tend be staffed by top class technologists and experts from the relevant business domain. Intellectual capital and intellectual property are the bedrock of their existence. Patents are used, among other ways, to fiercely protect their intellectual assets. Even in such scenarios, unless important formulae, critical and unique business processes and crucial algorithms are discussed, NDAs are rarely signed by professional investors.

When one goes to a doctor or a lawyer or a chartered accountant, one doesn’t sign a NDA in spite of discussing deep personal matters. Why? Because there’s a sense of trust and faith and sometimes even helplessness. Their sense of professional ethics prevents them from discussing specifics of a case with anyone else. Similarly, entrepreneurs need to understand that professional investors too have a code of conduct and business ethics that prevents them from discussing specifics of a plan. It is also important for entrepreneurs to have done their home work about the investor and learn how to discuss the details over multiple meetings. In any case, if an entrepreneur believes that the mere disclosure of his/her business plan jeopardizes its prospects, then it is probably too fragile to fund in the first place!

In the case of a public company, the following details are well, public. The capital structure and financials, the valuation, the management team details, the business model, the solutions offered, the kinds and names of key customers, the new strategic initiatives being planned. These companies have to brutally compete in the market where there are rarely any real secrets or at least (short-lived ones).

So why then are private companies so wary about their details? Given that they are private, they are under no obligation to share details; but then even if these details become known, why should it impact the company? After all, investors, key senior employees, key customers and partners will all want to know details of the company to make sure the company is worth partnering with. Details are to be shared with these constituencies and needless and excessive secrecy around the company can only harm it, in today’s day and age. While it is important to keep a healthy buzz around your company, it is important that this buzz be created by happy customers, employees and partners rather than through contrived means.

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

Intellectual Capital - By Sanjay Anandaram

I came across this interesting trivia about the late King of Pop from the “IP Marketing Advisor”: “In the 1988 video of the song Smooth Criminal, the pop star and his dancers leaned forward dramatically, seemingly defying gravity. It turns out Jackson didn’t just invent the move — he eventually patented it. To do what became a signature move in live performances without the help of harnesses and wires, Jackson created a shoe “system” called “Method and Means for Creating Anti-Gravity Illusion.” Granted in 1993 to Jackson and two partners by the U.S. Patent and Trade Office, patent No. 5,255,452 covers a “system for allowing a shoe wearer to lean forwardly beyond his center of gravity by virtue of wearing a specially designed pair of shoes.” A heel slot in the shoes gets hitched to retractable pegs in a stage floor. Wearing the shoes, Jackson (or anyone) could seem to lean past his center of gravity without toppling.

“I’ve used (Jackson’s) patent for years in classes to teach students what they can patent,” says lawyer Gene Quinn of IPWatchdog. Rather than licensing the shoes, Jackson probably sought the patent to keep the effect exclusive, Quinn says. “Just getting a patent may be enough to create marketing buzz in some cases, and he may have achieved that as well.”

There are some interesting points here. One that Michael Jackson a performer and entertainer invented a dance move and that it was patented, that the objective of the patent was to create marketing buzz by promoting exclusivity and that it is important for all to understand the value of an invention. Only then can that invention be monetized successfully.

As we rapidly move into the so-called Knowledge Economy, it is important to understand that information arbitrage can at best provide momentary gains but insights gained from knowledge of a market, process, customers, technology and so on provide long term value. Information arbitrage ceases to lose value when information becomes freely available to all as is happening in today’s world.

So what do startups and entrepreneurs need to do to develop insights?

There are no short-cuts. Insights come from deep and sustained engagement with a market and customers. It means being in conversation with customers, partners, prospects, and sometimes even competitors to understand the problems, opportunities and dynamics of the industry and the business. It means wide reading and talking to experts from industry, research labs and academia about the forces shaping the industry – regulatory, technological, economic and so on. Every entrepreneur in every industry and business needs this kind of awareness to be able to create profitable and sustainable businesses in this economy. Unfortunately, a lot of the entrepreneurs I meet are still hesitant to go out and engage with the outside world. They seem content being in their own company’s silo and view the world from that standpoint. This results in their being unable to see the lay of the land. Many a time, they aren’t even aware of their competitors and what they’re doing, what the sales challenges are, what the hiring and retention issues are, what the customer support expectations are etc. These kinds of entrepreneurs tend to reduce the issue to one of just having adequate money. Money would not solve the problem of ignorance but rather money would be available to those entrepreneurs who can demonstrate their knowledge of the business.

Intellectual capital is not just about filing patents. It is the aggregate intellectual material – knowledge, information, intellectual property, experience – that can be put to use to create wealth in a company.

Here’s an old apocryphal tale that explains the situation. A computer expert billed a company $1,000 for solving an urgent computer problem at a company. The company was livid! How could he charge so much for just 10 minutes of work and for just typing a few lines on the console screen. The computer expert replied “$100 for the 10 minutes of my time and $900 for knowing what to type on the screen to solve the problem”.

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.