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.

August 02, 2014

Startup Hiring on a "Attitude vs Effectiveness" Matrix View

From the wow post by Srikrishna of NEN

...Quadrant 4 – Don’t have the right attitude but are effective This is the hardest group to deal with. The obnoxious sales person my friend had to deal with, the supercilious technologist or rude finance guy we met all fall into this quadrant. Two things make it difficult to effect change with these folks -
- they are deemed successful and have been rewarded in the past, despite their interpersonal shortcomings.

- they are often positions deemed critical, that make change not just unpalatable but downright scary. “What’ll happen to my sales, if this guy leaves?” or “Will I find another trusthworthy finance guy?”
...Organizations suffer the most, because most of us don’t know how best to handle Quadrant 4 folks. The first step is to recognize not only the existence of these four quadrants but that people can move within the quadrants. 

...I’ve found talking about the four quadrants and even mutually agreeing with your team members where they see themselves and where their peers or you see them helps immensely. This way when it is time to have the hard conversation, you both have a framework and vocabulary that can help keep the conversation professional.
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.

May 13, 2014

The Highly Effective "Dear CEO, Please connect me to the appropriate person" Cold Email

Extract from a Mixergy Masterclass titled "How to use cold emails to make sales – with Bryan Kreuzberger" (emphasis mine):

..how do you find the decision maker and get them to hear you out?

Use the Waterfall Technique 

Go directly to the top.

When Bryan wanted to pitch Best Buy, he wrote separate emails to the director of marketing, the VP of marketing, the CMO, and the CEO. “I know the CEO of Best Buy isn’t the right person for me to talk to,” says Bryan. “But I can put together an email that is crafted from [their] perspective. They’ll just delegate it. And now [the person the CEO delegates to] has to take my meeting.”

Bryan says this technique uses the company’s hierarchy to your advantage. The request is coming down from the CEO to the manager, much like water flows down a waterfall. And if the CEO asks an employee to do something, they have to do it. In the case of Best Buy, the VP of marketing emailed Bryan back, asking him to present to six executives, who he says he never could’ve found on his own.  

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.

May 05, 2014

"Customers speak the truth through their wallets"

From a Mixergy Masterclass with Mike Michalowicz on how to specialize, fire bad customers and systematize your B2B business.
“If you have more than four or five competitors, [your offering is] way too broad,” says Mike. “You can be a heart surgeon or you can be a general practitioner.

...Let your customers decide on your specialty . “I believe people speak the truth through their wallets,” says Mike. “What I care about is the ones who spend and buy from you repeatedly, the ones that generate the most revenue and pay the quickest and show you through their actions that they truly value you.” Once you’ve identified those customers, get inside their heads. “You need to understand their market as best as you can, perhaps even better than they understand their own industry, and then cater to it.”  

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.

April 27, 2014

To the Employee: 8 Things Your Boss Wants To Tell You

Extracts from a
blog post by AnnMaria of The Julia Group (emphasis mine).
1. Show up when you are supposed to show up. ...The point is that if I say I will be in Fort Totten, North Dakota at 10 a.m. on April 10th, if you come into the office at that time, you should find me there. Reliable competence is worth more than unreliable brilliance. I can make promises to a customer based on reliable competence and know that those promises will be kept. ...
4. Don’t just do the bare minimum! Most jobs offer a great opportunity for people to LEARN and unlike college, they actually pay you to do it. What a deal! At The Julia Group, you can learn how to do everything from complex statistical calculations to use the video editing software. Specifics may vary from one job to the next, but the more you learn, the more valuable you are to us and the better it is for your future. Don’t just do only what you are specifically asked and then sit on your hands. Suggest something! Ask questions! Explore! There are a ton of resources for learning about your job – an internal wiki, the internet, books. There is no excuse for anyone ever to be just sitting around doing nothing.

...8... there is a point beyond which it is not worth the pain in the ass of putting up with you.

If you take all of these 8 points to heart and mend your ways, before you know it, you will be the boss and God will prove he has a sense of humor by giving you employees exactly like you were.

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.

April 23, 2014

Financials 101 for Startups - Revenue Growth Vs Profitability

Came across this old post by US-based venture capitalist Mark Suster on the topic via a recent guest post by Amit Sharma in NextBigWhat. Uses comparative examples to help understand Gross Margin / Net Revenues, Price/Revenue Growth, Cash Flow vs P&L Profitability, etc. 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.

April 08, 2014

"There are No Failed Entrepreneurs. Only Failed Wanta-preneurs."

Mukund Mohan of Microsoft Ventures has a wow blog post on why illustrated with a couple of examples of startups from the firm's accelerator:
For every two of these entrepreneurs, there are 100′s I know whose story did not end up with funding. It ended with a company that closed, or a marriage that fell apart and a kid that had to go to a tier 2 college, because they had spent a lot of their life’s savings in their startup. To them as well, I say “you tried, and did not succeed, but you did not fail”. Those who “failed” are the ones who did not try at all. The ones who failed are the ones in a safe job, 9-5 assignments who keep telling me “they want to start a company some day”.

I think we should have entrepreneurs that succeeded and those that did not succeed. I liken it to giving the gold for the successful ones and silver to the unsuccessful ones. The ones watching on the sidelines and commenting are the ones that “failed”.
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.

April 01, 2014

External environmental challenges faced by startups in India

Entrepreneurs like Sanjiv Bikhchandani of Naukri, Murugavel Janakiraman of Matrimony, the Bansals of Flipkart;  VSS Mani  of Justdial, etc. deserve massive admiration. What they have achieved is more like conquering Everest. Good to know that once they have climbed the peak, thee environment also helps protect "their" turf. From a blog post by Dev Khare of Lightspeed Ventures (emphasis mine):

Many of India's successful startups have navigated a maze of challenges, creating leading brands and sustaining for long periods of time.  Correspondingly, it is much harder in India, relative to the US/Europe, for competition to unseat leading brands.
...Startups need large markets (Rs 2500cr+ or $500 million+) to get large and succeed.  This is hard to find in India, perhaps due to early consumer demand, unorganized markets, regional differences or foreign substitutes.  For example, digital advertising is a roughly $400 million annual business here, with mobile at 10% of that. To access and maintain growth, almost every new startup here needs to increase their focus on creating and evangelizing their category versus just focusing on their own startup's growth.

Some examples of overcoming this challenge include:
  • spending large amounts of capital to create a category (eg ecommerce, OTA, wireless telecom).
  • expanding into adjacent markets (eg Info Edge, which expanded from jobs into matrimonials, real-estate, education etc.).
  • building or piloting in India and transplanting to the US (eg Zoho)
  • aggregating several emerging markets outside India, perhaps before proceeding to Western Europe and the US (eg InMobi, iFlex, Subex).
  • attacking a large spend base (eg Micromax for hardware, Cafe Coffee Day for coffee/tea/snacks, BillDesk for bill payment).
...Many brands in India are created from execution reliability at scale rather than product differentiation.  Brands  in India are disproportionately more valuable as they represent a trusted provider of products or services - think about the enduring value of the Tata brand in multiple unrelated categories.  As one consequence, I believe more startups should think about brand-building here in India relative to if they were in the US

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.

March 31, 2014

Why You will Never Ever Hire a "B Player" Again

Was wowed by this powerful quote I'd heard yesterday: "You are the average of the five people that you spend the most time with." (It's attributed to Jim Rohn.)

It seemed to be much more powerful than the famous Silicon Valley mantra of "A Players hire A Players; B Players hire C Players."

Since for most working professionals (and especially so for entrepreneurs) almost all the 5 people (that we spend the most time with) are likely to be co-workers, why would we ever hire a "B Player" again?

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.

February 06, 2014

Gururaj Deshpande's Dash of Hope for Desh

Was wowed by Deshpande's simple yet powerful speech and interaction at the TiE Chennai organized event on February 5. Amazing how someone who's been living in Boston for 30 years is so much in touch with the grassroots issues in even small town India - and more importantly able to come up with practical solutions to them.

My top takeaways from the many that he provided:

India's Creme-De-la-creme is Taking Charge

2% of Indians are Globally Competitive. And the cream of this segment is now applying its intellectual and financial resources to tackle some of key problems of the bottom of the pyramid. The advantage that we enjoy, as compared to say China, is that citizens here enjoy the freedom to take action (and, as required, also partner with the state) to deliver these basic services.

The Govt should have an M&A arm to acquire NGOs!

Just like how big corporations (especially in developed countries) keep a keen watch on the innovation experiments being made by venture capital-backed startups and acquire the successful ones (to bring innovation capabilities into their fold), the Indian Government too should watch the various experiments being carried out in the NGO sphere in various parts of the country and acquire the successful ones and help scale them nationally!

Size (of company) no bar for being a mentor

Even an entrepreneur whose company's turnover might be just Rs.1/2 crores is a "big guy" - and hence qualified to be a mentor - to an entrepreneur running a much smaller business (for example one which is dependent on day-to-day cash flow). The former can teach the latter basics of accounting, management, etc. Teaching itself is a great form of learning and hence provides ROI to the mentor! Super stuff.

Thanks Desh!  

PS: D.Murali has put up the video recording of the event on Youtube here.

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 22, 2014

Thumb Rules for Tech Pay Scales

From Mukund Mohan's
post
There are 3 primary parameters I have seen used when people hire folks to determine their salary. 1. Experience – usually measured in # of years working on relevant and related technologies. A rule of thumb I have seen is 1.2 to 1.5 times the number of years of experience + starting salary of a fresh graduate at 2L ($3K) per year to 6L ($10K) per year. For example, if you are looking to hire a developer with 5 years of experience, then you will pay 5 years times 1.2 plus 2L per year if you are a startup that’s not funded. 2. Type of technology – The more arcane the technology the more you can expect to pay for it. For example, you can expect to pay much less for a person who knows PHP and more for someone who knows Android app dev or Ruby on Rails. Some common technologies and your base times multiple is below. I am assuming php developer is the base at Rs. 1. All others are multiple of what you’d pay the php developer. I dont mean this to think of php developers as bottom of the pool, but that’s the most prevalent skill, so the supply of engineers is more than the demand, making it a skill that’s easiest to hire and least expensive as well. ...3. Stage of company. Generally a company, which is bootstrapped pays less and one that is funded pays more. Larger the company, the more you are likely to pay, If the unfunded company pays INR 1, then I have seen number of upto 2.3 times that being paid by larger technology companies.
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.