Even as the current economic situation hasnt seem to have harmed the Early Stage Investment scene by much, there is some major misunderstanding by First Time Entrepreneurs, starting off in India, who are looking to raise funds. This series hopes to shine some light on some of them

LESSON: MAKE THAT SACRIFICE. GROW WITH THE ORGANIZATION

Scenario: In the last three business plans that I have had the priviledge to look at and to give feedbacks on, it seems that the average entrepreneur wants a salary of around 2 Lakhs a month, seems to be hiring an office attendant or a secretary in the first year, is travelling extensively, starts a marketing budget even before the product is ready, claims a steady income stream, is absolutely immune to market changes, and can solidly break even in 3 years. And oh, they give a 4x return in the fourth year.

You cannot demand a salary that runs in the lakhs. You cant because If I were investing, I wouldn’t know if there is even an incentive for the entrepreneur to slog to make this company succeed anymore. Given the current employment situation, I would even have a slight doubt as to whether the guy lost his job and is getting self-employed with a raise. But I do understand if you would want to live comfortably. This is what I would suggest.

Take a pay cut in the first two years – till your product development is ready. Just so you get a number, You get paid at the same level as your Indian Lead Software Engineer (I have to specific about the indian part, since some folks also have high paid outsourced engineers). That should put you at around 40K a month. Once that is set, and once your product development is done, and your marketing and sales efforts start, align your salary so that a base of 40K and a incentive component from the sales defines what your take home package is. That will assure me as an investor that you are willing to take a paycut to keep costs low and burn things slowly to get through the initial phases and even as the company makes money you arent raising costs, but defining your salary from what is coming in. If you are a company that sells products that sells in the millions, or have several product packages, it would be wise to even define slabs, that define the percentage.

You do that, and all of a sudden I see a real entrepreneur, who could really use with some financial support, and the halo over the head glows and a lot more people just might be willing to seriously consider your financial proposition.

I often wonder to myself what is the hardest part in running a startup. I think back at my own days, and even at the present, analyzing the market, building the product, doing the test, finding a few initial trial clients, getting a mentor, finding one or two folks to help out, and even getting funded is fairly do-able. One of the hardest aspects of running a startup is in the art of selling. When you are a startup, when no one has ever heard let alone know you, and you are fighting every inch of compelling reason as to why you shouldnt just start customizing your products to everyone’s wits and whim and eventually become a service organization, it eventually does get to you.

Perhaps thats the reason most startups feel compelled to go after funding. You get funded, and you have a high chance of getting profiled on Contentsutra, covered by the other usual suspects like VC Circle and Venture Intelligence, which might lead to an article or two on the economic times – and heck, you might even be techcrunched.

Perhaps all this visibility, gives that illusion of discovery. And raises the hopes that selling will become easier.

It actually doesnt, by much actually. At times it even makes it worse by putting too much pressure and expectations on the founders.

Here are a couple of tips to get your started:

1. Building a Brand, and especially a following is a continuous excercise. Not a one time one.

2. Engage with your audience, and use a tone of familiarity and respect.

3. Ensure that responding back to queries is in the highest order of things, even if its not a relevant query.

4. Frame a message that is easy to convey. Dont confuse your audience with complicated novels as to what is it that you do, build or sell.

5. Keep your communication channels Personal. Not Info@blah.com. Use Name@company.com instead. Accesibility is an attraction in this layered, complicated world.

6. If you haven’t already, start a blog. Now!

7. There are a gazillion social media tools available to build a brand, a community, and the referral network to create impressions. Use and exploit them.

8. When the time is right, hire a PR Professional.

9. Attend Local barcamps, MoMos, and entrepreneur meets, as well as tech meets, and if given a chance do leap at the opportunity to share.

10. Visit universities and colleges, and the entrepreneurship cells. It’s a fabulous way to build a group of influencers for your brand.

11. Have an active social life. When your company is small, you are your company’s brand ambassador. No one wants to use anything that a dead-zombie-walking, has to offer.

12. Read, and comment on blogs, not just within your circle, but expand to what and where things are not the same old. Different does not mean wrong – could actually mean insights.

13. Keep a close eye on campaigns that youth organizations launch. Replicate such things on a smaller scale to grow visibility.

14. Once a year make it to a trade conference. Pick which one that is going to be. Start a six month campaign beforehand, get to know who all are going to be there, and build relationships towards that. Next year, focus on a region where there would be a fresh set of guys.

15. Leverage your mentors and their contacts.

16. Be nice to folks from the media, and bloggers. Not fake nice, but respect.

17. If you are selling to enterprise customers, run in circles where you can grow your influence. NASSCOM, TiE are sample corridors to be in.

18. Don’t sell, but create an awareness. It takes almost six pitches before someone actually makes a decision to buy. Pitch, without pitching. In this nagging world where everyone is almost a salesguy, be the marketer for once, and create your differentiation. Let them come to you and ask, if they could setup a meeting sometime to discuss.

19. Following up on 19. If you have been a salesguy all your life, people are going to avoid you like that insurance selling cousin of yours. Thats when you know you should stop doing what you are doing.

20. Promise and Deliver. Satisfaction = reality – expectations. Set the expectations right, and always over-deliver on what you promise. In this world of hype, people will stand up and notice you for your deliverables.

21. Constantly ensure that you listen to the feedbacks that you receive, do analyze them, validate them, set your pricing strategies updated and evolve in time. Keep this as an active process.

More to Follow.

I figure that in an ecosystem, there are three types of corporations – according to scale. There are the startups, there are the SMEs and then there are the Multi-National Corporations. There are also the government bodies, but let’s stick to the private sector and these are the three categories we have. Each of them are categorized into their respective slot because of their size, their headcount, the revenue they generate and the size of the market they possess.

It’s quite important to remember the revenue and market size, because technically a product-centric company is much smaller in size compared to its service-centric counterpart. I’d guesstimate the headcount to be roughly 1/10th of a service-focused company (although initially the core team would more or less be the same), and the revenue and the market they possess will be what will propel them into the big league (graduating them to the next step). Case in Point: Skype was a less than 30 people team (27 if I am correct) till they had 6 million users and a year before they were acquired. Another example would be the team behind Craigslist. I have written about this before, so will stay away from it for now.

Coming back to the question, this is my dilemma. I have someone who is a two member team, bootstrapping and whipping out a prototype and calling themselves a startup. Then I have a seven year old company with 24 clients, about 250,000$ in annual revenue and about 30 employees calling themselves a startup. Do you see the problem here?

To start with I am terribly confused and my only reaction is a prolonged “Okayyy.” The second issue is in the definition. It’s almost the same reaction I’d give if a grown up shows up in pampers and claims to be five years old. Yep, you get the idea.

Lets start from the beginning. A Startup usually has three different phases.

There is the ideation phase, where you conceptualize something based on the market assessment, need and demand, and put down a concept note. Phase one is over.

The second phase is the validation phase, where you build a prototype and throw it out into the open and see how people react. You might do the pilot run within a few circles of “beta testers”, get their feedback, incorporate it and voila the first prototype is done. If you can get a trial customer onboard during this phase, there’s nothing like it and its much recommended. With that, phase two is out of the window. This is the time to start working on a business plan, but I would assume that this would have no costings regarding scalability it, since you wouldn’t honestly know. Start with the costing of a pilot and use the “concept note” as the first draft to work from.

Phase three is the market traction stage where you want to go out, and cash-in on that demand that you assessed in step one. If your second phase was taking too long, there is a good chance that this window had already closed. In that case, its gonna be too bad for you, because you “might” have to go back to the drawing board. The other option is to call it quits because you cant even think of a need/demand which exists long enough for it to get developed, let alone holding the market position for long. But yep, the sensible option is to go back to the drawing board and think of a pain point that is going to be there for some more time.

Assume you cross that step, you move into the market traction stage, get clients, grow your business, incentivize your team properly, bring up your company and team out of “bootstrapping” mode, and start plotting your roadmap towards scalability. This is where your business plan gets complete – I mean the business plan which actually reflects what your company does. After that is done, is when you sit down with a Venture Capitalist. Until such time, you have no business wasting his/her time. Quite frankly, its too early to be wasting anybody’s time.

Who are they?
The three phases of a startup can and should be covered in 18 months. Unless you are a company that is doing something which is as disruptive as the Nokia Morph, you are out of excuses here. In 18 months just about anyone can tell you whether this is going somewhere or not. If it has taken longer than that and you are playing a serious game of Khokho between the poles of the last two phases, it is a possibility that you might not make it and it might be better to call it quits and start again. Just a thought that you might want to keep in mind.

Why Now?
Now why am I stirring up this issue when the whole world ..er country seems to be okay with it. The issue is that depending on which stage you are in, the needs of the company varies. The kind of ecosystem that the team needs around it are very different and when everyone calls themselves a startup, it becomes a nightmare to plan and co-ordinate. Let me give you an example. The very case of our Startup Talent Program. Depending on which phase of the startup you are at, the needs vary. If its for the concept stage or for the prototype stage, you need thinkers and hands on programmers who can really push the limits of things. You certainly don’t want freshers in the camp then. But when you are scaling out and customer care and bug-fixing and issues start coming up, then the team that you get in could be managed with a smart candidate who can be quickly trained on the job. I am sure you see the difference. The same goes for the mentors, the auditors, the accountants, the lawyers, and for every element of the team as to how they need to step up.

The Rules of the Game:
With this in mind, here are some hints to figure out your positioning:

• If you are more than 18-24 months old, I am sorry, but you are not a startup anymore. You are either an SME (Small and Medium Enterprise) or you are a startup on its deathbed. I hope its the former.
• If you have received funding, you are not a startup anymore. You are poised and set for growth, and thats the mandate and lifeblood of the SME crowd. Go live up to your calling!
• If you are breaking even, have clients, and have atleast one product out in the market, you are not a startup anymore. You are an SME. Figure out how to diversify and sink your nails deeper into that market and this is the ideal time to bring in strategic advisors.
• If you have started to define your roles by using all the corporate titles like CEO, CFO, COO, CTO etc, then there’s a good chance that you are already an SME. If you aren’t chuck those fancy titles out of the window and get back to work. It’s enough to know what you are responsible for when you are a startup. Defer your pleasures for when it comes with the monetary returns.
• If you have atleast one additional member join the senior management team, to get structure in place and to grow the company. Yep, you are definitely out of the Startup phase and out into the SME phase.

It is very important to do this self-assessment, because I am coming across a lot of companies that are sorta in a rut. And that sensation takes over only when you don’t know where you belong. It’s nice to be an SME and still stick around with the startup crowd and feel happy about your performance, because you are quite honestly competing with kid who barely knows how to walk, when you should be racing with cheetahs. Going back to the rule of Alcoholics Anonymous, the first step to recovery is to acknowledge it, and it all begins with the thought of “Who you are, Where you are and where you need to be right now?”

So tell me, What are you? A startup or an SME? Drop me a note if you need help figuring that out.

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Coming Up Next:

How do you plan your strategy and roadmap depending on the potential and exit options of your startup?

Credit: Startup Cycle from BeyondVC

Not Me. Not yet

It was nice to catch up with some of my old contacts in Winterland Canada and what they were upto. I think I kinda hit the realization as to how many serial entrepreneurs there are out there (especially since a close friend who is 46 is starting off on his fifth new venture), and here in India for some reason after the first breakthrough, most entrepreneurs are retiring towards investments and turning into venture capitalists.

Not that any of it is a bad thing, but I was just wondering on the stark difference.